BEFORE THE
SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Decision
: 24.12.2019
Appeal No. 529 of 2019
M/s Star India Market Research
[Prop. Dharmendra Kumar]
307, B-Block, 3rd Floor,
Corporate House,
Besides DAVV University,
Regal Square, Indore – 452 003.

…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. Pulkit Mehta, CA for the Appellant.
Ms. Anubha Rastogi, Advocate for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Per : Justice Tarun Agarwala, Presiding Officer (Oral)
1.

This appeal has been preferred to challenge the order of the
Adjudicating Officer (‘AO’ for short) of Securities and Exchange
Board of India (‘SEBI’ for short) dated August 7, 2019 whereby a
penalty of Rs. 40 lakh has been imposed under Section 15HB of
the SEBI Act, 1992. It is held in the impugned order that the
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appellant has violated Regulation 15, 16 and 17 along with
Schedule III of the SEBI (Investment Advisors) Regulations,
2013.
2.

Appellant is a SEBI registered Investment Advisor with
effect from October 12, 2015. SEBI officials conducted an
inspection for the period from April 1, 2016 to November 6, 2017
during 6 – 7 November, 2017. On the basis of the findings during
this inspection SEBI initiated adjudication proceedings and the
AO was appointed on January 15, 2019. Thereafter a show cause
notice was issued to the appellant on February 25, 2019 directing
to show cause as to why an enquiry should not be held against the
appellant and penalty imposed for various alleged violations stated
therein.

3.

The main alleged violations against the appellant are:(i)
Offering products without considering the risk profile
of the clients.

(ii) Offering high net-worth individual (HNIs) services to
unsuitable clients.
(iii) Receiving payments in advance for future services.
(iv) Charging high and unreasonable fee from clients.

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4.

After considering the reply of the appellant dated March 9,
2019 and after providing an opportunity for personal hearing etc.
the impugned order was passed on August 7, 2019. It is held in the
impugned order that the appellant has committed several
violations as alleged in the show cause notice. It is observed that
high risk products were offered to young investors in the age
bracket of 18 – 20 years and to various senior citizens above 80
years. Similarly, services which are meant for HNI have been
offered to young investors in the age group of 19 – 21 years.
Further, there are about 40 instances where the appellant had
charged the clients twice the charge allowed for such services. In
as many as 62 instances payments were collected for services to
be rendered in future.
5.

In its reply the appellant submitted that it has offered high
risk services to only a few clients; the age bracket of 19 – 21 given
in the show cause notice was not correct; age alone is not a criteria
for assessing the risk bearing capacity of investors; HNI services
were given to young investors because of their capacity to finance
as well as to take risk and so on.

6.

Shri Pulkit Mehta, Authorized Representative appearing for
the appellant fairly submits that though all the charges are not
correct some violations have happened from the side of the
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appellant which were unintentional. Moreover, as stated in its
reply a completely watertight classification of risk capacity and
age etc cannot be justified. In any case for the minor, technical
violations that have occurred unintentionally the penalty of Rs. 40
lakh imposed under Section 15HB is too high and excessive
particularly in the context that the appellant had a net profit of
only about 31 lakh in 2015-16 and incurred a loss in the previous
year and has a net worth of about Rs. 21 lakh. Therefore, factors
under Section 15J of the SEBI Act are not considered by the AO
while imposing such a heavy penalty.

7.

We have also heard the learned Counsel Ms. Anubha
Rastogi appearing for respondent SEBI who contended that the
violations committed by the appellant are many and serious and
hence the penalty imposed is just and fair.

8.

We find merit in the submissions of the Authorized
Representative of the appellant that the penalty imposed is too
harsh and disproportionate. The appellant is a small investment
advisor with a profit of about Rs. 30 lakh in a year and with a
small amount of net worth. Though it is an admitted fact that the
appellant has committed certain violations there is also some merit
in the submissions that in every case the age profile and risk
taking capacity can be tightly compartmentalized. In any case the
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penalty which can be imposed under Section 15HB of the SEBI
Act “shall not be less than Rs. 1 lakh but which may extend to Rs.
1 crore”. Given this provision and taking into consideration the
nature, value and number of the violations committed by the
appellant as well as its financial capability penalty of Rs. 40 lakh
imposed is disproportionate and harsh.

9.

In view of the aforesaid, the appeal is partly allowed. The
impugned order is affirmed insofar as violation of the provisions
of the Regulations are concerned and the Code of Conduct. The
penalty, however, is reduced from Rs. 40 lakh to Rs. 20 lakh.
Appellant is directed to pay the said amount of penalty within four
weeks from today. No orders on costs.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
24.12.2019
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