ADJUDICATION ORDER IN RESPECT OF ASHOK & CO. MEMBER OF BANGALORE STOCK EXCHANGE (SEBI REGN. NO. INB 080174910) 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 Ashok & Co. (hereinafter referred to as ‘Member’) and pursuant to irregularities found by Inspection Team, appointed me as Adjudicating Officer vide Order dated November 05, 2003 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 , 15F(a) and 15F(b) 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”.
Section 15 F(b) of SEBI Act, 1992 reads as under :
“if any person, who is registered as a stock broker under this Act fails to deliver any security or fails to make payment of the amount due to the investor in the manner within the period specified in the regulations, he shall be liable to (a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, which is less)”
CHARGES
- Fails to enter into agreement with the clients
- Fails to issue Contract Notes in the prescribed manner
- Fails to make payment/deliver of security
1.0. SHOW CAUSE NOTICE AND REPLY
Accordingly, Show Cause Notice dated July 12, 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 the Inspection Report was sent along with the said Notice.
1.0.1 REPLY
Accordingly, the Member has sent a detailed reply vide letter dated July 23, 2004.
1.0.2. PERSONAL HEARING
In view of the above, I now deal with the submissions made by the Member vide letter dated 23rd July, 2004 before me for the purpose of this adjudication.
2.0. THE REPLY OF THE MEMBER VIS-A-VIS THE CHARGES AND THE FINDINGS.
2.0.1. CHARGE : Fails to enter into agreement with the clients
It was observed by the inspection team that the member has failed to maintain legally valid agreements with the clients.
REPLY
The Member has submitted vide the letter dated 23/7/2004, inter-alia, that “I had very few clients. For all these clients I had obtained an agreement in the prescribed form. However the agreements were not stamped. I am now taking all agreements on stamp paper as advised by you. I also wish to inform you that there has not been a single instance of any violation nor have I made any gains or taken unfair advantage of any client and have also not caused any loss to any of my clients, nor defaulted in payment of any dues/margins/payments either to my clients or to the stock exchange. In fact, I have scrupulously tried to adhere to the rules and regulations. I deeply regret the small violations of procedure and assure you that there will be no violation in future. In view of the above I request you kindly to accept my explanation and condone the lapses.
APPRECIATION OF EVIDENCE AND FINDINGS
I have examined the reply given by the member in this regard and observed that the member has entered into an agreement with the clients on the plain paper instead of stamp paper. The member has also submitted that since most of his clients are of family members and close friends, the same were not taken on the stamp paper. In this regard, I have observed that the client has assured to get it executed all the agreements on stamp paper and will abide by strictly SEBI Rules and Regulations.
In view of the above, submissions made by the member are accepted.
3.0. CHARGE 2 : Contract Notes were not in the prescribed manner
It has been observed by the inspection team that the member has failed to issue contract note in the form and manner prescribed.
REPLY OF THE MEMBER
The Member has submitted vide the letter dated 23/7/2004, inter-alia, that “I have been issuing the contract notes in the prescribed form. The system of numbering the contract notes on a daily basis was system generated and this was followed due to the software which was arranged by the Bangalore Stock Exchange Ltd and which was being used by most of the Bangalore Stock Exchange members. However based on SEBI’s observation I have now changed to continuous numbering of contract on a yearly basis”.
APPRECIATION OF EVIDENCE AND FINDINGS
I have observed that the member was duly issuing contract notes to his clients, however, the name of the authorized signatory of the contract notes has not informed to the exchange. In this regard, I have observed the member is only authorized to sign and he has not authorized to sign anybody on the same. Further, regarding serial numbers on the contract notes, it is observed that the same were generated by the software system supplied by Bangalore Stock Exchange and the Member has already rectified the mistake and changed to continuous numbering of contract notes on a yearly basis.
In view of the above, I am inclined to accept the submissions made by the Member.
4.0. CHARGE 3: Fails to make payment/deliver of security
Inspection team has found that there was delay in delivery of shares to the clients.
REPLY
The Member has submitted vide the letter dated 23/7/2004, inter-alia, that “there was only one case of delay of delivery of 5 Hindustan Lever Limited shares to one client. This was because the client had specifically requested for retaining the shares with us for future sale if any. A copy of the client letter was already sent to you along with my letter dated 8th August, 2002”.
FINDING
In this regard, I observed that there was only one incident in which the member has delayed in the delivery of 5 Hindustan Lever shares to one client and it has been so done as per the specific request made by the client to the member. I have examined the letter dated 1st April 1999 issued from Shri Pradip D Khanolkar, Bangalore issued to the member. The said letter states as under :
“With ref to all my purchases I request you to kindly held the shares with you, for my future sales. I also request you to kindly keep my credit balance with you for my future purchases, till I request you to kindly credit the same”.
In view of the above letter, I find that the member has acted as per the instructions given by his clients and therefore the delay has not occurred as a matter of lapse on account of the member.
5.0. CONCLUSION
I have observed that the SEBI vide its letter dated 24/11/2003 has already issued warning and directed the member to be cautious in future while trading in the securities market. I have also seen that there are no complaints by the investors against the member.
In view of the above, I consider 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”.
6.0. 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 Ashok & Co. MEMBER – BgSE (SEBI Regn. No. INB 080174910) under sections 15B, 15F(a) and 15F(b) of Chapter VIA of the SEBI Act, 1992.
| Date: December 30, 2004 |
SANDEEP P. DEORE |
| Place: Mumbai |
Adjudicating Officer |