SEBI bans PMS Scient Capital from onboarding clients, says it submitted "incorrect, misleading" reports

Considering the interest of the clients, immediate preventive action by issuance of interim directions is required to be taken against the PMS, the order noted.

The market regulator has banned portfolio management service (PMS) Scient Capital Pvt, which has Rs 66.8 crore AUM, from onboarding new clients till they meet minimum networth requirement.

In an interim cum showcause notice issued on Monday, February 17, the Securities and Exchange Board of India (SEBI) noted that the PMS submitted incorrect and misleading reports on compliance. Through the order, the regulator also banned them accepting additional funds or securities from its existing clients till the requirement is met.

In the order, SEBI's Whole-time Member Amarjeet Singh noted, "the Noticee (Scient Capital) acted as a registered Portfolio Manager without meeting the minimum capital adequacy requirement (net worth of ₹5 Crores) as mandated under the Portfolio Managers Regulations. It is noteworthy that despite lapse of more than two years since the end of timeline for meeting the regulatory requirement of net worth (i.e., January 15, 2023), the Noticee has shown no progress towards compliance. This persistent failure indicates an unacceptable state of affairs. Moreover, the Noticee submitted incorrect and misleading reports on compliance with Portfolio Managers Regulations with SEBI for FY 2022-23 and FY 2023-24 as its net worth was not meeting the regulatory threshold for both the years. Furthermore, the Noticee was in violation of the statutory requirement of ensuring that its Principal Officer has the required NISM certification for the period from September 07, 2023 till date."

Also read: SEBI bans PMS with more than Rs 200 cr AUM from onboarding new clients, notes "pattern of non-compliance"

On the need to issue interim directions, the WTM wrote, "In the instant case, it is noted that while remaining non compliant with net worth requirements, the Noticee had 124 clients with Assets under Management (AUM) of ₹92.44 Crores at the beginning of the examination period and as on December 2024, its AUM was ₹ 66.8 Crores with 86 clients. Its clients include corporates, noncorporates as well as non-resident foreign clients. Considering the interest of the clients, immediate preventive action by issuance of interim directions is required to be taken against the Noticee to avert potential risks to its clients."

Incorrect submission of reports

Portfolio managers are required to submit periodically a networth certificate from a chartered accountant and a certificate of compliance signed by the Principal Officer.

In the order, SEBI's WTM Singh wrote, "It is noted that the Noticee (Scient Capital) vide its filings with SEBI vide letter(s) dated June 14, 2023 and May 30, 2024 had submitted the report on compliance with Portfolio Managers Regulations for the Financial Year 2022-23 and 2023-24 respectively and certified and confirmed that it had complied with Portfolio Manager Regulations and other guidelines and Circulars issued by SEBI. However, as noted earlier, as per its own filings discussed in the previous paragraphs, its net worth for the year ending March 31, 2024 was less than ₹ 5 Crores. Thus, I find that the Noticee submitted an incorrect and misleading report on compliance with the Portfolio Managers Regulations in violation of the express provisions of the Master Circular dated June 07, 2024 during the period of examination."