ORDER OF ADJUDICATING OFFICER UNDER SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 AGAINST M/S RAMA SECURITIES PVT LTD, MEMBER, CSE, SEBI REG. NO INB031017730 READ WITH SECTION 15A(c), 15B, 15HB, 15F(b) OF THE SEBI ACT, 1992
I was appointed as Adjudicating Officer by SEBI vide order dated 3rd December 2003 and 11th February 2004 to inquire into and adjudge under Section 15A(c), 15B, 15HB, 15F(b) the irregularities arising from the inspection of M/s Rama Securities Pvt Ltd, Member, CSE (hereinafter referred to as ‘broker’) for the years 2001-02.
SHOW CAUSE NOTICE AND REPLY
Accordingly, a show cause notice dated 30h April 2004 was issued to the broker. The broker submitted the reply vide his letter dated 29th July 2004.Shri Ajay Surekha and Shri Y K Lakotia appeared on behalf of the broker and made submissions. In terms of Rule 4 of SEBI (Procedure for holding inquiry by adjudicating officer and imposing penalty) Rules, 1995, the nature of allegations were explained to them. The charges and the reply thereto are as under:
Charges
It is alleged that there were deficiencies in respect of maintenance of client agreement forms, client registration forms and non-maintenance of client data base in respect of certain clients as detailed in the show cause notice. It is also alleged that the broker failed to make payments to the clients within 48 hours and also did not maintain record of time as to when the client has placed the order besides non-maintenance of margin deposit book.
Reply
In so far as the six instances wherein the deficiencies in the client registration forms were noticed, it was submitted that these forms could not be located at the time of inspection and these discrepancies were rectified and fresh forms were since obtained.
It was submitted that the clients themselves have authorized the broker to retain the payment for future purchase/margin requirements.
It was submitted that the maintenance of time of placement of order is not mandatory in terms of CSE Bye Laws and the orders were entered into the system as and when received and trade logs are generated.
APPRECIATION OF EVIDENCE AND FINDINGS
As regards deficiencies in the client registration forms and non-maintenance of database, the following cases are pointed out in the inspection.
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Sl. No.
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Name of client
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Deficiencies noticed in client registration form
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1
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Manju Soni
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No client agreement form kept, proof of identity/residence missing.
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2
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Ram Babu Agarwal
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No client agreement form kept.
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3
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Ruchita Kalanauria
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No client agreement form kept, proof of identity/residence missing
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4
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Rasaraj Sales Pvt Ltd
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No client agreement form kept, Memorandum of Association missing
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5
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Rukma Devi Soni
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No client agreement form kept, proof of identity/residence missing, registration form not complete.
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6
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Raghav Udyog
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No client agreement form kept, Memorandum of Association missing
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The broker vide his letter dated 4th August 2004 has submitted copies of the member client agreement forms in respect of the aforesaid entities and submitted that these forms could not be located at the time of inspection. It was however submitted that the discrepancies were also rectified when fresh forms were obtained. As the deficiencies pointed out are since been rectified, a lenient view may be taken.
As regards delay in payment of dues to the client, the show cause notice points out the following cases wherein there was a delay of 4 days in making the payment to the clients.
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S No.
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Name of client
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Amount
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Date of pay out
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Date of payment
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Period of Delay
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1.
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Munna Lal Kejriwal
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877390
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26.03.01
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30.03.01
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4 days
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2
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Santosh Kumar Kejriwal
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376345
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26.03.01
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30.03.01
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4 days
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3
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Uma Kejriwal
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53900
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26.03.01
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30.03.01
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4 days
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5
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Kishan Kumar Kejriwal
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463578
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26.03.01
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30.03.01
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4 days
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6
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Kusum Kejriwal
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111550
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26.03.01
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30.03.01
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4 days
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The broker had submitted that the delay of four days is not significant and in any case the clients themselves have authorized the broker to retain the funds for future transactions. Copies of authorisation letters from each of the aforesaid client were filed vide broker’s letter dated 4th August 2004. Since it is for the benefit of the clients that the broker is required to make the payment within 48 hours at the payout and as the clients themselves have authorised the broker to retain the funds, the delay of 4 days is satisfactorily explained and may not be viewed seriously.
As regards non-maintenance of time of placement of order, it was submitted that the same is not mandatory in terms of CSE Bye Laws but the time of execution of orders is reflected in the trade logs generated.
Time of placement of order by the client and time of placement of the order by the broker into the system are two different things. As per SEBI circular dated 11/2/1997, the broker member should maintain record of time when the client has placed the order and reflect the same in contract notes. There is no material to suggest that the broker is maintaining record of time when the client has placed the order. Therefore, there is non compliance of Circular dated 11/2/1997. However, as the time of execution of the contract is reflected in the trade logs and contract notes, this irregularity may be treated as procedural irregularity and may not be viewed seriously.
As regards non-maintenance of margin deposit book, it was submitted that the margin ledger is generated from the accounting software and hence can be integrated at any point of time to reflect margin position of the clients and that the same was considered as margin deposit book for all practical purposes.
In this regard, it is relevant to refer to the order of the Hon’ble SAT in Radar Securities Ltd Vs SEBI (Appeal No.22/2003 Order dated 30th May 2003) wherein the Hon’ble SAT in a similar case has held that when the stock broker had deposited margin money with the Stock Exchange and downloaded details of the same available on Exchanges’ computer it may be treated as effectively maintaining record of the margin deposit and failure to maintain information in book form cannot be considered as a grave violation of Regulation 17(1)(k) to warrant penalty. Hence, this too may not be viewed seriously.
In view of the above, it is not considered just, fair and proper to impose any penalty on the broker 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. “
ORDER
Having regard to the factors contained in Section 15J of SEBI Act, 1992, facts and circumstances of the case, the submissions made, it would not be just , fair and proper to impose any penalty on M/s Rama Securities Pvt Ltd, Member, CSE, under Chapter VIA of SEBI Act, 1992.
| Date: NOVEMBER 1, 2004 |
S V KRISHNA MOHAN |
| Place: Mumbai |
Adjudicating Officer |