Tarun Agarwala, Presiding Officer
1. The present appeal has been filed against the order dated October 18, 2022 whereby the Adjudicating Officer (‘AO’ for short) of the Securities and Exchange Board of India (‘SEBI’ for short) has imposed a penalty of Rs. 6 lakh for violation of Regulation 25(1)(iii) and Regulation 24(2) of the SEBI (Research Analyst) Regulations, 2014 (‘RA Regulations’ for short) and Regulation 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (‘PFUTP Regulations’ for short).
2. The facts leading to the filing of the present appeal is, that the appellant is a registered Research Analyst under the RA Regulations and an inspection was conducted between November 13-15, 2019 pursuant to which a show cause notice was issued as to why an inquiry should not be held and penalty should not be imposed under Section 15EB and 15HA of the SEBI Act, 1992.
3. The AO after considering the material evidence on record found that the appellant has violated Regulation 25(1)(iii) of the RA Regulations as well as Regulation 3 and 4 of the PFUTP Regulations and accordingly imposed a penalty of Rs. 6 lakhs.
4. We have heard Shri Hitesh Biherani, the learned counsel for the appellant and Shri Manish Chhangani, the learned counsel for the respondent.
5. Regulation 25(1)(iii) of the RA Regulations provides as under:-
“RA Regulations
“Maintenance of records.
25. (1) Research analyst or research entity shall maintain the following records:
(i) …..
(ii) ….
(iii) rationale for arriving at research recommendation;
(iv) …”
6. The charge against the appellant was that he had not maintained the rationale of all the recommendations. The contention of the appellant is that he had only maintained the rationale for the executed calls. We find from a reading of Regulation 25 that a Research Analyst is required to maintain the record of rationale for arriving at research recommendation. There is no distinction made in the RA Regulations between recommendations which were acted upon or not acted upon and consequently a Research Analyst is required to maintain rationale for all the recommendations irrespective of whether it has been acted upon or not. Since admittedly the appellant had not maintained the rationale for arriving at the research recommendations, the penalty of Rs. 1 lakh was rightly imposed.
7. Insofar as the violation of Regulation 3 and 4 of the PFUTP Regulations is concerned we find that on the basis of analysis of the call records of the employees of the appellant it was found that the employees of the appellant were promising guaranteed returns to the prospective clients on investment of certain amounts. Further guaranteed returns were promised quoting profit percentage or certain amount either monthly or on a daily basis. The action of promising guaranteed returns is patently against the principles of the securities market and not only manipulative but also fraudulent and violative of Regulations 3 and 4 of the PFUTP Regulations. There is no denial of the transcript of the employees of the appellant and consequently we do not find any error in the finding of the AO regarding violation of the Regulation 3 and 4 of the PFUTP Regulations.
8. For the reasons stated aforesaid, we do not find any error in the impugned order. The appeal fails and is dismissed with no order as to costs.
9. 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. Certified copy of this order is also available from the Registry on payment of usual charges.
