Unregistered Investment Advisors are Not Entitled to Retain Fees Collected Illegally Without Statutory Registration

The Appellant, proprietor of Mapple Research, was found by SEBI to be conducting unregistered investment advisory services.

Following a complaint from an investor who lost ₹5,000, SEBI issued a Show Cause Notice (SCN) which the Appellant failed to contest.

On September 22, 2022, the Whole Time Member (WTM) of SEBI issued an order directing the Appellant to refund all fees collected from unregistered activities (quantified at ₹68,58,045.65) and to issue public notices regarding the refund.

The Appellant refunded only ₹5,000 to the original complainant and claimed no other investors sought refunds after his public notice.

Consequently, the Recovery Officer issued a Recovery Certificate dated January 19, 2024, for ₹80,24,914 (inclusive of interest/costs).

The Appellant challenged this certificate before the Securities Appellate Tribunal (SAT).

Whether an unregistered investment advisor is liable to refund the entire fee amount collected even if specific claims for refunds are not received from all investors following public notices.

Whether the recovery certificate issued by SEBI is sustainable when the underlying WTM order quantifying the illegal fees has attained finality.

The Tribunal applied Sections 11(1), 11(4), and 11B of the Securities and Exchange Board of India Act, 1992, which empower SEBI to issue directions for investor protection and to order the refund of illegally collected money.

The core legal principle applied is that fees collected by an unauthorized or unregistered investment advisor cannot be retained by the entity, as established in the precedents of Anoop Singh Tomar v. SEBI (Appeal No. 127 of 2024), Ankit Goel v. SEBI (Appeal No. 672 of 2022), and Way2Gains v. SEBI (Appeal No. 379 of 2020).

The Tribunal reasoned that the Appellant did not challenge the original adjudicatory order passed by the WTM, which specifically determined the quantum of fees collected through unregistered activities as ₹68.58 Lakhs; therefore, this finding reached finality.

Regarding the Appellant’s contention that he should not pay because no other investors came forward, the Tribunal held that illegal gains from unregistered advisory services cannot be retained by the wrongdoer regardless of whether specific refund claims were filed.

The Tribunal noted the Appellant’s own compliance report admitted to the activities and the WTM’s directions.

By applying the rule established in Ankit Goel, the court found that the lack of registration makes the entire collection illegal, necessitating a full recovery rather than just satisfying individual complaints.

The Tribunal affirmed the Recovery Certificate dated January 19, 2024, as it was consistent with the finality of the WTM’s quantification and established legal precedents.

All pending interlocutory applications were disposed of accordingly.