Liability for action in case of default

25.(1) An underwriter or a stock broker or a merchant banker entitled to carry on business of underwriting without obtaining a separate certificate under rule 3 who, -

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

(b) contravenes any of the provisions of the Act, rules or regulations; shall be liable to any of the penalties specified in sub- regulation (2).

(2) The penalties referred to in sub-regulation (1) may be either:

(a) suspension of registration ^{< size=-1>11}[under the grounds specified] in sub-regulation (1) of Regulation 26 after enquiry for a specified period; or

(b) cancellation of registration ^{< size=-1>12}[under the grounds specified] in sub-regulation (2) of Regulation 26.

Suspension, cancellation of certificate

26. (1) A penalty of suspension of certificate granted to an underwriter or a certificate of registration granted under section 12 of the Act to a stock broker or a merchant banker entitled to carry on business of underwriting without obtaining a certificate under rule 3, may be imposed where an underwriter or such stock broker or merchant banker -

(i) violates the provisions of the Act, rules or regulations;

(ii) does not follow the code of conduct specified at Schedule III;

(iii) (a) fails to furnish any information relating to his business as underwriter as required by the Board;

(b) furnishes wrong or false information,

(c) does not submit periodical returns as required by the Board;

(d) does not co-operate in any enquiry conducted by the Board;

(iv) indulges in manipulating or price rigging or cornering activities;

(v) is guilty of misconduct or improper or unbusiness like or unprofessional conduct;

(vi) fails to maintain the capital adequacy requirement in accordance with the provisions of regulation 7.

(vii) fails to pay the fees as specified in regulation 12;

(viii) violates the conditions of registration;

(ix) fails to fulfil his underwriting obligations.

Provided that the Board for reasons to be recorded in writing may in case of repeated defaults of the type mentioned above impose a penalty of cancellation of certificate on the underwriter or cancellation of certificate of registration granted under section 12 of the Act on a stock broker or a merchant banker.

(2) A penalty of cancellation of certificate granted to an underwriter or a certificate of registration granted under section 12 of the Act to a stock broker or a merchant banker entitled to carry on the business of underwriting under rule 3, may be imposed where they.

(i) indulge in deliberate manipulation or price rigging or cornering activities affecting the
securities market and the investors interest;

(ii) fail to fulfil the capital adequacy referred to in regulation 7;

(iii) are guilty of fraud, or is convicted of a criminal offence; (iv) violate any provision of
Securities and Exchange Board of India (Insider Trading) Regulations, 1992; or

(v) violate the provisions of the Act, rules and regulations;

(vi) fails to fulfil more than once their underwriting obligations.

Manner of making order of suspension and cancellation of certificate

27. No order of penalty of suspension or cancellation shall be imposed except after holding an enquiry in accordance with the procedure specified in regulation 28 .

Manner of holding enquiry before suspension or cancellation

28. (1) For the purpose of holding an enquiry under regulation 27, the Board may appoint an enquiry officer.

(2) The enquiry officer shall issue to the underwriter a notice at the registered office or the principal place of business of the underwriter.

(3) The underwriter may, within thirty days from the date of receipt of such notice, furnish to the enquiry officer a reply together with copies of documentary or other evidence relied on by him or sought by the Board from the underwriter.

(4) The enquiry officer shall, give a reasonable opportunity of hearing to the underwriter to enable him to make submissions in support of his reply made under sub-regulation (3).

(5) Before the enquiry officer, the underwriter may either appear in person or through any person duly authorised by the underwriter:

Provided that no lawyer or advocate shall be permitted to represent the underwriter at the enquiry:

Provided further that where a lawyer or an advocate has been appointed by the Board as a presenting officer under sub-regulation (6), it shall be lawful for the underwriter to present its case through a lawyer or advocate.

(6) If it is considered necessary, the enquiry officer may ask the Board to appoint a presenting officer to present its case.

(7) The enquiry officer shall, after taking into account all relevant facts and submissions made by the underwriter, submit a report to the Board and recommend the penalty to be awarded as also the justification of the penalty proposed.

Show-cause notice and order

29. (1) On receipt of the report from the enquiry officer, the Board shall consider the same and issue a show-cause notice as to why the penalty as it considers appropriate should not be imposed.

(2) The underwriter shall within ^{< size=-1>13}[thirty days] of the date of the receipt of the show-cause notice send a reply to the Board.

(3) The Board after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than thirty days from the receipt of the reply, if any, pass such order as it deems fit.

(4) Every order passed under sub-regulation (3) shall be self- contained and give reasons for the conclusions stated therein including justification of the penalty imposed by that order.

(5) The Board shall send a copy of the order under sub-regulation (3) to the underwriter.

Effect of suspension and cancellation of certificate granted to underwriter

30. (1) On and from the date of the suspension of the certificate or certificate of registration granted to a stock broker or a merchant banker under section 12 of the Act, the underwriter shall cease to act as an underwriter during the period of suspension:

Provided that the Board may in the interest of the investors and securities market, permit the underwriter to complete his underwriting obligations specified in the agreement referred to in clause(b) of rule 4.

(2) On and from the date of cancellation of certificate or certificate of registration granted to a stock broker or a merchant banker under section 12 of the Act, the underwriter shall with immediate effect cease to act as an underwriter.

Publication of order of suspension

31. The order of the Board passed under sub-regulation (3) of regulation 29, shall be published in atleast two daily newspapers by the Board.

Appeal to the Securities Appellate Tribunal

32. [Any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, (ie., after 16th December 1999), under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter]¹⁴