1.0 M/s Gala Associates (hereinafter referred to as "the said broker") was a member of Hyderabad Stock Exchange (hereinafter referred to as "HSE") and a stock broker registered with the Securities and Exchange Board of India (hereinafter referred to as "SEBI") under certificate of registration No. INB 060148812.
2.0 HSE, vide its letter dated 24.11.03, informed SEBI that the said broker was declared defaulter and was not readmitted to the Stock Exchange. Also the card of the said broker had been auctioned.
2.1 In view of the above, SEBI, vide order dated 10.03.04 appointed an Enquiry Officer under the Regulation 16(1) of SEBI (Procedure for holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as "Enquiry Regulations") to hold an enquiry under Chapter III of the Enquiry Regulations.
2.2 The Enquiry Officer, acting in accordance with regulation 16 (2) of the Enquiry Regulations issued show cause notice to the said broker on 18.03.04 advising it to show cause why necessary order under Enquiry Regulations should not be passed against it. The said broker failed to reply to the said show cause notice.
2.3 Thereafter, on 03.05.04, the Enquiry Officer submitted his report to SEBI. In his report the Enquiry Officer observed that HSE had declared the said broker as defaulter and that the said broker was not readmitted to the Stock Exchange. Also, the card of said broker was auctioned by HSE. Therefore, the Enquiry Officer recommended cancellation of the certificate of registration granted to the said broker.
2.4 I note that adequate opportunity had been given to the said broker in terms of Regulation 16 of the Enquiry Regulations and that it has chosen not to avail such opportunity. Therefore, I am satisfied that the requirements of natural justice have been fulfilled and I proceed further in the matter.
3.0 I have considered the facts of the matter, report of the Enquiry Officer and other material on record. The following issue arises for consideration:
3.1 Whether, the said broker has violated the conditions of registration.
3.1.1 I note that Rule 4 of the SEBI (Stock brokers and sub brokers) Rules, 1992 (hereinafter referred to as "the broker regulations") states that :
"Conditions for grant of certificate to stock broker
4. The Board may grant a certificate to a stock broker subject to the following conditions, namely :-
(a) he holds the membership of any stock exchange;
(b) …
(c)…
(d) …
(e)…"
3.1.2 I note that HSE vide its letter dated 24.11.03, informed SEBI that the said broker was declared defaulter on 09.08.96 and was not readmitted to the Stock Exchange. Also, the card of the said broker was auctioned by HSE.
3.1.3 I note that no reply or communication was received from the said broker.
3.1.4 In view of the above, I agree with the findings of the Enquiry Officer and find that the said broker ceased to comply with one of the conditions subject to which registration has been granted to him viz. being a member of a recognized stock exchange.
3.2 I note that Regulation 25 of the broker regulations provides that :
"Liability for contravention of the Act, rules or the regulations.
25. A stock broker or sub-broker who contravenes any of the provisions of the Act, rules or regulations framed thereunder shall be liable for any one or more of the following actions-