ADJUDICATION ORDER IN RESPECT OF LOTUS INVESTMENTS & SECURITIES, MEMBER NSE (SEBI REGN. NO. INB 230660021) UNDER SECTION 15 I OF THE SEBI ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

Whereas Securities and Exchange Board of India (SEBI) had conducted inspection of the books of accounts and other documents of Lotus Investments & Securities, Member National Stock Exchange, SEBI REGN. NO. INB 230660021 (hereinafter referred to as ‘Member’) and pursuant to this, appointed me as Adjudicating Officer vide Order dated December 16, 2003 under Rule 3 of SEBI (Procedure for holding inquiry and imposing penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘said rules’) to inquire into and adjudge under section 15 B, 15 F(a) and 15 F(b) of the SEBI Act, 1992.

Accordingly, I have examined these sections.

Section 15 B of SEBI Act, 1992 reads as under :

“if any person, who is registered as an intermediary and is required under this Act or any rules or regulations made thereunder to enter into an agreement with his client, fails to enter into such agreement, he 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)”.

Section 15 F(a) of SEBI Act, 1992 reads as under :

“if any person, who is registered as a stock broker under this Act fails to issue contract notes in the form and manner specified by the stock exchange of which such broker is a member, he shall be liable to a penalty not exceeding five times the amount for which the contract note was required to be issued by that broker.”

Section 15 F(b) of SEBI Act, 1992 reads as under :

“if any person, who is registered as a stock broker under this Act fails to deliver any security or fails to make payment of the amount due to the investor in the manner within the period specified in the regulations, he shall be liable to (a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, which is less)”

CHARGES

Non-maintenance of client database

2. Fails to issue contract notes in the form and manner as specified by

the Stock Exchange.

3. Delay in payment and Deliveries of Securities

1.0. SHOW CAUSE NOTICE AND REPLY

1.0.1 Accordingly, Show Cause Notice dated October 7, 2004 under Rule 4 (1) of the said rules was issued to the Member communicating the alleged charges levelled against them. The inspection against the Member was conducted and the Inspection Report was sent along with the said Notice.

1.0.2 REPLY

1.0.3. Accordingly, the Member has sent a detailed reply vide letter dated October 26, 2004 and December 02, 2004. .

1.0.4. PERSONAL HEARING

1.0.5. The personal hearing in the matter was fixed on 02^nd December, 2004 and Shri Bharat B Merchant, Advocate & Solicitors, Thakordas & Madgavkar and Shri Pravin Agarwal, Partner, Lotus Investments & Securities, attended the hearing. The Member also submitted additional documents at the time of hearing.

1.0.6. In view of the above, I now deal with the submissions made by the Member before me for the purpose of this adjudication.

2.0. THE REPLY OF THE MEMBER VIS-A-VIS THE CHARGES AND THE FINDINGS.

2.0.1. CHARGE – 1 : Non-maintenance of books of accounts and records, fails to maintain the same.

2.0.2 Reply : During the course of proceedings the member mentioned that the reply which was submitted vide letter dated October 26, 2004 and written submissions produced on December 2, 2004 shall be taken into consideration and further submitted during the personal hearing held on December 2, 2004 that -

“As far as 11 instances are concerned for the year 2000-2001 all parties except Jahak Desai (i.e 10), had ceased doing broking business with us before the Police complaint on March 05, 2002 and therefore, reference to them is of academic interest. As far as 2001-2002 is concerned, out of 4 persons mentioned only Survodaya Capital continued and the rest had ceased doing broking business.

As far as existing clients are concerned, we are in a position to produce the agreement before 08.12.04. It is our practice to enter into agreement prior to entering into any transactions.”

2.0.3 APPRECIATION OF EVIDENCE AND FINDING

2.0.4. In this regard, I have examined the reply dated October 26, 2004 and December 2, 2004. I found that there were 15 instances pointed out by the inspection team in which the client’s agreements were not made available for inspection. Out of 15 instances, 11 instances were related to year 2000-2001 and 4 instances were related to the year 2001-2002.

In this regard, I categorically examined the reply for the instances related to the year 2000-2001 and found that except the client viz. Shri Janak Desai all remaining 10 clients have ceased in dealing with member before March 5, 2002. As far as Shri Janak Desai who is continuing as a client is concerned, I specifically asked the member to produce the agreement executed with Shri Desai.

According, the member vide its letter dated December 8, 2004 produced the copy of the agreement executed with Shri Janak Desai. I examined the agreement and found that it is duly signed and dated by the member as well as the client. As far as 4 instances related to the year 2001-2002 is concerned the member has produced the agreements executed with the following clients viz. Shri Vahid khan, Amrutlal Dave, Shri Shashikant Agarwal and Ramakant Bhatt. r.

I have examined these agreements and found that all are duly signed dated and execution is complete is all respect. In view of the above, I am inclined to accept the submissions made by the member in the instant charge levelled against him. Therefore, I do not hold him guilty under Section 15B of SEBI Act, 1992.

2.0.5. CHARGE – 2 : Fails to issue contract notes in the form and manner

as specified by the Stock Exchange.

2.0.6 Reply : The member has inter alia stated in this regard before me as under:-

“Stamps – 2000-2001 – It is to be pointed out that during 2000-2001 stamp duty structure was not rationalized and therefore, member brokers were not paying stamp duty and the matter was then subjudice and in these circumstances the said stamp duty was not affixed on the contract notes during that period. This is a matter of academic interest. Some consolidated stamp duty payments have been made. Receipt will be produced by 08.12.04.

Stamps – 2001-2002 – In this year the consolidated stamp duty on a monthly basis was paid regularly. Receipt will be produced by 08.12.04

Authority to sign contract notes – The contract notes were signed by authorized signatories Mr Ashwin Kadam and Mr Bindal Shah. Reference may be made to Section 3.5 of NSE Regulations which does not require us to submit such a document with the exchange.

Evidence to delivery contract notes within 24 hours – The contract notes were delivered within 24 hours in some contract notes the date of receipt have not been endorsed by the client.

As far as the Circular is concerned the same was not referred to in the notice and also in the inspection report and therefore, we will file respond before 08.12.04.”

2.0.7. APPRECIATION OF EVIDENCE AND FINDING

2.0.8. In this regard, I have examined the detailed replies dated October 26, 2004, December 2, 2004 and December 8, 2004 given by the member. I have observed that the member has submitted various letters issued by his clients viz. Sanjeev Khemani, Amiri Arif, V.S Sunderaman, Elite Finvest Pvt Ltd, Gupta Sajjan Kumar, Saryoyaya Capital Pvt Ltd, Ahuja Jitendra and Nivangi Patel. I have examined these letters and found that all these clients have stated in this letter that the contract notes were issued by the member and received by them within 24 hours from the trade date. Further, I have also examined Xerox copies of the contract notes and found that the clients have received the contract notes within 24 hours from the trade date.

In view of these, I found that there are no irregularities / lapses on the part of the member as far as issuance of contract notes within 24 hours are concerned. Therefore, I do not hold him guilty under Section 15F(a) of SEBI Act, 1992.

2.0.9 CHARGE – 3 - Delay in payment and Deliveries of Securities

2.10. Reply

In this regard, the member has orally submitted that -

“Year 2000-2001

Running Account :

This finding of the inspecting authority is not correct. The letters from Janak Desai dated 7/1/98 and the letter of Anand Radhika dated 16/1/99 is annexed to the written submissions dated 2/12/2004. Hence, the statutory requirements were complied and there is no violation.

Delayed Delivery of Securities :

A general explanation has been given in our reply which is applicable to all the four entities and which general explanation is application to all of them. However, the detailed reply given vide letter dated 26/10/2004. For all these entities, we are holding a letter for retaining the shares and maintaining the running account and which are annexed to the submissions tendered today.

Year 2001-2002

Delayed Delivery of Securities : A general explanation has been given in our reply which is applicable to all the four entities and which general explanation is application to all of them. However, the detailed reply given vide letter dated 26/10/2004. For all these entities, we are holding a letter for retaining the shares and maintaining the running account and which are annexed to the submissions tendered today.”

2.11. APPRECIATION OF EVIDENCE AND FINDING

In this regard after careful examination of reply dated October 26, 2004, December 2, 2004 and December 8, 2004 I found that the member has submitted the letters issued by his clients instructing him to hold the payment as well as securities. These letters are issued by –

1. Vast Investment

2. Janak Desai

3. Sanjeev Khemani

4. Rahul Investments

These letters inter alia, states as under :-

“This is to state that I authorized Lotus Investments & Securities to maintain a running account for dealing with the firm. The balances may be maintained as a running balance and the credits may be utilized towards margins. The payments must be made to me when demanded by me. We also authorize you to hold my shares with yourself for the purpose of security.”

In view of the above, I observed that the member has acted according to the instructions given by his clients and therefore, he has complied with Regulation 26 (vi) of SEBI (Stock Brokers and sub brokers) Regulations, 1992.

Therefore, I do not hold him guilty for any penalty under Section 15 F(b).

3.0. CONCLUSION

3.0.1. Further, I also observed that the member has stated at the time of oral submission that they will be cautious in future while trading in securities market as broker and ensure to see that all compliance will be made all times as per rules, regulations, guidelines and bye-laws of SEBI and stock exchanges respectively.

3.0.2 Besides the oral submissions and documentary evidence produced by the member, I have also considered the following issues :

· The alleged act of omission and commission or trivial at technical in nature and no harm, injury or loss has been caused or suffered by any one on account of such lapses.

· The member has not derived any gain disproportionate or otherwise from the lapses.

· The lapses are non repetitive and administrative in character

· There is no investor complaint against the member.

3.0.3.In view of the above, I consider that that it will be not just, fair and proper to impose any penalty on the member for the aforesaid reasons. In this connection, it would be relevant to refer to the judgment of the Division Bench of the Hon’ble High Court of Mumbai in SEBI vs. Cabot International Corporation, (2004) 51 SCL 307(BOM).

3.0.4. The following is extracted from the said judgment :

“Though looking to the provisions of the statute, the delinquency of the defaulter may itself expose him to the penalty provision yet, despite, that in the statute minimum penalty is prescribed, the authority may refuse to impose penalty for justifiable reasons like the default occurred due to bonafide belief that he was liable to act in the manner prescribed by the statute or it was too technical or venial breach etc”.

4.0. ORDER

4.0.1. Having regard to the facts and circumstances of the case, the submissions made and the evidence produced by the member, it would not be just, fair and proper to impose any penalty on LOTUS INVESTMENTS & SECURITIES, MEMBER NSE (SEBI REGN. NO. INB 230660021) under sections 15B,15F(a) and 15 F(b) of Chapter VIA of the SEBI Act, 1992.

Date : December 14, 2004.

Place : Mumbai

SANDEEP P. DEORE

ADJUDICATING OFFICER

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ADJUDICATION ORDER IN RESPECT OF LOTUS INVESTMENTS & SECURITIES, MEMBER NSE (SEBI REGN. NO. INB 230660021) UNDER SECTION 15 I OF THE SEBI ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 Whereas Securities and Exchange Board of India (SEBI) had conducted inspection of the books of accounts and other documents of Lotus Investments & Securities, Member National Stock Exchange, SEBI REGN. NO. INB 230660021 (hereinafter referred to as ‘Member’) and pursuant to this, appointed me as Adjudicating Officer vide Order dated December 16, 2003 under Rule 3 of SEBI (Procedure for holding inquiry and imposing penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘said rules’) to inquire into and adjudge under section 15 B, 15 F(a) and 15 F(b) of the SEBI Act, 1992. Accordingly, I have examined these sections. Section 15 B of SEBI Act, 1992 reads as under : “if any person, who is registered as an intermediary and is required under this Act or any rules or regulations made thereunder to enter into an agreement with his client, fails to enter into such agreement, he 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)”. Section 15 F(a) of SEBI Act, 1992 reads as under : “if any person, who is registered as a stock broker under this Act fails to issue contract notes in the form and manner specified by the stock exchange of which such broker is a member, he shall be liable to a penalty not exceeding five times the amount for which the contract note was required to be issued by that broker.” Section 15 F(b) of SEBI Act, 1992 reads as under : “if any person, who is registered as a stock broker under this Act fails to deliver any security or fails to make payment of the amount due to the investor in the manner within the period specified in the regulations, he shall be liable to (a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, which is less)” CHARGES Non-maintenance of client database 2. Fails to issue contract notes in the form and manner as specified by the Stock Exchange. 3. Delay in payment and Deliveries of Securities 1.0. SHOW CAUSE NOTICE AND REPLY 1.0.1 Accordingly, Show Cause Notice dated October 7, 2004 under Rule 4 (1) of the said rules was issued to the Member communicating the alleged charges levelled against them. The inspection against the Member was conducted and the Inspection Report was sent along with the said Notice. 1.0.2 REPLY 1.0.3. Accordingly, the Member has sent a detailed reply vide letter dated October 26, 2004 and December 02, 2004. . 1.0.4. PERSONAL HEARING 1.0.5. The personal hearing in the matter was fixed on 02^nd December, 2004 and Shri Bharat B Merchant, Advocate & Solicitors, Thakordas & Madgavkar and Shri Pravin Agarwal, Partner, Lotus Investments & Securities, attended the hearing. The Member also submitted additional documents at the time of hearing. 1.0.6. In view of the above, I now deal with the submissions made by the Member before me for the purpose of this adjudication. 2.0. THE REPLY OF THE MEMBER VIS-A-VIS THE CHARGES AND THE FINDINGS. 2.0.1. CHARGE – 1 : Non-maintenance of books of accounts and records, fails to maintain the same. 2.0.2 Reply : During the course of proceedings the member mentioned that the reply which was submitted vide letter dated October 26, 2004 and written submissions produced on December 2, 2004 shall be taken into consideration and further submitted during the personal hearing held on December 2, 2004 that - “As far as 11 instances are concerned for the year 2000-2001 all parties except Jahak Desai (i.e 10), had ceased doing broking business with us before the Police complaint on March 05, 2002 and therefore, reference to them is of academic interest. As far as 2001-2002 is concerned, out of 4 persons mentioned only Survodaya Capital continued and the rest had ceased doing broking business. As far as existing clients are concerned, we are in a position to produce the agreement before 08.12.04. It is our practice to enter into agreement prior to entering into any transactions.” 2.0.3 APPRECIATION OF EVIDENCE AND FINDING 2.0.4. In this regard, I have examined the reply dated October 26, 2004 and December 2, 2004. I found that there were 15 instances pointed out by the inspection team in which the client’s agreements were not made available for inspection. Out of 15 instances, 11 instances were related to year 2000-2001 and 4 instances were related to the year 2001-2002. In this regard, I categorically examined the reply for the instances related to the year 2000-2001 and found that except the client viz. Shri Janak Desai all remaining 10 clients have ceased in dealing with member before March 5, 2002. As far as Shri Janak Desai who is continuing as a client is concerned, I specifically asked the member to produce the agreement executed with Shri Desai. According, the member vide its letter dated December 8, 2004 produced the copy of the agreement executed with Shri Janak Desai. I examined the agreement and found that it is duly signed and dated by the member as well as the client. As far as 4 instances related to the year 2001-2002 is concerned the member has produced the agreements executed with the following clients viz. Shri Vahid khan, Amrutlal Dave, Shri Shashikant Agarwal and Ramakant Bhatt. r. I have examined these agreements and found that all are duly signed dated and execution is complete is all respect. In view of the above, I am inclined to accept the submissions made by the member in the instant charge levelled against him. Therefore, I do not hold him guilty under Section 15B of SEBI Act, 1992. 2.0.5. CHARGE – 2 : Fails to issue contract notes in the form and manner as specified by the Stock Exchange. 2.0.6 Reply : The member has inter alia stated in this regard before me as under:- “Stamps – 2000-2001 – It is to be pointed out that during 2000-2001 stamp duty structure was not rationalized and therefore, member brokers were not paying stamp duty and the matter was then subjudice and in these circumstances the said stamp duty was not affixed on the contract notes during that period. This is a matter of academic interest. Some consolidated stamp duty payments have been made. Receipt will be produced by 08.12.04. Stamps – 2001-2002 – In this year the consolidated stamp duty on a monthly basis was paid regularly. Receipt will be produced by 08.12.04 Authority to sign contract notes – The contract notes were signed by authorized signatories Mr Ashwin Kadam and Mr Bindal Shah. Reference may be made to Section 3.5 of NSE Regulations which does not require us to submit such a document with the exchange. Evidence to delivery contract notes within 24 hours – The contract notes were delivered within 24 hours in some contract notes the date of receipt have not been endorsed by the client. As far as the Circular is concerned the same was not referred to in the notice and also in the inspection report and therefore, we will file respond before 08.12.04.” 2.0.7. APPRECIATION OF EVIDENCE AND FINDING 2.0.8. In this regard, I have examined the detailed replies dated October 26, 2004, December 2, 2004 and December 8, 2004 given by the member. I have observed that the member has submitted various letters issued by his clients viz. Sanjeev Khemani, Amiri Arif, V.S Sunderaman, Elite Finvest Pvt Ltd, Gupta Sajjan Kumar, Saryoyaya Capital Pvt Ltd, Ahuja Jitendra and Nivangi Patel. I have examined these letters and found that all these clients have stated in this letter that the contract notes were issued by the member and received by them within 24 hours from the trade date. Further, I have also examined Xerox copies of the contract notes and found that the clients have received the contract notes within 24 hours from the trade date. In view of these, I found that there are no irregularities / lapses on the part of the member as far as issuance of contract notes within 24 hours are concerned. Therefore, I do not hold him guilty under Section 15F(a) of SEBI Act, 1992. 2.0.9 CHARGE – 3 - Delay in payment and Deliveries of Securities 2.10. Reply In this regard, the member has orally submitted that - “Year 2000-2001 Running Account : This finding of the inspecting authority is not correct. The letters from Janak Desai dated 7/1/98 and the letter of Anand Radhika dated 16/1/99 is annexed to the written submissions dated 2/12/2004. Hence, the statutory requirements were complied and there is no violation. Delayed Delivery of Securities : A general explanation has been given in our reply which is applicable to all the four entities and which general explanation is application to all of them. However, the detailed reply given vide letter dated 26/10/2004. For all these entities, we are holding a letter for retaining the shares and maintaining the running account and which are annexed to the submissions tendered today. Year 2001-2002 Delayed Delivery of Securities : A general explanation has been given in our reply which is applicable to all the four entities and which general explanation is application to all of them. However, the detailed reply given vide letter dated 26/10/2004. For all these entities, we are holding a letter for retaining the shares and maintaining the running account and which are annexed to the submissions tendered today.” 2.11. APPRECIATION OF EVIDENCE AND FINDING In this regard after careful examination of reply dated October 26, 2004, December 2, 2004 and December 8, 2004 I found that the member has submitted the letters issued by his clients instructing him to hold the payment as well as securities. These letters are issued by – 1. Vast Investment 2. Janak Desai 3. Sanjeev Khemani 4. Rahul Investments These letters inter alia, states as under :- “This is to state that I authorized Lotus Investments & Securities to maintain a running account for dealing with the firm. The balances may be maintained as a running balance and the credits may be utilized towards margins. The payments must be made to me when demanded by me. We also authorize you to hold my shares with yourself for the purpose of security.” In view of the above, I observed that the member has acted according to the instructions given by his clients and therefore, he has complied with Regulation 26 (vi) of SEBI (Stock Brokers and sub brokers) Regulations, 1992. Therefore, I do not hold him guilty for any penalty under Section 15 F(b). 3.0. CONCLUSION 3.0.1. Further, I also observed that the member has stated at the time of oral submission that they will be cautious in future while trading in securities market as broker and ensure to see that all compliance will be made all times as per rules, regulations, guidelines and bye-laws of SEBI and stock exchanges respectively. 3.0.2 Besides the oral submissions and documentary evidence produced by the member, I have also considered the following issues : · The alleged act of omission and commission or trivial at technical in nature and no harm, injury or loss has been caused or suffered by any one on account of such lapses. · The member has not derived any gain disproportionate or otherwise from the lapses. · The lapses are non repetitive and administrative in character · There is no investor complaint against the member. 3.0.3.In view of the above, I consider that that it will be not just, fair and proper to impose any penalty on the member for the aforesaid reasons. In this connection, it would be relevant to refer to the judgment of the Division Bench of the Hon’ble High Court of Mumbai in SEBI vs. Cabot International Corporation, (2004) 51 SCL 307(BOM). 3.0.4. The following is extracted from the said judgment : “Though looking to the provisions of the statute, the delinquency of the defaulter may itself expose him to the penalty provision yet, despite, that in the statute minimum penalty is prescribed, the authority may refuse to impose penalty for justifiable reasons like the default occurred due to bonafide belief that he was liable to act in the manner prescribed by the statute or it was too technical or venial breach etc”. 4.0. ORDER 4.0.1. Having regard to the facts and circumstances of the case, the submissions made and the evidence produced by the member, it would not be just, fair and proper to impose any penalty on LOTUS INVESTMENTS & SECURITIES, MEMBER NSE (SEBI REGN. NO. INB 230660021) under sections 15B,15F(a) and 15 F(b) of Chapter VIA of the SEBI Act, 1992. Date : December 14, 2004. Place : Mumbai SANDEEP P. DEORE ADJUDICATING OFFICER