ADJUDICATION ORDER IN THE MATTER OF DREAMS CAPITAL PVT. LTD., FORMERLY KNOWN AS SUSHANKO INVESTREADS PVT. LTD., HAVING SEBI REGN. NO.INS231064135, A SUB-BROKER AFFILIATED TO PSE SECURITIES LIMITED, UNDER SECTION 15 I OF THE SEBI ACT READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY BY ADJUDICATING OFFICER) RULES, 1995.
01. Securities and Exchange Board of India (SEBI) conducted inspection of the books of accounts and other documents of Dreams Capital Pvt. Ltd., formerly known as Sushanko Investreads Pvt. Ltd., (hereinafter referred to as ‘the sub-broker’) which is holding certificate of registration No. INS 231064135, granted by SEBI. The sub-broker is affiliated to PSE Securities Ltd., a member of National Stock Exchange.
02. Pursuant to the aforesaid inspection, SEBI appointed, vide order No. RNI 658/ 2003 dated January 7, 2004, the undersigned as the Adjudicating Officer under Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 read with Sec. 15-I of Securities and Exchange Board of India Act, 1992 to inquire into and adjudge the various violations allegedly committed by the sub-broker. The aforesaid appointed was communicated vide proceedings of the Whole Time Member, SEBI, dated March 1, 2004.
03. The undersigned issued notice dated March 31, 2004 under SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to the sub-broker communicating the allegations levelled against it. The sub-broker, vide its letter dated May 4, 2004 made written submissions with respect to the allegations levelled against it. Inadvertently, another notice was issued by the undersigned on August 19, 2004 and subsequently, the same was withdrawn.
04. In terms of the aforesaid proceedings dated March 1, 2004, the undersigned was to enquire into and adjudge the following allegations of violations against the sub- broker.
a) The sub-broker not communicated the change in name on time in violation of Sec.15HBof the Securities and Exchange Board of India Act, 1992 read with Reg.26(xvii) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
b) The sub-broker failed to issue confirmation in the form and manner prescribed in violation of Sec. 15HB of the Securities and Exchange Board of India Act, 1992 read with Reg.26(xii) and 26 (xx) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
c) The sub-broker failed to obtain/maintain client agreement forms in violation of Sec.15B of the Securities and Exchange Board of India Act, 1992 read with Reg.26(xii) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
d) The sub-broker failed to obtain/maintain client registration forms in violation of Sec.15HB of the Securities and Exchange Board of India Act, 1992 read with Reg.26(xii) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
e) The sub-broker failed to maintain client database in violation of Sec.15HB of the Securities and Exchange Board of India Act, 1992 read with Reg.26(xv) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
f) The sub-broker delayed payment of monies/delivery of securities to clients in violation of Sec.15HB of the Securities and Exchange Board of India Act, 1992 read with Reg.26(vi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
05. The sub-broker vide its letter dated May 4, 2004 filed its written submissions before the undersigned. On perusal of the replies submitted by the sub-broker, the undersigned was of the view that an inquiry should be held in the matter and accordingly a notice of inquiry was issued to the sub-broker in terms of Rule 4(3) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. November 29, 2004 was fixed as the date of inquiry. Shri N. Prakash Kumar, Director of the sub broker appeared before the undersigned for enquiry. The said inquiry was conducted as per Rule 4 (4) and (5) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. The aforesaid authorised representative reiterated the submissions made vide the written reply filed before the undersigned and stated that no further documents were to be filed.
06. In the following paragraphs, the undersigned discusses each of the aforesaid allegations, reply received from the sub-broker and gives his findings;
i) The inspection carried out by SEBI revealed that the sub-broker not communicated the change in name on time in violation of Sec.15HBof the Securities and Exchange Board of India Act, 1992 read with Reg.26(xvii) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. In reply to the said allegation, the sub-broker submitted that the PSE membership was already changed by SEBI on May 14, 2001 in response to its application submitted through Pune Stock Exchange. The sub-broker further submitted that all the bills issued by the main broker were in the new name of Dreams Capital Pvt. Ltd., which confirmed the updation about the name change. The sub-broker also submitted that it already submitted the NSE Registration certificate for name change to PSE Securities Ltd., within one month from the receipt of the same. As per the sub-broker, the said certificate of registration was sent by PSE Securities Ltd., to SEBI on November 16, 2002. In support of its submissions, the sub-broker enclosed relevant documentary evidence. In view of the satisfactory reply received from the sub-broker, the undersigned is not of the view that it is a fit case for imposing any penalty.
ii) In terms of the inspection carried out by SEBI, the sub-broker failed to issue confirmation in the form and manner prescribed in violation of Sec. 15HB of the Securities and Exchange Board of India Act, 1992 read with Reg.26(xii) and 26 (xx) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. In response to the said allegation, the sub-broker submitted that as mentioned in the reply to the SEBI Inspection report, it was very particular about the acknowledgement of the confirmation. It appeared that in this connection, the sub-broker was referring to the letter dated April 21, 2003 submitted by it to SEBI and therefore the undersigned referred to the said letter. In the said letter dated April 21, 2003 the sub-broker stated that the confirmation numbers were issued in time to all the clients. In support of its contention, the sub-broker submitted photocopies of certain confirmation memos/acknowledgements. In this connection, the inspection report states that the counterfoils were acknowledged by the clients and the same were not dated therefore, the inspection concluded that it was difficult to verify whether the confirmation memos were issued to the clients within the prescribed time. From the said observation contained in the inspection report, it cannot be said that there was any delay in issuing the confirmation memos and it was only a suspicion of the inspecting officials that there could be a delay in issuing the confirmation memos as the acknowledgement do not bear the date. Therefore, the undersigned is inclined to accept the submissions of the sub-broker in the absence of any evidence which proves the guilt of the sub-broker.
iii) As per the inspection report, the sub-broker failed to obtain/maintain client agreement forms, and client registration forms/client database in violation of Sec.15B of the Securities and Exchange Board of India Act, 1992 read with Reg.26(xii) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. In reply, the sub-broker submitted that it had already updated the client registration forms in all respects. The sub-broker further submitted that it had already entered into agreements with all of its clients. In this connection, the inspection report stated that the sub-broker only collected the client registration forms but not entered into agreements with the clients. From the reply of the sub-broker, it may be seen that the sub-broker impliedly accepted its default and subsequent to the inspection entered into agreements with its clients. Therefore, the undersigned is inclined to accept the findings of the inspection report and finds the sub-broker guilty of violating the aforesaid provisions of law.
iv) As per the inspection report, the sub-broker delayed payment of monies/delivery of securities to clients in violation of Sec.15HB of the Securities and Exchange Board of India Act, 1992 read with Reg.26(vi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. In response to the said allegation, the sub-broker submitted that it had collected all necessary consent letters from all its clients. In support of its contentions, the sub-broker filed photocopies of the abovesaid consent letters. From the said photocopies, it is noticed that most of the consent letters were either obtained subsequent at the date of inspection or undated. In view of the unsatisfactory documentary evidence furnished by the sub-broker, the undersigned is not inclined to give any credence to the submissions made by the sub-broker and holds it guilty of violating the aforesaid provisions of law.
07. From the above paragraphs, it may be seen that the broker was found guilty of:
(a) Failing to obtain/maintain client agreement forms in violation of Sec.15B of the Securities and Exchange Board of India Act, 1992 read with Reg.26(xii) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
(b) Failing to obtain/maintain client registration forms in violation of Sec.15HB of the Securities and Exchange Board of India Act, 1992 read with Reg.26(xii) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
(c) Failing to maintain client database in violation of Sec.15HB of the Securities and Exchange Board of India Act, 1992 read with Reg. 26(xv) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
(d) Delaying payment of monies/delivery of securities to clients in violation of Sec.15HB of the Securities and Exchange Board of India Act, 1992 read with Reg. 26(vi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
07. In order to determine the quantum of penalty, the undersigned considered the following factors as provided in the Section 15J of Securities and Exchange Board of India Act, 1992 viz., (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.
08. As regards the disproportionate gain or unfair advantage there are no quantifiable figures available on record with respect to the default of the broker. There are also no figures or data on record to quantify the amount of loss caused to an investor or group of investors as a result of the default. Besides, the written submissions made by the sub broker before the undersigned suggests that the sub- broker already rectified the defaults/ shortfalls.
09. Therefore, in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with Rule 5 of the Securities & Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, I hereby impose a cumulative penalty of Rs.30000/- (Rupees Thirty Thousand Only) on the sub- broker for all the aforesaid four violations. The sub-broker shall pay the said amount of penalty 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. The said demand draft should be forwarded to Smt. Usha Narayanan, Chief General Manager of SEBI, MIRS Department (DPS- I) at SEBI, World Trade Centre, 29th Floor, Cuffe Parade, Mumbai 400 005.
10. In terms of Regulation 6 of the SEBI (Procedure for holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, copies of this order are sent to the sub- broker and also to SEBI.
| Date: December 29, 2004 |
A. Chandra Sekhar Rao |
| Place: Mumbai |
Adjudicating Officer |