ADJUDICATION ORDER IN RESPECT OF DGP SECURITIES LIMITED – MEMBER NSE (SEBI REGN. NO. INB 230654134) 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 DGP Securities Limited (hereinafter referred to as ‘Member’) and pursuant to this, appointed me as Adjudicating Officer vide Order dated December 16, 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 and 15F(a) 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(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
- Non-maintenance of client database
- Fails to issue contract notes
- Non-delivery of shares to clients
1.0. SHOW CAUSE NOTICE AND REPLY
1.0.1 Accordingly, Show Cause Notice dated July 14, 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 29, 2004.
1.0.4. PERSONAL HEARING
1.0.5. The personal hearing in the matter was fixed on September 6, 2004 vide Notice dated September 1, 2004 and Shri Mukund Beriwala, CEO, DGP Securities and Shri R.C. Mittal, Manager (Accts.), DGP Securities appeared before me and made submissions on behalf of the Member. While proceedings were going-on, Mr. Beriwala has requested for short adjournment since he was suffering from viral fever and unable to give oral reply, hence, as requested by him the hearing was adjourned to the next day i.e. 7th September, 2004 and they have attended the hearing and further proceedings were also recorded. They also submitted additional documents vide letter dated September 7, 2004 at the time of hearing.
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 certain deficiencies were observed in the maintenance of the registration agreement, which is listed below :
· Some of the agreements are not on stamp paper
· Proof of Identity not contained in some of the client registration forms
· Some clients signed on the blank form
· Photo of clients were not there in some of registration forms
· Also, in the client agreement of M/s Balaji Trading many corrections had been done.
The above are in violation of SEBI Circular no. SMD/POLICY/CIR/5-97 dated 11th April, 1997.
2.0.3. REPLY
2.0.4. During the course of proceedings the member mentioned reiterated the reply which was submitted vide letter dated 29th July 2004 that “out of total 313 clients, irregularities are found in 14 clients data base. Out of 14 clients, no one is active currently. However, we have asked these clients to full fill the requirements”.
2.0.5. Further the member has stated during the proceeding that “out of 313 clients registered with us each have about 15 data that needs to be entered / given by the client on the client form, agreement and supporting documents that would mean about 4500 data entries for all clients. Out of these, the inspection team identified 14 missing data entries in the form of missing photographs (9) and missing proof of ID (5) these were unintentionally missing out at the time of completing the documentation formalities, we regret the error and have since then rectified the situation”.
2.0.6. APPRECIATION OF EVIDENCE AND FINDING
2.0.7. During the course of personal hearing the member submitted that there were only few instances where the registration forms maintained by them did not have all the requisite details but these details have been now incorporated.
2.0.8. In this regard, I asked them submit the registration forms which were subsequently got rectified and the details of the clients have been filled. Accordingly, the member has submitted vide letter dated 7th September 2004 the following documents :
Photographs of :
Director of Puri Construction Ltd.
Copy of passport showing photo Mrs. Jean Cardoso
Copy of client form showing the photo of Mr. Rakesh Shah
Copy of Client Form showing the photo of proprietor of Allied Associates
Proof of Identification:
Copy of passport showing photo Mrs. Hilda D’Souza
Copy of passport showing photo Mr. Mahendra Kumar Mansinghka
2.0.9. In this regard, I examined the inspection report and observed that there were 9 clients whose registration forms were not having photographs, however, the member has submitted only four client registration forms on which the photographs of the forms have been given. Therefore, the member has failed to produce following client registration forms on which client photographs are not affixed.
- Anurag Anda
- JV Wagh
- Kingpin Investment(authorized person)
- Rekha Mundra
- Rajiv Sawhney
2.0.10. Further, the inspection team has found that there were 5 client agreements which were not having proof of identity of the clients. However, in this regard I observed that the member has submitted only proof of identification in respect of two clients and thus failed to produce the following client registration forms on which identification proof has not been obtained.
- Amit Sureka
- Devin Karnik
- Badal Agarwal
2.1.0. In view of the above, I feel that the member has violated SEBI Circular no. SMD/POLICY/CIR/5-97 dated 11th April, 1997 and therefore I am of the opinion that this is the fit case for levying the penalty to the member under section 15B of SEBI Act, 1992.
3.0. CHARGE : Fails to issue contract notes in the form and manner specified by the stock exchange
3.0.1. The inspection team observed that in some of the contract notes trade time and trade number not mentioned; contract note do not bear pre-printed serial numbers or even computer generated serial numbers and also acknowledgements do not carry date and time results doubting of issuing the contract notes within 24 hours or note attracts violation of SEBI circular no. SMD/POLICY/IECG/1-97 dated 11/2/1997.
3.0.2. REPLY
3.0.3. The member reiterated their reply submitted vide letter dated September 7, 2004, inter-alia, mentioned that “each and every contract note bear trade time and trade numbers. It is not possible to issue contract note without trade time and number. Your report does not mention which contract notes where the trade time and trade number were missing. We have been giving a serial number with in each settlement which started again with the start of a fresh settlement. On the advice of your inspection team, from 1.11.2002 we started putting manually a continuous serial number while the inspection was still going on. We later on made further improvement by getting our software modified so that the computer itself printed the serial number”. Further the member submitted during the personal hearing that “when we sent the contract note to the client (some of the courier slip copies enclosed) very often the client forgets to mention the date or time at the time of signing the contract. Also we had no complaint from any investor regarding late delivery of contract notes.
3.0.4. APPRECIATION OF EVIDENCE AND FINDING
3.0.5. As far as the above violation is concerned, the undersigned agrees with the reply of the member as the member stated that on the advice of our inspection team, from 1.11.2002 the member started putting manually a continuous serial number while the inspection was still going on. Later on the member made further improvement by getting software modified so that the computer itself printed the serial number. I, therefore, find that the submissions made by the member are acceptable.
4.0. CHARGE : Non-delivery of shares to clients
4.0.1. It was observed by the Inspection Team that there were number of instances wherein the shares had not been delivered to the investors and also the member furnished the date of credit to the clients in a few transactions which attract 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.
4.0.2. REPLY OF THE MEMBER
4.0.3. With regard to non-delivery of shares to the clients, the member submitted their reply vide letter dated 29th July, 2004 wherein stated that in some instances, shares were not delivered to the clients because there was either debit balance lying in that client’s account and/or he had requested us not to transfer the same.
4.0.4. APPRECIATION OF EVIDENCE AND FINDINGS
4.0.5. Regarding the above violation, the member has submitted some of their client’s letters wherein, inter-alia, stated that “to retain the shares in your account which I have bought and / or my credit balance of payout against sell of my shares unless or until I request you to do the needful. Also authorized to adjust my credit balance of shares and / or fund that are with you, against my debit balance”.
4.0.6. However, I have examined these letters and found that there was no specific mention\ing of quantum of debit balance for which the letters were issued by the clients. Further, I have also seen that all the copies produced by the member are alike and it appears that it is a blanket permission taken by the member from their clients. In view of this, I am not in a position to arrive to the conclusion that the exact debit balance of the clients for which the clients have given the instructions to hold the credit balance thereof. Therefore, I do not agree to accept the submissions made by the member in this regard. Hence, I find that the member has violated the provisions of 15 F (b) of the SEBI Act, 1992 and therefore made it liable for imposition of penalty.
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 sections 15 B and 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.25,000/- (Rupees Twenty Five Thousand Only) on the member. The member shall pay this amount of penalty of Rs.25,000/- 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 : November 23, 2004.
Place : Mumbai
SANDEEP P. DEORE
ADJUDICATING OFFICER