ORDER OF ADJUDICATING OFFICER
UNDER THE
SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
IN THE MATTER OF
M/s. B. N. KAKKAR & CO
1.0 ORDER FOR HOLDING OF INQUIRY
1.1 The undersigned was appointed as an Adjudicating Officer under Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 vide order dated March 31, 2004 to inquire into the violation of Section 15HB , 15F(a) and 15A(c) of SEBI Act by M/s B N Kakkar & Co, member of Uttar Pradesh Stock Exchange (UPSE) holding SEBI Registration Number INB 100345915 (hereinafter referred to as “member” or “noticee”).
2.0 SHOW CAUSE NOTICE
2.1 A Show Cause Notice (SCN) No. CFD/ADJ/NB/EB/24280/2004 dated October 25, 2004 under Rule 3 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 was issued to M/s. B N Kakkar & co, the noticee in respect of violation of Section 15 HB of the SEBI Act.
2.2 It was stated in the SCN that the noticee is required to show cause within 14 days as to why an enquiry should not be held against him in respect of contravention of Section 15HB, 15F (a) and 15A(c) of the SEBI Act and as to why penalty under Section 15HB, 15F (a) and 15A(c) of SEBI Act should not be imposed on him.
3.0 REPLY OF THE NOTICEE TO THE SHOW CAUSE NOTICE
3.1 The noticee has then submitted his reply to the show cause notice vide his letter dated 23 November 2004.The following is extract of the reply :
“we beg to state that Books of Accounts, Records etc were not maintained as required for a Stock Broker to maintain.
We further admit that no contract notes were issued and no registration form or know your client form were maintained. There is a reflection in the 2nd para of the letter that we had accepted to enter transaction on behalf of the relatives, who had neither been reflected as clients nor contract notes issued to them. On this point we want to bring to your kind notice that we did not act as share broker during this period but we delivered the shares to my wife by transfering the same to her Demat Account and some shares to my HUF on 27.03.02 to the Demat Account of the HUF in order to clear their outstanding dues in our account, as an investor and as a borrower. The delivery of the shares were made through demat on that very date and the amount was adjusted at the then prevalent rates of the day by debiting their account. So for paying off the dues we delivered the shares and we did not act as a Stock Broker.
I am a member of the Exchange but not an active member on the floor and on the line. I am altogether acting as an investor for which I am entering into transactions for my self only through other Stock Brokers.
A Stock Broker is defined as a person or body of persons who act for and behalf of a person or a body of persons on the floor of a Stock Exchange for some fees called brokerage. We have done no floor transaction for Self or for others Stock Broker and thus not violated the rules. This was my view on which I acted. But if the rules and regulations does not authorize a Stock Broker to act as investor on his behalf and remain non-active member on the floor, I abide by those regulations.”
4.0 FINDINGS
4.1 I have taken into consideration the facts and circumstances of the case, the material available on record, the inspection report, the Show Cause Notice, reply of M/s B.N Kakkar & Co. to the Show Cause Notice and the documents furnished in this regard by them. My findings on charges are detailed below:
1) Not Maintained the Books of Accounts, Record, failure to issue contract notes, no payment/ delivery to any client etc.
The Noticee has accepted that he has not been maintaining the Books of accounts, records etc and has failed to issue contract notes, no payment /delivery was made to any client.
In the reply the noticee has mentioned that he has not acted as a share broker during that period but dealt for his own transactions and traded for his relatives. I have noted that the noticee traded mainly for his relatives and for self and therefore is of the view that Register of Transactions, margin deposit book , issuance of contract notes etc are not required to be maintained/ done by him. The noticee being a registered intermediary should understand the importance of the regulatory or procedural requirements mandated by the regulator. However I have also noted that there have been no complaints against the noticee, in view of this, I take a lenient view on this count while arriving at the penalty.
2) Lapse in Transactions with the clients:
I found that the Noticee has not been maintaining the registration form/ know your client form. Further, I have also noted that the member has not recorded unique client code at the time of placing the order. The noticee has stated that he has not acted in the capacity of broker and these rules will not be applicable for him.
Any person, especially the registered intermediary, has to abide by these market practices / procedures which have been followed for tracking the transaction and client details. I therefore find the noticee guilty of violating the provisions of SMDRP/POLICY/CIR/ 39-2002 dt July 18, 2001.
3) Nature of operations and systems:
The noticee has stated that he has dealt with a member of NSE and a member of UPSE , as a client and all the transactions are own. The noticee has also accepted that he has done some off the floor transactions but it has carried out those transactions only as a investor for which it has entered in to the transactions for self only through other stock brokers. I also find the noticee has not issued contract notes in these transactions. The noticee further stated that Daily Transaction Report(DTR) of these transactions was not submitted to U P stock exchange as it acted only as an investor.
I have noted that some of the transactions carried out by noticee were on behalf of third party accounts like his wife and family HUF and therefore cannot be treated as transactions on self account. These actions of the noticee reflect on lack of transparency and are not in line with fair market practices. I therefore find the noticee violating Regulation 7(B) 2 of code of conduct of SEBI (Stock broker and Sub-broker) Regulations, 1992 and Rule 4(b) of SEBI(Stock Brokers and Sub-broker) Regulations, 1992 and para A(1) of code of conduct schedule II , regulation 7 of SEBI (Stock broker and Sub-broker) Regulations, 1992.
5.0 IMPOSITION OF PENALTY
5.1 The submissions of the noticee have been considered as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under section 15 A(C ), 15 F(a) and 15 HB of the SEBI Act, 1992. In view of the same and 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.20,000 (Rupees Twenty Thousands) on the noticee. The noticee/ member shall pay this amount of penalty of Rs. 20,000/- 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.
5.2 The said demand draft should be forwarded to Ms. Usha Narayan, Chief General Manager of SEBI, MIRS Department (DPS- I) at SEBI, World Trade Centre, 29th Floor, Cuffe Parade, Mumbai 400 005.
5.3 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 noticee and a copy is submitted to the Board.
| Date: December 06, 2004 |
Neelam Bhardwaj |
| Place: Mumbai |
Adjudicating & Enquiry Officer |