Order against Limra Securities Ltd

01.          Securities and Exchange Board of India (SEBI) conducted inspection of the books of accounts and other documents of Limra Securities Ltd., (hereinafter referred to as ‘the broker’) which is holding certificate of registration No. INB 230782430, granted by SEBI. The broker is a member of the National Stock Exchange Association of India Ltd., thereinafter referred as ‘NSE’ and has its place of business at Hyderabad.  The said inspection was conducted on September 16, 2002 by M/s. Audukia and Associates, Chartered Accountants, on behalf of SEBI. The said inspection covered the period of financial years of 2000-01; 2001-02 and April 1, 2002 till the date of inspection.

02.          Pursuant to the aforesaid inspection, SEBI appointed, vide order No. RNI 289/ 2003 dated November 5, 2003 Shri Ananta Barua, Jt. Legal Adviser, SEBI 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 broker.

03.          The aforesaid Adjudicating Officer issued notice dated May 7, 2004 under SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to the member communicating the allegations levelled against it. A copy of the inspection report was also forwarded to the broker together with the said notice. However, it is noticed from the records furnished to the undersigned, no reply was received from the broker in response to the aforesaid notice.

04.          Since, the services of the aforesaid Adjudicating Officer were placed on deputation to Bahrain Monitory Agency, SEBI vide order dated July 15, 2004 appointed the undersigned as the Adjudicating Officer in the instant matter. The said appointment was communicated to the undersigned vide proceedings dated July 15, 2004. Photocopies of the following documents viz., inspection report, proceedings No. MIRSD/ ADJ/ 12/ 03-04 dated December 1, 2003; notice dated May 7, 2004 issued by Shri Ananta Barua; proceedings No. MIRSD/ DPS-II/ ADJ/01/04-05 vide which the appointment of the undersigned as Adjudicating Officer was communicated were forwarded to the undersigned.

05.          In terms of the aforesaid proceedings dated July 15, 2004, the undersigned was to enquire into and adjudge the following allegations of violation against the broker.

a)      The broker not maintained books of accounts and other records in violation of Sec.15A(c ) and 15HB of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “the Act”) read with Regulation 26(iii), 26(xv) and 26 (xvi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.

b)      The broker failed to obtain/ maintain client registration forms/; client database in violation of Section 15HB of the Act read with Regulation 26(xii), 26(xv) and 26(xvi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 and ;

c)      The broker delayed payment of monies/delivery of securities to clients in violation of Section 15HB of the Securities and Exchange Board of India Act, 1992 read with Regulation 26(vi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.

06.          On July 19, 2004, vide notice No. LAD/DRA/ACR/ 15630/ 2004 the undersigned issued a fresh notice under Rule 4(3) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to the broker. A copy of notice issued by Shri Ananta Barua and a copy of the inspection report were also forwarded to the broker advising it to show cause as to why an inquiry should not be held against it. The broker was advised to file its reply within 21 days from the date of receipt of the said notice. The said notice was sent by Speed Post with Acknowledgement due and was received by the broker. However, no reply was received by the aforesaid notice from the broker.

07.          In the above circumstances, the undersigned was of the opinion that an inquiry should be held in the matter against the broker and vide notice dated August 19, 2004 advised the broker to attend for the inquiry to be held on September 6, 2004. The said notice was sent by Registered Post- Acknowledgement due and was received by the broker. However, the undersigned neither received any reply from the broker to the above notice nor any representative or lawyer of the broker appeared before the undersigned on September 6, 2004.  

08.           In view of the above, in terms of rule 4(7) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, it has been decided by the undersigned proceed with the enquiry based on the records available at the end of the undersigned as the broker failed to appear as required under rule 4(3).

09.          Sec.15A(c ) of Securities and Exchange Board of India Act, 1992 provides that any person who is required to under the said act or rules and regulations made there under, to maintain books of accounts or records, fails to maintain the same 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. Sec.17(k) of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 prescribes that every stock broker shall keep and maintain a margin deposit book. The aforesaid inspection report states that no margin deposit book was maintained by the broker, apart from not maintaining the order book. In the absence of any reply from the broker in defense of the said charge of not maintaining the margin deposit book, the undersigned is inclined to give credence to the finding of the inspection report and hold the broker guilty of violating Reg. 17(k) of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. Hence, the broker is liable for the penalty in terms of Sec.15A (c ) of Securities and Exchange Board of India Act, 1992. As far as the order book is concerned, the undersigned is of the view that in terms of NSE regulations, maintenance of order book is only optional and hence the broker is not be made liable for any monetary penalty for his failure to maintain order book.

10.          The next allegation against the broker for which the undersigned was appointed as adjudication officer was that the broker failed to obtain/ maintain client registration forms / client database, in violation of Regulation 26(xii), 26(xv) and 26(xvi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. Reg. 16(xii) SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 provides that a stock broker shall be liable for monetary penalty in respect of execution of trade without entering into trade with the client under the Act. rules or regulations framed there-under or failure to maintain client registration form or commission of any irregularities in maintaining the client agreement. Reg.26(xv) of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 provides that a stock broker shall be liable for monetary penalty in case of failure of comply with the directions issued by the Board under the Act or the regulations framed there under. Reg.16 (xvi) of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 provides that a stock broker is liable for monetary penalty in case of failure to exercise due skill, care and diligence.  The inspection report alleges that the broker did not maintain client registration form and broker client agreements of some of the clients. The inspection report further reveals that client registration forms and broker client agreements maintained by the broker were incomplete and there were irregularities like registration forms were not as per the format prescribed by SEBI, agreements were not stamped, signatures of clients were not obtained on the registration forms, documents like banker’s certificate, proof of identity, photograph and signature of client, date of registration etc., were not obtained etc., In the absence of any reply from the broker in defence to the aforesaid allegation, the undersigned is inclined to hold the broker guilty of violating the provisions of Regulation 26(xii), 26(xv) and 26(xvi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. Hence, the broker became liable for penalty as prescribed under Sec.15HB of Securities and Exchange Board of India Act, 1992.

11.          The third allegation against the broker for which the undersigned was appointed as adjudication officer was that the broker delayed payment of monies/delivery of securities to clients in violation of Reg. 26(vi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. The said regulation provides that a stock broker shall be liable for monitory penalty in case of failure to deliver any security or make payment of the amount due to the investor within 48 hours of settlement of trade unless the client agreed in writing otherwise. The inspection report alleges to the effect that it was observed in certain cases, payments to the clients were not made within 48 hours of pay out of the relevant settlements and no general authority waiving their right to receive payment within 48 hours from clients was obtained by the broker. In the absence of any reply from the broker in defence to the aforesaid allegation, the undersigned is inclined to hold the broker guilty of violating the provisions of Regulation 26(vi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. Therefore, the broker becomes liable to pay penalty as prescribed under Sec.15HB of Securities and Exchange Board of India Act, 1992.

12.           From the above paragraphs, it may be seen that the broker was found guilty of (a) not maintaining books of accounts and other records viz., margin deposit book in violation of Sec.15A(c ) of the Securities and Exchange Board of India Act, 1992; (b) failing to obtain/ maintain client registration forms/ client database and hence became liable for penalty under Section 15HB of the Act read with Regulation 26(xii), 26(xv) and 26(xvi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 and ; (c) delayed payment of monies/delivery of securities to clients and hence became liable for penalty under Section 15HB of the Securities and Exchange Board of India Act, 1992 read with Regulation 26(vi) of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.

13.           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.

14.           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 record produced before the undersigned does not suggest that there was any repetition of the above violations by the broker.

15.          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 penalty of Rs.50000/- (Rupees Fifty Thousand Only) on the broker. The 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, 29^th Floor, Cuffe Parade, Mumbai 400 005.

16.          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 broker and also to SEBI.

 

 

Date:  NOVEMBER 25, 2004	A. Chandra Sekhar Rao
Place: Mumbai	Adjudicating Officer