SEBI | Carrying out mutual funds with DGP scheme and an Investment Adviser but with no registration | Orders to pay the amount along with several other restrictions

Securities Exchange Board of India (SEBI): G Mahalingam, Whole Time Member, considering the factual chain and evidences directed the Noticees to cease and desist from sponsoring and/ or carrying out activities of a mutual fund and as investment advisers, including the activity of representing through any media (physical or digital) schemes for collection of funds, directly or indirectly along with the liability to pay jointly or severally the due amount of Rs. 87,33,17,200 to the investors along with certain other restrictions.

In the pertinent matter it was alleged that the Shukul Wealth Advisory (SWA), a partnership firm, established by way of a Deed of Partnership, were soliciting investments from investors and offering them steady returns under their ‘Daily Get Unit Plan’ (“DGP Scheme” and to invest the same in shares by running a scheme akin to a Mutual Fund scheme, by offering daily NAVs (called Daily Net Value (“DNV”) in their scheme). Further, that they were acting as an advisory firm, guaranteeing profit to investors. Ironically, all the soliciting was done without any registration with the SEBI.

Here, few Directors took a defence while stating themselves to be ‘name’s sake’ directors, who were not involved in the alleged purported acts. Though, the Tribunal refuted the entire line of argument in its entirety later.

The Tribunal stated,

“From the contents of the deed of partnership, it seems that the powers vis-a-vis the operation of SWA were predominantly with Pradip Shukla. However, in view of the settled position in law that each partner in a firm is liable for the acts of the firm, jointly and severally, I conclude that Dhananjay Barad is also liable for the acts carried out by SWA”. 

Pradip Shukla and Dhananjay Barad were the partners, when the firm was established through a partnership deed.

The Tribunal while holding the Firm and the partners liable for the fraudulent acts held,

“…This activity was being carried out without any registration from SEBI. Thus, SWA/SWCL were sponsoring and/ or carrying out the activities of a mutual fund through the DGP scheme without necessary registration, and have thereby violated Section 12 (1B) of the SEBI Act. Similarly, SWA/SWCL were offering packages to investors, which involved giving advice on the trading on the stock exchanges and investing in the securities market. SWA/SWCL were offering these investment advisory services without being registered as an Investment Adviser with SEBI. Accordingly, SWA/SWCL have also violated Section 12(1) of SEBI Act read with Regulation 3(1) of the IA Regulations. Further, SWA and SWCL also fraudulently offered assured/ guaranteed returns to the investors on the basis of their published activities pertaining to the securities market. Accordingly, the Noticees have violated the provisions of Section 12A (a), (b), (c) of the SEBI Act and Regulations 3 (a), (b), (c), (d) and Regulations 4(1) and 4(2)(k) of PFUTP Regulations for making such misleading and deceptive representations”.

Further held,

“Since, the Noticees have collected large amounts from investors by fraudulently holding out as Investment Advisers as well as investment firms offering assured returns, they are legally liable to refund monies to the investors in a short time horizon. These liabilities cannot be predicated upon the fortunes of another business. I, therefore, do not find the proposal of repayment being linked to another business acceptable”.

However, the Noticee No. 6, Sandeepkumar Manubhai Patel, was absolved of the liability, since he joined as a designated partner in January 2021. But since he continues to be a partner of the firm, the Tribunal found it appropriate to pass directions against him to ensure compliance.[Shukul Wealth Advisory, In re, 2021 SCC OnLine SEBI 200, decided on 13-08-2021]


Agatha Shukla, Editorial Assistant has reported this brief.

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