Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs10 lakh on Capital Stroke Investment Services Pvt Ltd (noticee 1) and the firm’s directors Upendra Singh Rajput (noticee 2), Prashant Singh Baghel (noticee 3) and Kamlesh Dhole (noticee 4) for multiple regulatory violations. The action comes after SEBI inspected the firm for the period between April 2019 and September 2020, followed by a review of investor complaints and the company’s submissions.
SEBI found that the firm and its directors had misled clients by promising assured returns, a clear breach of fiduciary duty and a violation of the SEBI Act and the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations. Evidence included website claims, marketing emails and call recordings. Although the noticees disputed the admissibility of evidence, SEBI clarified that quasi-judicial proceedings are not bound by the Indian Evidence Act’s Section 65B. Complaints and settlements further confirmed that false assurances were given to clients.
The regulator also discovered that several employees providing investment advice lacked the mandatory National Institute of Securities Markets (NISM) certification. Records showed that out of 314 employees, only seven were certified, despite about 35 employees being engaged in advisory roles. This was deemed a violation of Regulation 7 of the Investment Adviser (IA) Regulations and the Code of Conduct for advisers.
Another serious lapse was the submission of forged documents during inspection. While the noticees argued the discrepancies were technical, SEBI highlighted that the content of invoices was manipulated. The company had, in fact, admitted in writing to providing false and fabricated documents, which were later found inconsistent with client records.
SEBI inspection further revealed that Capital Stroke Investment repeatedly sold overlapping advisory services, charging clients multiple times before the expiry of earlier subscriptions. The fees collected often exceeded the disclosed charges on its website and refunds issued to settle complaints were seen as evidence of unfair billing practices. SEBI concluded that the firm violated fair dealing obligations under IA Regulations and Section 12A of the SEBI Act.
The company also failed to provide adequate disclosures to clients, as required under Regulation 18 of the IA Regulations. Apart from a generic welcome email, there was no proof of communication about key service features or risks. Additionally, despite claiming to have discontinued free trials in January 2020, archived website records from August 2020 still displayed trial offers, in violation of SEBI’s circular prohibiting such practices.
SEBI further found that Capital Stroke Investment misrepresented its team qualifications, past performance and client testimonials. Claims of having CFA-qualified analysts and genuine testimonials were proven false, as records showed no such clients or credentials. These misrepresentations were held to be fraudulent inducements under PFUTP Regulations.
The regulator also linked the firm to unregistered advisory activities of Green Wealth, operated by an employee, Bhavana Baria. Evidence showed that Green Wealth used Capital Stroke Investment’s IA registration number, while funds were funnelled into the directors’ personal and family accounts. SEBI concluded that the noticees were complicit in these unregistered activities.
Finally, SEBI held the directors jointly liable under Section 27 of the SEBI Act, noting that as promoter directors, they were aware of, and in some cases directly involved in, the violations. While some benefit of doubt was granted on pending investor complaints, the cumulative findings confirmed serious and repeated violations of securities laws.
