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ADJUDICATION ORDER IN RESPECT OF SUBHKAM SECURITIES PRIVATE LIMITED, MEMBER OF BOMBAY STOCK EXCHANGE (SEBI REGN. NO. INB 011059731) UNDER SECTION 15 I OF THE SEBI ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY 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 SUBHKAM SECURITIES PRIVATE LIMITED (hereinafter referred to as ‘Member’) and pursuant to irregularities found by Inspection Team, appointed me as Adjudicating Officer vide Order dated March 10, 2004 under Rule 3 of SEBI (Procedure for holding inquiry by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘said rules’) to inquire into and adjudge under section 15 B and 15F(a) of the SEBI Act, 1992 .
Accordingly I have examined these sections.
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
- Fails to enter into agreement with client
- Fails to issue Contract Notes in the prescribed manner
1.0. SHOW CAUSE NOTICE AND REPLY
Accordingly, Show Cause Notice dated June 24, 2004 under Rule 4 (1) of the said rules was issued to the Member communicating the alleged charges levelled against Member. The inspection against the Member was conducted and extract of relevant portion of the Inspection Report was sent along with the said Notice.
2.0. REPLY
Accordingly, the Member has sent a detailed reply vide letter dated July 5, 2004.
3.0. PERSONAL HEARING
The personal hearing in the matter was fixed on September 22, 2004 and Shri Rakesh S. Kathotia, Chairman and Shri Ravikumar, Manager of the Member appeared before me and made submissions. However, the proceedings are incomplete and by consent of the party the proceedings adjourned to September 30, 2004 and Shri Ravikumar has attended the proceedings. Further, he has submitted the documents like balance sheet, income statement as on 31/3/2000 and Board resolution dated 27.4.2000.
In view of the above, I now deal with the submissions made by the Member before me for the purpose of this adjudication.
4.0. THE REPLY OF THE MEMBER VIS-A-VIS THE CHARGES AND THE FINDINGS.
4.0.1. CHARGE : Fails to enter into agreement with client
It was observed by the inspection team that the member has failed to maintain/obtain client agreement/forms/database/registration.
4.0.2. REPLY :
During the hearing proceedings the member stated that they have entered into agreement with all of their clients and further mentioned that in this regard they have given explanation vide their letter dated 19/12/2002 and 5/7/2004 which, inter-alia, states that “in not a single case has there been any total lack of documents. In fact, all the documents that are substantially important have been fully taken. The information lacking is more often than not corroborated by other documents already taken. In a couple of cases, the omission was of obtaining the witness’s signature in the client registration agreement. Also where signature is there in the relevant part of the agreement but on one or two pages, it is missing.
The deficiencies in few client registration forms, that one of such forms did not provide identity of the client, that in another photo and proof of identify/residence was missing and in 3 other cases annual income and income tax PAN number were not found. Further, the member mentioned cases wherein these type of faults/mistakes were not penalized by the courts”.
4.0.3. APPRECIATION OF EVIDENCE AND FINDINGS
During the course of personal hearing the member submitted that there were only at one or two pages signature is missing in the forms.
I observe that that the violation is not a grave in nature and it may occur due to oversight and also the quantum is a few i.e. one or two occasions, hence, I accept the submissions made by the member.
5.0. CHARGE 2 : Fails to issue Contract Notes in the prescribed manner
The inspection team has found that the member has failed in maintaining the contract notes in daily serial number wise in the prescribed format.
5.0.1. REPLY
During the hearing proceedings the member stated that they have given explanation vide their letter dated 19/12/2002 and 5/7/2004 which, inter-alia, states that “ the software itself did not permit daily serial numbers printed on continuous stationery. However, immediately thereafter, we ensured that the necessary changes were made in the software to incorporate the requirements strictly.
Further, particularly in the initial period, it was extremely difficult to manage a system of having pre-printed stationery which could lead to loss of stationery, loss of numbers, etc. since the poor type of printing hardware/software which often printed out of alignment, skipping pages, etc. would have led to loss of several serial numbers. In fact, you will agree that in such cases, there would have been a greater inquiry since such numbers which are pre-printed would have been lost altogether since that stationery is wasted. To reiterate, this would have resulted in more suspicion or scope for misuse. The computer generated serial number in fact leaves no scope for tampering. However, to repeat, we have got the software altered to meet the strict requirements.
We also mention that the main concern for framing the requirement of having preprinted annually running serial numbers is to avoid backdating of contract notes. In our case, each and every of the contracts during this period was only through the computerized order matching mechanism of the stock exchange. Thus, each and every of such transaction is fully supported by numerous linking audit trails of third parties such as the stock exchange, counter-party brokers, their clients, etc. thus, it cannot even remotely be suggested that there is any possibility of any backdated contract notes having been issued in our case”.
5.0.2. APPRECIATION OF EVIDENCE AND FINDINGS
As stated, the member has submitted copy of balance sheet as of 31/3/2000, Income statement as on 31/3/2000 and Board Resolution dated 27/1/2000 and I verified the same.
As regards to order number and the order time in the contract note, the member downloaded the software from the exchange and issued the printed contract notes accordingly where order time was not mentioned only in two of badla transactions. In this regard, I have verified the submitted statement and found the same, hence, I am inclined to accept the submissions made by the member.
6.0. 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.
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.
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). 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”.
7.0. ORDER
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 Subhkam Securities Private Limited, Member – Member Of Bombay Stock Exchange (Sebi Regn. No. INB 011059731) under sections 15B and 15F(a) of Chapter VIA of the SEBI Act, 1992.
| Date: December 02, 2004 |
SANDEEP P. DEORE |
| Place: Mumbai |
Adjudicating Officer |