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ADJUDICATION ORDER IN RESPECT OF AVDHUT SECURITIES LIMITED – SUB-BROKER (SEBI REGN. NO. INS 230934239) UNDER SECTION 15 I OF THE SEBI ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES 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 Avdhut Securities Limited (hereinafter referred to as ‘Member’) and pursuant to this, appointed me as Adjudicating Officer vide Order dated November 21, 2003 under Rule 3 of SEBI (Procedure for holding inquiry and imposing penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘said rules’) to inquire into and adjudge under section 15 B and 15 F(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(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
- Non-maintenance of client database
- Non-delivery of shares to clients
1.0. SHOW CAUSE NOTICE AND REPLY
1.0.1 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 them. The inspection against the Member was conducted and the Inspection Report was sent along with the said Notice.
1.0.2 REPLY
1.0.3. Accordingly, the Member has sent a detailed reply vide letter dated July 31, 2004.
1.0.4. PERSONAL HEARING
1.0.5. The personal hearing in the matter was fixed on 24th September, 2004 and Shri J. Chandra Sekhar, Accounts Officer of Avdhut Securities Ltd attended the hearing. The Member also submitted additional documents vide his letter dated 6/9/2004.
1.0.6. In view of the above, I now deal with the submissions made by the Member 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 : Non-Maintenance of Client Database
2.0.2. It was observed by the inspection team that in some of the clients data base, the said data are incomplete in as much as not containing the names of the introducing persons, PAN/GIR numbers, personal identification proof like driving license, ration card, passport etc.
2.0.3. The above are in violation of SEBI Circular no. SMD/POLICY/OECG/1-97 dated 11th February 1997 and SEBI Circular no. SMD/POLICY/CIR/5-97 dated 11th April, 1997.
2.0.4. REPLY
2.0.5. During the course of proceedings the member confirmed their reply vide letter dated 31st July 2004, in which, inter-alia, mentioned that “we have clients agreements for all the clients, however, in few cases certain details could not have been filled-up due to oversight of our staff. However, we had rectified omissions and had valid client agreements for all the clients and henceforth we assure you that the said mistakes will not reoccur”. Further, informed that they will submit some of the clients database by 28th September, 2004.
2.0.6. APPRECIATION OF EVIDENCE AND FINDING
2.0.7. It is observed that the inspection team has found the irregularity in client registration forms of the following clients :
- Vinod Kumar Tapadia
- K. Raja Mohan
- Ram Nivas Lakotia
2.0.8. In this regard, the member vide his letter dated 6/9/2004 has submitted the client registration application form as well as sub-broker agreements. I have examined the same and found that they are in order.
2.0.9. Since all the irregularities pointed out by the inspection team have been duly rectified by the member, I accept the submissions made by the member.
3.0. CHARGE : Non-delivery of shares to clients
3.0.1. The Inspection had observed that there was a delay in delivery/payments to the clients which is in violation of SEBI Circular no. SMD/Policy/Circular-11/97 dated May 7, 1999 read with Circular no. SMD/SED/CIR/93/23321 dated 18/11/1993 as per which deliveries shall be given within two working days of the payout.
3.0.2. REPLY
3.0.3. During the course of proceedings, the member reiterated their reply vide letter dated 31/7/2004, wherein, inter-alia, mentioned that “all our clients are having running accounts with us and have been doing business with us for quite a long time. All our clients have authorized us to retain both securities and funds with us in order to meet margin, payin and delivery obligations. We have no intention of either holding back the clients money or securities with us, and we have never used clients funds for our purpose at any time. Copies of the concerned letters obtained from the said 4 clients namely Mr. B. Bala Raju, Mr. Satyanarayan Bung and Smt. D. Sridevi and Mr. B. Vinod Kumar are enclosed herewith for your kind perusual”.
3.0.4. APPRECIATION OF EVIDENCE AND FINDING
3.0.5. In this regard, the copies of above stated four clients namely, Mr. B. Bala Raju, Mr. Satyanarayan Bung and Smt. D. Sridevi and Mr. B. Vinod Kumar, which were enclosed to the reply letter dated 31/7/04 were verified and found that all the letters, inter-alia, mentioned that “I request you not to credit any securities to my Depository account which were purchased by me from you. Further, do not issue any cheques against my selling unless otherwise requested specifically by me”.
3.0.6. I have examined the concerned letters submitted by the member and I observed that the following lapses :
· In connection with the client namely, Shri B Bala Raju, the due date of credit to his account was 5/8/2001 in the settlement dated 27/7/2001 for the trading in 300 scrips of Mukta Arts. However, the consent letter given by Shri Bala Raju is dated 18/2/2002. Similarly, in case of client namely, D. Sridevi the due date of credit to her account was 8/2/2002 in the settlement dated 1/2/2002 for the trading in 400 scrips of Global Tele. However, the consent letter given by Ms. D. Sridevi is dated 16/2/2002 and the similar type of irregularities also I have observed in the consent letter of Shri Satyanarayana Bung.
· After careful examination of these consent letters, it is prima facie evident that the date of crediting the amount to clients accounts was much earlier and the consent letters given by the clients to the member were of post dated.
3.0.7. In view of the above, I have not satisfied with the reply of the member and it is illogical to say that the clients have given consent for retaining the securities as well as payment with the member. Since these consent letters were of the subsequent dated and the securities and payments were due much before these letters. I, therefore, strongly denying to accept the veracity of these consent letters and found that these letters were obtained from these clients after thought. Hence, I do not have any hesitation to hold member guilty for the violation of SEBI Circular no. SMD/Policy/Circular-11/97 dated May 7, 1999 read with Circular no. SMD/SED/CIR/93/23321 dated 18/11/1993 and impose penalty under section 15F(b) of the SEBI Act, 1992.
4.0. CONCLUSION
4.0.1. In order to adjudge the quantum of penalty, I have to consider the following factors as per the Section 15J of the SEBI Act, 1992 :
a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default,
b) the amount of loss caused to an investor or group of investors as a result of the default and
c) the repetitive nature of the default.
4.0.2. As regards the disproportionate gain or unfair advantage there are no quantifiable figures available with respect to the default observed on the part of the member. There are also no figures or data to quantify the amount of loss caused to an investor or group of investors as a result of the default.
5.0. ORDER
5.0.1. The submissions of the member have been considered and dealt in detail as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under section 15F(b) of the SEBI Act, 1992. In view of the same and in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with, Rule 5 of the said Rules, I hereby impose a penalty of Rs.35,000/- (Rupees Thirty Five Thousand Only) on the member. The member shall pay this amount of penalty of Rs.35,000/- by way of demand draft in favour of "SEBI - Penalties Remittable to Government of India" payable at Mumbai within 45 days of receipt of this order.
5.0.2. The said demand draft should be forwarded to the Chief General Manager of SEBI, MIRS Department (DPS - I) at SEBI, World Trade Centre, 29th Floor, Cuffe Parade, Mumbai 400 005.
| Date: December 29, 2004 |
SANDEEP P. DEORE |
| Place: Mumbai |
Adjudicating Officer |