Order in the matter of HSBC Mutual Fund Distributor

WTM/SR/IVD/ID-I/ /07/2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI

CORAM: S. RAMAN, WHOLE TIME MEMBER

ORDER

Under Section 11, 11(4) and 11B of the SEBI Act, 1992 read with Regulation 11 of SEBI

(Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations, 2003 in the matter of HSBC Mutual Fund Distributor.
1. Securities and Exchange Board of India (SEBI) received a complaint dated January 01, 2013 from
Ms.Suchitra Krishnamoorthi (hereinafter referred to as “the complainant”) against the
Hongkong and Shanghai Banking Corporation Limited (hereinafter referred to as the
"Noticee") a Mutual Fund distributor. The complainant had inter-alia alleged that on account of
the actions on the part of the Mutual Fund distributor, the complainant suffered losses.

2. Upon receipt of the said complaint, SEBI initiated investigations for the period June 18, 2004 to
February 28, 2011 (hereinafter referred to as “investigation period”) to ascertain whether there
was any violation of SEBI Portfolio Management Service (PMS) Regulations, 1993, and Code of
Conduct for Mutual Fund Distributors and SEBI Act, 1992 by the Noticee with regard to the
Mutual Funds transactions in the complainant's account. Since, it was noted from the replies of
the Noticee that it did not act as a Portfolio Manager but is a registered Association of Mutual
Funds India (AMFI) distributor with No.ARN-0022. Accordingly, an investigation was carried
out to ascertain whether there was any violation of Code of Conduct for Mutual Fund
Distributors, SEBI (Prohibition of Fraudulent and Unfair Trade Practices) PFUTP Regulations,
2003 (hereinafter referred to as 'PFUTP Regulations') and SEBI Act, 1992 by the Noticee with
regard to the Mutual Fund transactions done on behalf of the complainant.

3. During the course of investigation, the following was observed :

a. The complainant was registered with the Noticee as a client of Retail Banking and Wealth
Management Services.

b. The Mutual Fund portfolio worth `5 lakh was created in June 2004 as per the bank
statements of the complainant submitted by the Noticee. On September 06, 2006,
November 23, 2006 and December 07, 2006, `1.4 crores, `2.2 crores and `15 lakh
respectively were deposited in the complainant's account. On January 11, 2007, `5 lakh was
also deposited in the complainant's account. These funds were used to invest in the Mutual
Fund portfolio of the complainant.

c. It was revealed in the investigation that there was excessive churning in the portfolio of the
complainant. The complainant's money had been invested in 38 different schemes of
various Mutual Funds. Some of the investments were also not in line with the risk profile of
the complainant.

d. It is also seen that a large number of the investments made in Mutual Fund Schemes were
redeemed in a short span of time and on many instances redemption proceeds were used to
invest in similar Mutual Fund Schemes.

4. The total commission/charges earned by the Noticee against transactions in the name of the
complainant was `27,93,844.60.

5. In view of the same, it was alleged in SEBI’s Show Cause Notice no.IVD/ID-
1/PM/AC/HSBC/28131/2013 dated November 01, 2013 that the Noticee violated the
provisions of Regulations 3 (a), (b), (c) and (d) and 4(1) of SEBI (Prohibition of Fraudulent and
Unfair Trade Practices relating to Securities Market) Regulations, 2003 and SEBI’s Circular No.
MFD/CIR/06/210/2002 dated June 26, 2002 prescribed under Regulation 77 of the
SEBI(Mutual Funds) Regulations, 1996 read with Clauses 1, 9 and 13 of the Code of Conduct
of Intermediaries of Mutual Funds.

6. The Noticee vide its reply dated December 10, 2013 stated the following :
I. The Noticee did not make investments on behalf of the client and acted pursuant to the
Client's specific instructions (LOI).

II. Transactions undertaken by the Noticee in relation with the complainant were in its capacity
as Mutual fund distributor and not as a portfolio manager.

III. Profiling of a client is based on standard questions put to them based on templated formats.
This is merely a subjective assessment and cannot be basis of all investment decisions of the
client.

7. Considering the reply submitted by the Noticee, an opportunity of personal hearing was granted
before me on March 5, 2014. Advocate Somasekhar Sundaresan of J Sagar Associates appeared
on behalf of the Noticee. It was submitted by the Noticee that efforts were on to settle the
matter amicably with the complainant. On the basis of the said submissions, the matter was
adjourned. Subsequently, the Noticee vide its letter dated March 20, 2014 informed SEBI that
the matter has been amicably settled. The Complainant vide letter dated July 1, 2014 also stated
that the matter has been settled with regard to the complaint against the Noticee.

8. Considering the fact that the complainant’s grievance has been redressed amicably by the
Noticee and taking into account the fact that the proceedings were initiated vide the said Show
Cause Notice no.IVD/ID-1/PM/AC/HSBC/28131/2013 dated November 01, 2013, solely on
the basis of the complaint, I am of the view that no further directions are required as against the
Noticee in this matter. Hence, the Show Cause Notice is disposed of without any further
directions in the matter.

Place : Mumbai S RAMAN
Date : July 28, 2014 WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

In the matter of Ashika Stock Broking Limited

BEFORE   THE    SECURITIES    APPELLATE    TRIBUNALMUMBAI

Appeal No. 207 of 2013

Date of Decision : 03.04.2014

Ashika StockBroking Limited 1008,10th Floor, RahejaCentre, 214, Nariman Point,

Mumbai – 400 021.

Head Office:

226/1 AJC Bose Road,Trinity,

7th Floor,Kolkata – 700 020.                                                          …Appellant

Versus

1.        Bombay Stock Exchange Ltd.

Floor 25,P.J. Tower, Dalal Street, Mumbai – 400 001.

2.       Indian Clearing Corporation Limited

P.J. Tower,Dalal Street,

Mumbai – 400 001.                                                                 …Respondents

Mr. Kumar Desai, Advocate with Mr. Vinay Chauhan and Mr. K.C. Jacob, Advocates for the Appellant.

Mr.  P.N.  Modi,  Senior  Advocate  with  Mr.  Mahernosh  Humranwala, Ms. Kirtida Chandarana andMs. Smiti Tewari,Advocates for Respondents.

CORAM : JusticeJ.P. Devadhar, Presiding Officer Jog Singh, Member

Per : J.P. Devadhar(Oral)

1.                  This appeal is filed to challengeorder passed by Respondents on October 25, 2013. Since appellant has made a grievance that the impugned order is violative of the principles of natural justice,learned senior counsel for respondents states that the impugned order may be remandedfor passing fresh orderin accordance withlaw.

2.                  Accordingly, impugned order dated October 25, 2013 is quashed and set aside and the matteris restored to the file of respondents. Respondents are directedto pass fresh order on merits and in accordance with law aftergiving personal hearing to the appellantas early as possible and preferably withinfour months from today.

 3.                  Appeal is disposedof in above terms with no order as to costs.

Sd/-

Justice J.P.Devadhar Presiding Officer

Sd/- Jog Singh Member

03.04.2014

Prepared and comparedby:

msb

Source: www.sebi.gov.in

Direct Tax Order, Dated: 21-11-2011[F. No. 504-31-2010-FTD-I]

Information on tax matters to be sought by field officers of the Income Tax Department from countries/jurisdictions with which India has Double Taxation Avoidance Agreement (DTAA) or Tax Information Exchange Agreement (TIEA) under the relevant “Exchange of Information” Article of DTAA/TIEA

1. Kindly refer to the above.

2. Information on tax matters is being sought by field officers of the Income Tax Department

from countries/jurisdictions with which India has Double Taxation Avoidance Agreement

(DTAA) or Tax Information Exchange Agreement (TIEA) under the relevant 'Exchange of

Information' Article of DTAA/TIEA through the office of competent authority viz. the Joint

Secretary in the Foreign Tax and Tax Division, CBDT. Presently the above information is

being sought obtained in a prescribed checklist/proforma (copy enclosed as Annexure-A).

Further in the case of U.K. for obtaining banking information, a separate proforma has been

prescribed by U.K. tax authorities (copy enclosed as Annexure-B).

3. Considering the developments at International Forums including the Model Proforma for

the exchange of information being developed by the OECD, it is proposed to change the

existing proforma. Further, it is proposed to have a separate proforma for obtaining any

information relating to Transfer Pricing and prescription of a separate proforma for the same.

4. In view of the above, I am directed to request you to give your comments and views on the

following to the FT and TR division by the 15th December, 2011:

(a) for developing separate proforma (T.P.) for Transfer Pricing cases

(b) for any improvement required to be made to the present Proforma prescribed for

obtaining information from countries/jurisdictions with which India has DTAA/TIEA.

(c) Any other suggestion relating to the above

5. I am also directed to state that, at present, the request may be sent to FTandTR Division by

the concerned Commissioner of Income Tax/Director of Income Tax as per the following

guidelines:

(a) Request should be made in the checklist/proforma as per Annexure A and

Annexure B.

(b) Request for the exchange of information may be addressed by the concerned

Commissioner of Income Tax/Director of Income Tax to JS (FT and TR-I), CBDT,

New Delhi, for the North America including Caribbean Island, Europe and Japan and

to JS(FT and TR-II), CBDT, New Delhi, for the rest of the world.

(c) The request for exchange of information for the cases getting time barred on 31st

December, 2011 should be received in the office of JS (FT and TR-I) or JS(FT and

TR-II), as the case maybe, by 15th December, 2011.

(d) Separate requests should be made for different tax payers even if the case pertains

to same country or same foreign entity. Further, separate requests should be made for

different countries even if the cases pertain to the same assessee.

6. The above may be brought to the notice of all officers of your region. This issues with the

approval of Chairman, CBDT.

Annexure - A

"Exchange of Information" Proforma/Checklist

Proforma for Seeking Specific Information under the Provisons of "Exchange of

Information" Article of Double Taxation Avoidance Agreement

1. Name and address of the specific taxpayer whose tax liability is the subject of

investigation.

2. Name and address of the concerned foreign person(s)/entity/company etc.

3. The specific tax periods (years) involved please specify the start date and ending date of

the tax year, e.g. April 1, 2002 through March 31, 2003.

4. The specific taxes involved; e.g. individual income, corporate income.

5. The specific question(s)/point(s) of the which information is needed.

6. Relevance of why the information is needed and the issue being examined; e.g. unreported

income, need bank records from taxpayer's account with XYZ bank in the concerned country,

specify the time period when records are required, if the time period is outside the year(s)

under investigation, please specify why this additional information is required.

7. Statement that the information is required purely for taxation purposes and will be used

solely for taxation purposes.

(It may be noted that CHECK LIST should be furnished in duplicate, meant for each country

separately, if information is required from more than one country)

Annexure - B

Details Required to Obtain Banking Information

1. Full name, date of birth and nationality (of both spouses if applicable).

2. Residence position if not of Indian origin (date became resident for tax purposes in India)

3. The date your investigation commenced, and the reasons for the investigation, for instance

if living beyond declared means then, a best estimate of annual expenditure should be given

together with known/declared income for the years covered by the request.

4. If self-employed, the following in respect of for the years covered by the request

• Nature of business operated

• Business address (if different from the private address)

• Annual value of sales (turnover)

5. If employed/ a director, the following in respect of for the years covered by the request

a. Name of the employer(s)

b. Date employment(s)/directorship (s) commenced/ceased

c. Amount of remuneration declared upon personal tax returns (and within company

accounts if a director)

d. The nature of the employers business

6. Full details of any other declared upon personal tax returns (on a yearly basis) by the

family unit in respect of for the years covered by the request.

7. Confirmation of whether or not any interest figure declared upon the personal tax returns in

the period covered by the request has been reconciled to known accounts, together with the

number of known accounts held

a. With Indian banks

b. Other banks

c. Clarifying whether or not any interest earned on the U.K. accounts may have been

omitted.

8. A comment convening cases involving capital accumulation, detailing the source, if

known, or extent of explanation provided.

9. The period of the investigation and the period for which the information is required, it is

different

10. A description of the documents/information required. In the case of bank statements all

the following is required.

a. Name of the bank

b. Sort code or branch address.

c. Account number.

11. The relevant fact or evidence established so far, identifying the source of the information

(that is the taxpayer's statement, third party statements, and documents). Copies of relevant

documents should be enclosed.

12. The relevance of the required documents. What you think they will show, how the will

assist your investigation and why they are considered essential to the outcome of your

investigation, (for instance the extent to which the transactions /income reflected therein are

suspected of being suppressed/needed for verification purpose etc.)

13. Details of any other irregularities uncovered by your investigation, any inferences or

conclusions drawn so far with reasoning. This is very important, if any irregularities have

already been discovered, then this carries a lot of weight before the Commissioners.

14. The actions already taken as part of your investigation to obtain the required documents

and the extent of the taxpayers' co-operation in this endeavour, (has the taxpayer made any

admissions or denials, or refused to provide either the documents or an authority enabling

you to approach the bank direct?). It may be appropriate to say that "All informal avenues

have been exhausted".

Order Dated: 08-11-2011 [F.No.500/507/2004-FTD-I(pt)]

Subject: Public comments on proposed changes to the Commentary on Article 5 (Permanent

Establishment) of the OECD Model Tax Convention

2. I am directed to inform you that the OECD Committee on Fiscal Affairs has invited public

comments on proposed changes to the Commentary on Article 5 (Permanent Establishment)

of the OECD Model Tax Convention. The document can be accessed at

http://www.oecd.org/dataoecd/23/7/48336726.

3. This public discussion draft includes proposals for additions and changes to the

Commentary on Article 5 of the OECD Model Tax Convention resulting from the work of a

subgroup which have recently been presented to the Working Party 1 of OECD for

discussion. Given the practical importance of these proposals, the Committee has decided to

invite public comments on the proposed changes before they are thoroughly discussed by the

Working Party at its meeting at the end of February 2012.

4. India proposes to send its comments on these proposals. However, in order to finalise our

view, we invite comments from all officers of the Department. The comments may kindly be

sent to Kamlesh Varshney, Director (FT&TR-I) by 2nd December 2011 at his email address

kamlesh.varshney@nic.in