SECURITIES
AND EXCHANGE BOARD OF
ORDER UNDER SECTION 11B OF SEBI ACT, 1992 read with Regulation 11 and 12 of SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to Securities
Market) Regulations, 1995 AND REGULATION 13(3) OF SEBI (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 2003 AGAINST M/S BHUPALI
SECURITIES, AND ITS PARTNERS, SAGAR KAJBAJE AND SMITA KAJBAJE.
CO/ 108/ISD/08/2003
1. SEBI had conducted investigations into the
transactions executed by the brokers viz., Dangi Finance and Management Consultancy Ltd. (hereinafter
referred to as ‘Dangi’) and Libord
Securities Ltd, (hereinafter referred to as ‘Libord’)
at their
2. On concluding the investigation, a show
cause notice was issued on May 12, 2003 to the partners of Bhupali
alleging it to be guilty of violating regulation 5(1)(b) of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to the
Securities Market) Regulations, 1995 . Vide the aforesaid notice, Bhupali and its partners were asked to show
cause as to why suitable directions under section 11 of the SEBI Act,
regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade
Practices relating to the Securities Market) Regulations, 1995, including directions to debar them from dealing in
securities for a particular duration and prohibit access to capital market for a suitable period
should not be passed. It was also stated
therein that if they do not reply within 21 days from the date of receipt of
the notice, it shall be construed that they have nothing to say and that they
will be proceeded with appropriate action in terms of
the Regulations. It was also asked to
indicate whether they desired a personal hearing.
3. No
reply has been received from them despite the reminders dated
4. I have carefully examined the findings
of the investigation as well as other material on record and the show cause
notice issued to Bhupali. Bhupali is a
partnership firm between
Shri Sagar Kajbaje and his mother.
Shri Sagar Kajbaje was found to be an employee of Dangi
/ Libord.
Investigation has revealed that Shri Sagar Kajbaje was working in the
5. During the investigation, it has been
found that Bhupali had given an undertaking vide its
letter dated 3.2.98, that it would transact as client for Dangi/Libord
from the
6. Bhupali was
found to have used the terminals of Dangi / Libord at
7. A Memorandum of Understanding (hereinafter
referred to as ‘MOU’) dated 27.2.98 was found to have been entered between Bhupali and Dangi / Libord. The terms of
the MoU were such that Bhupali
would take over all the assets and liabilities of the Kolhapur
branch and all bad deliveries and /or other claims / liabilities arising out of
transactions done upto 3/2/98 of Dangi
/ Libord at their Kolhapur
branch shall be the liability of Bhupali and that the
same shall be settled by them.
8. Bhupali was
found to have given the public notice on 27/8/98 in the newspaper ‘Sakal’ in response to the public notice made by both Dangi / Libord, wherein they had
stated themselves to be authorised sub-broker of Dangi
/ Libord. It
was also said that the public notice given on
9. Investigations revealed that Dangi / Libord had sent a letter to
Bhupali on 28.8.98 indicating legal actions and Bhupali in response to the same was found to have replied
stating that no transactions were entered by it as a sub-broker and that the advertisement /public
notice earlier issued by Bhupali on 27/8/98 was
forcibly published by some creditors to take advantage of the situation. In a
further letter of November 1998 to Dangi/Libord, Bhupali was found to have indicated that it had acted only
as client and that
payment would be made to Dangi/Libord within 3 years,
which was incorrect.
10. During the course of investigation, it
was found that Bhupali had affirmed in a
communication dated 2/11/98 to Libord on stamp paper
that it had started doing business with Libord as
client on 3/2/98 and as on 2/11/98 Bhupali had a
debit balance of Rs. 832107.42 which would be paid in
instalments within a period of 3 years.
11. Investigations also revealed that Bhupali has undertaken unauthorised sub broking
transactions on behalf of clients knowing that the same were in violation of SEBI
/Stock Exchange rules and regulations. Bhupali was not
having the certificate of registration for acting as a sub broker. It is also
found that the application for certificate of registration by Bhupali had been rejected as far back as in February 1998,
and still Bhupali had undertaken transactions.
12. The findings of the investigation were
that Bhupali had not informed Dangi/Libord
about its activities in the capacity of a sub-broker to Dangi
/ Libord, although it issued notes /bill claiming
affiliation to Dangi/Libord. Bhupali was also
found to have undertaken
transactions at the terminal of Libord
till the closure of its terminals. Further, there is no evidence available to
suggest that it had issued any public notice or having communicated to any investor
anything in this regard except for the rebuttal notice in newspapers dated
27.8.98 in response to the notice of Dangi/Libord.
13. Bhupali was found to have
undertaken transactions in the capacity of a sub-broker, during the
investigation, inspite of it not being registered. Such transactions were found to have
resulted in non-delivery of shares
purchased, non-receipt of amounts due etc to some clients. Bhupali was also
found to have accepted cheque payments from clients such as Shri
Chavan without having fulfilled its obligations. It was also found that cases had been filed in consumer
courts in respect of such transactions, complainants
being Shri Chavan, Shri Kapasikar, Hemant Deshpande and P. Hawaldar who have claimed moneys. The Maharashtra State
Consumer Disputes Redressal Commission, vide its
order dated 12/4/2001 was found to have directed Bhupali
to deposit 75% of the amount decreed by the District Forum, Kolhapur
in respect of its order dated 25/11/1999. In addition to the above, the Additional Sessions Judge,
14. In connection with the complaint /claim
of Shri Chavan, it has been
brought out that he had filed a claim against Dangi/Libord
or on Bhupali. Bhupali was
found to have paid him
Rs. 33597.15 which was his outstanding
at the time the branch was closed. Shri Chavan had received and
acknowledged receipt of this amount. It
appears that the other transactions done by him pertain to Bhupali,
although the same has not been resolved by it. Bhupali
was found to have admitted the liability but much later in forums when
proceedings were initiated against it. Bhupali was found to have given cheques to complainants
/investors which had bounced back, the cheques being issued after the bank account
was closed or when it was fully aware that the cheques would bounce . For e.g. Bhupali was found
to have given cheques to Shri Chavan which were dated
18.9.98 for Rs. 50000 and dated 25.6.98 for Rs. 2,00,000, on his complaint which had bounced.
15. Claims were also found to have been made
against Bhupali by the following complainants – Shri Sumer Patil
for Rs. 19253, Rs. 6 lakhs by Dr Parandekar , Shri Ravindra Patil who gave deposit
of Rs. 10000/- to it in April 1998, Ms Rashmi Divan for Rs. 11025, Shri V A Kapasikar for Rs. 2.58 lakh arising out of
cheques and deposits given to Bhupali in March 1998, Shri Ravindra Samant
for Rs. 32500 for shares sold through Bhupali and Shri Nandkumar Ghatge for Rs. 26,700 for shares sold through it.
16. Further, Bhupali,
as a client of Dangi/Libord, was found during the
investigation to be liable to pay around Rs. 20 lakhs to them. According to Dangi/Libord,
Bhupali was
acting only as its client and the ledger balance was around Rs.
7,00,000 outstanding to be payable by Bhupali to Libord which had gone upto to Rs. 8,43,000 by 29/3/99 due to bad delivery commitments
arising out of some shares.
17. Investigations also disclosed that Libord had filed arbitration in BSE on
18. During the course of investigation, Shri Sagar Kajbaje
and Smita Kajbaje was found
to have stated in their appeal to the State Consumer Disputes Redressal Commission, Maharashtra
(Appeal No. 2202 of 2001 dated December 11, 2001) that they were willing to pay
amount rightfully due to complainants – C. Y. Chavan,
V. A. Kapshikar etc. Further, the partners of Bhupali were found to have filed an affidavit before the
said State Commission dated December 13, 2001 wherein they admitted their
liability to pay around Rs. 9.8 lakhs
and it is also found that Bhupali has already paid an
amount of Rs. 1,38,500/- and that it will be making the
remaining payment shortly.
19. Whereas summons had been issued to Bhupali for deposition before the SEBI’s
investigating authority, on all addresses available on record, there has been
no response. Thus Bhupali was not cooperating with
the investigation and apparently attempting to hamper expeditious completion of
the probe.
20. During the investigation, Bhupali was found to have made a false
representation in newspapers that it was a sub broker of Dangi/Libord
whereas no certificate of registration or other evidence was provided to that
effect. Bhupali was found to have given versions
which were contradictory to the facts of the case. Once, as per the MoU signed, Bhupali was
found to have agreed to accept the
liabilities of the
21. Thus,
Bhupali is found to have been
undertaking transactions as that of a sub-broker on the Kolhapur
terminal of Dangi/Libord for itself as well as for clients without being
registered as a sub-broker which was in violation of Section 12 of SEBI Act,
1992 and also Rule 3 of SEBI (Stock Broker and Sub Broker) Rules, 1992.
22. However,
as per Dangi/Libord, Sagar Kajbaje (one of the partners of Bhupali) had
submitted resignation as early as on
Prohibition of misleading
statements to induce sale or purchase of securities –
No person shall make any
statement, or disseminate any information which is likely to induce the sale or
purchase of securities by any other
person or is likely to have the effect of increasing or depressing the market
price of securities, if when he makes the statement or disseminates the
information –
(i)
He
does not care whether the statement or information is true or false;
Or
(ii)
He
knows, or ought reasonably to have known that the statement or
information is misleading in any
material particular.
23. In view of the above, M/s Bhupali Securities is guilty of violation of regulation 5(1)(b) of the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices relating to the Securities Market) Regulations, 1995 . Therefore, in exercise of the powers conferred upon me under Section 4(3) read with
Section 11 B of SEBI Act as also Regulations 11 and 12 of SEBI (Prohibition of
Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations, 1995 read with Regulation 13(3) of SEBI (Prohibition of Fraudulent
and Unfair Trade Practices Relating to Securities Market) Regulations, 2003, I hereby direct M/s Bhupali Securities and its partners, Sagar Kajbaje and Smita Kajbaje not to deal in
securities for three years. This
order shall come into force with immediate effect.
G
Chairman
Securities and Exchange
Board of
Place : Mumbai
Date :