DGS Capital Management Faces SEBI Regulatory Penalties for Non-Compliance

SEBI Halts Scient Capital from New Business Over Prolonged Regulatory Lapses

The Securities and Exchange Board of India (SEBI) has issued an interim order against Scient Capital Pvt Ltd, barring the portfolio management service (PMS) firm from taking on new clients or accepting additional funds from existing ones. The directive comes after the regulator flagged serious and repeated non-compliance, including failure to maintain the mandated ₹5 crore net worth and submission of misleading compliance declarations.

Persistent Breaches Despite Regulatory Leeway

SEBI’s review found that Scient Capital had been non-compliant with the minimum net worth requirement for over two years, despite being granted ample time and reminders to rectify the shortfall. The compliance deadline was January 15, 2023, but the firm has yet to meet the threshold, calling into question its financial capacity to operate as a portfolio manager.

Inaccurate Disclosures

More concerning, SEBI noted that Scient Capital filed compliance reports for FY 2022–23 and FY 2023–24 affirming full compliance, despite being under-capitalised. These submissions were deemed factually incorrect and misleading, contravening disclosure obligations outlined in SEBI’s Master Circular dated June 7, 2024.

Gaps in Professional Certification

In a separate breach, the firm’s Principal Officer had not held the required NISM certification since September 7, 2023, a clear violation of regulatory norms that mandate portfolio managers maintain qualified leadership at all times.

Client Exposure and Regulatory Safeguards

At the beginning of the examination period, Scient Capital managed ₹92.44 crore in assets across 124 clients. By December 2024, this had dropped to ₹66.8 crore across 86 clients, reflecting a significant erosion in business activity.

The client base includes a mix of corporate, non-corporate, and non-resident entities, many of whom remain exposed during the period of non-compliance.

In its interim protective order, SEBI has:

• Prohibited onboarding of new clients
• Barred fresh investments or asset transfers from existing clients
• Set a 15-day deadline for the firm to restore compliance with the net worth requirement

The regulator clarified that failure to meet this condition may trigger further enforcement, including transfer of client assets to a compliant PMS.

Regulatory Compliance: A Continuous Obligation

Under SEBI’s PMS Regulations, portfolio managers are not only required to meet a ₹5 crore net worth threshold at the time of registration, but must continue to maintain it throughout their operational life. In addition:

• A net worth certificate from a chartered accountant must be submitted periodically
• A compliance certificate signed by the Principal Officer must accompany each filing
• The Principal Officer must hold a valid NISM certification at all times

SEBI considers transparency and accuracy in regulatory reporting fundamental to investor protection, especially in a segment like PMS where investor trust and fiduciary responsibility are paramount.

Market Implications and Industry Signal

This enforcement sends a strong message across the PMS ecosystem: regulatory obligations are not a box-ticking exercise but a continuous, verifiable standard.

“When entities submit misleading reports or fall short on capital adequacy, it puts investor interests at risk,” said a person familiar with SEBI’s internal deliberations.

The case of Scient Capital is likely to serve as a cautionary precedent for other portfolio managers operating close to the compliance margin.

Conclusion

SEBI’s order against Scient Capital reinforces the regulator’s zero-tolerance approach to persistent non-compliance. For India’s financial markets to remain credible and investor-friendly, portfolio managers must maintain both financial soundness and operational transparency. Firms that fail to meet these basic standards risk regulatory isolation, reputational damage, and client attrition.