SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
AGAINST M/S. BLUE CHIP STOCK BROKING PRIVATE LIMITED, MEMBER, THE NATIONAL STOCK EXCHANGE, WITH SEBI REGISTRATION NO. INB 230776338, UNDER SECTION 13 (4) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEEDURE FOR HOLDING ENQUIRY BY AN ENQUIRY OFFICER AND RECOMMENDATION OF PENALTY) REGULATIONS, 2002, IN THE MATTER OF M/S. GUJARAT MINERAL DEVELOPMENT CORPORATION.
Whereas, an investigation was conducted into the dealings in the scrip of M/s. Gujarat Mineral Development Corporation (hereinafter referred to as GMDC) after a sudden price rise was observed in the scrip in The National Stock Exchange (hereinafter referred to as NSE) between 28th March 2001 and 22nd May 2001, and,
Whereas, during the investigation it was noticed that the average day wise and settlement wise volumes were 45,747 and 423,163 shares respectively. The gross and net traded volumes were 33,85,304 and 10,51,851 shares respectively. M/s. Blue Chip Stock Broking Private Limited (hereinafter referred to as ‘the member’) had contributed 24.82% of the gross quantity traded. Of these, 21.39% and 66% of the gross and net purchase quantity was contributed by a client, Shri Ishwar Dayal Kansal, who was a director of M/s. NRI Financial Services Ltd., Member, NSE. M/s. NRI Financial Services Ltd. was declared defaulter by NSE vide its Circular No. 128 dated 17.03.99, and,
Whereas, an enquiry officer was appointed by SEBI vide order dated 04.08.03 under Regulation 5 (1) of SEBI (Proceedure for holding enquiry by an Enquiry Officer and recommendation of penalty) Regulations, 2002 for inquiring into the possible violation of the SEBI Act, 1992 and SEBI (Stock Broker and Sub-broker) Regulations, 1992, and,
Whereas, the enquiry officer after conducting an inquiry into the transactions carried out by the member in the scrip of GMDC had found the member guilty of violating Clause V of Para B of the code of conduct for brokers prescribed in Schedule II read with Regulation 7 of SEBI (Stock Broker and Sub-broker) Regulations, 1992 and Rule 4 (b) of SEBI (Stock Broker and Sub-broker) Rules, 1992. Having regard to the facts and circumstances of the case and the gravity of charges established, the enquiry officer recommended a minor penalty of warning be issued to the member, and,
Whereas, a show cause notice dated 16.07.04 was issued to the member under Section 13 (1) of SEBI (Proceedure for holding enquiry by an Enquiry Officer and recommendation of penalty) Regulations, 2002, enclosing therewith a copy of the enquiry report, asking the member as to why appropriate penalty including the penalty as recommended by the enquiry officer should not be imposed on the member. It was also mentioned in the notice that their reply, if any, to the show cause notice should be received within 15 days or else it would be presumed that the member had no explanation to offer and SEBI would be free to take such action in the matter as it deems fit, and,
Whereas, a reply dated 06.08.04 was received from the member stated that it was not aware of Shri Kansal being a director of M/s. NRI Financial Services Ltd., since neither the directory of NSE members nor the circular of NSE declaring M/s. NRI Financial Services Ltd. as a defaulter specify Shri Kansal as a director therein, and,
Whereas, the issue for consideration is whether, the member is guilty of violating the provisions of Clause V of Para B of the Code of Conduct for members prescribed in Schedule II read with Regulation 7 of SEBI (Stock Broker and Member) Regulations, 1992 and Rule 4(b) of SEBI (Stock Broker and Sub-broker) Rules, 1992.
I have considered the enquiry report and the findings therein. I have also considered the reply of the member to the findings in the enquiry report. Now, I proceed to consider whether the member is guilty of violating the provisions as per the enquiry report.
The member has contributed substantial volumes in the scrip of GMDC vide its transactions, of which Shri Kansal had accounted for a significant portion. The member has submitted that it had no means to verify whether Shri Kansal was a director of M/s. NRI Financial Services Ltd. from the information available in the public domain such as the directory of members of NSE or the circular of NSE declaring the member as a defaulter.
On a perusal of the documents furnished by the member, I find that in no place has there been a reference to Shri Kansal as the director of M/s. NRI Financial Services Ltd. Also, Shri Kansal has not disclosed the fact that he was a director of M/s. NRI Financial Services Ltd. in the client-member agreement dated 31.07.01, a copy of which has been furnished by the member vide its letter dated 24.06.04 before the enquiry officer. The information contained in the client-member agreement has been made available to the enquiry officer, which has not found mention in the enquiry officer’s report. I have now considered the same to determine the charge against the member. In view of the above, I am inclined to agree with the submission of the member that they had no means to verify the fact that Shri Kansal was a director of M/s. NRI Financial Services Ltd., a defaulting member of NSE.
Therefore, I hereby conclude that the member is not guilty of violating the provisions of Clause V of Para B of the Code of Conduct for members prescribed in Schedule II read with Regulation 7 of SEBI (Stock Broker and Sub-broker) Regulations, 1992 and Rule 4(b) of SEBI (Stock Broker and Sub-broker) Rules, 1992.
Consequently, in exercise of powers conferred upon me, by virtue of Section 19 of the SEBI Act, 1992 read with Regulation 13 (4) of SEBI (Proceedure for holding enquiry by an Enquiry Officer and recommendation of penalty) Regulations, 2002, I hereby direct that no further action be taken against M/s. Blue Chip Stock Brokers Private Limited, Member, The National Stock Exchange, (SEBI Registration No. INB 230776338) for his dealings in the scrip of M/s. Gujarat Mineral Development Corporation through his client, Shri Ishwar Dayal Kansal.
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MADHUKAR
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DATE:25-01-06
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WHOLE TIME MEMBER
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SECURITIES AND EXCHANGE BOARD OF INDIA
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