Inspection and disciplinary proceedings by SEBI – Portfolio Managers

Right to Inspection: The SEBI may appoint one or more persons as inspecting authority to undertake the inspection of the books of accounts, records and documents of the portfolio manager:

1. To ensure that the books of account are being maintained in the manner required; that the provision of the SEBI Act, rules and regulations are being complied with;
2. To investigate into the complaints received from investors, other portfolio managers or any other person or any matter having a bearing on his activities as the portfolio manager; and
3. To investigate suo moto in the interest of securities business/investors interest into his affairs as portfolio managers.

The inspection of the portfolio managers can be undertaken by the SEBI after giving reasonable notice or in the interest of investors, without notice. During the course of investigation, every director/proprietor/ partner/officer/employee has an obligation to produce to the inspecting authority, within specified time, books, accounts and other documents in his custody/control and furnish statements of information relating to the activities of the portfolio manager. He should allow reasonable access to his premises and extend reasonable facility for examination of books / records / documents / computer data in his possession and also provide copies of documents/other material relevant for the purpose of inspection. The inspection authority is also entitled to examine/record statements of any principal officer, director, partner, proprietor and employee who should provide all assistance in connection with the inspection. The inspection can also be conducted by a qualified auditor approved by the SEBI. On the basis of the inspection, the SEBI is authorized to take appropriate measures in the interest of the securities market and for due compliance with the provisions of the SEBI Act, rules and regulation.

Action in Case of Default:

A portfolio manager who (1) fails to comply with any conditions subject to which certificate has been granted; (2) contravenes any of the provisions of the Act, rules or regulations is liable to suspension or cancellation of his registration.

Suspension of Registration: A penalty of suspension of registration of a portfolio manager may be imposed where he:

i) Violates the provisions of the SEBI Act, rules or regulations
ii) (1) fails to furnish any information relating to his activity as portfolio manager as required by the SEBI; (2) furnishes wrong or false information; (3) does not submit periodical returns as required by the SEBI ; (4) does not cooperate in any enquiry conducted by it.
iii) Fails to resolve the complaints of the investors or fails to give a satisfactory reply to the SEBI in this behalf.
iv) Indulges in manipulating or price rigging or cornering activities.
v) Is guilty of misconduct or improper or un-business like or unprofessional conduct which is not in accordance with the specified code of conduct.
vi) Fails to maintain the capital adequacy requirement
vii) Fails to pay the fees.
viii) Violates the conditions of registration.
ix) Does not carry his obligations as specified in the regulation.

Cancellation of Registration: A penalty of cancellation of registration of a portfolio manager may be imposed where:

i) He indulges in deliberate manipulation or price rigging or cornering activities affecting the securities market and the investors’ interest.
ii) His financial position deteriorates to such an extent that the SEBI is of the opinion that his continuance as portfolio manager is not in the interest of the investors;
iii) He is guilty of fraud or is convicted of a criminal offence; and
iv) He is guilty of repeated defaults which may lead to suspension of registration provided that the SEBI furnishes the reason for cancellation in writing.

The suspension/cancellation of registration of portfolio managers by the SEBI has to be made in accordance with the specified procedure after enquiry, show cause notice and so on. The effect of suspension/registration is that the portfolio manager ceases to carry on any activity as portfolio manager.