1. M/s VKB Capital Services Ltd. is registered with SEBI as a stock broker (hereinafter referred to as ‘the member’) bearing SEBI registration no. INB 120756233 and is a member of Ludhiana Stock Exchange (LSE). An inspection of books of accounts, documents and other records of the member was conducted on 15.01.2001. During the inspection, several irregularities were found committed by the member.
2. The findings of the inspection were forwarded to the member vide letter dated 20.02.2001 advising the member to give their comments, if any. The member vide letter dated 22.05.01 replied to the said findings of the inspection report. On not being satisfied with the reply filed by the member an Enquiry officer was appointed vide order dated 07.01.2003 to enquire into allegations of violations against the member, inter-alia, to the following:

(a) Violation of section 12 of Securities and Exchange Board of India Act, 1992

(b) Clause (1) (g) of Rule 15 of Securities Contracts (Regulation) Rules, 1957.

(c) Violation of Rule 3 & 4 (b) of the SEBI (Stock Brokers and Sub-Brokers) Rules 1992.

(d) Sub-Regulation (1) (g) of Regulation 17 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992

(e) Violation of Clause A (5), B(1) & C(4) of the Code of Conduct as specified in Schedule II read with Regulation 7 of SEBI (Stock Brokers & Sub brokers) Regulations, 1992

(f) Violation of the Directives issued by SEBI vide circular nos. SMD/MDP/CIR/043/96 dated 05/08/96, SMD/POLICY/IECG/1-97 dated 11/02/97, SMD/POLICY/IECG/5-97 dated 11/04/97, SMD/(B)/104/22775/93 dated 29/10/93, SMD/SED/CIR/93/23321 dated 18/11/93, SMD/POLICY/CIR-3/98 dated 16/01/98, SMDRP/POLICY/CIR/32-99 dated 14/09/99.

(g) Rules, regulations, bye-laws and directives of LSE as amended from time to time.

3. The Enquiry Officer submitted her report on 30.06.2003. The Enquiry Officer taking into account the irregularities that have been established recommended suspension of certificate of registration of the member for a period of 3 months. The Enquiry Officer held the member guilty of the following violations:

(a) Irregularities in maintenance of Books of Accounts.

(b) Irregularities in issuance of Contract Notes. The Contract Notes did not contain pre-printed serial number. Order time not mentioned on Contract Notes

(c) Transactions with clients on principal to principal basis.

(d) Non-segregation of own funds vis-à-vis client’s funds

(e) Dealing with members of other stock exchanges

(f) Non-maintenance of client database

(g) Off the floor transactions

(h) Delay in payment of money and delivery of securities

(i) Non Payment of full SEBI Registration fee

4. Consequent upon above, in terms of regulation 13(2) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as ‘the said regulations’) a show cause notice dated 10.07.2003 was issued to the member to show cause as to why the penalty as recommended by the enquiry officer should not be imposed on it. The member was advised to submit its reply, if any, within 15 days of the receipt of the show cause notice failing which it would be presumed that the member has no explanation to offer. The member was also asked to intimate along with the reply whether it desired a personal hearing. SEBI did not receive any reply to the show cause notice from the member till date. However, SEBI received a letter dated 12.7.03 from LSE stating that the SCN dated10.07.03 was handed over to the member.
5. Subsequently, another show cause notice dated 29.10.03 was issued to the member advising it that in terms of the provisions contained in Regulation 13(2), Chairman or Member of SEBI Board is not bound by the recommendation of the Enquiry Officer and he may enhance the penalty if so warranted on merits of the case. However, the member failed to reply to this show cause notice also.
6. I have carefully examined the facts and circumstances of the case. I have also carefully considered the Enquiry Report. I find that adequate opportunities were given to the member to put forward its case in adherence to the principles of natural justice. On appreciating the facts and circumstances of the case the findings are as under:

15. Books of account and other documents to be maintained and preserved by every member of a recognised stock exchange

17 (1) Every stock-broker shall keep and maintain the following books of accounts, records and documents namely; -.

(a) …………………..

(b) ………………….

(c) ………………….

(d) …………………..

(e) ………………….

(f) …………………..

(g) Documents register should include particulars of shares and securities received and delivered;

Clause A(5) of the code of conduct for the stock brokers specifies thata stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the stock exchange from time to time as may be applicable to him.

Rule 4 stipulates conditions for grant of certificate to stock-broker. Clause (b) of the said rule states that the stock broker shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges of which he is a member

3. No stock-broker or sub-broker shall buy, sell, deal in securities, unless he holds a certificate granted by the Board under the regulations:

Provided that such person may continue to buy, sell or deal in securities if he has made an application for such registration till the disposal of such application.

Clause C (4) of the code of conduct for sub-brokers stipulates that "a sub-broker shall execute an agreement or contract with his affiliating brokers which would clearly specify the rights and obligations of the sub-broker and the principal broker’

Clause B (1) of the code of conduct for stock brokers specifies that a stock-broker, in his dealings with the clients and the general investing public, shall faithfully execute the orders for buying and selling of securities at the best available market price and not refuse to deal with a Small Investor merely on the ground of the volume of business involved. A stock-broker shall promptly inform his client about the execution or non-execution of an order, and make prompt payment in respect of securities sold and arrange for prompt delivery of securities purchased by clients.

8. With respect to non-payment of full SEBI Registration Fee, I find that as against principal of Rs. 257833/- only Rs. 5000/- stood paid by the member and an interest amount of Rs. 162175/- is payable by the member as on June 30, 2003. Short payment of SEBI registration fee is therefore established beyond doubt. The member, therefore, violated Rule 4(d) of SEBI (Stock brokers and Sub-brokers) Rules 1992, Clause A (5) and B (1) of Schedule II read with Regulation 7 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 and Clause (1) and 2 (b) of Schedule III read with Regulation 10 of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992

1. Further, I find that LSE vide their letter dated 24.06.2003 submitted that the member Shri Vinod Kumar Bansal, Proprietor, M/s V. Bansal & Co. (SEBI Regn. No. INB 120311112) corporatised his memebership ticket to M/s VKB Capital Services Ltd. (INB 120756233). The member has submitted the turnover details to the exchange as per the revised format Annexure A prescribed by SEBI stating that it had fully paid the SEBI turnover fee for first financial year and an amount of Rs. 5000 for the block of 5 years in account of M/s V Bansal & Co.
2. I find that since the benefit of continuity is given by SEBI to those stock brokers who have converted their individual/partnership membership into corporate on or after April 1, 1997, the member has made his representation to SEBI for granting exemption from payment of fee on corporatisation. The Board after taking into account the representation of the member decided that he is not entitled to the said benefit. Therefore, I find the member guilty of short and delayed payment of SEBI registration fee which is in violation of para 1 and 2(b) of Schedule III read with Regulation 10 of broker’s regulations.

1. I have no hesitation to agree with the findings of the Enquiry Officer. The above findings against the member, which include conducting off the floor transactions, dealing as unregistered sub-broker cannot be taken lightly particularly when the same are in the nature of disturbing the equilibrium of the market and hindering the interest of investors and the development of capital market.
2. Therefore, in exercise of the powers conferred upon me by Section 19 of SEBI Act, 1992 read with sub-regulation (4) of Regulation 13 of the said Regulations, I hereby suspend the certificate of registration of M/s VKB Capital Services Ltd., for a period of three months. This order shall come into force after 3 weeks from the date of the order.