Profitmart Securities Pvt. Ltd. vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision : 19.07.2022 Misc. Application No. 678 of 2022 And Misc. Application No. 679 of 2022 And Misc. Application No. 680 of 2022 And Appeal No. 403 of 2022 Profitmart Securities Pvt. Ltd. Unit No. 213, Opal Square, Plot No. C-1, Thane (East), Thane - 400 604. ....Appellant Versus National Stock Exchange of India Ltd. Exchange Plaza, Block G, C 1, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent Mr. Somasekhar Sundaresan, Advocate with Mr. Robin Shah, Advocate i/b Bodhi Legal for the Appellant. Mr. Zal Andhyarujina, Senior Advocate with Mr. Rashid Boatwalla, Mr. Juan D'Souza, Ms. Samiksha Rajput, Advocates i/b MKA & Co. for the Respondent. CORAM : Justice Tarun Agarwala, Presiding Officer Justice M. T. Joshi, Judicial Member Ms. Meera Swarup, Technical Member 2 Per : Justice Tarun Agarwala, Presiding Officer (Oral) 1. The appellant is a trading member registered with National Stock Exchange of India Ltd. (hereinafter referred to as 'NSE'). Pursuant to a regular inspection of the appellant's books of accounts for the period September 1, 2020 to August 31, 2021, a show cause notice dated May 9, 2022 was issued for non-compliance of various regulatory provisions.

One of the charges was that on a sample scrutiny, the appellant had paid a fixed sum to 8 out of the 25 clients and thereby indulged in providing regular fixed pay-outs to its clients. 2. On a further scrutiny of the records, a second show cause notice dated June 14, 2022 was issued alleging that the appellant had failed to report the inspection of authorised person and that one of the appellants authorised person, namely, Incofina Consultants LLP (hereinafter referred to as 'Incofina') was engaged in the activity of collecting money from clients / investors for schemes and promising assured return to the clients / investors which the appellant had failed to report. 3. The appellant submitted a reply to the first show cause notice on June 7, 2022, but failed to file any reply to the show cause notice dated June 14, 2022 at the time when the matter was considered by the Committee on June 27, 2022. 4. The Committee after considering the submissions of the appellant and after considering the material evidence of record found that the explanation given by the appellant regarding fixed payments to its clients was not satisfactory and, in the absence of any reply being filed with regard to the assured return being given by one of the authorised person of the appellant, namely Incofina, the Committee passed an ad-interim order directing the appellant to file a reply to the show cause notice dated June 14, 2022 within seven days and, in the meantime, prohibited the appellant from registering new clients and from registering new authorised persons.

5. The appellant being aggrieved by the aforesaid directions have filed the present appeal. 6. We have heard Mr. Somasekhar Sundaresan, the learned counsel with Mr. Robin Shah, the learned counsel for the appellant and Mr. Zal Andhyarujina, the learned senior counsel with Mr. Rashid Boatwalla, Mr. 4 Juan D'Souza, Ms. Samiksha Rajput, the learned counsel for the respondent. 7. The sole contention of the learned counsel for the appellant is that the interim order prohibiting the appellant from registering new clients and further prohibiting from registering new authorised persons was arbitrary, harsh and excessive. No finding has been given as to how the authorised person Incofina was engaged in assured return scheme. 8. Having heard the learned counsel for the parties, we are of the opinion that the charge against the authorised person was collecting money from clients for promising assured returns which is a serious charge. Prima-facie proof given by the respondent was the advertisement carried out by the said authorised person for which no cogent reply was given by the appellant at the time when the matter was considered.

Thus, at this stage, we are of the opinion that the respondent was justified in passing an interim order. 9. We also find that the respondent has filed a reply dated July 13, 2022 to the show cause notice dated June 14, 2022. We accordingly are not inclined to interfere in the impugned order at this stage and 5 dispose of the appeal with a direction to the committee to pass a final order after giving an opportunity of hearing. In this regard, the Committee will hear the appellant on July 25, 2022 and the order would be passed by the Committee within two weeks thereafter. 10. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges. Justice Tarun Agarwala Presiding Officer Justice M. T. Joshi Judicial Member Ms. Meera Swarup RAJALA Digitally signed by Technical Member 19.07.2022 KSHMI RAJALAKSHMI H NAIR H NAIR Date: 2022.07.21 PTM 14:29:43 +05'30'