Securities Appellate Tribunal
Anirudh Sethi vs Sebi on 29 July, 2021
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 18.06.2021
Date of Decision : 29.07.2021
Misc. Application No. 254 of 2018
And
Appeal No. 303 of 2018
Anirudh Sethi
B-238, Anand Baugh Housing
Cooperative Society, Behind Sussen,
Tarasli Road, Makarpura,
Baroda Pin- 390010. ...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
With
Misc. Application No. 327 of 2018
And
Appeal No. 390 of 2018
Anirudh Sethi
B-238, Anand Baugh Housing
Cooperative Society, Behind Sussen,
Tarasli Road, Makarpura,
Baroda Pin- 390010. ...Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
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Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ...Respondent
Mr. J. P Sen, Senior Advocate with Mr. Vinay Chauhan, Mr. K. C.
Jacob, Advocates i/b Corporate Law Chambers India for the
Appellant.
Mr. Kumar Desai, Advocate with Mr. Manish Chhangani,
Mr. Anubhav Ghosh, Mr. Ravishekhar Pandey, Advocates i/b The
Law Point for Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Justice M. T. Joshi, Judicial Member
Per : Justice M. T. Joshi, Judicial Member
1. The present two appeals have arisen out of a common issue
against two impugned orders passed by the Adjudicating Officer
(hereinafter referred to as 'AO') and the Whole Time Member
(hereinafter referred to as 'WTM').
2. In the year 2007, respondent Securities and Exchange Board
of India (hereinafter referred to as 'SEBI') had initiated the
proceedings against the appellant vide an ad-interim ex-parte order
calling upon him to cease and desist from giving investment advice
to clients and to give recommendations containing company specific
news in violation of Regulation 4(1) read with Regulation 2(1)(c)(5)
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and Regulation 4(2)(k) and Regulation 4(2)(r) of the Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 2003
(hereinafter referred to as 'PFUTP Regulations'). Thereafter on
March 12, 2007 the appellant filed an additional affidavit before the
WTM and undertook not to indulge into such activities. In the
circumstances the interim order was confirmed by the then WTM on
July 29, 2009.
However, respondent SEBI found that the appellant in
contravention of the above order and the undertaking had continued
to indulge in such activities. In the circumstances, a show cause
notice was issued on July 10, 2017 calling upon the appellant as to
why an inquiry should not be initiated against him for imposing
penalty under Section 15HB of the Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as 'SEBI Act'). Upon
hearing the appellant, the learned AO came to the conclusion that the
appellant continued to violate the provisions of the Regulations and,
therefore, by an order dated November 30, 2017, the learned AO
imposed a penalty of Rs. 25 lac in the manner as detailed in the
order. Aggrieved by the same appeal No. 303 of 2018 is filed.
3. On the same set of facts, show cause notice was issued to the
appellant for violation of Securities and Exchange Board of India
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(Investment Advisers) Regulations, 2013 (hereinafter referred to as
'Investment Advisers Regulations') and Securities and Exchange
Board of India (Research Analysts) Regulations, 2014. Several
correspondence prior to the issuing of the show cause notice had
ensued between SEBI and the appellant in these proceedings. After
collecting the evidence and getting explanation from the appellant,
the learned WTM passed an interim order on May 26, 2016.
Thereafter, the appellant filed a reply in the proceedings. By the
interim order, the appellant was directed to stop working as an
Investment Advisor, Research Analyst, and any other activity in the
securities market. He was also directed not to divert any fund raised
from the investors. Further, directions were issued to withdraw and
remove all advertisement, representation, etc. He was also directed
to furnish the complete details including the addresses of the clients,
participants who had participated in the seminars and deposited
money to the tune of Rs. 36,000/- per head. He was also directed to
give full details of the scheme "Fatal Attraction", etc.
4. After hearing the appellant in the proceedings, the learned
WTM has by the impugned order provisionally found from the bank
statement that the appellant for a period from October 22, 2013 to
April 20, 2016 has collected an amount of Rs. 7,35,06,557/-. In the
circumstances, by the impugned order dated March 16, 2018, the
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learned WTM issued several directions to the appellant as detailed in
the order. For facility, directions in paragraph No. 48 of the
impugned order is extracted hereunder :-
"48. Therefore, I, in exercise of the powers conferred
under section 19 of the SEBI Act read with sections
11(1), 11(4), and 11B of the SEBI Act, hereby issue the
following directions:
a. Mr. Anirudh Sethi shall forthwith refund the money
received from its clients as fees/profit
sharing/compensation in any other form, in respect of
its investment advisory activities and unregistered
research analyst services.
b. Mr. Anirudh Sethi shall issue public notice in all
editions of two National Dailies (one English and one
Hindi) and in one local daily with wide circulation,
detailing the modalities for refund, including the
details of contact persons such as names, addresses
and contact details, within 15 days of this Order
coming in to effect.
c. There payments to the clients shall be effected only
through Bank Demand Draft or Pay Order both of
which should be crossed as "Non-Transferable" or
through any other appropriate banking channels with
clearly identified beneficiaries.
d. Mr. Anirudh Sethi is directed not to divert any
funds raised from investors, kept in bank account(s)
and/or in his custody, except for the purpose of refunds
to the clients. The Banks and Depositories are directed
that no debit shall be made, without permission of
SEBI, in respect of the bank accounts and demat
accounts, held jointly or severally, by Mr. Anirudh
Sethi.
e. After completing the aforesaid repayments, Mr.
Anirudh Sethi shall submit a certificate from a peer
reviewed Chartered Accountant who is in the panel of
any public authority or public institution, within a
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period of 3 months from the date of service of this
order. For the purpose of this Order, a peer reviewed
Chartered Accountant shall mean a Chartered
Accountant, who has been categorized so by the
Institute of Chartered Accountants of India ("ICAI")
holding such certificate.
f. In case of failure of Mr. Anirudh Sethi to comply
with the aforesaid directions, SEBI, on the expiry of
three months period from the date of this Order may
recover such amounts, from Mr. Anirudh Sethi as
specified in paragraph 48(a) of this Order, in
accordance with section 28A of the SEBI Act including
such other provisions contained in securities laws.
g. Mr. Anirudh Sethi is directed not to, directly or
indirectly, access the securities market, and is
prohibited from buying, selling or otherwise dealing in
the securities market, directly or indirectly in
whatsoever manner, till the expiry of 4 years from the
date of refund. Mr. Anirudh Sethi is also restrained
from associating with any listed public company and
any public company which intends to raise money from
the public, or any intermediary registered with SEBI
till the expiry of 4 years from the date of refund.
h. Mr. Anirudh Sethi shall not undertake, either
directly or indirectly, investment advisory services,
research analyst services or any activity in the
securities market without obtaining a certificate of
registration from SEBI as required under the securities
laws after the expiry of period of debarment as
mentioned in paragraph 48(g).
i. The above directions shall come into force with
immediate effect."
5. Aggrieved by the said order, appeal No. 390 of 2018 is filed.
6. We have heard Mr. J. P Sen, the learned senior counsel with
Mr. Vinay Chauhan, Mr. K. C. Jacob, the learned counsel for the
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appellant and Mr. Kumar Desai, the learned counsel with Mr. Manish
Chhangani, Mr. Anubhav Ghosh, Mr. Ravishekhar Pandey, the
learned counsel for the respondent through video conference.
7. The charge against the appellant as can be seen from the
record of both the appeals is that he was offering investment advice
to the investors upon invent of subscription through his website
www.anirudhsethireport.com. Through his own Twitter handle, he
also used to provide top securities tips as well as tips from trading
consideration. Some of his tweets allegedly heavily created panic/
sensation among the investors. The appellant, had disowned the
ownership of the website or the Twitter handle though the
registration service provider - System Solutions - had provided all the
details to respondent SEBI during the investigation. The
correspondence between the appellant and the respondent SEBI
ultimately resulted into collection of copies of the income tax returns
of the appellant for the relevant three years which clearly shows that
the appellant has described himself in the income tax return as
investment advisor. In the circumstance, though initially the
appellant before us initially made an attempt to argue before us that
he was not acting as an investment advisor, ultimately submitted that
though he was acting as such, the amount arrived at by the learned
WTM is Rs. 7,35,06,557/- as detailed (supra) is patently wrong. He
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made a submission before us that he was ready to pay a penalty of
Rs. 25 lac but the amount arrived at by the learned WTM in fact is
only Rs. 11,52,000/- as can be seen from the certificate issued by CA
as annexed by him as 'Exhibit 1' to the additional affidavit filed by
him on July 31, 2019. He further submitted that the direction of the
learned WTM of debarring him for a certain period from giving
investment advice and to permanently debar him from accessing the
securities market is drastic one. Instead he submitted that he may be
debarred till he refund of the money i.e Rs. 11,52,000/- to the
investors and till he obtains the regular registration under the
Investment Advisory Regulations.
8. Upon hearing both the sides, we find that the learned WTM in
paragraph No. 44 of the impugned order has arrived at the figure of
Rs. 7,35,06,557/- by taking into consideration the amount credited in
the appellant's bank account from October 22, 2013 till April 20,
2016. The WTM reasoned that in the absence of details of
segregation of the fees received from the global and Indian market, a
conduct of the seminars workshops despite the particulars having
been sought from the appellant, it would be appropriate to refund the
entire amount credited in the bank account of the appellant for the
said period.
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9. On the other hand, the appellant has annexed to his additional
affidavit referred (supra), the certificate issued by chartered
accountant MJM Patel & Company in which segregation of the
income for a period from October 22, 2013 to April 20, 2016 is
given. The CA has certified that a subscription amount for the said
period would come to Rs. 11,52,000/- and other income would be
Rs. 7,29,51,012/-. The certificate gives the details of each of the
entry in the bank account like interest on FDR, loan, rent, other
income, etc.
10. The copies of the income tax returns collected by the
respondent SEBI and also additionally added to the respondent's
written note would show that during the relevant period the appellant
had income from house property, income from capital gains, income
from other sources and the income from business or profession.
11. Upon considering all these facts, in our view, the learned
WTM for want of cooperation from the appellant in segregating the
income from the appellant had wrongly directed that the entire
amount shown as credit in his bank account i.e. Rs. 7,35,06,557/- be
refunded to the clients of the appellant. We find that the said
direction has not dealt with the segregation of credit entries in bank
account towards various heads of income (supported by the income
tax returns on record) albeit for want of co-operation of the appellant.
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We also further found that though the appellant before SEBI was
adamant in not providing the particulars as sought by the respondent
SEBI, since the issue is only of the non-registration of the appellant
as an investment advisor, debarring him for a period of four years
from the date of the refund of the amount to the subscribers, clients,
etc. is harsh.
12. We further find that the amount collected by the appellant is of
the period from 2013 to 2016 from various clients in the nature of
subscription, towards seminar etc. The amount is retail amount,
collected from numerous investors and that now it would not be
practical to trace these subscribers/ clients and to refund the amount
to them.
13. In view of the above facts and in our view, the following order
would meet the ends of justice.
ORDER
14. Appeal No. 303 of 2018, impugning the order of the AO imposing a penalty of Rs. 25 lac is hereby dismissed without any order as to costs. The appellant is directed to deposit the said amount within a period of two months if not deposited earlier. 11
15. Appeal No. 390 of 2018 is partly allowed. The order of the learned WTM directing to repay an amount of Rs. 7,35,06,557/- is hereby set aside. Instead the case is remitted back to the learned WTM for arriving at an exact figure in the light of the material that would be supplied by the appellant to the learned WTM. This exercise shall be carried out by the WTM within four months from the date of deposit by the appellant as per this order. Upon arrival at a specific amount, the directions be issued by the learned WTM that the said amount arrived at be credited by the appellant to the Investors Protection and Education fund established by the respondent SEBI in terms of Sub-section 5 of Section 11 of the SEBI Act upon deduction of Rs. 12 lacs to be deposited by the appellant vide the directions being issued vide paragraph no. 16.
16. In the meantime, the appellant is directed to credit an amount of Rs. 12 lacs to the said fund within a period of two months from the date of this order.
17. He is further directed to deposit an amount of Rs. 20 lacs with the respondent SEBI within a period of two months from the date of this order which shall be deposited by SEBI in an interest bearing account. The amount there from shall be adjusted towards further appropriation of the amount if any to be arrived at by the WTM vide 12 direction issued at paragraph no. 15 above. Excess amount if any shall be refunded.
18. The order of the learned WTM prohibiting the appellant from accessing the securities market for a period of four years from the date of the expiry of the date of refund is hereby set aside instead it is hereby directed that the period shall expire upon deposit of the amount (12 lacs + 20 lacs) as directed vide paragraphs no. 16 and 17 above.
19. In the similar manner, the other directions in paragraphs 48(g) and 48(h) of the impugned order shall also stand modified to the date of deposit of the amount referred in paragraph 18 above, and upon obtaining certificate of registration from SEBI to carry investment advisory services, research analysis services, etc.
20. Upon failure to deposit the amount of Rs. 32 lacs within the period as directed above the impugned order of the WTM shall stand revived.
21. The appeals are accordingly disposed of in terms of the aforesaid directions without any order as to costs.
22. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of 13 this order nor a certified copy of this order could be issued by the Registry. In these circumstances, 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. Parties will act on production of a digitally signed copy sent by fax and/or email.
Justice Tarun Agarwala Presiding Officer Justice M. T. Joshi Judicial Member Digitally signed 29.07.2021 RAJALA byRAJALAKSHMI H KSHMI NAIR PTM Date:
H NAIR 2021.07.30 13:23:51 +05'30'