ADJUDICATION ORDER IN RESPECT OF PAYAL SECURITIES, SUB-BROKER OF M/s SYKES AND RAY EQUITIES(I) LTD, – MEMBER NSE (SEBI REGN. NO. INS 230509817) 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 Payal Securities(hereinafter referred to as ‘Member’) and pursuant to irregularities found by Inspection Team, appointed me as Adjudicating Officer vide Order dated December 05, 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(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
- Delay in payment and Deliveries of Securities
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 Member. 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 August 10, 2004.
1.0.4. PERSONAL HEARING
1.0.5. The personal hearing in the matter was fixed on September 8, 2004 vide Notice dated September 1, 2004 and Shri Nanji M Dama, Proprietor, Payal Securities and Shri Pankaj Shah, Accountant, Payal Securities appeared before me and made submissions on behalf of the Member. They also submitted additional documents vide letter dated September 11, 2004 as mentioned 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
2.0.2. Non-Maintenance of Client Database
2.0.3. It was observed by the inspection team that on a random check basis, the member has been maintaining registration forms. However, agreements were not entered with the clients. Further, certain deficiencies were also observed in the maintenance of the registration forms, which are listed below :
· Photo of clients not there in registration forms in few cases.
· Dates are not mentioned in the registration forms in a few cases
· Financial details of clients not mentioned in the registration forms in a few cases.
· Proof of identity, introducers details etc not mentioned in a few cases.
2.0.4. REPLY
2.0.5. During the course of personal hearing the Member has submitted that he has already given a detailed reply vide letter dated 10/08/2004, which inter-alia, states that in a few cases of Know Your Client (KYC)Registration Forms, some details pertaining to clients have not been filled-up. Further, in some cases sub-broker-client agreements were not available at the time of inspection. We have since completed the required details from the concerned clients as required in the prescribed format. We also have the agreements with all our clients as required by SEBI.
2.0.6. We would like to invite to your attention to the letter bearing no. MIRSD/DPS-I/POST-INSP/24467/2003 dated 26/12/2003, issued by SEBI in which SEBI has advised us to rectify the irregularities and warned us not to repeat the same in future.
2.0.7. In view of the above, we respectfully submit that SEBI has already issued a warning to us and advised us to become appropriately compliant and thereafter immediately we have rectified all irregularities and continuing in adherence with SEBI Act, Rules, Regulations and Guidelines. We request you to drop the present proceedings against us.
2.0.8. APPRECIATION OF EVIDENCE AND FINDINGS
2.0.9. 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 duly incorporated and these forms are complete in all manners.
2.0.10. In this regard, I asked them to produce the forms in which irregularities were observed. Accordingly, vide letter dated 11th September, 2004 the member has submitted the forms of the following clients : -
· Tushar S. Bhanushali
· Surya Corporation
· Dhiren Jayantilal Shah
· Gala Corporation
· R R Corporation
· Ramesh Narshi Bhanushali
· D M Corporation
· Bhagwandas Shankarlal Bhanushali
· Nandu Financial Services
2.0.11. I have examined the submitted forms and found that the requisite columns with details of the clients were duly filled. Further, I have also examined the agreements entered by the member with the clients. It has been observed that these agreements were duly signed, dated by the member as well as clients.
In view of the above, I am of the opinion that the irregularities found by the inspection team have been duly rectified by the member.
3.0. CHARGE II
3.0.1. Delay in payment and Deliveries of Securities
3.0.2. The inspection team has found that there were some cases where delay in making payments and deliveries of securities to clients. This attracts violation of SEBI Circular no. SMD/Policy/Circular-11/97 dated May 21, 1997.
3.0.3. REPLY OF THE MEMBER
3.0.4. With regard to the delay in delivery of securities and funds we would like to state that the securities were retained by us on behalf of the clients on their specific instructions. Further, there is neither intentional delay nor procedural lapse on our part. We were always acting in accordance with the specific instructions received from our clients. Further, we have also received consent letters from all the clients to whom securities and funds payout has been delayed.
3.0.5. APPRECIATION OF EVIDENCE AND FINDINGS
3.0.6. Regarding the said issues, I have observed that the member has submitted the consent letters from Shri Tushar Bhanushali, Gala Corporation Ramesh Bhanushali, Bhagwandas Shankarlal Bhanushali, Nandu Financial Services, Raj Investments, Jayashri Bhanushali, Dhamriya Financial Services Ltd. and Surya Corporation.
3.0.7. I have gone through these letters which, inter-alia, states as under:
“I request you to kindly retain the deliveries of shares purchased by me and payments from shares sold by me with you since I will be trading regularly and this would be convenient for me. I would not hold you responsible for late deliveries of shares and / or for late payment”. In view of this, I inclined to accept the submissions made by the member.
4.0. CONCLUSION
4.0.1. In view of the above documentary proof given by the member, I am of the opinion that the irregularities have been duly rectified by the member and due to specific instructions from the clients the member has retained the delivery / payment of the securities. Further, I also observed from the letter no. MIRSD/DPS-I/POST-INSP/24467/2003 dated 26/12/2003 that SEBI has already warned the member to be cautious in the future and to be more diligent while dealing with their clients.
4.0.2. Further, the member has submitted that they will be cautious in future while trading in securities market as sub broker and ensure to see that all compliance will be made all times as per rules, regulations, guidelines and bye-laws of SEBI and stock exchanges respectively.
4.0.3. In view of the above, I consider that that it will be not just, fair and proper to impose any penalty on the member 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).
4.0.4. 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”.
5.0. ORDER
5.0.1. Having regard to the facts and circumstances of the case, the submissions made and the evidence produced by the member, it would not be just, fair and proper to impose any penalty on Payal Securities, Sub-Broker(SEBI Regn. No. INS 230509817) under sections 15B and 15F(b) of Chapter VIA of the SEBI Act, 1992.
| Date: NOVEMBER 19, 2004 |
SANDEEP P. DEORE |
| Place: Mumbai |
Adjudicating Officer |