SEBI Imposes Rs6 Lakh Penalty on Star World Research for Charging Exorbitant Fee, GST from Investor-Clients
Moneylife Digital Team 28 February 2023
Market regulator Securities and Exchange Board of India ( SEBI) has levied a fine of Rs6 lakh on Star World Research, a proprietorship firm of Manish Kumar Gour for collecting excessive fees from clients, collecting goods and services tax (GST) even after cancelling its tax registration and failing to redress investor complaints in a timely manner. Star World Research is also barred from markets for six months. 
In an order, Geetha G, chief general manager (CGM) of SEBI, says, "I find that the noticee (Star World Research) charged exorbitant fees from its clients, failed to do proper risk profiling of its customers, charged arbitrary fees and sold the same product multiple times to its clients; received money through Paytm wallet, failed in redressing complaints in a timely manner and collected GST from clients even after suo moto cancellation of its GSTN. Such acts of the noticee are in violation of the provisions of the investment advisory regulations and a poor reflection on the conduct of the noticee, that was expected to act as a responsible fiduciary for the clients."
At the initial stage, 12 allegations were raised against Star World Research, out of which SEBI dropped six due to lack of evidence. The remaining six were substantiated with adequate evidence. 
In the written submissions to the show-cause notice (SCN), Mr Kumar the proprietor of Star World Research, contended that in the case of the high amount of fees collected from clients, SEBI had issued a capping on fees only in 2020 and the relevant period about the allegation was before the capping. 
In response to the allegation of charging arbitrary fees from clients and selling them multiple products, he contented that these allegations have arisen due to a misunderstanding of its invoicing pattern by SEBI. 
He also stated that the invoices belong to the same duration because the client made payments in instalments after being satisfied by its services and then invoices were issued for the amounts received.
In the allegation of receiving money through Paytm wallet, Star World Research agreed that it had happened and stated that the amount was refunded instantly to the concerned client.
Regarding the non-redressal of complaints against the entity in the SEBI Complaint Redress System (SCORES), it placed reliance on the COVID-19 pandemic and order passed by the Supreme Court (SC). The SC had directed that no statutory limitation of any kind can be enforced from 14 March 2020 to 3 October 2021. Holding an investment advisory responsible for a delay of 15 days during such an emergency is an abuse of power and contempt of the order, the firm contended.  
Star World Research also argued that SEBI is not considering the refund it made and the regulator has no jurisdiction in cases related to GST.
After perusal of the transactions and relevant papers, SEBI rejected the contention on GST. "In the case of high fees charged from the clients, the argument of Star World Research cannot stand because clause 6 of the code of conduct under the IA regulations states that the fees charged by investment advisories should be fair and reasonable. This was issued even prior to the market regulator's notification in 2020." 
The investigation of SEBI proved that the fee charged by Star World Research was more than the client's annual income. 
The SEBI CGM observed, "I note that four different invoices have been issued on the same date of 20 December 2019 and three different invoices have been issued for 27 December 2019.
"It is obvious that different instalments would not be paid on the same date. Further, if the submission of Star World Research is to be accepted, it would mean that 11 instalments have been paid in the space of 10 days. Hence, I am of the view that the contention that the different invoices pertained to instalments and the same product was not sold multiple times for the same period is not tenable."
In the case of receiving money through Paytm wallet, SEBI says, refund of the amount does not reduce or negate the gravity of the violation committed. SEBI also repudiated the reliance on the SC as the complaint of one Suraj Bhan has been pending for more than one year, and Star World Research is not applying for some relief to any court or tribunal.
According to SEBI, charging GST even after the suo moto cancellation is a violation of the code of conduct for IAs (investment advisers).. 
(QJA/GG/WRO/WRO/24160/2022-23    Date: 27 February 2023)
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