Against

M/s Acumen Securities Ltd.

New Delhi

1.0������ Background

1.1������ M/s Acumen Securities Ltd. was registered with Securities and Exchange Board of India (hereinafter referred to as �SEBI�) as a broker being a trading member of National Stock Exchange of India Ltd. (hereinafter referred to as �NSE / exchange�) with registration no. INB 230930334. Their registered office is presently located at H-147, Sarita Vihar, New Delhi � 110 076.

 

1.2������ The present proceedings emanate from the complaints made by certain investors with regard to the broking activities conducted by Acumen Securities Ltd. (hereinafter referred to as �ASL�).� The complaints were forwarded to ASL for redressal.� As ASL failed to redress the investors complaints despite reminders, it was alleged that ASL has violated section 15C of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as � SEBI Act, 1992 �) and it was decided to initiate adjudication proceedings against ASL and in this regard, I was appointed as Adjudicating Officer vide SEBI order dated December 13, 2005.� �This order was communicated to me vide proceedings dated December 16, 2005.�

 

 

2.0������ Notice / Reply / Personal Hearing

 

2.1������ Accordingly, I issued a show cause notice dated May 25, 2006 to ASL 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 enquiry should not be initiated against them and penalty be not imposed on them for their failure to redress investors� grievances.� ASL was advised to make their submissions, if any, along with supporting documents, within 14 days from the date of receipt of notice.� They were also advised to note that in case they failed to reply within the stipulated time, it would be presumed that they have no suitable explanation / reply and that the matter would be further proceeded with on the basis of evidence on record.

 

2.2������ The show cause notice was delivered to them on June 02, 2006.� As no reply was received to the show cause notice, I decided to conduct an inquiry in the matter and issued a notice of inquiry dated September 22, 2006 fixing October 04, 2006 as date of hearing.� The notice of inquiry was sent by registered post and courier.� While the notice sent by registered post was returned back un-delivered, the notice sent by courier appears to have been delivered which is evidenced by the fact that on October 04, 2006 (the scheduled date of hearing), a phone call was received from Mr. Vineet Agarwal, Director-ASL requesting permission to appear on October 05, 2006 instead of October 04, 2006.� With a view to not to deny them� natural justice, the said request was accepted �and� ASL was permitted to make submissions on October 05, 2006.

 

2.3             Mr. Vineet Agarwal, Director � ASL appeared before me on October 05, 2006 and made submissions as under :

 

�While I would concede that there has been a long time in settling all the claims, but I would like to say there has always been an intent to settle all the claims as quickly as possible.� In fact the claim of Mr. Darbari was settled in full around 2002 itself.� I would like to emphasize here that significant amount of the company (about Rs.60 to 70 lakhs + interest thereon) has been locked up with NSE ever since the closure of the terminal in October 2002 and we have requested NSE time and again to settle all the claims against us out of this deposit available with them and refund the balance to us.� But even after 4 years of processing NSE has not been able to settle all the claims so far. We have from our own resources been able to settle about 3 claims (including Dr. S.C. Gupta) against us and all 3 of these have written to NSE acknowledging the settlement of the claims.� The claims have been outstanding due to an acute resource crunch and therefore we had requested NSE to settle these claims out of our deposit available with them.� Our last discussion with NSE has indicated that only the claim of Ms. Surjeet Anand remains to be paid to her and even for that NSE has arrived at a settlement already but the payment process is yet to be completed.� All the other claims have already been paid by either NSE or by us to various complainants.�

 

����������� ���

 

�The resolution of grievances has taken a long time due to an acute resource crunch in the company.� In fact the company even had to suspend its operations due to the same reason.� A large security deposit of the company has been available with NSE and we have time and again requested the NSE that the claims be settled out of the deposit available with the exchange.� Even that has taken a long of time i.e. about 2 to 3 years.�

 

3.0������ Consideration of �issues :

 

3.1������ I now propose to discuss in detail the charge that has been leveled against ASL for being adjudicated in the present proceedings, the submissions made by them in this regard and my findings on the same.

 

3.2������ The charge against ASL is that it has failed to resolve investor grievances within stipulated time. As per documents available on record, SEBI had received numerous investor complaints against ASL which had been forwarded to NSE to take up with ASL for redressal.� A list of some of the complaints/grievances received against ASL is given below:-

 

 

Date of initial complaint	Name of complainant	Grievance
09.07.2002 (receipt date)	Shri M.S. Darbari (power of attorney holder for Shri L.S. Darbari)	Non issuance of contract notes. Non payment of sale proceeds.
16.11.2002	M/s Ghai Securities	Non return of cash and securities held as margin.
17.12.2002	Shri S.C. Gupta	Non payment of sale proceeds. Non return of securities held as margin.
22.06.2004	Ms. Surjeet Anand	Non delivery of securities.

 

3.3������ As per records these complaints were forwarded to ASL for redressal through NSE on various occasions. Vide SEBI letter no. SMD/DBA-I/BComp/ 3439/10182/2003 dated May 26, 2003, ASL was asked to be personally present at SEBI office at 11.00 a.m. on May 28, 2003 along with the relevant documents for resolution of the complaints.� Through this letter, ASL was also cautioned that non-resolution of investor complaints may attract penal action.� The documents on record mention that ASL failed to appear at SEBI office on the stipulated date and also did not submit any reply in this regard.�

 

3.4������ ASL was again asked vide SEBI letter no. MIRSD/DPS-2/BComp/3439/��������� /2003 dated July 16, 2003 to meet SEBI officials at 11.00 a.m. on July 23, 2003 regarding redressal of investors� complaints.� ASL was again cautioned that non-redressal of investor grievances was an offence punishable under SEBI Act, 1992 and SEBI (Stock Brokers and Sub Brokers) Rules and Regulations, 1992.� However, ASL neither appeared for the meeting nor sent any reply to the SEBI letter.�

 

3.5             Thereafter, vide SEBI letter no. MIRSD/DPS-2/BComp/3439/19615/2003 dated October 15, 2003, ASL was advised to redress the investors grievances within 7 days from date of receipt of the letter failing which SEBI would initiate necessary action as per SEBI Act and the relevant Rules and Regulations.

 

3.6             As ASL failed to redress the grievances of investors despite having been expressly called upon to do the same, SEBI decided to institute adjudication proceedings against them.

 

3.7             As per records it is observed that NSE has expelled ASL from its trading membership w.e.f. July 01, 2003.� Thus ASL cannot act as a broker after this date.

 

3.8             While adjudicating �the case, I consider it necessary to examine the nature and gravity of the investor grievances against ASL.� The details of the major investors grievances against ASL are given below :-

 

3.9             Complaint by Mr. L.S. Darbari:- �Mr. M.S. Darbari, power of attorney holder for Mr. L.S. Darbari (client) vide his letter dated Nil (received by SEBI on July 09, 2002) complained regarding non-receipt of sale proceeds amounting to Rs.178617.50 against sale of 1000 shares of SSI on June 24, 2002 through ASL.� It was submitted by the complainant that ASL did not issue contract notes to him despite requests and also refused to pay the sale proceeds.�

 

3.10         Complaint by M/s Ghai Securities:- M/s Ghai Securities, Yamuna Nagar vide its complaint dated November 16, 2002 mentioned that ASL had installed their trading terminal at its (Ghai Securities) premises in Yamuna Nagar and had taken Rs.2,00,000/- as margin money.� M/s Ghai Securities complained about non-refund of the margin money and certain shares by ASL on sudden deactivation of the trading terminal from October 16, 2002 under instructions from ASL.

 

3.11         Complaint by Mr. S.C. Gupta:- �SEBI received a complaint dated December 17, 2002 against ASL from Mr. S.C. Gupta, retired I.R.S. Officer from Delhi.� Mr. S.C. Gupta (SCG) was trading with ASL under various accounts and had the following major grievances:-

 

 

 

 

a)                 Non-return of shares:-

 

SCG had deposited the following shares with ASL under his various accounts.�

 

Sl. No.	Name of Company	No. of shares
1.	Punjab Tractors	2000
2.	Madras Fertilizer	3000
3.	Escorts	1000
4.	Bombay Dyeing	2000
5.	Shipping Corporation of India	1000
6.	SRF	1000
7.	MRPL	3000
8.	G.E. Shipping	5000
9.	HPCL	400
10.	J.P. Industries	2000
11.	Bank of India	2000
12.	Hindustan Motors	5000
13.	Indus Ind Bank	5000
14.	Silverline Industries Ltd.	500

 

Vide letter dated October 07, 2002, ASL confirmed that they were holding the above shares on the account of SCG and also gave 2 cheques for Rs.4,00,000/- each as security towards the same. SCG complained that, despite his requests,� ASL did not recredit his shares to his demat accounts.� In his letter dated November 20, 2002 to NSE and letter dated December 17, 2002 to SEBI, SCG mentions that the value of these shares was about Rs 12 lacs.

 

b)                 Delay in payment of sale proceeds:- SCG sold 5000 shares of G.E. Shipping and 2000 shares of Madras Fertilizers on October 08, 2002 through ASL and a payment cheque for Rs.1,60,000/- was issued to him on October 14, 2002.� This cheque was returned unpaid when presented.� ASL vide their letter dated November 12, 2002� admitted that this cheque had not been paid till that date. �SCG in his complaint dated December 17, 2002 mentioned that he was yet to receive this payment.� It is thus an admitted fact that there was substantial delay in payment of sale proceeds by ASL.�

 

c)                  Non-receipt of client balance amount:- SCG has also complained regarding non-receipt of credit balance of Rs.3929.50 in his account no. SC031and Rs.178300.73 in account no. SC032 with ASL.

 

d)                 Non-receipt of dividend amounts, opportunity loss etc.

 

3.12         Complaint of Ms. Surjeet Anand:-� Vide letter dated June 22, 2004, Ms. Surjeet Anand complained that ASL had failed to transfer her following shares to her demat account:-

 

Name of Company	No. of Shares
SBI	350
L&T	130
Digital Equipment	140
Ranbaxy	10
ACC	260

 

The complainant further mentioned that the market value of the shares which were not transferred by ASL was Rs.5.6 lacs (as on June 22, 2004).��

 

3.13��� During the hearing ASL admitted the existence of investor claims / grievances against them and that they had an intent of settling the claims as early as possible.� ASL also stated that most of the grievances had been settled by them (ASL) or by NSE.� It is however noted that no documentary evidence was submitted by ASL in support of their contention that they had settled certain investors� grievances.�

 

3.14��� ASL submitted that the claim of Mr. Darbari was settled in full around 2002 itself.� However no proof in this regard was submitted.�

3.15��� Further ASL also mentioned that they were facing an acute resource crunch and had asked NSE to settle the claims against them out of their security deposit available with NSE.� It has also been submitted that claims have been settled by NSE.� In the case of Ms. Surjeet Anand, it has been mentioned that NSE has arrived at a settlement but the payment process is yet to be completed.� The primary responsibility of settling the investor�s grievance / claim is that of the broker only and the exchange does not come into picture.� This responsibility cannot be passed on to the exchange merely by the broker asking the exchange to settle the investors� grievances. It is only in case of an entity / person who is no longer a member that the exchange would step in to settle the claims against the broker.� This settlement takes place out of broker�s funds available with the exchange after settling other liabilities as per rules, bye-laws and regulations of the exchange. In case of any shortfall, the exchange may pay compensation upto a specified extent from the investor protection fund.� However, this is a compensation process which is activated / utilised only after the broker has been expelled / declared defaulter.� Any settlement / compensation through this process cannot therefore be considered as redressal of investors� grievance by the broker. ASL�s submission that NSE is settling the investors� grievances through this process is a clear admission of �ASL�s� failure in resolving the same.

 

3.16��� ASL has not denied the receipt of letters and notices from SEBI with regard to pending investor grievances against them.� In fact, in the submission before me during hearing granted on October 05, 2006, Shri Vineet Agarwal, Director, ASL admitted that there have been investors complaints / grievances against them which had been outstanding since long.� Considering the dates of investors complaints and various SEBI letters dated May 26, 2003, July 15, 2003 and �October 15, 2003, it is obvious that ASL did not redress the investors� grievances even after expiry of notice period mentioned in SEBI letter dated October 15, 2003. Further no documentary evidence has been submitted in support of their contention that some investors grievances have been settled. �Thus the default of ASL can be considered as a continuing default.

 

3.17��� Another related aspect is the reason for continued non-redressal of investor grievances.� During the hearing ASL submitted that the resolution of grievances has taken a long time due to an acute resource crunch in the company.� It would be appropriate to analyse this submission here.� Normally in the brokerage business, the broker receives money from a client who has purchased securities / shares and pays the amount to the clearing house of the stock exchange and receives the securities / shares on pay-out day.� The delivery of securities / shares is then given to the purchasing client / investor.� In case of sales transaction, the broker receives the securities / shares from the selling client / investor and delivers them to the clearing house of the stock exchange on pay-in day and receives the money / consideration from the clearing house on the pay-out day. The sale proceeds are then paid to the selling client. The above process also indicates that the broker needs to have a limited outlay of funds for conducting the business.

 

3.18��� As per SEBI Circular SMD/SED/CIR/93/23321 dated November 18, 1993 money / delivery of shares should be made by the broker to the investor within 2 working days of payment from the exchange.� The fact that ASL was not able to deliver the shares or make payments to clients on time indicates that they had utilized the same for some other purpose.� In other words, the funds and securities had been diverted by ASL.� ASL have as such admitted that they were facing a resource constraint. �Therefore it is obvious that the funds and securities received by ASL from the clients and from the stock exchange on pay-out had been deliberately diverted by ASL which resulted in these investor complaints. �

 

3.19��� In view of above I am of the view that ASL has failed to redress investors grievances even after receiving specific notice from SEBI in this regard and are thus liable for penalty under section 15C of SEBI Act, 1992 which states as under :

 

�Penalty for failure to redress investors� grievances.

 

15C. If any listed company or any person who is registered as an intermediary, after having been called upon by the Board in writing, to redress the grievances of investors, fails to redress such grievances within the time specified by the Board, such company or intermediary shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.�.

3.20��� 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. �

3.21��� It is obvious that ASL was able to make use of the funds and securities of its clients which they were due to give to their clients. ��The approximate value of these funds and securities is mentioned below:-

Sl. No.	Name of Complainant	Value of funds / securities (Rs.)
i)	Shri M.S. Darbari	178617.50
ii)	M/s Ghai Securities � funds not returned Securities not credited� value not mentioned	200000.00
iii)	Shri S.C. Gupta
	a. Credit balance in accounts �������(3929.50+178300.73)	182230.23
	b. Securities not returned	1200000.00
	c.Delay in payment of sale proceeds	160000.00
	d.   Loss of dividends, opportunity loss � not ascertainable
iv)	Ms. Surjeet Anand � Securities not credited	560935.00
	Total	2481782.73

3.22��� It is thus obvious that ASL gained the use of funds and securities valued at about Rs.24.82 lacs for varying lengths of time although they were obliged to have transferred the funds and securities to the clients within 2 working days of the pay-out.� As these funds / securities were not returned to the clients / investors, their value can be considered as disproportionate gain to ASL. On the other hand, the investors incurred loss of these funds / securities till the same were received from ASL (as claimed by ASL, �but no evidence submitted) or through NSE.� In this case also, the difference between the contract / security value and the amount / compensation received would be direct loss to these investors.� The investors have also incurred an opportunity loss in respect of these securities / funds and loss of dividends etc. which cannot be quantified.� Similarly the loss to investors on account of non-receipt of contract notes from ASL and the effort involved in recovering the funds and securities cannot be quantified in monetary terms.�� ASL failed to make payment / deliver securities on many occasions and to many clients.� I therefore hold that there are repeated defaults by ASL in payment of funds / delivery of securities. This kind of conduct by brokers results in loss of faith of investors and adversely impacts the integrity of the securities markets.� It is therefore necessary that adequate penalty be imposed on ASL.� While considering the amount of penalty I am also aware that ASL has already been expelled by NSE and that it is no longer operating as a broker.� �

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. 10,00,000/- (Rupees Ten lacs only) on M/s Acumen Securities Ltd., H-147, Sarita Vihar, New Delhi � 110 076, erstwhile trading member-NSE, under section 15C 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 cross demand draft drawn in favour of �SEBI- Penalties remittable to the Government of India and payable at Mumbai which may be sent to Mr. Suresh Menon, General Manager, SEBI,� C � 4 A, �G� Block, Bandra Kurla Complex, Bandra (E), Mumbai � 400 051.

 

PLACE: MUMBAI��������������������������������������������������� PIYOOSH GUPTA

DATE: DECEMBER 05, 2006������������������������������ ADJUDICATING OFFICER