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ORDER
UNDER
RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING
PENALTIES BY ADJUDICATING OFFICER) RULES, 1995. Against Mr. Srigopal Jaju (Trade
Name : M/s Srigopal Jaju)
Member, Hyderabad
Stock Exchange Ltd. (SEBI Regn. No. INB060147715)
Sub Broker, (INS011388712)
of M/s B.N.R. Capital Services Pvt. Ltd., member- BSE,
Sub Broker (INS
230767910) of M/s. HSE Securities Ltd. trading member-NSE
1.0 Background
1.1 Mr. Srigopal Jaju is registered with Securities and Exchange
Board of India (hereinafter referred to as “SEBI”) as a stock broker being a member of Hyderabad Stock Exchange
Ltd. (hereinafter referred to as “HSE”)
and as a sub broker affiliated to M/s HSE Securities Ltd (HSESL),
trading member- National Stock Exchange (NSE). He is also a sub-broker
of M/s B.N.R. Capital Services Pvt. Ltd., member- Bombay Stock Exchange (BSE) under SEBI Registration No. INS
010984238. He is carrying on the business under the trade name M/s Srigopal
Jaju as a proprietorship concern. His office is located at 3-5-141/3/A/1, Opp:
Rukhmini Apartments, Eden Bagh, Ramkote, 1.2 An inspection of books of
accounts, records and other documents of Mr. Srigopal Jaju (hereinafter referred
to as “SJ”) was conducted on 2.0 Notice / Reply / Personal Hearing 2.1 Accordingly, I issued a show cause notice dated January 25,
2007 to SJ under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing
Penalty by the Adjudicating Officer) Rules, 1995 to show cause as to why an inquiry
should not be initiated against him and penalty be not imposed on him under
section 15HB of Securities and Exchange Board of India Act, 1992 (hereinafter
referred to as “SEBI Act”) for the alleged violations of various provisions
of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred
to as “Broker Regulations”). SJ was advised to make his submissions, if
any, along with supporting documents, within 14 days from the date of receipt
of notice. He was also advised to note
that in case he failed to reply within the stipulated time, it would be
presumed that he has no suitable explanation / reply and that the matter would
be further proceeded with on the basis of evidence on record. SJ was also asked
to indicate whether he would also like to have a personal hearing in this
regard. 2.2
The show cause
notice was duly delivered to SJ and a reply dated 2.3
On 3.0 CONSIDERATION OF
ISSUES AND FINDINGS 3.1
I now proceed to
discuss in detail the charges that have been alleged against SJ for being
adjudicated in the present proceedings, the submissions made by SJ in this
regard and my findings on the same. 3.2
Charge 1 : Dealt with
unregistered sub-brokers in violation of regulation 18B read with regulation 26(xiv)
of the Broker Regulations. Reply In its reply dated Findings : It has been observed in the inspection report that Shri
Rajeshwar Koutika -client code - R085 (RK), who was registered as a client, was
dealing with the sub-broker SJ on behalf of his clients. A random sample of
trades revealed that on many occasions in respect of trades of RK, SJ made
deliveries to third parties who are perhaps ultimate clients. Certain instances
are as under:
SJ in his reply dated Further evidence in this regard is the volume of
business done by RK with SJ. During the inspection period the volume of
business of RK is as under:
The fact that RK is having a large turnover ranging
from 95 lacs to 486 lacs during a financial year also supports the view that he
is acting as an unregistered sub-broker and not as an individual investor. According to rule 3 of SEBI (Stock Brokers and
Sub-Brokers) Rules, 1992 (hereinafter referred to as “Brokers Rules”) and
regulation 18B read with regulation 16 of the Broker Regulations, a sub-broker
shall not deal with unregistered sub-brokers. Similarly, as per SEBI Circular
SMD/Policy/Circular 3-97/ dated March 31, 1997, no broker shall deal with a
person who is acting as a sub-broker unless he is registered with SEBI and it
shall be the responsibility of the broker to ensure that his clients are not
acting in the capacity of a sub-broker unless he is registered with SEBI as a
sub-broker. The delivery to apparently unrelated third parties on
many occasions coupled with large turnover prove that RK was actually an
unregistered sub-broker and thus SJ has violated
the provisions of SEBI Circular No. SMD/Policy/circular 3-97/ dated 3.3
Charge 2 Dealt with
other members of HSE and sub-brokers of HSE Securities Ltd. who acted as
unregistered sub brokers in violation of regulation 26(xiv) of Broker Regulations. Reply In his reply dated “ None of these members/
sub-brokers has done business as unauthorized sub-brokers. Much of this
business was done only in BSE segment as they did not have BSE terminals at
that time and that too they have done this for themselves in the capacity as
clients and not for their clients.” In the hearing held on It has been observed by the inspection team that SJ
transacted with HSE members, M/s.
Ramswaroop Agarwal of M/s. Saraf Securities, M/s JMD Securities, M/s. Umed
Kumar Kochar, M/s. GDH Securities Pvt. Ltd., M/s. R Sanghi Stock Brokers and
Fin Pvt Ltd., M/s. Raj Kishore Jhawar, M/s. Ghanshyam Das Gilada, M/s. Inani
Securities and M/s. Bhagwan Das Jaju. SJ transacted with the aforesaid members/
sub-brokers treating them as clients. The volume of the business done by SJ
with the aforesaid entities during the period covered under inspection is as
under:
Findings SEBI circular SEBI/MIRSD//Cir-06/2004 dated 3.4
Charge 3 Failed to
maintain client database properly in violation of regulation 26(xii) and 26(xv)
of Broker Regulations. Reply In his reply dated Findings SEBI Circulars SMD/Policy/IECG/1-97 dated SJ has submitted that the client registration form
contains the clause of confidentiality of information. While appearing for
personal hearing, SJ has submitted copies of client registration forms,
agreements etc. in respect of some of his clients. A perusal of the
registration forms confirms his contention regarding confidentiality clause. SJ
has also submitted vide his letter dated 10.02.2007 that pursuant to issuance
of SEBI circular SEBI/MRD/SE/Cir- 42 /2003 dated November 19, 2003, he had
communicated the fact of his proprietary trading to his clients individually in
writing. Vide his letter dated In view of above, I am of the opinion that there is
no significant violation with regard to maintenance of client database as
alleged by the inspection team. 3.5 Charge 4 &
5 Failed to comply with directions issued by the Board
in violation of regulation 26 (xv) of Brokers Regulations. Not exercised due skill, care and diligence in
violation of clause A(2) of code of conduct for sub brokers mentioned under
schedule II of the Brokers Regulations read with regulation 15 and regulation
26 (xvi) of the Brokers Regulations. Reply SJ in his reply dated Findings As discussed above, SJ has been dealing with Mr Rajeshwar
Koutika (RK) who is operating as an unregistered sub broker. It can thus be
concluded that he has not been complying with SEBI directions as stipulated
vide SEBI Circular No. SMD/Policy/circular 3-97/ dated March 31, 1997,
regulation 18B read with regulation 16 and regulation 26(xiv) of the Broker
Regulations and has thus violated regulation 26(xv) of the Broker Regulations. The Code of Conduct for sub brokers under Schedule II
of Regulation 15 of Broker Regulations states as under : “A. GENERAL (1) Integrity : A sub-broker, shall
maintain high standards of integrity, promptitude and fairness in the conduct
of all investment business. (2) Exercise Of Due Skill And Care
: A sub-broker, shall act with due skill, care and diligence in the conduct of
all investment business.” If SJ had been careful in scrutinsing RK’s
transactions, he would have himself made out that RK is actually acting as a
sub-broker. To that extent it would be appropriate to conclude that SJ has not exercised due skill and care in
conducting his business. In view of
above, I am of the opinion that SJ has violated regulation 15 and 26(xvi) of Broker Regulations. 3.6 As violation of SEBI circulars, regulations
18B (read with regulation 16 of Broker regulations), 26 (xiv), (xv) and (xvi) of
Broker Regulations has been established as discussed above, SJ is liable for
penalty under section 15HB of SEBI Act, 1992 which states as under: “Penalty for contravention where no separate penalty has been provided 15HB. Whoever
fails to comply with any provision of this Act, the rules or the regulations
made or directions issued by the Board thereunder for which no separate penalty
has been provided, shall be liable to a penalty which may extend to one crore
rupees.”. 3.7 While imposing penalty it is important to
consider the factors stipulated in section 15J of SEBI Act, 1992 which states
as under: “15J - Factors to be taken into account by the
adjudicating officer While adjudging quantum of penalty
under section 15-I, the adjudicating officer shall have due regard to the
following factors, namely:- (a)
the amount of disproportionate gain or unfair advantage, wherever
quantifiable, made as a result of the default; (b)
the amount of loss caused to an investor or group of investors as a
result of the default; (c)
the repetitive nature of the default.” 3.9
As regards the disproportionate gain or unfair advantage there are no
quantifiable figures available on record with respect to the default of SJ.
There are also no figures or data on record to quantify the amount of loss
caused to an investor or group of investors as a result of the default. In view
of the fact that he has been having a large number of transactions with an unregistered sub broker (RK) over a long period,
I am inclined to hold that the defaults of SJ are repetitive in nature. As the violation of statutory obligations has been
established, SJ is liable for penalty. Hon’ble Supreme Court of India in its
order dated 4.0 Penalty 4.1 Considering the material available on record, and upon a
judicious exercise of powers conferred upon me under Rule 5 of SEBI (Procedure
for Holding Enquiry and Imposing Penalties by the Adjudicating Officer) Rules
1995, I impose a penalty of Rs. 1,00,000/- ( Rupees One lakh only) on Mr. Srigopal
Jaju, proprietor of M/s Srigopal Jaju holding SEBI Registration Nos.
INB060147715, INS011388712 & INS
230767910 and having office at 3-5-141/3/A/1, Opp: Rukhmini Apartments, Eden
Bagh, Ramkote, Hyderabad – 500001, under section 15HB of SEBI Act, 1992. I think this amount would be
appropriate in view of the facts of the case.
4.2 The penalty amount shall be paid within a period of 45 days
from the date of receipt of this order through a crossed demand draft drawn in
favour of “SEBI- Penalties remittable to the Government of India and payable at
Mumbai which may be sent to Mr. P. K. Kuriachen, Chief General Manager, Securities
and Exchange Board of India, SEBI Bhavan, C – 4 A, “G” Block, Bandra Kurla
Complex, Bandra (E), Mumbai – 400 051.
PLACE: MUMBAI PIYOOSH
GUPTA DATE:
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