Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs20 lakh on Bharosa Technoserve Pvt Ltd (BTPL) and its key individuals, including Sanjay Bhargava, Sahil Bhargava and Anita Bhargava for failing to adhere to Investment Adviser (IA) Regulations.
In an order, Amar Navlani, adjudicating officer (AO) of SEBI, says, "BTPL being SEBI-registered IA, Sanjay Bhargava being director and the representative of the IA, Anita Bhargava being the chief executive officer (CEO) and director, Anita Bhargava being the compliance officer and director of the IA during relevant period of time, were required to comply with the extant applicable provisions of law which they failed to and such non-compliance and needs to be dealt with suitable penalty."
SEBI inspected Bharosa Technoserve from 1 April 2019 to 31 March 2020 to review the company's adherence to various compliance requirements.
During the investigation, SEBI found that BTPL accepted investment advisory fees through the payment gateway Razorpay instead of strictly through banking channels. Although BTPL claimed these fees were for 'Bharosa Club' subscriptions, SEBI determined that these payments constituted economic consideration under its regulations.
The investment advisory also failed to disclose significant changes in its shareholding pattern to SEBI. Specifically, when Sahil Bhargava became the majority shareholder, the change was not reported and discrepancies were found in the information provided during the inspection.
Further issues were noted regarding risk profiling and suitability assessments. SEBI found that BTPL did not conduct proper risk profiling or differentiate between general and specific advice for 138 clients. Additionally, risk profiling for 48 clients was outsourced without adequate oversight.
BTPL also did not adequately disclose material facts or warnings about recommended investment products. The company's argument that such disclosures were unnecessary for a one-off test case was not supported by evidence. The failure to submit the required documentation for client suitability and risk profiling further compounded the violations.
Another issue was with record-keeping which did not meet SEBI regulations. It included inadequate know-your-customer (KYC) documentation, missing risk profiling, and a lack of annual audits. BTPL used external platforms like Smallcase for some KYC and risk profiling tasks but failed to provide sufficient evidence of compliance
BTPL also breached regulations by failing to obtain SCORES registration and not displaying complaint statuses on their website. Moreover, it did not separate execution services from advisory services and made clients use mandatory execution services through partner brokers, which contravened SEBI's guidelines.
Furthermore, the company was found to have outsourced KYC compliance to Mutual Fund Utilities (MFU) and Smallcase Technologies without obtaining the necessary registrations. The company also failed to adopt written procedures for implementing anti-money laundering (AML) provisions under the PMLA.
As a result of these violations, Bharosa Technoserve has been fined Rs10 lakh. Additionally, Sanjay Bhargava, Sahil Bhargava and Anita Bhargava have been fined Rs10 lakh jointly or severally.
