ADJUDICATION ORDER IN RESPECT OF CHANDRAKALA MONEY AND CAPITAL MANAGEMENT LIMITED, MEMBER NSE (SEBI REGN. NO. INB 230607836) 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 Chandrakala Money And Capital Management Limited, Member National Stock Exchange, SEBI REGN. NO. INB 230607836 (hereinafter referred to as ‘Member’) and pursuant to this, appointed me as Adjudicating Officer vide Order dated November 5, 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 15A(c), 15 B and 15 F(a) of the SEBI Act, 1992.
Accordingly, I have examined these sections.
Section 15 A ( c ) of SEBI Act, 1992 reads as under :
“Section 15 A. If any person, who is required under this Act or any rules or regulations made thereunder –
a)…..
b)…..
c) 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 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.”
CHARGES
- Non-maintenance of books of accounts and records, fails to maintain the same.
- Non-maintenance of client database
3. Fails to issue contract notes in the form and manner as specified by
the Stock Exchange.
1.0. SHOW CAUSE NOTICE AND REPLY
1.0.1 Accordingly, Show Cause Notice dated August 6, 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 September 20, 2004 and November 29, 2004. .
1.0.4. PERSONAL HEARING
1.0.5. The personal hearing in the matter was fixed on 29th November, 2004 and Shri T. Jayachandran, Chairman and Shri Rudhrakumar, CA 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 September 20, 2004 shall be taken into consideration and further submitted during the personal hearing held on November 29, 2004 that “We would like to submit that we are maintaining all statutory books as required under SEBI Act, 1992. However, order book and margin book was not maintained during the time for the reason that since the introduction of online trading the orders for securities from clients were received orally through phone and it was directly entered into the trading terminal. Regarding margin deposit book, it was found out that the clients’ running accounts were maintained with the requisite funds lying to their credit at every point of time and, hence, a separate margin deposit book was not maintained. However, it is to be noted that after inspection we have rectified the flaws pointed out by the inspection team and immediately started maintaining these books.”
2.0.3 APPRECIATION OF EVIDENCE AND FINDING
2.0.4. In this regard, I have examined the reply dated November 29, 2004 and observed that the though the member has not maintained the order book by way of hard copy since, the member used to get orders from his clients orally or through phone and after receipt of the same, he used to feed it into the trading terminal directly. I also observed that these details are stored in separate floppy and the same are available as and when required to retrieve. In view of the same, I am inclined to accept the submissions made by the member.
Regarding, margin deposit book, I found that the member has now introduced the margin deposit book after the inspection and the requirement of maintaining margin deposit book is duly complied with. In view of this, I do not hold the member guilty under Section 15A ( c) under SEBI Act, 1992.
2.0.5. CHARGE – 2 : Non-Maintenance of Client Database
2.0.6 Reply : The member has inter alia stated in this regard before me as under:-
“ As regards the long-standing clients, the forms are issued to them for the due compliance and every effort is being taken to ensure that all particulars are duly completed and signed. It is only after getting the application and agreement forms duly completed, the business deal of clients are executed. We take all the care that the client orders are executed only when the complete information/details that are mandatory are furnished by them.”
2.0.7. APPRECIATION OF EVIDENCE AND FINDING
2.0.8. In this regard, I have specifically requested him to produce before me the copies of the documents viz. client registration agreements as well as know your client forms. Accordingly, the member has produced client registration agreements as well as know your clients forms vide his letter dated November 30, 2004. I have examined the same and found that agreements have been duly executed and all the columns of know your clients forms have been filled up. I have also seen that proper identification documents such as copy of the ration card, pan card, driving license, bank statements etc have been duly annexed.
In view of these, I found that the member has rectified the irregularities / lapses found by the inspection team. Therefore, I do not hold him guilty under Section 15B of SEBI Act, 1992.
2.0.9 CHARGE – 3 - Fails to issue contract notes in the form and manner as specified by the Stock Exchange.
2.10. Reply
In this regard, the member has orally submitted that -
“The Company did issue contract notes to all the clients without any default. What has been pointed out by the Inspection Team was that the contract notes so issued suffer from some defects as pointed out in their inspection report. The flaws pointed out by the inspection team had since been corrected on the usage of serial numbers, affixing the stamps on the contract notes etc.”
In the reply dated November 29, 2004, the member has stated as under :-
“ Order time – The software package which is in use does not contain the provision for recording the order time in contract form. However, the time of placing the order is being recorded at the time of entering the order. We will arrange to discuss with the software experts to ascertain the possibility of recording the order time in the contract note itself. Further, normally clients gives orders to be executed at a particular price. Based on the market movement the prices are being modified by them . The recording will get itself automatically changed based on the change in the price or quality. On ascertaining the possibility of recording the same, we will amend the format of the contract note itself.
Numbering of the contract notes : At the time when this irregularity was pointed out, it was in the middle of the year. We therefore, have got the contract notes serially numbered on financial year basis effective from financial year commencing from 1st April 2003 and the system is being regularly followed.
Contract notes : Affixing of stamps
We have advised our Mumbai office to pre-print on the contract note itself as detailed hereunder –
“Consolidated stamp duty paid vide G.O No. dated_”
Till it is pre-printed, we are making rubber stamp bearing the aforesaid matter to be affixed on the contract note that is being issued”
2.11. APPRECIATION OF EVIDENCE AND FINDING
2.12. I have observed that due to different software programme, the irregularities occurred and the same were rectified by the member. Regarding serial numbers on the contract notes, I found that the member has started giving serial number from April 1, 2003.
Since, the irregularities / lapses have been duly rectified by the member I do not hold the member guilty under Section 15F(a) of SEBI Act, 1992.
3.0. CONCLUSION
In view of the above documentary proof given by the member, I am of the opinion that the irregularities have been duly rectified by the member.
3.0.1. Further, the member has submitted 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 judgement 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 judgement :
“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 CHANDRAKALA MONEY & CAPITAL MANAGEMENT LTD, MEMBER – NSE (SEBI Regn. No. INB 230607836) under sections 15A ( c), 15 B and 15F(a) of Chapter VIA of the SEBI Act, 1992.
Date : December 13, 2004.
Place : Mumbai
SANDEEP P. DEORE
ADJUDICATING OFFICER