ORDER OF ADJUDICATING OFFICER
UNDER
SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995
IN THE MATTER OF M/S PARACKAL INVESTMENTS
1. 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 January 8, 2004 to inquire into the violation of Sections 15B and 15F(b) of SEBI Act, 1992 by M/s Parackal Investments, sub broker affiliated to Cochin Stock Brokers Limited, member of National Stock Exchange of India Ltd. (NSE), holding SEBI Registration Number INS231008512 (hereinafter referred to as “M/s Parackal Investments” or the “member” or the “noticee”).
2. Show Cause Notice:
2.1 A Show Cause Notice (SCN) No. CFD/ADJ/NB/22061/2004 dated September 29, 2004 under Rule 4 of SEBI (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 was issued to M/s Parackal Investments in respect of violation of Sections 15B and 15F(b) of SEBI Act, 1992.
2.2 It was stated in the SCN that the Review Officer had stated that there had been the following irregularities in the operations of the notice thereby resulting in violation of the said Rules, as stated below :
2.2.1 Delay in delivery / payment to clients: It is observed that in contravention of Regulation 15 (1) (c) of the said Regulations, read with SEBI circular nos. SMD/POLICY/CIRCULAR/11-97 dated May 21, 1997 and SMD/SED/CIR/93/23321 dated November 18, 1993, and the provisions of the bye-laws of the stock exchange, the noticee does not transfer the scrips to the clients’ account within the stipulated period of 48 hours from the relevant delivery out date and instead the same are retained in his account. In this respect, the noticee has not been able to produce the copy of the consent letters so obtained from the clients to substantiate his claim that most of his clients’ accounts are running accounts and that the consent has been obtained from the clients for retention of the scrips for future transactions or towards margins. By non-compliance of the provisions of the said circulars and also the relevant provisions of the bye-laws and regulations of the stock exchange/affiliated broker, he has committed a breach of conduct for sub-brokers prescribed under Regulation 15 of the said Regulations. The reply furnished by him in this regard was found to be very vague and generic in nature. Moreover, he has not substantiated his contention with any documentary evidences like copies of consent letters, etc. Thus the review officer has stated that he has violated Regulation 15 (1) (c) of the said Regulations read with the aforesaid circulars.
2.2.2 Inadequacy in maintenance of clients’ database: It is observed that in contravention of Regulation 15 (1) (c) of the said Regulations, read with SEBI circular no. SMD/Policy/IECG/1-97 dated 11.2.1997, he does not maintain data base of the clients with whom he is are dealing with, in the format prescribed by SEBI, complete in all respects, for several of his clients. It is further observed that the client registration forms available in respect of other clients are incomplete in as much as the same do not contain the photograph of the clients, details of introducing person, PAN/GIR numbers, etc. By non-compliance of the provisions of the said circular and the directions of the stock exchange/ affiliated broker, he has committed a breach of conduct for sub-brokers prescribed under Regulation 15 of the said Regulations. The reply furnished by him in this regard was found to be very vague and generic in nature. Moreover, he has not produced any documentary evidences towards the remedial action taken. Thus the review officer has stated that he has violated Regulation 15 (1) (c) of the said Regulations read with the aforesaid circular.
2.3 It was further stated in the SCN that in view of the above, 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 Sections 15B and of SEBI Act, 1992 and as to why penalty under Sections 15B and 15F(b) of SEBI Act, 1992 should not be imposed on him.
3. Reply of the Noticee to the Show Cause Notice:
3.1 The noticee, in response to the show cause notice, submitted his reply vide his letter dated October12, 2004, which is reproduced hereunder:
3.1.1 A. Delay in delivery / payment to clients:
I have received consent letters of all clients mentioned in the show cause Notice/ Inspection Report. Copies of all consent letters are attached herewith. I have not kept deliveries and payouts of my clients in my running account without their written consent letter. It is for their (Clients) convenience they have kept it in my accounts. I have not taken any undue advantage by keeping the shares in my account. Client wise explanation noted in the report is given below:
i. Client Name: Sreekumar. D.: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 21.02.2003. On 21.02.2003, I have received a request letter from him stating that to transfer the shares into his account and it is transferred on 21.02.2003 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
ii. Client Name: Francis M. V.: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 17.04.2002. On 17.04.2002, I have received a request letter from him stating that to transfer the shares into his account and it is transferred on 17.04.2002 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
iii. Client Name: Deepa Jose: Copy of her consent letter is enclosed herewith. Based on this letter I have retained her delivery in my running account till 02.05.2002. On 02.05.2002, I have received a request letter from her stating that to transfer the shares into her account and it is transferred on 02.05.2002 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
iv. Client Name: C Shanmugam: Copy of her consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 16.04.2002. On 16.04.2002, I have received a request letter from him stating that to transfer the shares into his account and same is transferred on 16.04.2002 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith
v. Client Name: Joggy Joseph: Copy of her consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 22.04.2002. On 22.04.2002, I have received a request letter from him stating that to transfer the shares into his account and same is transferred on 22.04.2002 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
vi. Client Name: Manikuttan: Copy of her consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 09.09.2002. On 09.09.2002, I have received a request letter from him stating that to transfer the shares into his account and same is transferred on 09.09.2002 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
vii. Client Name: V.P Jose: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 11.03.2004. On 11.03.2004, I have received a request letter from him stating that to transfer the shares into his account and it is transferred on 11.03.2004 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
viii. Client Name: C. Shanmugam: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 29.05.2003. On 29.05.2003, I have received a request letter from him to deliver his shares, which he had sold to the exchange and the same is delivered on 29.05.2003 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
ix. Client Name: M.B Bhatt: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 29.05.2003. On 29.05.2003, I have received a request letter from him to deliver his shares, which he had sold to the exchange and the same is delivered on 29.05.2003 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
x. Client Name: Deepa Jose: Copy of her consent letter is enclosed herewith. Based on this letter I have retained her delivery in my running account. I have not received any request letter from her to transfer her shares to her account. My Client has no objection in this regard.
xi. Client Name: P.P.C Nair: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 21.07.2003. On 21.07.2003, I have received a request letter from him stating that to deliver his shares, which he had sold and the same is delivered and it is delivered on 21.07.2003 itself. And on 20.08.2003 I have received a request letter from him to deliver his shares he had sold. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
xii. Client Name: Narayanan N: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account. I have not received any request letter from him to transfer her shares to her account. My Client has no objection in this regard.
xiii. Client Name: C. S Warrier: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 29.05.2003. On 29.05.2003, I have received a request letter from him to deliver his shares which he had sold to the exchange and the same is delivered on 29.05.2003 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith
xiv. Client Name: Cyril Xaviour: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 28.05.2003. On 28.05.2003, I have received a request letter from him to deliver his shares, which he had sold to the exchange and the same is delivered on 28.05.2003 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
xv. Client Name: Abraham George: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his delivery in my running account till 29.05.2003. On 29.05.2003, I have received a request letter from him to deliver his shares, which he had sold to the exchange and the same is delivered on 29.05.2003 itself. My client has no objection in this regard. A copy of the request letter also enclosed herewith.
B. Delay in Payment:
i. Client Name: Daisy Paul: Copy of her consent letter is enclosed herewith. Based on this letter I have retained her payout in my running account till 27.05.2003. On 27.05.2003, I have received a request letter from her to release her payouts and on 27.05.2003 I have affected her payouts. A copy of the receipt is enclosed herewith. My client has no objection in this regard.
ii. Client Name: Mary Korath: Copy of her consent letter is enclosed herewith. Based on this letter I have retained her payout in my running account on 27.05.2003. She has purchased shares worth Rs. 63800.09 and the same is debited from her payouts. A detail of her transaction statement is attached herewith. Also I have received a request letter from her on 28.05.2003 to release her balance payouts. It has effected on 30.05.2003. A copy of its receipt is attached herewith.
iii. Client Name: Paul K.A: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his payout in my running account till 02.06.2003. On 02.06.2003, I have received a request letter from him to release his payouts and on 02.06.2003 I have effected his payouts by Cheque number 345 of U.T.I Bank Ernakulam for Rupees 57881.36 A copy of the receipt is enclosed herewith. My client has no objection in this regard.
iv. Client Name: Santhakumari .B: Copy of her consent letter is enclosed herewith. Based on this letter I have retained her payout in my running account till 27.06.2003. On 27.06.2003, I have received a request letter from him to release her payouts and on 27.06.2003 I have effected her payouts. A copy of the receipt is enclosed herewith. My client has no objection in this regard.
v. Client Name: Shiny Paul: Copy of her consent letter is enclosed herewith. Based on this letter I have retained her payout in my running account till 10.06.2003. On 10.06.2003, I have received a request letter from him to release her payouts and on 10.06.2003 I have effected her payouts. A copy of the receipt is enclosed herewith. My client has no objection in this regard.
C. Delay in Pymt more than one month from the Date of their last Trade: These amounts are kept in my account because my clients were waiting for an opportunity to enter the Market at later date. I have not kept their payouts deliberately in my accounts. Whenever they demanded I have issued Payouts to them without any hesitation. They have no complaint about this mechanism.
i. Client Name: Babu P.K: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his payout in my running account till 12.07.2003. On 12.07.2003, I have received a request letter from him to release his payouts and on 12.07.2003 I have effected his payouts. A copy of the receipt is enclosed herewith. My client has no complaint in this regard.
ii. Client Name: Jacob Lukose: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his payout in my running account till 09.03.2003. On 09.03.2003, I have received a request letter from him to release his payouts Rs. 20,000.00 Payments has effected by Cheque No. 78864 of UTI Bank Ernakulam and on 11.09.2003 another request was given to release Rs. 20,000.00 and the same has effected by Cheque No. 7890 of UTI Bank Ernakulam. On 10.11.2003, a request letter is given to release Rs. 20,000.00 and the payment has effected by Cheque No. 7915 of UTI Bank Ernakulam. And on request on 28.11.2003 remaining amount Rs. 34,427.30 is given. Copies of these request letters and receipts are enclosed herewith. My client has no complaint in this regard.
iii. Client Name: Joseph P.K: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his payout in my running account till 10.09.2003. On 10.09.2003, I have received a request letter from him to release his payouts Rs.10, 000.00 and I have effected his payouts by Cheque No. 7887 of UTI Bank Ernakulam. And on 10.11.2003 I have received a request letter to release Rs.20, 000.00 and I have effected this by Cheque No. 7916 of UTI Bank Ernakulam. And on 30.11.2003 another request letter was given for Rs. 7050.48, same has effected on that date by Cash. Copies of these request letters and receipts are enclosed herewith. My client has no complaint in this regard.
iv. Client Name: Manikuttan: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his payout in my running account till 29.04.2003. On 29.04.2003, I have received a request letter from him to release his payouts Rs.27, 000.00 and I have effected his payouts by Cheque No. 326 of UTI Bank Ernakulam. And on 16.06.2003 I have received a request letter to release balance amount Rs.8, 933.60. It has effected by cash on that date. Copies of these request letters and receipts are enclosed herewith. My client has no complaint in this regard.
v. Client Name: Paul Xaviour: Copy of his consent letter is enclosed herewith. Based on this letter I have retained his payout in my running account till 14.06.2003. On 14.06.2003, I have received a request letter from him to release his payouts Rs.34, 969.88 and I have effected his payouts on that day itself. Copy of his request letter and receipt are enclosed herewith. My client has no complaint in this regard.
3.1.2 Inadequacy in maintenance of clients database:
I am enclosing herewith duly filed old client’s Registration Form of my clients listed in the inspection report for your review:
i. Client Name: Elgy: A copy of the duly filled old client’s Registration of Elgy is enclosed herewith.
ii. Client Name: Paul Thaliyth: A copy of the duly filled old client’s Registration of Paul Thaliyath is enclosed herewith.
iii. Client Name: Antony Koykara: A copy of the duly filled old client’s Registration of Antony Koykara is enclosed herewith.
iv. Client Name: P.G. Jacob: A copy of the duly filled old client’s Registration of P.G.Jacob is enclosed herewith.
v. Client Name: Krishnakumar P.G.: A copy of the duly filled old client’s Registration of Krishnakumar.P.G.is enclosed herewith.
vi. Client Name:Shaija Paious: A copy of the Duly filled old client’s Registration of Shaija Paious is enclosed herewith.
So please consider my detailed explanation positively. I am enclosing a certificate from Cochin Stock Exchange stating that I have no investor complaint pending against me since inception. I would like to point out that I have good reputation in this business. There is no Investor complaint, arbitration cases, bad deliveries or any other disciplinary action against me. Based in this explanation, enquiry shall not be conducted against me. I am enclosing herewith a soft copy of this letter of reply.”
4. Hearing:
4.1 A personal hearing was fixed on November 25, 2004 at SEBI office at Ground Floor, “A” Wing, Mittal Court, 224 Nariman Point , Mumbai - 400021. The member has not given any written submissions in this regard.
5. Findings:
5.1 I have taken into consideration the facts and circumstances of the case, the material available on record, the inspection report, the reply of M/s. Parackal Investments to to the show cause notice and the documents furnished by them in this regard. My findings on charges are detailed below:
Regarding the first charge, viz., delay in delivery / payment to clients, I have noted that the member has failed to make delivery / payment to his clients within 48 hours in case of some clients. I have noted from the submissions of the member that he has received consent letters in case of all such clients mentioned in the show cause notice / inspection report; that he has not kept deliveries and payouts of his clients in his running account without their written consent letter; that he has made delivery / payment to these clients as and when he has received a request from them and that none of these clients have any complaint against him in this regard. I have also noted that though the member has not given any documentary evidence in support of his aforesaid contention to the inspection authority, he has given copies of consent letters and receipts in respect of all the aforesaid clients at the time of replying to the show cause notice. I have perused the requirements of SEBI circular SMD/SED/CIR/93/23321 dated 18th November 1993 which state that the member broker shall make payments to its clients or deliver the securities purchased within two working days of pay out unless the clients has requested otherwise. Inspecting authority has not reported any complaints of clients in this regard. Further the certificate from Cochin Stock Exchange produced by the notice also substantiate the same. In view of the above, I do not find the member guilty of the charge.
5.1.1 Regarding the second charge, viz., inadequacy in maintenance of clients’ database, I have noted that the member has failed to maintain data base of his the clients with whom he is dealing with, in the format prescribed by SEBI, complete in all respects, for several of his clients an that the client registration forms available in respect of other clients are incomplete in as much as the same do not contain the photograph of the clients, details of introducing person, PAN/GIR numbers, etc. I have noted that the member has submitted duly filled up client registration forms of all the clients which are mentioned in the inspection report in this respect and has thus taken necessary steps to rectify the procedural irregularities pointed out by the inspecting authority. In view of the above, I do not find the member guilty of the charge. The noticee, being a registered intermediary should ensure that all the requisite rules/ procedures etc laid down by SEBI to maintain the market discipline and integrity are duly followed.
6. Imposition of Penalty:
6.1 Having regard to the facts and circumstances of the case and submissions stated above, and factors contained in section 15J of the SEBI Act, 1992, I am of the considered view that it is not just, fair and proper to impose any penalty on the member in the said matter. The notice is advised to be careful in future in compliance with the regulatory requirements.
6.2 As required under Rule 6 of the the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, a copy of this order is being sent to the Noticee and also to the Securities and Exchange Board of India.
Neelam Bhardwaj
Adjudication Officer
December 2, 2004