Opportunity of being heard is granted only after the Noticee shows a 'cause' in reponse to the SCN

Opportunity of being heard is granted only after the Noticee shows a 'cause' in reponse to the SCN

The markets regulator Securities and Exchange Board of India (SEBI) imposed a monetary penalty of Rs. 25 lakhs on the Noticees (Mansoor Rafiq Khanda and Firoz Rafiq Khanda) under section 15HB, for not complying with the issued directions to disgorge the ill-gotten gains made from their activities as an unregistered investment adviser.

SEBI had received complaints against the Noticees inter alia alleging that they were offering trading tips through WhatsApp messages and internet websites including the site fullonoption.

Pursuant to a preliminary examination, SEBI had prima facie found the Noticees to have engaged in providing investment advisory services to investors upon receipt of requisite fees without obtaining registration from SEBI toact as 'Investment Adviser' and to have solicited and induced investors to deal in securities on the basis of such investment advisory services.

Upon completion of the investigation, SEBI had issued directions against the Noticees vide an Impounding Order to impound the unlawful gains of a sum of Rs. 5,04,01,896 (gain of Rs. 3,83,80,477 + interest of Rs. 1,20,21,419) jointly and severally from the Noticees.

In terms of rule 4(1) of the Rules read with section 15I of the SEBI Act, with regard to the alleged non-compliance of the SEBI order, anotice to show cause (SCN) was issued to the Noticees, calling upon them to show cause as to why an inquiry should not be held against them in terms of Rule 4 of the Adjudication Rules and penalty be not imposed under Section 15HB of the SEBI Act for the aforesaid alleged failure tocomply with the SEBI order.

The Adjudicating Officer opined that that the Noticees had challenged the SEBI order before the Hon'ble SAT. Therefore, it was established that they knew about the SEBI order and its contents and were also aware of their duties to comply with the said SEBI order within the timeline as stipulated therein.

According to the AO, the Noticees also knew that in the absence of any appeal before the Hon'ble Supreme Court against the said order of the Hon'ble SAT upholding the SEBI order, the directions contained in the SEBI order had attained finality as on January 7, 2020, and the time period of 45 days for payment of the disgorgement amount had begun from the said date.

It was on record that the Noticees had not paid the said amount of disgorgement within the stipulated time period or at all. Without any response received from the Noticees, there was nothing to controvert this point of fact.

Hence,it was established that the Noticees had failed to comply with the directions contained in SEBI order. This was further evident from the fact that proceedings for recovery had been already been initiated by SEBI against the Noticees vide Notices of attachment of bank and demat accounts dated November 19, 2020.

Hence, it was found that the Noticees had completely disregarded the directions of SEBI and so the abovementioned monetary penalty was imposed.