Order against Fortune Equity Brokers India Limited

SECURITIES AND EXCHANGE BOARD OF INDIA 

ORDER

1.                  Fortune Equity Brokers (India) Limited (hereinafter referred to as ’the applicant’), a member of the National Stock Exchange of India Limited (hereinafter referred to as ‘NSE’), submitted an application dated October 16, 2003, to Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’), for registration under Securities and Exchange Board of India (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as ‘the said regulations’) as a Trading Member of the derivatives segment of NSE. The said application was forwarded to SEBI by NSE vide their letter dated October 21, 2003.

2.                  While considering the application, it was noted that the following enquiries are pending against the applicant and/or its associates.

1.  
   1. Enquiry against the applicant, in the matter of Nedungadi Bank Ltd.
   2. Enquiry against the applicant’s associate, Fortune Financial Services Ltd, in the matter of Mirc Electronics Ltd.
   3. Enquiry against the applicant, as a broker of NSE (registration no. INB230653830), under the provisions of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations 2002.

Further it was also noted that earlier, in an adjudication proceeding, SEBI had imposed monetary penalty on Shri. J.T. Poonja, director of the applicant company, in his capacity as Director, Fortune Financial Services (India) Limited, an associate of the applicant company.

3.                  In view of the above, SEBI formed a prima facie view that the certificate of registration as a trading member of the Derivatives Segment of NSE cannot be granted to the applicant, in view of the ongoing enquiries and also in view of the penalty imposed on a director of the applicant, pursuant to the afore-mentioned adjudication proceedings.

4.                  The above view was informed to the applicant company, by SEBI, vide letter dated May 26, 2004. Vide the said letter, inter alia, the applicant was informed that it did not satisfy the criteria for eligibility as trading member of a derivative segment, as specified in Regulations 16(C)(1) of the said Regulations and the applicant was advised to show cause as to why their application should not be rejected. The applicant was also advised that in case it so desired, it may avail an opportunity of hearing before the Board, as per regulation 16(E)(1) of the said regulations.

5.                  The applicant, vide its reply dated June 3, 2004 submitted that no enquiry is pending against them and further, with regard to the adjudication proceedings against Shri J T Poonja, director, M/s Fortune Financial Services, (India) Ltd, the applicant submitted that the penalty imposed vide SEBI’s order dated August 8, 2000 had been already paid. As the applicant requested for an opportunity of hearing, the same was granted on July 5, 2004. Shri Nimish Shah, Managing Director and Shri Diptesh Shah, Executive Director appeared before me and reiterated the submissions made by them in their letter dated 03.06.04.

6.                  I have perused the application for the certificate of registration filed by the applicant, the material available on record, the submissions made by the representatives of the applicant and the facts and circumstances of the case.

7.                  During the course of the personal hearing, the representatives of the applicant submitted that no enquiry is pending against the applicant. However, I have noted that three enquiry proceedings, as stated at para 2 above, have been initiated by SEBI against the applicant and/or its associates. These enquiries are in progress and in the case mentioned at para 2(iii) above, a show cause notice dated June 22, 2004 has been issued against the applicant.

8.                  I have also noted that SEBI had imposed a monetary penalty on Shri. J.T. Poonja, director of the applicant company, in his capacity as Director, Fortune Financial Services (India) Limited, an associate of the applicant company, vide order dated August 08, 2000. The applicant’s contention that the said penalty has already been paid does not in any way dilute the fact that the director of the applicant was found guilty of having violated SEBI Regulations, which necessitated the imposition of a penalty on him.

9.                  In order to ensure the safety and integrity of the securities market, it is desirable to allow only those intermediaries in the market whose shareholders/ people at the helm of affairs follow the Rules and Regulations of the market scrupulously. In any case, as mentioned above, there are three enquiries pending against the applicant. Hence, I am of the view that granting registration to the applicant in a new segment, at this stage, would not be in the best interest of the securities market.  

10.             Therefore, pursuant to the powers conferred upon me under Section 19 of Securities and Exchange Board of India Act, 1992, read with Regulation 16E of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, I hereby reject the application submitted by Fortune Equity Brokers (India) Limited for grant certificate of registration as a Trading Member of the derivatives segment of the NSE.