SEBI | Permitting investors to receive portfolio management services from unregistered entity causes irreparable injury to securities market; SEBI’s objective not only protection of investors but also orderly development of market

Security and Exchange Board of India (SEBI): Madhabi Puri Buch, (Whole Time Member) imposed certain restrictions on GJ Advisory Services and Profit Ideas Advisory Services (“Noticees”) for indulging in unregistered Portfolio Management Services.

SEBI received several complaints against noticees alleging unregistered portfolio management activities. On examination, the Board noticed that the noticees had undertaken the management of funds as well as securities of their clients and the fees/funds were collected through the Banks Accounts of the noticees. It was found out that both the noticees were engaged in ‘portfolio management services. The Board observed that by virtue of providing unregistered Portfolio Management Services, the noticees had collected an amount of Rs 8,89,23,049 as fees towards the management of funds and securities of clients.  Thus, the activities noticees were prima facie, in violation of Section 12(1) of SEBI Act read with Regulation 3 of Portfolio Management Services (“PMS”) Regulations.

The Board opined that permitting the investors to receive a portfolio management service from an unregistered entity would cause irreparable injury to the development of the securities market as the objective of SEBI is not only the protection of investors but also orderly development of securities market. Hence, the Board held that Gourav Jain and Poonam Jain who were the proprietors of GJ advisory and Profit Ideas respectively, were liable for unregistered portfolio management services and, therefore, the Board issued following orders against the noticees:

  1. to cease and desist from acting as a portfolio manager and to solicit or undertake such activity or any other activities in the securities market.
  2. Not to divert any funds raised from investors.
  3. Not to dispose of or alienate any assets, or any interest or investment or charge on any of such assets held in their name, except with the prior permission of SEBI.
  4. Immediately withdraw and remove all advertisements, materials etc. in relation to their portfolio management activity or any other unregistered activity in the securities market.
  5. Not to access the securities market and buy, sell or otherwise deal in securities in any manner.

Consequently, the directions were made to the Banks not to allow any debits/ withdrawals and not to allow any credits to the accounts of the noticees, without permission of SEBI. The Depositories were also directed to ensure, till further directions, that no debit or credit be permitted in the demat accounts held by noticees. [GJ Advisory services and Profit Ideas Advisory Services, In Re., 2021 SCC OnLine SEBI 2, decided on 04-01-2021]

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