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ORDER OF ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND
IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF M/S. NAVIA MARKETS LTD. 1. BACKGROUND Securities and Exchange Board of India (SEBI) had
conducted inspection of the books of accounts and other documents of M/s.
Navia Markets Ltd., member National Stock Exchange of India Ltd.
(NSE), holding SEBI Registration Number INB2300770833, (hereinafter referred to
as “M/s. Navia Markets Ltd.” or the “broker” or the “member”)., and pursuant to this appointed me as adjudicating
officer vide order dated March 22, 2004 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
sections 15F (a), 15 HB of the SEBI Act. 2. NOTICE Pursuant to this a notice
dated March 26, 2004 under Rule 4 (1) of the said rules was issued to broker
communicating the charges levelled against them based on inspection of the
books of accounts and other documents conducted by SEBI. 3. REPLY Reply to the aforesaid
notice was received vide letter dated 4. PERSONAL HEARING Personal hearing in the
matter was granted on 5. FINDINGS, ANALYSIS AND CONCLUSIONS The undersigned has taken
into consideration the findings of the inspection report, the material
available on record, the reply of the broker and the submission made by the
broker during personal hearing. The findings in respect of the allegations
against the -broker are as follows: (a)
Non-collection of margin from
clients It was mentioned in the
inspection report that the broker has not collected margin from clients on
various occasions. In his submissions
the broker maintained that they accept cash / collateral as margin for each and
every client will have a separate margin account and a separate running
account. Collaterals will also be valued
subject to the hair cut percentage prescribed by NSE on a day-to-day
basis. At the end of the day they would
identify the net credit available for exposure for each and every client. Several instances have been
recorded in the inspection report where the members have failed to collect the
margins and inadequate margins have been maintained for the clients. The broker did not furnish any evidences regarding
collection / maintenance of margins in such cases. Keeping all these in view the explanation of
the broker is not acceptable. (b)
Non-maintenance of books of accounts and
records As per the inspection
report broker does not maintain order book. The broker submitted that as
per the client agreement they are empowered to take orders over phone and no
written orders are required. The phone
messages are recorded automatically and the messages are stored. Therefore, they have done away with the
manual order book. I have considered the
explanation given by the broker and the records submitted before me and find
that the submission of the broker is satisfactory. (c)
Non segregation of own funds from clients
funds As per the inspection
report the broker has not segregated the client’s funds from his own funds and
operated only a common bank account for both clients and self. The broker submitted that they
were not doing any proprietary trading they do trading for over 1000 clients attached
to branch offices (6) and franchises (10) and online clients they maintain
separate bank accounts for each of the branches / franchises / internet trades. Some of the administrative expenses were paid
through these accounts and they have not transferred the income accrued to
them. They have now opened a separate
bank account to route their administrative transactions. Certain payments were also made to the clients’
accounts pending realisation of the payments received from clients at
outstation centres. I have considered the
explanation given by the broker and the records submitted before me and find
that the submission of the broker is satisfactory. (d)
Delay
in payments / delivery to clients As per the inspection
report, there has been delay in delivery of funds and securities to certain
clients. The broker submitted that the
clients have given mandate to them for keeping the funds as running account in
view of the long standing relationship they have. There were not complaints against them for
delay in payment or deliveries to the clients.
They admitted that there were few instance of delay in transferring the
securities to the clients accounts for which they have already paid the penalty
as required by the depositors. (e)
Irregularities in maintenance and issue of contract
notes As per the inspection
report the broker is not maintaining the contract notes properly in as much as
not signing the contract notes, not issuing regularly, not obtaining the
acknowledgment from the clients etc. The broker submitted that as
per their practice whenever contract notes are despatched to the clients they
keep a record of the contract note sent in the manual register. Wherever clients visit their office on a
daily basis they handover the contract notes to them after obtaining the
counter foil singed by the clients. When
the auditors visited their office for inspection, they could not locate certain
acknowledgement copies mainly because they had recently shifted their office to
the new premises. It is felt that there are
lapses on the part of the broker in issuance and maintenance of contract notes. (f)
Non-maintenance of investor
complaints register As per the inspection
report the broker is not maintaining investor complaints register. The broker submitted that they
were maintaining the complaints register, however, inadvertently during the
shifting of their corporate officer to the present premises the said register
got misplaced and they were unable to locate it. A new register was put in place to record the
grievances and there are no grievances kept unresolved during the period of
inspection. I have considered the
explanation given by the broker and the records submitted before me and find
that the submission of the broker is satisfactory. (g)
Non-transfer to dividends to clients account As per the inspection
report the dividend received from the companies has not been transferred to the
respective client accounts. The broker submitted that earlier they used to
allocate the dividend received manually, therefore,
there were few instances of delay in reconciling the amount and making payments
to the clients. Now that the allocations
of dividends were automated payments are made then and there directly to the clients’
accounts. The broker should have
transferred the dividends received to the clients’ accounts promptly. The
explanation of the broker is not acceptable. (h)
Dealing with unregistered sub-broker It was pointed out in the
inspection report that the broker has taken M/s. Prognosis Investment
Services as sub-broker without registration.
The broker submitted that
they were dealing with M/s. Prognosis Investment Services and executed
transaction for their clients since they have submitted an application to NSE
through them for sub-broker registration.
The application got rejected by NSE on technical grounds. They have been dealing for them till The broker should have
started dealing with them only after receiving SEBI registration. The
explanation of the broker is not acceptable. (i)
Using different client codes for the same
clients As per the inspection
report there are various instances of client id differences while executing trades
on terminals. The broker submitted that
they have different code for cash and F & O trading for each individual
client. During the trading it may so
happen that the dealer punches the cash code instead of the F & O
code. Similar errors occur when the dealer punches
for purchase instead of sale and vice versa.
They maintain a trade change register and monitor the open and close
position and also any error is covered on the same day. I have considered the
explanation given by the broker and the records submitted before me and find that
the submission of the broker is satisfactory. 6. IMPOSITION OF PENALTY The undersigned has taken
into consideration the facts and circumstances of the case, the material
available on record and submissions by the broker. Keeping all above in view,
I find that there were certain deficiencies and irregularities in the systems
and procedures of the broker and has failed to strictly comply with the
provisions of the Act, Regulations and directions issued by the Board from time
to time and has not exercised adequate due skill, care and diligence in their
operations. Considering all above facts
and circumstances , I am of the view that the broker has become liable to
penalty and some amount of penalty need to be imposed upon them for certain
violations as described in detail in the earlier paragraphs, so that they
comply with all the regulatory requirements in future strictly. This is also
necessary to maintain the integrity of the securities market and to protect the
interest of investors. In order to adjudge the
quantum of penalty, I have considered the following factors as provided in the
Section 15J of Securities and Exchange Board of India Act , 1992: 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 and c) the repetitive nature of the default. As regards the
disproportionate gain or unfair advantage there are no quantifiable figures
available with respect to the default observed on the part of the broker. There
are also no figures or data to quantify the amount of loss caused to an
investor or group of investors as a result of the default. Besides, no investor
complaints have been received against the broker. However, as for the reasons stated above the
monetary penalty needs to be imposed on the broker. 7. ORDER In exercise of the powers
conferred under section 15-I (2) of the SEBI Act, 1992, read with, Rule 5 of
the Securities & Exchange Board of India (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules 1995, I hereby impose a
penalty of Rs.25,000/- (Rupees Twenty Five Thousand only) on the broker. The broker
shall pay this amount of penalty of Rs.25,000/-
by way of demand draft in favour of "SEBI
- Penalties Remittable to
Government of India" payable at Mumbai within 45 days of receipt of
this order. The
said demand draft should be forwarded to the Chief General Manager, MIRS
Department, at SEBI, World Trade
Centre, 29th Floor, Cuffe
Parade, Mumbai 400 005. In terms of
Regulation 6 of the SEBI ( Procedure
for holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules ,1995 , a copy of this order is served on the broker
and a copy is submitted to the Board. Date : Place : Mumbai P.K. KURIACHEN ADJUDICATING OFFICER |
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