SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

 

 

CO/118/ISD/09/2003

 

1.0             Shri K R Prakash (hereinafter referred to as “the said broker”) was a member of the Madras Stock Exchange (hereinafter referred to as “MSE”) and a stock broker registered with the Securities and Exchange Board of India (hereinafter referred to as “SEBI”) under certificate of registration No. INB040137015.

 

2.0             MSE, vide its letter dated 15.05.2002, informed SEBI that they declared the said broker as a defaulter for non-payment of dues and that he ceased to be a member of MSE w.e.f. 12.03.2001.

 

2.1             In view of the above, SEBI, vide order dated 28.02.2003, appointed an Enquiry Officer under the SEBI (Procedure for holding enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to as “Enquiry Regulations”) to hold an enquiry under Chapter III of the enquiry regulations.

 

2.2             The Enquiry Officer, acting in accordance with regulation 16 (2) of the enquiry regulations issued show cause notice to the said broker on 13.03.2003 advising him to show cause why his registration as a stock broker should not be cancelled.  There was no reply to the show cause notice from the said broker. Thereafter, on 02.07.2003, the enquiry officer submitted his report  recommending cancellation of the certificate of registration granted to the said broker, on finding the broker not being a member of a recognized  stock exchange.

 

2.3             I note that adequate opportunity had been given to the said broker in terms of Regulation 16 of the enquiry regulations and that he has chosen not to avail such opportunity. Therefore, I am satisfied that the requirements of natural justice have been fulfilled and I proceed further in the matter.

 

3.0             I have considered the facts of the matter, report of the enquiry officer and other material on record. The following issue arises for consideration:

 

3.1            Whether, the said broker has violated the conditions of registration.

 

3.1.1      I note that MSE vide its letter dated 15.05.2002 has forwarded to SEBI details of defaulter brokers of their exchange. On perusal of the said details, I note that the said broker was declared defaulter on 12.03.2001 for non payment of dues to the exchange, SEBI and investors and had not been admitted again. I also note that the said broker has ceased to be a member of MSE w.e.f. 12.3.2001.

 

3.1.2      In this regard,  I note that Rule 4 of the SEBI (Stock brokers and sub brokers) Rules, 1992 (hereinafter referred to as “the broker regulations”) states that :

 

“Conditions for grant of certificate to stock broker

4.     The Board may grant a certificate to a stock broker subject to the following conditions, namely :-

 

(a)    he holds the membership of any stock exchange;

(b)    ……..

(c)     ………

(d)    ……..

(e)    ……..

 

3.1.3      I note that the enquiry officer in his report has found that since MSE has declared the said broker a defaulter for non payment of dues to be exchange, SEBI and investors and since the said broker has ceased to be a member of the exchange w.e.f. 12.3.2001, his certificate of registration is liable to be cancelled.

 

3.1.4      I agree with the findings of the enquiry officer and find that the said broker has violated Rule 4(a) of the broker rules which is one of the conditions subject to which registration has been granted to him his registration as a stock broker is liable to be cancelled.

 

3.2             I note that Regulation 25 of the broker regulations provides that :

 

Liability for action in case of default

25.    A stock broker who –

(a)  fails to comply with any conditions subject to which registration has been granted;

(b)  contravenes any of the provisions of the Act, rules or regulations;

(c)   ……….

(d)  ………

(e)  ……..

 

shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by enquiry Officer and Imposing Penalty) Regulations, 2002.

 

I therefore find that the said broker has failed to comply with basic requirement of being a member of a stock exchange, basing on which the registration is granted.  Therefore, the registration of the  broker is liable to be cancelled.

 

3.3             I further note that Regulation 13(1)(b) provides for major penalties which include cancellation of certificate of registration. In this regard, I note that in terms of Regulation 15(c) of the enquiry regulations it is not necessary to hold an enquiry under the provisions of Regulation 13 where a stock broker ceases to be a member of a recognized stock exchange or has been declared defaulter in relation to the transactions at such exchange, rather, summary procedure under Regulation 16 may be followed. However, Regulation 13(6) of the enquiry regulations provides that the Board or member shall impose major penalties where the intermediary is guilty of violation of conditions of registration.

 

 

 

 

 

 

4.0            Therefore, in exercise of powers under Section 4(3) of the SEBI Act read with Regulation 16(5) of the enquiry regulations, I hereby cancel the certificate of registration bearing No.INB040137015 granted to Shri K.R. Prakash (K.R.Prakash & Co.)  This order shall come into effect immediately.

 

 

 

Date :  8^th September, 03                                    G.N. BAJPAI

Place:  Mumbai                                                      Chairman

                                                 Securities and Exchange Board of India