SECURITIES AND EXCHANGE BOARD OF INDIA 

 

ORDER

 

WTMO/27/MIRSD/3/04

 

1.0             Background

1.1       PM Pavithran (Trade Name: M/s Chaitra Associates and hereinafter referred to as “the said broker”) was a member of the Cochin Stock Exchange (hereinafter referred to as “CSE”).  The said broker was granted certificate of registration No.INB090281519.

 

1.2             The Securities and Exchange Board of India (hereinafter referred to as “SEBI”) was informed by CSE vide their letter dated 4.6.2003 that the said broker has been declared defaulter.

 

2.0       Summary Proceedings

2.1       In pursuance of the said letter, vide order dated 14.7.2003, an Enquiry Officer was appointed under Regulation 16(1) of the SEBI (Procedure for holding enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to as “the enquiry regulations”) to enquire into the contravention, if any, by the said broker of Regulation 25 of the SEBI (Stock Broker and Sub Broker) Regulations, 1992 (hereinafter referred to as “the broker regulations”) and Rule 4 of the SEBI(Stock Broker and Sub Broker) Rules, 1992 (hereinafter referred to as “the broker rules”).  The Enquiry Officer submitted his report to SEBI on 6.2.2004.

 

2.2             In his report, the Enquiry Officer has found that the said broker was declared by the CSE as a defaulter and that his membership card has been auctioned. In view of the above, the Enquiry Officer has found, the said broker has ceased to be a member of CSE vide Item No.38 (iv) of the Articles of Association of CSE.

 

2.3             The Enquiry Officer has also mentioned in his report that the show cause notice dated 15.10.2003 was issued to the said broker through the CSE by way of Registered Post ;but the same was returned to the Stock Exchange with the noting “not known”. 

 

2.4             The Enquiry Officer has also observed that the said broker having ceased to be a member of CSE having failed to satisfy one of the conditions subject to which registration was granted to him as a stock broker viz. that he should hold membership of a recognized stock exchange under Rule 4(a) of the broker rules and has therefore recommended that the certificate of registration granted to the said broker be cancelled.

 

3.0       Consideration of issues

3.1             I have considered the facts of the matter, the report of the Enquiry Officer and other material on record. The following issues arise for consideration :

 

3.1.1       Whether the said broker has violated one of the conditions subject to which registration has been granted to them as a stock broker.

 

3.1.1.1            I note that the said broker has been declared a defaulter by CSE w.e.f. 20.5.1994 and that he has not been readmitted.  I further note that as per item 38 (iv) of the Articles of Association of CSE, a member who has been declared as defaulter by the stock exchange shall cease to be a member of the exchange.

3.1.1.2            I note that Rule 4(a) of the broker rules provides that:

 

“Conditions for grant of certificate to stock broker

4.  The Board may grant a certificate to a stock broker subject to the following conditions, namely:-

(a)     he holds the membership of any stock exchange……”

 

3.1.1.3            In view of the above, I find that the said broker, having ceased to be a member of CSE has therefore failed to satisfy one of the conditions subject to which registration was granted to them as a stock broker.

 

3.1.2       Whether the certificates of registration granted to the said broker are liable to be cancelled.

 

3.1.2.1            I note that Regulation 25 of the SEBI (Stock Broker & Sub Broker) Regulations, 1992 provides that:

 

“Liability for action in case of default

25. A stock broker who –

(a)     fails to comply with any conditions subject to which registration has been granted,

(b)     contravenes any of the provisions of the Act, rules or regulations.

(c)      …

(d)     …

(e)     …

 

shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002.”

 

3.1.2.2            I note that sub regulation (1) of Regulation 13 of the enquiry regulations provides for imposition of major penalty of cancellation of certificate of registration and further sub-regulation (6) of the said regulation provides that major penalty may be issued only under circumstances prescribed therein one of which is that the intermediary is guilty of violations of the conditions of registration.

 

3.1.2.3            I further note that Regulation 15 (c) of the enquiry regulations provide that it shall not be necessary to hold an enquiry where the intermediary being a stock broker ceases to be a member of a recognized stock exchange or has been declared a defaulter in relation to transactions at such exchange.

 

3.1.2.4            I have already found in Para 3.1.1 that the said broker has ceased to be a member of NSE and that thereby they have violated one of the conditions of registration.  In view of the above, I find that a major penalty of cancellation of the certificate of registration is liable to be imposed on the said broker. 

 

4.0             Order

 

4.1       In the light of the findings mentioned above, I, in exercise of powers conferred on me under Section 19 read with Regulation 16(5) of the enquiry regulations, hereby cancel the certificate of registration No.INB090281519 granted to P M Pavithran; Trade Name: Chaithra Associates

 

This order shall come into effect  immediately.

 

Place: Mumbai Date: 08.03.04

T M Nagarajan Whole Time Member Securities and Exchange Board of India