ORDER UNDER RULE 5(1) OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 IN THE MATTER OF M/S THATTIL & CO.

1. I was appointed as the Adjudicating Officer by the Securities and Exchange Board of India (hereinafter referred to as SEBI) in terms of an order dated September 30, 2004 to inquire into and adjudge under Section 15-I of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as �SEBI Act�) the alleged contravention of 15 A(c), 15B, 15C and 15HB of the SEBI Act against M/s. Thattil & Co. (hereinafter referred to as �Thattil�) for the violations such as failure to obtain / maintain client agreement form, client registration form , client database and margin deposit book , failure to make payment to clients and failure to redress the grievances of the investors.

FACTS OF THE CASE

SEBI conducted an inspection of the books of accounts and other records of Thattil, a sub-broker affiliated to Cochin Stock Brokers Limited on 22.05.2002. The period covered under the inspection was 2000-01 to 2001-02 and till date of inspection (hereinafter referred to as �inspection period�). During the inspection, it was found that Thattil had violated the above mentioned provisions of the SEBI Act.�� In respect of the said violations alleged to have been committed by Thattil, adjudication proceedings have been initiated against it.

The provisions of the said Act as alleged to have been violated by Thattil are the following:

� Section 15 A(c) of the SEBI Act provides the following :

If any person, who is required under this Act or any rules or regulations made thereunder to maintain books of account or records, fails to maintain the same, 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 15B of the SEBI Act provides the following :

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 C of the SEBI Act provides the following :��

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 the 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.

SHOW CAUSE NOTICE

A Show Cause Notice (hereinafter referred to as �SCN�) dated July 8, 2005 under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing penalties by Adjudicating Officers) Rules, 1995 (hereinafter referred to as the Rules) was issued to Thattil, requiring it to show cause as to why an inquiry should not be held against it for the violation alleged to have been committed by it.

SUBMISSIONS OF THATTIL & CO

5. Thattil vide its letter dated 25.7.2005 replied to the show cause notice. Upon considering the reply submitted by Thattil, it was felt that an inquiry may be held in the matter.� In view of the same, Thattil was advised to attend the inquiry on 22.8.2005.� Shri. M.P. Ramdas, authorized representative of Thattil attended the inquiry and made submissions.��

6. The charges levelled against Thattil and its submissions against each charge is mentioned below :

CHARGE: NOT OBTAINING / MAINTAINING CLIENT AGREEMENT FORM

It was alleged that Thattil failed to obtain / maintain client agreement forms in violation of Regulation 26(xii) of SEBI (Stock Brokers and Sub brokers) Regulations, 1992 (hereinafter referred as Brokers Regulations) and therefore Thattil is liable to the penalty prescribed under Section 15B of the SEBI Act.

SUBMISSIONS

Thattil has submitted that it has been maintaining the client agreement forms as per the Regulation 26 (XII) of the Brokers Regulations. Thattil had attached copies of the same with the reply.

FINDINGS

It is noted from the submissions of Thattil that it has been maintaining the client agreement in accordance with the prescribed format.� Further, Thattil had attached copies of the agreements executed with the clients.� In view of the same as the said agreements are seen to be dated January 17, 2001 during the period of inspection, the reply of Thattil in this regard is accepted and found that Thattil is not liable to the penalty prescribed under Section 15B of the SEBI Act.

CHARGE: NOT OBTAINING / MAINTAINING CLIENT REGISTRATION FORM

It was alleged that Thattil failed to maintain / obtain client registration forms in violation of Regulation 26(xii) of Brokers Regulations and therefore Thattil is liable to penalty under Section 15HB of SEBI Act. In this regard it is noted in the inspection report that the client registration forms available in respect of the active clients are incomplete in as much as the same does not contain the photograph of the client, details of introducing person, PAN / GIR numbers, agreements in legally valid document etc.

SUBMISSIONS

Thattil had submitted that that it has been maintaining the client registration forms as per the Regulation 26 (XII) of the Brokers Regulations. Thattil had attached copies of the same with the reply.

FINDINGS

It is noted in this regard that Thattil has only 5-6 active clients.� In respect of the said clients, Thattil had submitted that it had been maintaining client registration forms.� Further in this regard in proof of its contention Thattil had submitted copies of some of the client registration forms.� However on perusal of the client registration form dated 17.1.2001 it is noted that the column pertaining to Income Tax No. (PAN No. / GIR) have not been filled by Thattil.� However, other details have been furnished.� On perusal of the form, it can not be concluded that Thattil had been maintaining client registration forms in accordance with the prescribed rules.� On account of its failure to maintain client registration forms Thattil had violated the provisions of Regulation 26(xii) of the Brokers Regulations and is liable to the penalty under Section 15 HB of the SEBI Act.�

CHARGE: FAILURE TO MAINTAIN CLIENT DATABASE

It was alleged that Thattil has failed to maintain client database in violation of Regulation 26 (xv) of Brokers Regulations and therefore Thattil is liable to penalty under Section 15 HB of SEBI Act. It is noted in the inspection report that Thattil does not maintain the database in respect of all clients numbering about 50 except currently active 5 clients.

SUBMISSIONS

Thattil has submitted that it has been maintaining the client database as per the Regulation 26 (xv) of the Brokers Regulations.

FINDINGS

Though Thattil had stated that it has been maintaining the client database it appears that the sub-broker was referring to the active clients.� Considering the submissions of Thattil that it has only five active clients and the database is maintained with respect to them and also considering its submissions that the deficiencies in maintenance of records may be condoned, it is felt that no penalty is warranted in respect of the above violation.

CHARGE: FAILURE TO MAKE PAYMENT / DELIVERY OF SECURITIES TO CLIENTS

It was alleged that Thattil failed to make payment / delivery of securities to clients in violation of Regulation 26 (vi) of Brokers Regulations and therefore Thattil is liable to the penalty prescribed under Section 15 HB of the SEBI Act. The inspection report provides the following instances of the delay in delivery of securities to the client�s account (table 1)

Name of the client	Scrip and Quantity	Date of credit to member�s account	Due Date of credit to client�s account	Actual Date of credit to client�s account
Faxy Antony	Tata Elexi, 50	14.06.01	16.06.01	16.08.01
Faxy Antony	Vidiocon International, 100	05.07.01	07.07.01	16.08.01
A.S. Menon	GTB, 100	10.02.02	12.02.02	20.02.02
Santosh K.S.	Hankal Spic, 100	04.12.01	06.12.01	27.12.01
V.V. Simon	Cochin Refinery	10.05.01	12.05.01	30.05.01
Raichal raju	IDBI Bank, 100	09.09.01	11.09.01	03.10.01

SUBMISSIONS

Thattil has submitted that he had made the payments and deliveries to all its clients within the stipulated time prescribed by Regulation 26 (vi) of the Brokers Regulations. Further it is stated that all its clients had given their written consent to maintain their payments and deliveries in its account as margin money for their future transactions. Whatever payments or deliveries pending had been issued immediately on their request. Thattil has attached copies of the said consent letters.

FINDINGS

Considering the facts and circumstances and on perusal of the few consent letters submitted by Thattil, it is concluded that on the basis of the existing facts and circumstances of the case, it cannot be held that Thattil had failed to make payments or deliver securities to the clients.� In view of the same, I am of the view that the penalty prescribed under Section 15B of the SEBI Act is not attracted.

CHARGE: FAILURE TO REDRESS GRIEVANCES OF THE INVESTORS

It is alleged that Thattil failed to redress the investor�s grievances and the said action being in violation of Regulation 26(iv) of Brokers Regulations, Thattil is liable to the penalty under Section 15C of SEBI Act. In this regard, it is noted in the inspection report that a complaint was received from one Shri Siju Thomas for bad delivery of 50 shares of L&T which is allegedly not been resolved by Thattil.

SUBMISSIONS

Thattil has submitted that the complaint by Shri Siju Thomas Joseph was placed before the grievance committee on 29.07.02 and the complainant was asked to withdraw the complaint against Thattil and also to write to SEBI regarding the same. The copy of the minutes of the grievance committee was submitted by Thattil.

FINDINGS

Considering the fact that only one complaint to had been cited and considering the fact that the complainant had agreed to withdraw the said complaint as stated in the minutes dated 29.7.2002 with regard to the proceedings of the grievance committee, I am of the view that no violation of Regulation 26(iv) is attracted in the case and hence no penalty is warranted in the matter.�

CHARGE: FAILURE TO MAINTAIN MARGIN DEPOSIT BOOK

It was alleged that Thattil failed to maintain margin deposit book thereby violating Section 15 A(C) of SEBI Act. In this regard it is noted in the inspection that Thattil does not maintain margin deposit book.

SUBMISSIONS

Thattil has submitted that he had maintained margin deposit book as per Regulation 15A(c) of SEBI Act.

FINDINGS

23. Though it is submitted that Thattil had been maintaining margin deposit book, no proof had been submitted by Thattil.� However in this regard it is noted that Regulation 15 (2) requires a sub broker to maintain books of accounts and documents specified in Regulation 17 except the books and documents exempted thereunder. It is noted that by virtue of the said provisions a sub-broker is bound to keep and maintain margin deposit book. However, the requirement for marinating margin deposit book was inserted by SEBI (Stock Brokers and Sub-brokers) (Amendment) Regulations 2003 with effect from 23.9.2003. The violation alleged to have been committed by the sub-broker was pertaining to the period 2001-2002 for which period inspection was conducted by SEBI. It is found that the said requirement did not exist at the time of commission of the alleged violation. In view of the same, no penalty can be made applicable in respect of the said violation.

24. It is noted from the above that the violation of non maintenance of client registration form levelled against Thattil is established. As discussed above the said violation attract a penalty under Section 15HB of the SEBI Act.�

25. In this regard, the provisions of Section 15J of the SEBI Act and Rule 5 of the Rules require that while adjudging the quantum of penalty, 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

It is noted that no quantifiable figures are available to assess the disproportionate gain or unfair advantage made as a result of the default.� Further, the amount of loss caused to an investor or group of investors also cannot be quantified on the basis of the available facts and data. �In this regard, Thattil has submitted that there are no arbitration cases, bad deliveries, disciplinary action pending against it. Further Thattil also submitted that it had not violated the provisions of the sub-broker agreement / bye laws etc regarding trade restrictions and margin money nor was there any default in settlement pay-in or deliveries.

ORDER

Considering the facts and circumstances of the case and taking into account the submissions of Thattil that it had only 5-6 active clients that were known to it personally and therefore the failure on its part to state relevant information in few columns of the client registration form shall be rectified by it, I am of the view that no penalty needs to be imposed on Thattil & Co. in terms of the provisions of Section 15 HB of the SEBI Act.
In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, copies of this order are sent to Thattil & Co. and to Securities and Exchange Board of India.

PLACE: MUMBAI�� BIJU. S

AUGUST 31, 2005�� ADJUDICATING OFFICER