Vijay Kumar Gaba vs Sebi

DATE : 26.07.2016

Appeal No. 420 of 2015

Vijay Kumar Gaba A1/704, Sunny Valley Apartment, Sector 12, Plot No. 27, Dwarka, New Delhi - 110 075. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No.C-4A, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

Mr. Ankit Lohia, Advocate with Ms. Harshada Nagare, Advocate i/b Joby Mathew for the Appellant. Mr. Kumar Desai, Advocate with Mr. Tomu Francis, Ms. Bhavya Bhandari, Advocates for the Respondent.

CORAM : Justice J. P. Devadhar, Presiding Officer Jog Singh, Member Dr. C. K. G. Nair, Member

Per : Jog Singh (Oral)

1.

The appellant has preferred the present appeal against impugned order

dated July 15, 2015 by which he has been restrained from making any

application to Securities and Exchange Board of India ("SEBI" for short)

for registration to provide Portfolio Management Services or Investment

Advisory Services or any other activities connected with the securities

market requiring registration. Restraint has been provided for a period of

one year.

2

2. It is seen from the pleadings that a complaint was received on June

22, 2014 from Mr. Madan Mohan Sharma against the appellant and M/s.

Master Capital Services Ltd. ("MCSL" for short). It is to be noted that the

respondent had received certain complaints in 2012 and 2013 also against

the appellant and MCSL from Mr. Sharma and the same were analyzed by

the Market Intermediaries Regulation and Supervision Department

(MIRSD) of SEBI. However, no violation of broker related regulations

could be established against the appellant or MCSL. Subsequently, the

aforementioned complaint received from Mr. Sharma was forwarded to the

Investment Management Department (IMD) of SEBI for investigation

relating to violation of the PMS Regulations by the appellant and pursuant

thereto the present impugned order dated July 15, 2015 has been passed by

the respondent.

3. The learned counsel for the appellant Shri Ankit Lohia, who

appeared with Ms. Harshada Nagare, has argued that the appellant is a

professional and is a Chartered Accountant by qualification. He had

worked as Research Analyst with DSP Merill Lynch Ltd. for almost five

years from 2007 to 2012. The appellant submits that he had never offered

any portfolio management services to anyone and that he did not receive

any fund or securities from anyone for dealing in such alleged portfolio

management services. It is further submitted that although the appellant is

registered with AMFI as mutual fund distributor but has not undertaken any

activity, in this regard, till date. The appellant specifically submits that he

had never entered into a contract or agreement with Shri Madan Mohan

Sharma, the complainant before SEBI for providing any service in respect

of portfolio of securities or funds which might have been held by

Mr. Sharma. The appellant submits that he had never managed or 3

administered any of the portfolios of Shri Sharma who had never given any

power of attorney or any account of authority to the appellant in this regard.

4. It is submitted by Shri Ankit Lohia that there is no finding in the

impugned order based on evidence that the nature of activities performed

by the appellant amounted to investment advice to Mr. Sharma relating to

his portfolio during the period from July 2006 to September 2006. There

was no agreement to this effect and hence it would not fall within the

provisions of Securities and Exchange board of India (Portfolio Managers)

Regulations, 1993 ("PMS Regulations" for short). It is submitted that the

finding against the appellant is cryptic and has been arrived at even without

analyzing the documents submitted by Mr. Sharma alongwith his complaint

and, therefore, the same cannot be sustained. It was one of the submissions

of the appellant before the WTM that the appellant had provided

investment advice to Mr. Sharma relating to his portfolio in July 2006, the

same would, at the most, fall within the provisions of Securities and

Exchange Board of India (Investment Advisor) Regulations, 2013 which

were never in existence in the year 2006.

5. It is also argued by the learned counsel for the appellant that

provisions of Sections 11(1), 11(4) and 11B are remedial in nature and

could not have been invoked for passing an ex-parte ad-interim order on

January 14, 2015 without hearing the appellant and that too lapse of eight

years from the cause of action, if any. This ex-parte ad-interim order

finally got merged into the impugned order dated July 15, 2015.

6. Per contra, the case of the respondent is that the appellant has been

undertaking portfolio management services without getting registration

from SEBI as required by provisions of PMS Regulations. A complaint 4

was received from one Mr. Madan Mohan Sharma. The appellant was

conducting himself as portfolio manager in violation of Regulation 3 of

PMS Regulations read with Section 12 of the Securities and Exchange

Board of India Act, 1992.

7. Learned counsel Shri Kumar Desai with Mr. Tomu Francis, Ms.

Bhavya Bhandari, learned counsel for the respondent has submitted that on

receipt of complaint, the case of the appellant was examined by SEBI on

the basis of material available on record and an ex-parte ad-interim order

was passed on January 14, 2015 against the appellant directing the

appellant to cease and desist from acting as a portfolio manager and not to

solicit or undertake such activity or any other activities in the securities

market, directly or indirectly, in any manner whatsoever; and not to diver

any funds raised from any of its existing clients / investors.

8. Further the said ex-parte ad-interim order was treated as a show cause

notice and appellant was called upon to furnish his reply within 21 days

from the date of receipt of the said ex-parte ad-interim order. It is

submitted on behalf of the respondent that an opportunity of hearing was

also given to the appellant and present impugned order was passed

thereafter only.

9. We have heard both the learned counsel for the parties at length and

have perused the pleadings and material brought before us.

10. At the outset, it is relevant to note that the appellant has already

undergone the restraint imposed the impugned order, the appeal has

become infructuous. However, counsel for the appellant submits that in the

present case, since the WTM of SEBI has proceeded on an erroneous 5

assumption that the appellant had admitted to have been rendering advisory

services and has failed to consider the material evidence produced, it would

be necessary to hear the matter on merits, even though the appellant has

already suffered the restraint imposed under the impugned order.

11. A perusal of the impugned order at the outset reveals that the learned

WTM has not considered the documents submitted by Mr. Sharma with his

complaint, or any material / evidence to arrive at the finding that the

appellant had indulged in offering unregistered portfolio management

services in the year 2006. When the appellant had contended that he was

rendering some services to the clients but the said services were not

covered under the PMS Regulations, the WTM could not have proceeded

on the footing that the appellant had admitted to have been rendering

services under the PMS Regulations and could not have refused to consider

the material evidence produced by the appellant. Thus, the WTM has

failed to analyze the nature of activities being performed by the appellant in

the year 2006, particularly between July - September 2006, to bring them

within the purview of PMS Regulations, 1993.

12. In the circumstances, we have no option but to quash the impugned

order and send the matter back to learned WTM for a fresh look.

Accordingly, the impugned order dated July 15, 2015 is quashed and set

aside and the matter is restored to the file of learned WTM with a direction

to reconsider it in the light of submissions made by the parties and

documents already on record or which may be brought on record by them

any other reliable and convincing evidence during the course of fresh

hearing in accordance with law and pass an appropriate order within a 6

period of four months from today. We make it clear that all the contentions

and submissions made by the parties are kept open.

13. The appeal is, accordingly, allowed in the above terms with no order

as to costs.

Sd/-

Justice J. P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C. K. G. Nair Member 26.07.2016 Prepared & Compared by PTM