Order – getcommoditytips.com

QJA/VS/NRO/NRO/22624/2022-23

BEFORE SECURITIES AND EXCHANGE BOARD OF INDIA

FINAL ORDER  

UNDER SECTIONS 11(1), 11(4), 11B (1), 11(4A) and 11B (2) OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992   

In respect of:    

In the matter of Unregistered Investment Advisory by www.getcommoditytips.com.

BACKGROUND:

1. Securities and Exchange Board of India (“SEBI”) received a complaint vide emails dated August 17, 2020 and August 25, 2020 from one complainant, alleging that Mr. Kamaljeet Singh (hereinafter referred to as “Noticee 1”) operates a website in the name of “www.getcommoditytips.com” in order to trap clients with false assurances of handsome returns.

2. Based on the complaint received, SEBI conducted an examination into the affairs of “getcommoditytips.com” and found that Noticee no. 1 and Mr. Navneet Singh (hereinafter referred to as “Noticee no. 2”) (collectively referred to as “the Noticees”) were carrying out unregistered investment advisory activities. During the course of examination, Noticee no. 1 [vide SEBI’s letter and email dated September 29, 2020, emails dated October 12, 2020 and November 11, 2020, and letters dated October 29, 2020 and November 5, 2020] and Noticee no. 2 [vide SEBI’s letter and email dated September 29, 2020, and emails dated October 12, 2020 and October 21, 2020] were advised to provide details of investment advisory services rendered by them. 

3. In reply to the emails / letters, Noticee 2, inter alia, submitted that “My name is Navneet Kumar and I am proprietor of openweb solutions. Activities carried out include website designing, custom software development, domain name registration/web hosting etc. My business does not require SEBI registration. Bank account details: Punjab & Sind Bank (Ac No 01451100002652), ICICI Bank (Ac No 237705500187), SBI (Ac No 36754214599) and Axis Bank (Ac No 917020034864619). My line of work does not include financial advisory or activities related to securities market. However I have developed some softwares / websites for my customers who deals in commodity, equity market. This web based software price comparison and based on zerodha API who use to send automated SMS when certain conditions reaches. Till date I have developed approx 300+ websites (150+ renewals till date)”. Copy of tax filings filed for FY 2017-18, 2018-19 and 2019-20, bank statements and list of the entities to whom he offered software package/services, were also provided by him.

4. On perusal of the bank statements provided by Noticee 2, multiple credit/debit entries were observed. Accordingly, vide email dated October 12, 2020, comments of Noticee no. 2 were sought, inter alia, regarding his association with Noticee no. 1 and the website www.getcommoditytips.com, details of activities carried out by Noticee no. 1 and the website www.getcommoditytips.com, explanation with respect to bank accounts provided by Noticee no. 2 being same as that provided on www.getcommoditytips.com website. Subsequently, vide email dated October 19, 2020, Noticee no. 2 filed his reply and, inter alia, submitted that “My bank account details and payment gateway links are available to almost all agents. Noticee no. 1 is also one of those agents who use to outsource his projects to me. I am really shocked to learn that my account details are available on advisory website. I have also searched website getcommoditytips.com but it’s unavailable. Even Google cache shows no information about this website”.

5. As regards Noticee 1, no reply was received from him to the emails sent by SEBI and the letters dated September 29, 2020, October 29, 2020 and November 5, 2020 sent by SEBI to various available addresses of Noticee no. 1 returned undelivered.

6. On perusal of the KYC details of Noticee 1 obtained from Axis Bank, it was observed that the same had a reference to an entity titled “Guava Softs Pvt. Ltd”. On perusal of available database, it was observed that a SEBI registered Investment Advisor bearing title “Guava Softs Pvt. Ltd”. with registration validity from June 19, 2014 – June 18, 2019, was registered with the address as “2^nd floor, Sohan Palace, Above Neelkamal Jewellers, Mall Road, Ludhiana, 141001” which is the same as the address of the Noticee no. 1. Accordingly, the details of Mr. Sachin Goyal, Director of Guava Softs Pvt. Ltd. were obtained and an email dated November 12, 2020 was sent to him. In this regard, vide email dated November 18, 2020, Mr. Sachin Goyal, inter alia, submitted as follows:

“Navneet Kumar & Kamal Birmi were our ex-employees till year 2016. After 2016 we were not in touch with Navneet Kumar & Kamal Birmi nor any of our other ex-employees, so we don’t have any info regarding their business activities. It’s been almost 4 years since they left our organisation. Phone number of Navneet Kumar is 9653099256 & of Kamal is 9914577750. PAN of Navneet Kumar is BSOPK6047A. Bank account of Shri Navneet Kumar- 06341000179119 HDFC Bank (HDFC0000634) and Bank account of Shri Kamaljeet Singh -910010014931982 Axis Bank (UTIB0000198). Navneet Kumar was working as a software developer with us. Kamaljeet Singh was working as a helper with our SEO Team”.

SHOW CAUSE NOTICE:

7. Pursuant to the examination, a show cause notice dated July 18, 2022 (hereinafter referred to as “the SCN”) was issued to Mr. Kamaljeet Singh (Noticee no. 1) and Mr. Navneet Singh (Noticee no. 2), calling upon them to show cause as to why suitable directions including  directions for debarment, refund and penalty under sections 11 (1), 11 (4), 11 B (1), 11 (4A) and 11 B (2) read with section 15 HA of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act”)  for violations of section 12(1), 12A (a), (b) and (c) of the SEBI Act read with regulation 3(1) of SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”) and regulations 3 (a), (b), (c), (d), 4 (2) (k) and 4 (2)(s) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”) should not be issued against them for the alleged violations.

8. The SCN contained, inter alia, the following observations and allegations against the Noticees with regard to SEBI’s examination of their activities:

8.1 It was alleged that the noticees, through the website “www.getcommoditytips.com” have provided investment advice. 

8.2 From the archived copies of webpages, it was observed that the following information was provided on the website-

“Online commodity market tips for MCX Gold, Silver, natural gas, Crude Oil, nickel, zinc, and aluminium trading research calls via phone calls and via sms. Get commodity tips is one of India’s best commodity tips provider advisory company. We provide high profit calls that can help our customer to increase their investments. If you have capital of Rs 2 lakhs you can easily earn 50,000/- per week from our expert trading tips. We have very expensive team in our research department which provides you best call in commodity market. After the accurate research in all international markets and Indian market. We will provide you best online and offline support via Whatsapp, Phone call, sms service. We are at the forefront of innovation. Discover with us the possibilities of your next project we are the best commodity tips provided in India. Our research team will provide u one target and one stoploss with highest intraday accuracy. Our research and analyst based tips are intraday validity only which you get target in a short period of time. Our MCX tips are covered by the full proof follow-up in which you client shown in MCX market. Packages in MCX Gold Tips, MCX Silver Tips and MCX Crude Oil Tips and Natural Gas TIPS, MCX”.

8.3 The Noticees had named products giving false and misleading appearances as well as made certain false and misleading claims such as “MCX sureshot”, “Sure Shot & Jackpot tips”, “Sebi Compliant Commodity Advisory”, “95% Accuracy Guaranteed”, “We provide high profit calls that can help our customer to increase their investments. If you have capital of Rs. 2 lakh you can easily earn 50,000/- per week from our expert trading tips” and “Earn More Profit: our research Team will provide u One target and One stop loss with highest intraday accuracy”.

8.4 These false and misleading representations of the Noticees stating that they are registered entities on the said website influenced the decisions of the investors who visited the website. Therefore, it is alleged that the Noticees knowingly disseminated information which is false or misleading in nature. Further, the Noticees knowingly made a false, misleading statement and concealed/omitted material fact in order to sell their services through the website.

8.5 The Noticees offered various packages for investment advisory. Various plans for investment advice packages ranging from ₹3,000 per month to ₹20,000 per month were available on the website. The website had provided details of five bank accounts and one payment gateway account with PayU.

8.6 As per the intermediary database available on SEBI website, the Noticees were not registered with SEBI in any capacity.

8.7 As per the KYC documents of Bank accounts mentioned on the website— getcommoditytips.com, Noticee no. 2 was the authorized signatory and the beneficiary of the bank accounts. As per the details submitted by PayU, both the Noticees were the beneficiaries of the linked accounts.

8.8 It was alleged on the basis of the above and other information collected during the examination , web pages, bank transaction, KYC details submitted by banks that the Noticees through their website www.getcommoditytips.com carried out Investment Advisory activities without SEBI registration and collected fees for the same in their various banks/payment gateway accounts from various clients.

9. The SCN in the said matter was issued to the Noticees by SPAD to their respective addresses obtained from the “getcommoditytips.com” website and the KYC details, which, however, were returned undelivered.

10. Thereafter, the Noticees were granted an opportunity of personal hearing on November 9, 2022, vide a common publication of SCN and hearing notice in three newspapers Times of India (English), Dainik Jagran (Hindi) and Ajit (Punjabi) dated October 29, 2022. Both the Noticees, vide an email dated November 4, 2022 confirmed that they will attend the hearing scheduled on November 9, 2022 through their Authorised Representative (“AR”), Mr Abhishek Mishra. However, Noticee no 1, requested for a copy of SCN through email [to be sent to email id [email protected]] along with all the annexures and requested for sufficient time to reply to the SCN. As both the Noticees had appointed the same AR, in the interest of effective and efficient hearing, the hearing was rescheduled to November 23, 2022, and the same was intimated to the Noticees and their AR vide email dated November 7, 2022. Subsequently, Noticee no 1 was provided with the SCN and annexures, vide email dated November 9, 2022.  On the re-scheduled date of hearing (i.e. November 23, 2022), the AR for the Noticees appeared and made submissions on their behalf, which are summarised in the following paragraphs.  

SUBMISSIONS OF THE NOTICEES:

11. Both the Noticees filed their respective replies vide emails dated November 20, 2022, inter alia, submitting the following:

Noticee No.1 

a) The website getcommoditytips.com was owned and operated by him and he was the sole person responsible for its activities. The said website was in operation somewhere around in March, 2017. The said business was incorporated by him with a view to do a business of consultancy in commodity market.

b) The Noticee was a novice individual and being unaware of the SEBI laws and Regulations and having no knowledge that for running a business of advisory in commodity market, he requires SEBI Registration. Hence he started business activity without taking SEBI Registration.

c) The Noticee does admit the fact that he was involved in activities without obtaining registration from SEBI in accordance with the provisions of SEBI Regulations. However, it was done as a mistake due to no knowledge of SEBI Act and its Regulations.

d) The Noticee had immediately stopped his activities as soon as he came to know by receiving the email from the SEBI that this activity is not permissible under the SEBI Regulations.

e) The Noticee didn’t open any separate bank account in the name of Get Commodity Tips for undertaking the said activity as he didn’t want to operate on a very large scale. So, upon the said website he had inserted his bank account details and account details of his ex-colleague: Mr. Navneet Kumar, who was also his Website developer and designer and was also looking after entire IT Activities.

f) Further, the said operation was not the core activity of the Noticee as he was also engaged in other business activity.

g) The Noticee had throughout the business tenure received fees from clients in the Bank Accounts as mentioned upon the website. Apart from that the Noticee has not used any other bank details for charging fees from his clients.

h) The fees received in the bank accounts of Navneet shall not be construed as entire fee receipt of the Noticee as very few payments of the Noticee have been received in his Bank Account and rest of the amount credited is the amount of Mr. Navneet earned through his IT services.

i) Further, the Axis Bank account of the Noticee is opened since 2011, prior to the enactment of the SEBI Regulations. Hence, mention of the total credit entries in the said account shall not be construed as fees collected from clients.

j) The Noticee had met Mr. Navneet while working in the Company: Guava Softs Private Limited, and had a very good relation with him. As a result the Noticee outsourced all the IT related work to Navneet and used his Bank account for receiving fees from clients as the Noticee had to pay Mr. Navneet a due amount in lieu of IT Services availed from him on a regular basis and instead of paying from the Noticee’s account, the Noticee had instructed the clients to pay in the account of open web solution.

k) Also, the Noticee was engaged in various other business activities with Mr. Navneet and hence the entire credit transactions in the bank accounts shall not be construed as fee receipt from unregistered investment advisory activities as it includes fee receipt from other business as well.

l) The Noticee had just provided his clients recommendations in the commodity market by charging certain amount of fee from them, for which they were duly agreed. None of the clients were forced in any manner nor were in undue influence nor was any coercion made for taking his services.

m) During the tenure of the business, only a single client had made complaint, of which the Noticee became aware by going through the said Notice. The Noticee was completely unaware of the complaint as the client had made the complaint directly to SEBI.

n) That the actual receipt of fees from the clients was around Rs. 7 to 8 lakhs. As the Noticee didn’t maintain the books of account so he is unable to quote the exact receipt of fees from the clients.

o) The Noticee was not involved in any malpractices The Noticee would also like to state that he has neither given any misleading information nor has made any false or misleading statement, so the provisions of PFUTP shall not be charged upon the Noticee. Further, upon the Website, the Noticee never claimed to be registered with  SEBI in  any  capacity nor  had  made any  false  claims  to  the clients.

 Noticee no. 2 

a) The Noticee is a freelance website designer and software developer and is a proprietor of Openweb Solutions, and is involved in the following services- Website designing, Custom Software development, Domain name registration/ Web Hosting, Logo Designing, Internet Marketing, IOT, POS solutions.

b) The Noticee’s educational and job background has always been of IT and Software industry   and   he   has   no   connection with the financial/ advisory market.

c) The Noticee was earlier working in a company namely Guava Softs Private Limited, wherein he met    Kamaljeet   who   was   his colleague. After the closure  of the said  Company Guava Softs Private  Limited, the Noticee  decided to start  his own  software/IT business and  as a result  of  his  good   relation  with his  employer, the  Noticee  was provided with a room in same building 2nd floor, Sohan  palace, Mall Rd, Ludhiana as incubator space.

c) At that point of time, just like the Noticee, many other employees were also jobless and were looking for new opportunities. So, at that point  of time,  just like the  Noticee,  many  other  employees many  former  colleagues along  with  Mr Kamaljeet  Singh  were getting projects outsourced for the Noticee from the market.

d) Kamaljeet asked the Noticee to create/ develop a website for his new business and the Noticee agreed upon it. The Noticee was having no knowledge regarding his business.

e) The Noticee helped Mr. Kamaljeet in purchasing the domain name:

getcommoditytips.com; designed his website and was assisting in regular IT/Software related work.  Apart from it, the Noticee didn’t had any control over the activities of getcommoditytips.com. The Noticee’s only mistake was that he provided his bank account numbers to Kamaljeet Singh as they were engaged in other business activities and also Mr.  Kamaljeet  had  to  pay  due  amounts to  the Noticee  in lieu of IT services  availed  from  him.

The Noticee did the same in a good faith.

f) The Noticee’s line of work does not include any financial advisory or activities related to securities market.

g) The mobile    numbers:   9914577750   and    7814146603   belong    to Kamaljeet.  9914577750 was his old number when he was working with Guava Softs Private Limited. It was the number on which he used to receive calls from his previous company’s clients too. Also, the Noticee and Mr.  Kamaljeet   were involved in other  business activities too, so the number was interchangeably used.

h) As the Noticee and Kamaljeet   was   in   kind   of makeshift (temporary) co-working space and were known to each other from last many years, so they have shared many resources like broadband connection/ phone, etc.  and   as  a  result   of  it  mobile   number  of Kamaljeet  appears on the Airtel bill of Openweb Solutions.

i) Further, the amount which  is received in the bank  accounts of the Noticee on behalf of Mr. Kamaljeet  has been duly  highlighted and such entries are somewhere around just 50 in numbers. Furthermore,   the amount which is been received through Pay U Money on behalf of  Kamaljeet has been mentioned in remarks and which is also around 50 in numbers.

j) The Noticee’s HDFC Bank Account Number 06341000179119 has not been used anywhere. It is the personal bank account of the Noticee which is in operation since 2010. This account was in existence way before domain registration of getcommoditytips.com and last actual credit entry was done in Nov 2018. Additionally, all the cash amount deposited into this account were from the Noticee’s home city only for personal use because way back the Noticee used to receive his salary in cash.

k) Hence, the entire credit entries received in the   Noticee’s bank account shall not be construed as entire fee receipt of Kamaljeet as the Noticee has received very few payments of Kamlajeet in his Bank Account  and it also includes transactions of other  business activities with Mr. Kamaljeet.

l) The Noticee would also like to state that he has not undertaken or has been part of any unlawful or fraudulent activity.

12. During the personal hearing held on November 23, 2022, the AR reiterated the submissions made earlier by the Noticees vide their respective replies and also made following additional submissions on behalf of the Noticees:

 a) The contents of the website were copied from some other website, therefore, some misleading information like “sebi compliant commodity advisory” were present on the website.

b) Although it was mentioned on the website that Get commodity tips is one of India’s best commodity tips provider advisory company, and that they have the best research team, it was only one person, i.e. Kamaljeet Singh, who used to run the unregistered investment advisory business.

c) All credit entries were not from investment advisory business. They have identified the transactions pertaining to unregistered investment advisory business and in any case it is not more than 10 Lakh Rupees.

13. During the personal hearing, the AR undertook to submit the list of clients, account opening dates of all bank accounts, identify all the transactions which pertain to fee in lieu of investment advisory, ITR for 5 years, details of Noticees’ any other associations with securities market and make additional submissions in writing.

14. Vide e-mail dated December 1, 2022, both the Noticees made the following additional submissions:

Noticee no. 1

a) The Noticee was having knowledge that for providing recommendations in equity market, there is a requirement of SEBI registration, but however he was not having any knowledge that for providing recommendations solely in the field of commodity market, there is requirement of any SEBI Registration.

b) The website which was created, its content was copied from another website and hence as a result of it, upon his website it was mentioned that they are SEBI registered. The Noticee didn’t have any fraudulent intentions and hence no violations of PFUTP Regulations shall be imposed upon.

c) The Noticee was carrying out his business activities in a good faith without any mal-intention. None of the clients were forced in any manner and neither they were in undue influence nor any coercion was made for taking the services.

 Noticee no. 2

a) Navneet is into the field of IT and Software industry since inception and has no connection with the financial/ advisory market. 

b) Further, all of the credit entries received  in the Noticee’s bank  accounts shall  not  be  construed as  fee  receipt of investors on  behalf  of Kamaljeet,  as majority of them  are  business and personal transactions of the Noticee. However, the Noticee has tried his best to compile and present the entries. 

c) Furthermore, HDFC account  of the  Noticee  had  no  receipt  of any amount from  any  investor, as that  account  was solely  his personal account and it has been used for credit card bill payment which  was attached to this  account, EMI bounce  credit/ debit  pairs,  transfers from  the  Noticee’s wife, Kamaljeet,  the  Noticee’s father-in-law, etc. This account had nothing to do with Kamaljeet’s client’s payment.

15. The Noticees also submitted their bank statements with remarks for each credit transaction. The Bank accounts’ details submitted by the Noticees are summarized as follows-

16. Regarding the HDFC bank account mentioned in the SCN, Noticee 2 has submitted that “HDFC account had no  receipt  of any amount from  any  investor, as that  account  was solely  his personal account and it has been used for credit card bill payment which  was attached to this  account, EMI bounce  credit/ debit  pairs,  transfers from  the  Noticee’s wife, Kamaljeet,  the  Noticee’s father-in-law etc. This account had nothing to do with Kamaljeet’s client’s payment”.

17. Regarding Axis bank account and PayTM account, Noticee 1 has submitted that they were used more or less for his personal usage.

CONSIDERATION OF ISSUES AND FINDINGS:

18. I have considered the allegations levelled in the SCN, replies, oral / written submissions filed by the Noticees and the materials available on record. On perusal of the same, the following issues arise for consideration:

(1) Whether the Noticees acted in collusion with each other in respect of the activities carried out through the website getcommoditytips.com?

(2) Whether the Noticees together carried out unregistered investment advisory activities in contravention of section 12(1) of the SEBI Act read with regulation 3(1) of the IA Regulations?

(3) If the answer to issues no. (1) and (2) is in the affirmative, whether the Noticees, while carrying out such unregistered investment advisory activities, indulged in fraudulent acts or exhibited such conduct, in violation of the provisions of the SEBI Act and PFUTP Regulations?

(4) If the answer to issue no. (2) is in the affirmative, what is the amount that was collected by the Noticees while carrying out unregistered investment advisory activities?

(5) Whether the violations, if any, by the Noticees attract any direction and monetary penalty under sections 11(1), 11(4), 11B(1), 11(4A) and 11B(2) read with section 15HA of the SEBI Act?

(6) If answer to issue no. (5) is in the affirmative, what directions should be issued and what should be the amount of monetary penalty, to be imposed on the Noticees, considering the factors provided under section 15J of the SEBI Act?

19. I shall now proceed to examine the above listed issues in light of the replies / submissions of the Noticees and the material available on record.

Issue no. (1)— Whether the Noticees acted in collusion with each other in respect of the activities carried out through the website www.getcommoditytips.com?

20. It is noted that Noticee 1 has admitted to be the owner of “www.getcommoditytips.com” website and submitted that the website was created with a view to do business of consultancy in commodity market. During the personal hearing, the AR for the Noticees vehemently argued that only Noticee no. 1 was responsible for the activities carried out through the website— www.getcommoditytips.com—and Noticee no.2’s line of business does not include any financial advisory or activities related to the securities market. Noticee no. 2 has submitted that although he designed the website for Noticee no. 1 and assisted him in regular IT/Software work, he had no knowledge regarding the business of investment advisory. In this context, I note that in relation to the bank accounts of Open web solutions (Noticee no. 2’s proprietorship) being mentioned on the website, Noticee no. 2 has admitted that he had provided his bank accounts’ details as he was engaged in other business activities with Noticee no. 1 and since Noticee no. 1 had to pay him certain dues in lieu of IT services availed from him. In this connection, Noticee no. 1 has also submitted that he used bank accounts of Noticee no. 2 for receiving fees from his clients as he had to pay Noticee no. 2 in lieu of IT services availed on a regular basis and instead of paying from his own account, he had instructed clients to pay in the account of open web solutions.

21. In my view, the argument that Noticee no. 1 / Mr. Kamaljeet had to pay certain dues to Noticee 2 / Mr. Navneet in lieu of IT services availed on a regular basis, and to settle those dues, payments were received from the clients in the bank accounts belonging to Mr. Navneet, is merely an afterthought put forward by the Noticees only to show that they had no association with each other in relation to the unregistered investment advisory services being provided by them through the website. It is pertinent to note that during SEBI’s examination, Mr. Navneet vide email dated October 19, 2020 had submitted that “I am really shocked to learn that my account details are available on advisory website”. On the other hand, in the reply to the SCN, both the Noticees contended that they had an arrangement in which money on behalf of Mr. Kamaljeet was being deposited in Mr. Navneet’s bank accounts. I find that there is clear inconsistency in the submissions / statements of the Noticees. Earlier, Mr. Navneet denied the knowledge of the fact that his bank accounts’ details are present on the website, whereas, later he claimed to have an arrangement for receiving funds in his bank accounts in lieu of IT Services being provided by him. Also, since the website was designed by Mr. Navneet and all the IT related works were being handled by him, it cannot be agreed that he was not aware about the nature of the business being carried out through the website and that his bank accounts were mentioned on the website.

22. Another fact relevant to note in this context is that the mobile number of Mr. Kamaljeet appeared on the Airtel Bill of Open web solutions. To justify the same, Navneet submitted that both the Noticees were in a kind of makeshift coworking space and were known to each other for many years, so they were sharing many resources like broadband connection, phone, etc.

23. In light of the above discussed facts and circumstances, I find that the Noticees were very closely associated with each other. They were known to each other for many years and were engaged together in many business activities. In particular, in the case of the investment advisory being carried out through the website, I note that the website was designed by Mr Navneet, his bank accounts were mentioned on the website for receiving fees from clients, and the address of Open Web Solutions (Proprietorship of Mr. Navneet) was used on the website www.getcommoditytips.com. It is, therefore, clear that both the Noticees were involved together in this business of investment advisory brought out in the SCN, as a part whereof, Mr. Navneet used his software skills to develop the website for Mr. Kamaljeet, handled IT related works and received fees from clients in his accounts and the advice was being provided by Kamaljeet. Thus, in my view, both the Noticees were acting in collusion and facilitated each other in carrying out the activities through the website.

Issue no. (2)— Whether the Noticees together carried out unregistered investment advisory activities in contravention of section 12 (1) of the SEBI Act read with regulation 3 (1) of the IA Regulations?

24. From the material brought out in the SCN, including copies of the screenshots of the archived webpages of the website “https://www.gcom”, it was noted that the Noticees had made the following claims:

a. Online commodity market tips for MCX Gold, Silver, natural gas, Crude Oil, nickel, zinc, and aluminium trading research calls via phone calls and via sms.

Get commodity tips is one of India’s best commodity tips provider advisory company. We provide high profit calls that can help our customer to increase their investments. 

b. If you have capital of Rs 2 lakhs you can easily earn 50,000/- per week from our expert trading tips.

c. We have very expensive team in our research department which provides you best call in commodity market.

d. After the accurate research in all international markets and Indian market. We will provide you best online and offline support via Whatsapp, Phone call, sms service.

e. We are at the forefront of innovation. Discover with us the possibilities of your next project we are the best commodity tips provided in India.

f. Our research team will provide u one target and one stoploss with highest intraday accuracy. Our research and analyst based tips are intraday validity only which you get target in a short period of time.

g. Our MCX tips are covered by the full proof follow-up in which you client shown in MCX market.

h. The payment gateway – PayU

i. Following Bank account details were available on the website:

j. The pricing of various investment advice packages is given below:

k. The contact details: +919914577750 / +911614673555      and email:[email protected].

25. As seen from the above noted contents of the webpages, the Noticees used to charge fees for his advisory services ranging from ₹3,000 per month to ₹20,000 per month. The pitch made by the Noticees to the clients, in a nut shell, is contained in the following paragraph, which appeared on the website of the Noticees:

“Online commodity market tips for MCX Gold, Silver, natural gas, Crude Oil, nickel, zinc, and aluminium trading research calls via phone calls and via sms. Get commodity tips is one of India’s best commodity tips provider advisory company. We provide high profit calls that can help our customer to increase their investments.”

26. As stated in the SCN, the website contained details of bank accounts and PayU links through which money was received by the Noticees from the clients. In their replies / submissions also, the Noticees have admitted to have provided advisory services to their clients. They have also admitted to have received fee from their clients in lieu of the services / tips provided by them to their clients.

27. In light of the aforesaid facts, I find that the Noticees were engaged in giving investment advice relating to purchasing, selling or otherwise dealing in securities or investment products in lieu of consideration. Therefore, I find that in terms of regulation 2(1)(l) of the IA Regulations, the Noticees were providing “investment advice”. An entity engaged in providing investment advice relating to purchasing, selling or otherwise dealing in securities or investment products and advice on investment portfolio containing securities or investment products, whether written, oral or through any other means of communication for the benefit of the client in lieu of consideration, including an entity who is holding itself out as investment advisers, is covered within the definition of “Investment Adviser” provided in regulation 2(1)(m) of the IA Regulations. As noted earlier, the Noticees used to charge fee for investment advisory services ranging from ₹3,000 to ₹20,000 per month in connection with investment advisory activities in the various bank accounts. Accordingly, I note that these services were being offered by the Noticees for consideration. Therefore, I find that the Noticees were engaged in the business of providing investment advice to their clients for consideration, and thus, acted as “investment adviser” as defined under regulation 2(1)(m) of the IA Regulations.

28. It is imperative that any person carrying out investment advisory activities has to obtain registration from SEBI and conduct his activities in accordance with the provisions of SEBI Act and Regulations framed thereunder. I note that for seeking a certificate of registration for acting as an investment adviser, an entity is required to satisfy, inter alia, the following requirements, as provided under IA Regulations:

28.1 An application for seeking certificate of registration to be made to Local Office, Regional Office or Head Office, of SEBI, as the case may be, in Form A as specified in the First Schedule to IA Regulations along with requisite non-refundable application fee;

28.2 The applicant, in case of an individual investment adviser or its principal officer in case of a non-individual investment adviser shall be appropriately qualified and certified as under:

28.2.1 A professional  qualification  or  post-graduate  degree  or  post  graduate  diploma (minimum two years in duration) in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognized by the Central Government or any State Government  or  a  recognized  foreign  university  or  institution  or  association    or  a professional qualification by completing a Post Graduate Program in the Securities Market (Investment Advisory) from NISM of a duration not less than one year or a professional qualification by obtaining a CFA Charter from the CFA Institute;  

28.2.2 An experience of at  least  five  years  in  activities  relating  to  advice  in  financial products or securities or fund or asset or portfolio management;  

28.2.3 Applicant in case of individual investment adviser or its principal officer in case of a non-individual investment adviser, and persons associated with investment advice shall have, at all times a certification on financial planning or fund or asset or portfolio management or investment advisory services, from (a) NISM;  or (b) any other organization or institution including Financial Planning Standards Board of India or any recognized stock exchange in India provided such certification is accredited by NISM.  

28.3 Individual applicant must have net worth of not less than 5 lakh rupees and non-individual applicant must have net worth of not less than 50 lakh rupees.

29. I note that safeguards provided under IA Regulations require continued minimum professional qualification and net worth requirement for investment adviser, including disclosure of all conflicts of interest, prohibition on entering into transactions which are contrary to advice given for 15 days, risk profiling of investors, maintaining documented process for selecting investment for client based on client’s objective and risk profile, understanding the nature and risks of products or assets selected for clients, etc. These requirements are aimed at protection of investor interest.

30. Section 12(1) of the SEBI Act provides as under:

“Registration of stock brokers, sub-brokers, share transfer agents, etc.   12. (1) No stock broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act.”  

31. As per regulation 3(1) of IA Regulations, the registration of an investment adviser is mandatory. It provides that—

“On and from the commencement of these regulations, no person shall act as an investment adviser or hold itself out as an investment adviser unless he has obtained a certificate of registration from the Board under these regulations”. 

32. Admittedly, in the present case, neither of the Noticees was registered with SEBI in the capacity of an Investment Advisor or in the capacity of any other intermediary. Hence, I find that the activities discussed hereinabove were being carried out by the Noticees without holding the certificate of registration as an investment adviser and are in violation of section 12(1) of the SEBI Act read with regulation 3(1) of the IA Regulations.

33. During the personal hearing, the AR for the Noticees pleaded ignorance of law, stating that the Noticees were not aware of SEBI Act and Regulations. It was also submitted that Noticee 1 knew that for providing recommendations in equity market, there is a requirement of SEBI registration, however he was unaware that for providing recommendations solely in the field of commodity market also, there is requirement of any SEBI Registration. In this regard, I find it difficult to accept the claim of the Noticees that they were not aware of registration requirements, before carrying out his unregistered investment advisory business particularly in light of the fact that they were ex-employees of Guava Softs, a SEBI registered investment advisor. Moreover, it is a settled legal principle that “Ignorantia juris non excusat” i.e. ignorance of law is no excuse. Hence, the defence that unregistered investment advisory was being carried out due to lack of knowledge of the law, cannot be of any help to the Noticees.

Issue no. 3—If the answer to issues no. (1) and (2) is in the affirmative, whether the Noticees, while carrying out such unregistered investment advisory activities, indulged in fraudulent acts or exhibited such conduct, in violation of the provisions of the SEBI Act and PFUTP Regulations?

34. It is noted that Noticee 1, in his submissions, claimed to be the sole person responsible for the activities on the website, whereas on the website it was mentioned that “We have very expensive team in our research department which provides you best call in commodity market” and that “Our research team will provide u one target and one stop loss with highest intraday accuracy”, It was also mentioned that “Get commodity tips is one of India’s best commodity tips provider advisory company”. During the personal hearing, the AR confirmed that there was no research team and Noticee No.1 was alone carrying out the unregistered investment advisory. It is thus clear that the website had made false and misleading claims. Despite being a proprietorship, it claimed to be one of India’s best commodity tips provider advisory company. Further, the claims on the website that it had a research team and that it is a company is also false and misleading. 

35. The website had also mentioned that “If you have capital of Rs 2 lakhs you can easily earn 50,000/- per week from our expert trading tips”. This fact alone evidences that the Noticees were promising unrealistic returns of 100% per month on investments. I note that claims of providing assured returns of ₹50,000 per week on having a capital of ₹2,00,000 were misleading and active concealment of the material fact that investments in the securities market are subject to market risk and an investment made by a client may also run into losses and may even become zero. The act of assuring returns to the clients was a non-genuine and deceptive act and was done by the Noticees with an intent to influence the clients to avail their advisory services.

36. Another contention made by the Noticees is that they never claimed to be registered with SEBI in any capacity nor had made any false claims to the clients, and were not involved in any malpractices. In this regard, I note that the website (admittedly designed by Noticee 2 and owned by Noticee no. 1) carried the word “SEBI compliant commodity advisory” which is clearly contrary to the submissions of the Noticees. In the same context, in his additional submissions,

Noticee no.1 has submitted that “website’s content was copied from another website and hence as a result of it, upon his website it was mentioned that they are SEBI registered”. It is relevant to mention here that the website was designed by Noticee no. 2 delineating that it was Noticee no. 2 who copied the text from the other website. Thus, in the additional submissions also, the Noticees have admitted that they were claiming to be SEBI registered. Further, the owner of the website is always responsible for the contents present on the website regardless of the fact that the contents thereof were copied from another website.  The said fact also shows the reckless manner in which claims were made on the website by the Noticees, without checking the authenticity of such claims. 

37. I find that by representing themselves as a SEBI Compliant investment advisory company, having a very expensive research team and assuring returns of 100% in a month, the Noticees have misled and recklessly misrepresented investors and have knowingly made false assurances / promises to the investors. The contents on their website have also been recklessly put without any verification as to their authenticity. Such acts of the Noticees fall within the definition of “fraud” provided under regulation 2(1)(c) of PFUTP Regulations, which reads as under:

“2. (1) In these regulations, unless the context otherwise requires,—

(c) “fraud” includes any act, expression, omission or concealment committed whether in a deceitful manner or not by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss, and shall also include—

• a knowing misrepresentation of the truth or concealment of material fact in order that another person may act to his detriment;
• a suggestion as to a fact which is not true by one who does not believe it to be true;
• an active concealment of a fact by a person having knowledge or belief of the fact;
• a promise made without any intention of performing it;
• a representation made in a reckless and careless manner whether it be true or false;
• any such act or omission as any other law specifically declares to be fraudulent,
• deceptive behaviour by a person depriving another of informed consent or full participation,
• a false statement made without reasonable ground for believing it to be true.
• the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or anything derived from it other than the market price.

And “fraudulent” shall be construed accordingly;

Nothing contained in this clause shall apply to any general comments made in good faith in regard to—

• the economic policy of the government
• the economic situation of the country
• trends in the securities market or (d) any other matter of a like nature

whether such comments are made in public or in private;”

38. Therefore, I find that fraudulent activities of the nature discussed in the preceding paragraphs, on part of the Noticees are in violation of the provisions of section 12A(a), (b) and (c) of the SEBI Act and regulations 3 (a), (b), (c), (d), 4 (2) (k) and (s) of the PFUTP Regulations. The text of these sections and regulations is reproduced as under:

SEBI ACT:

“Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.

12A. No person shall directly or indirectly—

• use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder;
• employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange;
• engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;”

PFUTP REGULATIONS:

“3. Prohibition of certain dealings in securities

No person shall directly or indirectly—

(a) buy, sell or otherwise deal in securities in a fraudulent manner;

(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange;

(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under.

 4. Prohibition of manipulative, fraudulent and unfair trade practices

(2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves :—

(k) disseminating information or advice through any media, whether physical or digital, which the disseminator knows to be false or misleading and which is designed or likely to influence the decision of investors dealing in securities;

(s) mis-selling of securities or services relating to securities market;

Explanation- For the purpose of this clause, “mis-selling” means sale of securities or services relating to securities market by any person, directly or indirectly, by─

• knowingly making a false or misleading statement, or
• knowingly concealing or omitting material facts, or
• knowingly concealing the associated risk, or
• not taking reasonable care to ensure suitability of the securities or service to the buyer;”

Issue no. 4— If the answer to issue no. (2) is in the affirmative, what is the amount that was collected by the Noticees while carrying out unregistered investment advisory activities?

39. In respect of the amount collected in various bank accounts mentioned on the website, I find that Noticees have made their submissions, identifying all the credit transactions in their bank accounts which are in the nature of advisory fee. The Noticees have also provided a narration / description against all the transactions appearing in the bank statements on record. On a keen perusal of the description provided by the Noticees, I am inclined to agree with their submission that all the credit transactions appearing in the bank statements were not fee for investment advisory services. I note on the basis of the material available on record that a total of five bank accounts were used by the Noticees for the purposes of receiving funds from the clients, and the three other bank accounts mentioned in the SCN were not used for the said purpose and rather appeared to have been used for inter alia personal transactions. In respect of the five bank accounts, which were actually used for receiving investment advisory fee, I note that Noticees have collected a total of ₹9,47,950 as fee towards the unregistered investment advisory services provided by them to their clients.

Issue no. 5—Whether the violations, if any, by the Noticees attract any direction and monetary penalty under sections 11 (1), 11(4), 11B(1), 11(4A) and 11B(2) read with section 15HA of the SEBI Act?

40. In my view,  an  unregistered  investment  advisor  like  the Noticees can  put investors  at  great  risk  by  misleading  Further, in the present case, the Noticees have knowingly misrepresented on their website that they were “Sebi Compliant Commodity Advisory”. Without  holding  any registered  IA  certificate,  they  provided  investment  advisory  services  and  promised  unrealistic  profits  to    investors  with  the objective  of  raising  money  through  subscriptions.  The service  on  the  website  promising  profits  upto  100% per month {1200% yearly} were offered being fully aware that they are impossible to be delivered. Knowing fully well that all investment in securities such as commodity derivatives in respect of which the Noticees were offering investment advice are subject to market risk, they were falsely promising unrealistic assured returns on investments and had disclosed the same on  the  website.

41. As a regulator  of  the  capital  markets,  SEBI  has  the  duty  to  safeguard  the interests of investors and protect the integrity of the securities market. Since the conduct of Noticees mentioned hereinabove does not appear to be in the interest of investors and the securities market, necessary action has to be taken against them. Considering that the alleged violations of the provisions of SEBI Act, IA Regulations and PFUTP Regulations have been established against the Noticees, I am convinced that this is a fit case where suitable directions need to be issued and appropriate monetary penalty also needs to be imposed on the  Noticees.

Issue no. (6)—If answer to issue no. (5) is in the affirmative, what directions should be issued and what should be the amount of monetary penalty, to  be imposed on the Noticees, considering the factors provided under section 15 J of the SEBI Act?

42. Having concluded that this is a case wherein suitable directions are required to be issued against the Noticees as well as monetary penalty needs to be imposed, I observe that the directions / penalty, have to be issued against the Noticees, after taking into cognizance the peculiar facts and circumstances discussed hereinabove and also in light of the factors mentioned in section 15J of the SEBI Act.

43. In this context, I take note of the submission of the Noticees that they had closed the operations in October 2020, once they received intimation from SEBI and became aware that the activities were not permissible under law. Further, Noticee 2 has also submitted that he is not involved in investment advisory activities and has submitted screenshots of his emails indicating that he is mainly working in the field of IT and software/website development. Also, both the Noticees have made a declaration that at present they are not associated with securities market in any manner. I also note that there was only one complaint against the Noticees relating to ₹5,000 and at present, there is no other complaint pending against the Noticees.

DIRECTIONS AND MONETARY PENALTY: 

44. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of sections 11(1), 11(4) and 11B(1) read with section 19 of the SEBI Act, hereby direct that:

44.1 The Noticees shall immediately refund, jointly and severally, the amount of ₹9,47,950 collected / received from investors / complainants, as fees or consideration, in respect of their unregistered investment advisory activities, and in any case within a period of three months from the date of this order;

44.2 The Noticees shall issue a public notice in all editions of two National Newspapers (one English and one Hindi) and in one local newspaper in vernacular language with wide circulation, detailing the modalities for making the claim for refund, including the details of contact person such as name, addresses and contact details, within 15 days of this order;

44.3 The repayments to the investors shall be effected only through bank transfers with audit trails to identify the beneficiaries of repayments;

44.4 For the purpose of refund, the Noticees shall open an escrow account with a scheduled bank and deposit therein an amount of ₹ 9,47,950, which shall be kept in the said account for a period of three months and be used only for the purpose of refund to the investors/ complainants who had availed the investment advisory services from the Noticees;

44.5 The banks are directed to allow debit from the bank accounts of the Noticees, only for the purpose of transferring funds to escrow account mentioned in para 44.4 above;

44.6 The Noticees are prohibited from selling their assets, properties and holdings of mutual funds/shares/securities held by them in demat and physical form except for the purpose of transferring funds to escrow account mentioned in para 44.4 above;

44.7 After ensuring compliance with the direction mentioned in para 44.4, the Noticees shall submit a report of such compliance to SEBI, duly certified by an independent Chartered Accountant, and on satisfaction of SEBI, the directions at para 44.5 and 44.6 above shall cease to operate. 

44.8 At the end of three months, the balance amount, if any, remaining in the escrow account after making refund in terms of the direction at para 44.1 above, shall be deposited by the Noticees with SEBI which shall be kept in an escrow account for a period of one year for distribution to the clients/ complainants/ investors who had availed the investment advisory services from the Noticees and thereafter, the remaining amount, if any, shall be deposited in the Investors Protection and Education Fund maintained by SEBI;

44.9 After completing the aforesaid repayments, and deposit of balance money, if any, with SEBI, the Noticees shall file a report of such completion with SEBI addressed to the “Division Chief, Division of Post-Inspection Enforcement Action, Market Intermediaries Regulation and Supervision Department, SEBI Bhavan II, Plot No. C7, G Block, Bandra Kurla Complex, Bandra (East) Mumbai –400051”, within a period of 15 days, after completion of three months from the coming into force of the directions at para 44.1 above, duly certified by an independent Chartered Accountant.

44.10 The Noticees are debarred from accessing the securities market, directly or indirectly and are prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, in any manner whatsoever, for a period of one year from the date of this order or till the expiry of six months from the date of completion of refunds to investors as directed in para 44.1 above, whichever is later;  

44.11 The Noticees shall not undertake, either during or after the expiry of the period of debarment / restraint as mentioned in para 44.10 above, either directly or indirectly, investment advisory services or any activity in the securities market without obtaining a certificate of registration from SEBI as required under the securities laws.

45. Further, in exercise of powers conferred upon me  under  sections 11(4A) and 11B(2) read with sections 15HA and 15J of the SEBI Act, I hereby impose the following monetary penalty:

46. The Noticees shall remit / pay the said amount of penalties within forty five (45) days from the date of receipt of this order. The Noticees shall remit / pay the said amount of penalties either by way of a Demand Draft in favour of “SEBI -Penalties Remittable to Government of India”, payable at Mumbai, or through online payment facility available on the website of SEBI, i.e. www.sebi.gov.in by clicking on the payment link: ENFORCEMENT -> Orders -> Orders of ED/CGM (QuasiJudicial Authorities) -> PAY NOW. In case of any difficulties in online payment of penalties, the said Noticees may contact support at [email protected]. The demand draft or the details/ confirmation of e-payment should be sent to “The Division Chief, Division of Post-Inspection Enforcement Action, Market Intermediaries Regulation and Supervision Department, Securities and Exchange Board of India, SEBI Bhavan II, Plot no. C-7, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai -400 051” and also to e-mail id:[email protected] in the format as given in table below:

47. This order comes into force with immediate effect.

48. For any non-compliance of this order, the Noticees shall be subject to strict action under the applicable provisions of the law, including prosecution.

49. The directions issued vide this order do not preclude the clients /investors to pursue other legal remedies available to them under any other law, against the Noticees for refund of money or deficiency in service before any appropriate forum of competent jurisdiction.

50. A copy of this order shall be sent to the Noticees, all the recognized Stock Exchanges, Banks, Depositories and Registrar and Transfer Agents of Mutual Funds to ensure that the directions given above are strictly complied with.

Sd/-

DATE: DECEMBER 30, 2022                                                            V. S. SUNDARESAN  

PLACE: MUMBAI                                                                    EXECUTIVE DIRECTOR  

SECURITIES AND EXCHANGE BOARD OF INDIA