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SAT order in Alankit Assignments v. PFRDA

Finsec Law Advisors

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In its order dated February 15, 2021 in the matter of Alankit Assignments Ltd v. Pension Fund Regulatory and Development Authority (“PFRDA”), the Securities Appellate Tribunal (“SAT”) quashed PFRDA orders which had barred the appellant from acting as a Point of Presence (“PoP”) under the National Pension System (“NPS”) and as an Aggregator under the NPS Lite/Swavlamban Yojna.

The appellants were certified to act as PoP under the NPS and as an Aggregator under NPS Lite by the Interim PFRDA. After the enactment of the Pension Fund Regulatory and Development Authority Act, 2013 (“PFRDA Act”), the Pension Fund Regulatory and Development Authority (Point of Presence) Regulations, 2015 (“PoP Regulations”) and the Pension Fund Regulatory and Development Authority (Aggregator) Regulations, 2015 (“Aggregator Regulations”), the appellants filed applications for certificate of registration (“CoR”) to act as PoP and for fresh registration as an Aggregator in 2015. While the applications were pending, an investigation was conducted into the affairs of the appellant and by an order in January 2019, a penalty of Rs. 9,00,592 was imposed on the appellant and its directors for, inter alia, causing loss to subscribers due to the failure to adhere to the Turn Around Time (“TAT”) prescribed for collection and remittance.

In light this order, by another order dated February 21, 2019, PFRDA rejected the application for PoP under Regulation 8(1)(b) and Regulation 8(3)(e) of the PoP Regulations and application for Aggregator under Regulation 8(1)(a) and 8(2)(e) of the Aggregator Regulations.

On the validity of PFRDA’s orders, the SAT clarified that Regulation 8(1)(b) referred only to past penalties which occurred prior to the date of filing of the application for grant of CoR. Hence, any penalty imposed after the date of application for grant of CoR – as was done by the in the present case - cannot be considered for rejecting the application seeking registration under Regulation 8(1)(b) of PoP Regulations. With respect to Regulation 8(3)(e), which states that CoR may not be granted if the authority opines that the grant of registration was not in the interest of subscribers or development of NPS, the bench noted the absence of any reasoning in the refusal order. Reading the principles of natural justice as inherent in the bare text of regulations, SAT opined that as the appellant was already holding a certification of registration by the Interim PFRDA, a refusal to grant a fresh certificate of registration under Regulation 3 required an opportunity of hearing to be given to the appellant, which was not done in the present case. On these grounds, SAT set aside the order refusing grant of CoR for PoP under NPS to the appellants.

The Aggregator Regulations are verbatim to the PoP regulations and the grounds for refusing CoR for ‘aggregator’ is identical to the PoP refusal order. Hence, on the same grounds, the bench set aside the PFRDA order refusing grant of CoR as an aggregator under NPS Lite.

On the question of imposition of penalty, the bench held that the show cause notice proceeded on the wrong premise since the time line on which the decision was made stood modified by the subsequent circulars issued by the PFRDA (dated 27.07.2015) and the circular of NSDL (dated 04.12.2012). These circulars were not considered by the AO or the DM/WTM, and thus the order levying penalty was quashed.