Order KE Consulting Group (Unregistered PMS)

BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. EAD-12/ AO/SM/98/2017]

ORDER

UNDER SECTION 15 I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

In respect of:

Shri Mr Manish Thakkar (Proprietor of M/s KE Consulting Group (PAN No. ACTPT8377N)

In the matter of unregistered Portfolio Management Services (PMS) rendered by M/s. KE

Consulting Group

Facts of the case:

1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) pursuant to receipt of complaints against KE Consulting Group (“KEC”) and its proprietor Mr. Manish Thakkar (“Manish”) conducted investigation to ascertain the extent and nature of portfolio management activities carried out by KEC/Manish.
2. Pursuant to the receipt of complaints against KEC/ Manish, SEBI has conducted Preliminary Investigation and SEBI, inter-alia, given the following directions against KEC/Manish vide order dated February 28, 2012,
3. restrained from accessing the securities market,
4. cease and desist order from undertaking portfolio management activities,
5. Immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites etc. in relation to the portfolio management activities;
6. prohibited from mobilizing funds and
7. directed to resolve all pending complaints against them.

3. Pursuant to detailed investigation in the matter, it was alleged that KEC/ Manish had not

resolved some of the complaints (as directed by SEBI) and not provided the information/documents sought via summons issued by the SEBI investigating authority. Hence it was alleged that KEC/ Manish had violated Section 11C (3) of Securities and Exchange Board of India Act, 1992 (“Act”) and SEBI order dated February 28, 2012.

Appointment of Adjudicating Officer

4. Pursuant to initiation of adjudication proceedings, Shri D Sura Reddy was appointed as Adjudicating Officer vide order dated March 22, 2016 under Section 15 I of the Act read with Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘AO Rules’) to inquire into and adjudge under Section 15A (a) and 15HB of the Act for the alleged violation of the provisions of law by KEC/Manish. Subsequently, pursuant to the transfer of the case, I have been appointed as Adjudicating Officer (AO), vide order dated May 18, 2017.

Show cause notice, Reply and Personal Hearing

5. SCN was issued on May 27, 2016 detailing the facts and circumstances forming the basis of the charges against KEC/ Manish as under:
6. KEC/Manish had not provided the requisite information/documents sought by SEBI through summons dated August 08, 2013 and October 07, 2013 and thus has hampered the investigation with respect to the extent and nature of services he provided to his clients and thus, violated the provisions of Section 11 C(3) of the Act.
7. Failed to comply with the SEBI Order dated February 28, 2012 to the extent of non redressal of pending Investor complaints.
8. The said SCN was sent to two of KEC/Manish’s addresses viz “1 Plot No.95, Chadda Building, Sewree Wadala Estate, Road No.7, Wadala (West), Mumbai – 400031” and “B-111, Kalpataru residency, Near Sion Circle, Sion East, Mumbai – 400022”. SCN sent to “Wadala” address was returned undelivered with remark “Not known” and hand delivery attempted also failed. However, the SCN sent to “Sion” address was served as per the postal records available. KEC/Manish did not file any reply to the SCN.
9. In the interest of natural justice and in order to conduct inquiry in terms of Rule 4(3) of AO Rules, KEC/Manish was granted an opportunity of personal hearing on July 27, 2017 vide notice dated July 12, 2017. However, the said notice sent to “Sion, Mumbai address” was returned undelivered.
10. In terms of Rule 7(c) of AO Rules, Hearing notice dated July 12, 2017 was affixed at B-111, Kalpataru residency, Near Sion Circle, Sion East, Mumbai – 400022”, the last known address of Manish as per SEBI records, on July 18, 2017.
11. As an abundant caution, detail of notice was also published in Mumbai Editions of Times of India and Lok Satta on August 9, 2017 in terms of Rule 7(d) of AO rules and also made available on SEBI website. Vide said publication, one more opportunity of hearing was provided to KEC/Manish on September 4, 2017. However, KEC/Manish did not appear on the said date.
12. In view of the attempts made by SEBI in serving the Notice, I am convinced that sufficient opportunities have been granted to KEC/Manish and I deem it appropriate to decide the matter on the basis of material available on record and hence I proceed further.

Consideration of Issues, Evidence and Findings

9. I have carefully perused the charges levelled against KEC/Manish in the SCN and all the documents available on record. In the instant matter, the following issues arise for consideration and determination:
10. Whether KEC/Manish has violated Regulations Section 11 C (3) of the Act and failed to comply with SEBI Order dated February 28, 2012?
11. Does the violation, if any, on the part of KEC/Manish attracts monetary penalty under Section 15 A(a) and 15HB of the SEBI Act?
12. If so, what would be the quantum of monetary penalty that can be imposed on KEC/Manish taking into consideration the factors mentioned in Section 15J of the Act?

10. Before proceeding further, I would like to refer to the relevant provisions of SEBI Act which read as under:

SEBI Act

11C. (3) The Investigating Authority may require any intermediary or any person associated with securities market in any manner to furnish such information to, or produce such books, or registers, or other documents, or record before it or any person authorized by it in this behalf as it may consider necessary if the furnishing of such information or the production of such books, or registers, or other documents, or record is relevant or necessary for the purposes of its investigation.

Consideration of the facts

11. From the materials available on record, I rely, more particularly, on KEC/Manish’s statement recorded on February 10, 2013 by the Investigating Authority of SEBI wherein KEC/Manish had accepted that there are pending claims of Mr. Sarosh Framroze, Mr. Deepak Shah, Mr.Rohit Shah, Ms. Sandhya Shah and Ms. Nisha Shah. From the complaints of the above referred clients of KEC/Manish, it is learnt the following sum was payable to them by KEC/Manish.

12. KEC/Manish has not responded to the SCN wherein it was alleged that KEC/Manish had not submitted the following information/documents sought by SEBI

• Income Tax returns of KEC/Manish
• Copies of all bank transactions of KEC/Manish/M/s. Kumar Enterprises from 2007 till date

• Declaration to the effect that no other bank account other than those had been stated earlier
• Copies of letter heads of the Manish/ KEC/ Kumar Enterprises
• Details of the demat accounts held in the name of Manish/ KEC/ Kumar Enterprises
• List of all clients of KEC/ Kumar Enterprises with names, address, etc.
• Names of all the brokers with whom Manish/ KEC/ Kumar Enterprises had an account
• Copy of the work contract with United Securities LLC and copies of letter of appointment and letter of resignation.

Findings

13. I find the following from the materials perused:

Whether KEC/Manish has violated Regulations Section 11 C (3) of the Act and failed to comply with SEBI Order dated February 28, 2012?

2012. I find that there are primarily two charges against KEC/Manish in the present proceedings. One charge is that KEC/Manish has not provided the information/documents sought by the investigating authority of SEBI thereby violated Section 11 C(3) of the Act and second being non-compliance with SEBI Order by not redressing the complaints against KEC/Manish as per SEBI Order February 28, 2012.
2013. As far as the first charge is concerned, despite giving sufficient opportunities to defend the allegations levelled against KEC/Manish, KEC/Manish had not availed the opportunities. Hence, by relying on the observation of Hon’ble SAT in the matter of Sanjay Kumar Tayal & Ors. Vs. SEBI (in appeal No. 68/2013) decided on February 11, 2014

wherein SAT has held that “………………… , appellants have neither filed reply to show

cause notices issued to them nor availed opportunity of personal hearing offered to them in the adjudication proceedings and, therefore, appellants are presumed to have admitted charges leveled against them in the show cause notices”, I conclude that KEC/Manish has violated Section 11 C (3) of the Act.

1. As far as second charge is concerned, it is clear from KEC/Manish’s own submission that KEC/Manish had not resolved all the complaints as directed vide Order dated February 28, 2012 thereby not complied with SEBI Order. KEC/Manish has neither replied to the

SCN nor availed the opportunities of personal hearing, therefore I am inclined to believe that complaints mentioned above are still pending and hence KEC/Manish has not complied with the SEBI order.

Issue II. Does the violation, if any, on the part of KEC/Manish attract monetary penalty under Section 15 A(a) and 15HB of the SEBI Act?

14. Having stated above that KEC/Manish has violated the provision of SEBI Act and not complied with the directions of Order dated February 28, 2012 is liable for monetary penalty under Section 15A(a) and 15HB of the SEBI Act respectively in terms of the penal provisions as stated below:

SEBI Act

Section 15A(a) and 15HB of the Act (as existed during the period of violation) reads as under: Penalty for fraudulent and unfair trade practices.

Penalty for failure to furnish information, return, etc.

15A. If any person, who is required under this Act or any rules or regulations made thereunder,—

• to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees.

15HB.

Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which may extend to one crore rupees

Issue III : If so, what would be the quantum of monetary penalty that can be imposed on KEC/Manish taking into consideration the factors mentioned in Section 15J of the Act?

15. While determining the quantum of penalty under Section 15A(a) and /or 15HB, it is important to consider the factors stipulated in Section 15J of SEBI Act, which read as under:-

15J – Factors to be taken into account by the adjudicating officer while adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely:-

• the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default;
• the amount of loss caused to an investor or group of investors as a result of the default;
• the repetitive nature of the default.

Explanation

For the removal of doubts, it is clarified that the power of an adjudicating officer to adjudge the quantum of penalty under sections 15A to 15E,clauses (b) and (c) of section 15F, 15G, 15H and 15HA shall be and shall always be deemed to have been exercised under the provisions of this section.

16. It is difficult, in cases of this nature, to quantify exactly the disproportionate gains or unfair advantage enjoyed by an entity or the consequent losses suffered by the investors. I am of the view that not complying with the directions/orders of SEBI is a serious violation. However with respect to this specific non-compliance, it is to be seen in a different light altogether as the non-compliance of the order by KEC/Manish has come in the way of SEBI discharging its function towards the interest of the investors. I have kept this in mind while assessing the penalty to be imposed in the matter.
17. With regard to non-compliance of SEBI Summons, I would like to rely on Hon’ble SAT’s observation in Appeal No. 203/2010 in the matter of M/s Asian Films Production and Distribution Ltd. Vs SEBI wherein Hon’ble SAT has held that “Non-compliance with the summons is, indeed, a serious matter and cannot be viewed lightly. The respondent Board is the market regulator and has to regulate the securities market and the law provides that every person associated with the market in any manner should cooperate in the matter of carrying out investigations. In the year 2002, the provisions of the Act were amended and penalty for non-compliance with summons was enhanced considerably to make it more deterrent. Market players who do not cooperate with the regulator in the matter of investigations commit a serious wrong which can have serious repercussions in the market. We do not know what would have come to light if the company had furnished the information sought from it. In this background, we do not think that the amount of penalty levied by the adjudicating officer is excessive.”

ORDER

18. In view of the above, after considering all the facts and circumstances of the case and exercising the powers conferred upon me under Section 15-I of the Act and Rule 5 of Rules, I hereby impose a monetary penalty as detailed below on KEC/Manish under Section 15A(a) and 15HB of the Act. In my view, the penalty imposed is commensurate with the default committed by KEC/Manish.

19. The amount of penalty shall be paid within 45 days of receipt of this order either by way of

(i) demand draft in favor of “SEBI – Penalties Remittable to Government of India”, payable at Mumbai

(or )

(ii) by e-payment in the account of

“SEBI – Penalties Remittable to Government of India “, A/c No. 31465271959,

State Bank of India, Bandra Kurla Complex Branch,

RTGS Code SBIN0004380

20. KEC/Manish shall forward said Demand Draft or the details / confirmation of penalty so paid through e-payment to the Chief General Manager of Enforcement Department of SEBI. The Format for forwarding details / confirmations of e-payments shall be made in the following tabulated form as provided in SEBI Circular No.SEBI/HO/GSD/ T&A/CIR/P/2017/42 dated May 16, 2017 and details of such payment shall be intimated should be forwarded to “The Division Chief (Enforcement Department – DRA- I), Securities and Exchange Board of India, SEBI Bhavan, Plot no C- 4 A, “G” Block, Bandra Kurla

21. In terms of Rule 6 of the Rules, copies of this order are sent to the entity and also to Securities and Exchange Board of India.

Date: November 21, 2017                                                                     SAHIL MALIK

Place: Mumbai                                                                 ADJUDICATING OFFICER