Emphasising that the distinction between NISM qualification and SEBI registration requires investigation, the Gujarat High Court allowed probe into allegations of misleading investors through representations as ‘SEBI NISM Certified Research Analysts’. The High Court observed that merely clearing a NISM examination does not amount to registration as a Research Analyst with SEBI.
The Court noted letters issued by SEBI indicating that the concerned persons were not registered as Research Analysts, despite possessing NISM certificates. Thus, the Court said that even if the certificates are genuine, the issue remains whether the accused projected themselves as SEBI-recognised Research Analysts and induced investors on that basis.
Questions relating to profile descriptions, alleged alteration of online profiles, inducement of investors, and dishonest intent are disputed factual matters that cannot be decided at an interim stage, clarified the Court.
Briefly, the case arose from allegations that the accused persons projected themselves on social media and other public platforms as ‘SEBI NISM Certified Research Analysts’ and allegedly created an impression that they were registered Research Analysts recognized by the Securities and Exchange Board of India (SEBI). The complainant claimed that relying on these representations, she reposed confidence in them and paid commission linked to trading profits. It was alleged that, despite possessing NISM certification, the accused were not actually registered as Research Analysts with SEBI under the applicable regulations.
The complainant relied on communications issued by SEBI dated July 27, 2023, and July 15, 2024, which stated that the accused were not registered as Research Analysts. It was also alleged that the accused later modified their social media profiles by inserting disclaimers such as ‘Not SEBI Registered’ after becoming aware of the legal proceedings.
The accused opposed the application, contending that their NISM certificates were genuine and had been verified. They argued that the allegations of forged certificates and false representation were baseless and that the complainant had not disputed their claims in the main proceedings.
A Single Judge Bench of Justice Mool Chand Tyagi observed that obtaining a certificate from the National Institute of Securities Markets (NISM) and obtaining registration as a Research Analyst with SEBI are two entirely different requirements. Mere possession of an NISM certificate cannot be treated as equivalent to registration with SEBI. Regulation 3(1) of the SEBI (Research Analysts) Regulations, 2014 mandates registration before a person can act or hold himself or herself out as a Research Analyst.
The Court noted that the subsequent SEBI communication dated July 15, 2024, confirming that the accused were not registered as Research Analysts, was a significant piece of material that was not available when interim protection had originally been granted. The Court also considered the fact that one of the accused had subsequently applied for SEBI registration, but the application was closed due to non-submission of complete information.
The Court further observed that even if the NISM certificates were genuine, that fact alone did not establish that the accused were registered by SEBI or authorized to represent themselves as SEBI-registered Research Analysts. Questions regarding the nature of their social media representations, alleged inducement of investors, dishonest intention, and commission payments involved disputed factual issues requiring investigation.
