Vijay Kumar Gaba vs Sebi

Date of Hearing : 18.03.2019 Date of Decision : 29.03.2019

Appeal No. 25 of 2017 Vijay Kumar Gaba A-104, Durga Puja Apartment, Sector 13, Plot No. 8, Dwarka, New Delhi - 110075. ..... 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. Vinay Chauhan, Advocate with Mr. Ramesh Gogawat, Advocate i/b Joby Mathew & Associates for the Appellant. Mr. Mustafa Doctor, Senior Advocate with Mr. Vivek Shah, Advocate for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C. K. G. Nair, Member Justice M. T. Joshi, Judicial Member

Per : Justice M. T. Joshi, Judicial Member

1.

Aggrieved by the order of the Whole Time Member

(hereinafter referred to as 'WTM') of Securities and Exchange Board

of India (hereinafter referred to as 'SEBI') in Adjudication Order No.

WTM/RKA/EFD/176/2016 dated October 28, 2016 directing the

appellant to cease and desist from acting as a portfolio manager and

not to solicit or undertake such activity or any other activity in the 2

securities market, directly or indirectly, for a period of one year and

also not to divert any fund raised from any investors, the present

appeal is filed.

Various allegations were made against the appellant by one

Mr. Madan Mohan Sharma to the effect that the present appellant has

duped Mr. Sharma to the tune of Rs. 6.60 crores by promising to

invest the said amount in securities with a promise that he would give

30% return on the principal amount. However, thereafter nothing

was repaid. In these circumstances, various complaints had been

filed with Police etc. The appellant denied these facts. The criminal

case as well as arbitration proceeding arisen between the parties

ended in favour of the appellant.

2. Out of these disputed facts, the present appellant has however,

admitted before the WTM that he has accepted an amount of Rs.

3,15,000/- on gratuitous basis as he has provided advisory services to

Mr. Sharma during July 2006 to September 2006. In the view of the

WTM, this was an admission that the present appellant had indulged

into "portfolio managerial services" and the amount received by him

cannot be termed as gratuitous but as fees. In these circumstances,

finding that the appellant has rendered services in the nature of a

portfolio manager without registration as required under Section

12(1) of the SEBI Act the impugned order was passed. 3

3. Learned counsel for the appellant Shri Vinay Chauhan took us

through the definition of portfolio manager as contained in

Regulation 2(cb) of Securities and Exchange Board of India

(Portfolio Managers) Regulations, 1993 which reads as under :-

"2(cb). "portfolio manager" means any person who pursuant to a contract or arrangement with a client, advises or directs or undertakes on behalf of the client (whether as a discretionary portfolio manager or otherwise) the management or administration of a portfolio of securities or the funds of the client, as the case may be."

4. He submits that the appellant has never rendered any services

for fees. It was a gratuitous payment made by Mr. Sharma to the

appellant. In the alternative, he submits that even financial advisory

services rendered for a fee would not come within the definition of

portfolio manager. In fact, such type of services required registration

only after the regulations to that effect came into existence in the

year 2013. In the circumstances, he submitted that the impugned

order needs to be quashed and set aside.

5. On the other hand, the learned counsel for the respondent

submitted that the interpretation of definition of portfolio manager as

detailed (supra) would show that even an advice regarding fund

would come within the portfolio managerial services and, therefore,

in view of the admission that advisory services were rendered by the

appellant to Mr. Sharma and an amount was paid to him, theory 4

putforth by the appellant that it was gratuitous cannot be accepted.

He has, therefore, submitted that the appeal be dismissed.

6. Upon hearing both the sides, in our opinion, the appeal is

required to be allowed and the impugned order needs to be quashed

for the following reasons :-

REASONS

1. The definition of portfolio manager would show that when

there is a contract between two persons to advise or direct or

undertake on behalf of the other party management or

administration of a portfolio of securities or the funds the

first party can be called as portfolio manager.

2. In the present case, though we find that there was element

of rendering some advisory services by the appellant to Mr.

Sharma, the management or administration of the portfolio

of securities or the management or administration of the

fund was not at all involved. Mere advice by a person to

another, may be regarding securities or a fund cannot clothe

said advisor as portfolio manager.

3. In Financial world, portfolio management is understood as a

discretionary portfolio management or non-discretionary

portfolio management. So far as non-discretionary portfolio

management is concerned the manager cannot himself

undertake to invest or take decision regarding the portfolio. 5

He / she has to counsel the investors first. So far as the

discretionary portfolio management is concerned the

portfolio manager is given full leeway to make decisions for

the investor. Thus, mere advice itself regarding any

investment would not be enough to bring any person within

the clutches of the definition of portfolio manager.

4. It is to be noted that in the year 2013, SEBI came with

independent regulations called as Securities and Exchange

Board of India (Investment Advisers) Regulations, 2013

whereunder certain norms are fixed for investment advisors,

inter-alia, requiring them to be registered. However, during

the present period in question no such regulations were in

existence.

7. For all these reasons, the order of the WTM cannot be

sustained. In the result, the appeal is hereby allowed with no order as

to costs. The impugned directions of the WTM are hereby set aside.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 29.03.2019 Prepared & Compared by PTM