MO/108/MIRSD/10/04
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
IN THE MATTER OF APPLICATION BY KHANDWALA SECURITIES LIMITED FOR CERTIFICATE OF REGISTRATION, AS AN UNDERWRITER.
1. Khandwala Securities Limited, a company having its registered office at Vikas Building, Green Street, Fort, Mumbai 400 023 (hereinafter referred to as ‘the applicant company’) submitted an application dated February 6, 2004, for grant of certificate of registration under Securities and Exchange Board of India (Underwriters) Regulations, 1993 (hereinafter referred to as ‘the said regulations’), for the purpose of carrying on activities as an Underwriter.
2. While considering the application, it was noted that :
2.1 4 enquiries were being conducted against the applicant under the provisions of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, in the following matters:
(i) Shree Rama Multi-Tech Limited;
(ii) Sunearth Ceramics Limited;
(iii) Silverline Technologies Limited and
(iv) DSQ Software Limited.
2.2 Adjudication proceedings had been initiated against the applicant in the matter of Shree Rama Multi-Tech Ltd., under the provisions of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995.
2.3 4 enquiries were being conducted against M/s Jayantilal Khandwala & Sons Pvt. Ltd. (the largest shareholder of the applicant and also “acting in concert” with the director of the applicant, Shri Paresh J. Khandwala), in the following cases:
(i) Shree Ram Multi-Tech Ltd;
(ii) Roofit Industries Ltd. and
(iii) DSQ Software Ltd.(two cases)
(iv) Further, after inspection, an enquiry was initiated by SEBI against M/s. Jayantilal Khandwala & Sons Private Limited, member, BSE.
2.3 Adjudication proceedings were also initiated against M/s Jayantilal Khandwala & Sons Pvt. Ltd. in the matter of Shree Rama Multi-Tech Ltd. in addition to the above proceedings.
2.4 2 enquiries were being conducted against M/s Prabhudas Lilladher Pvt. Ltd., second largest shareholder of the applicant, in the following matters:
(i) Sawaaca Communication Ltd. and
(ii) DSQ Software Ltd.
3. In view of the various enquiries and adjudication proceedings initiated against the applicant and its largest shareholders, SEBI issued a notice dated June 22, 2004, calling upon the applicant to show cause as to why its application for grant of certificate of registration as an Underwriter should not be rejected. Vide the said notice, the applicant was also advised to indicate if it wished to avail an opportunity of hearing before the competent authority. It was also informed that the applicant’s decision to avail the opportunity of hearing shall be intimated to SEBI within 15 days of receipt of the letter.
4. The applicant, vide its letter dated July 05, 2004, sought time to furnish a detailed reply to the notice. Subsequently, vide its letter dated July 09, 2004, the applicant submitted its reply to said show cause notice.
5. The applicant company was granted an opportunity for hearing before me on August 06, 2004. Shri Paresh Khandwala, Director of the applicant company and Shri Ajay Puri, a senior executive of the applicant (Head-Merchant Banking) appeared before me as representatives of the applicant company and made submissions on behalf of the applicant company.
6. I have perused the application for renewal of certificate of registration submitted by the applicant, the material available on record, the replies of the applicant company dated July 09, 2004 & July 26, 2004 and the submissions made by the representatives of the applicant company during the personal hearing granted to the applicant.
7. The main contentions raised during the personal hearing and in the written submissions made by the applicant company are as follows:
(a) The applicant company has necessary infrastructure and experience and thus fulfills the required eligibility criteria prescribed under clauses (a) to (e) of regulation 6 of the said Regulations.
(b) The pending enquiries and adjudication proceedings cannot be a ground to view that it is not a fit and proper person to be granted the certificate of registration to do underwriting business. Further with regard to the enquiries and adjudication proceedings initiated against the two shareholders, the company is not responsible for the conduct of its shareholders.
(c) The applicant company’s track record as a member of NSE for over a decade, as well as that of a company listed on stock exchanges should be considered in totality, rather than making a conclusion on enquiries initiated against the applicant.
8. While considering the application of any entity for registration as an intermediary in the securities market, SEBI looks at several aspects of the applicant’s “personality” that would determine the suitability of the applicant towards being a responsible citizen of the securities market. Adequacy of necessary infrastructure and experience in the conduct of business are not the sole factors to be taken into account while considering the application for registration. In the instant case, I have noted that the enquiry and adjudication proceedings initiated against the applicant/related entities, as mentioned at para 2, are in progress. While I agree with the applicant’s submission that no guilt can be ascribed merely based on initiation of proceedings, I have noted that multiple proceedings are pending against the applicant/related entities, a fact that can not be ignored while deciding on grant of registration to the applicant. I have also observed that vide their letter dated July 09, 2004, the applicant company submitted that inadvertently certain mistakes were committed which were taken note of and that they had initiated remedial action to prevent their recurrence.
9. In view of the above and considering the nature of the enquiries and adjudication proceedings pending against the applicant and its major shareholders, I am of the view that granting registration to the applicant, as an underwriter, pending completion of the above mentioned proceedings, would not be in the interest of securities market.
10. Therefore, pursuant to the powers conferred upon me under Section 19 of Securities and Exchange Board of India Act, 1992, read with regulation 10 of SEBI (Underwriters) Regulations, 1993, I hereby reject the application submitted by M/s Khandwala Securities Ltd. seeking certificate of registration to act as an Underwriter.
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G A K BATRA
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Date: 11 October. 2004
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WHOLE TIME MEMBER |
| Place:MUMBAI |
SECURITIES AND EXCHANGE BOARD OF INDIA |