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ADJUDICATION ORDER IN RESPECT OF SHREE YADUGIRI INVESTMENT – MEMBER, BgSE (SEBI REGN. NO. INB 080169014) UNDER SECTION 15 I OF THE SEBI ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES 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 Shree Yadugiri Investment (hereinafter referred to as ‘Member’) and pursuant to this, appointed me as Adjudicating Officer vide Order dated November 5, 2003 under Rule 3 of SEBI (Procedure for holding inquiry and imposing penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as ‘said rules’) to inquire into and adjudge under section 15 B and 15 F(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
1.0. SHOW CAUSE NOTICE AND REPLY
1.0.1 Accordingly, Show Cause Notice dated July 14, 2004 under Rule 4 (1) of the said rules was issued to the Member communicating the alleged charges levelled against them. 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 July 27, 2004.
1.0.4. PERSONAL HEARING
1.0.5. The personal hearing in the matter was fixed on 22nd November, 2004 and Shri K. Seetharam, Proprietor attended the hearing. The Member also submitted additional documents at the time of hearing.
1.0.6. 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 : Non-Maintenance of Client Database 2.0.2. It was observed by the inspection team that the client data base are incomplete and inadequate in as much as not containing the basic information such as name of the introducer, identity proof etc. Further, it has been also observed that the member is not maintaining the requisite agreement with the clients.
2.0.3. The above are in violation of SEBI Circular no. SMD/POLICY/OECG/1-97 dated 11th February 1997 and SEBI Circular no. SMD/POLICY/CIR/5-97 dated 11th April, 1997.
2.0.4. REPLY
2.0.5. During the course of proceedings the member mentioned that the reply which was submitted vide letter dated 27th July 2004 shall be taken into consideration and further submitted that “there were five observations made out by the inspection tam viz. M.T. Krishna Shankar, Jaishree R, Shailaja, Subramanian S.P., Chayya Shankar regarding missing particulars such as introducer’s details and identity proof. The necessary details were obtained and filled up and xerox copies of the same is enclosed herewith. I admit that we had not entered into agreement with any of our clients. However, henceforth I will trade with the clients only after entering into agreement with them”.
2.0.6. APPRECIATION OF EVIDENCE AND FINDING
2.0.7. In this regard, I have examined the registration forms submitted by the member with regard to the above mentioned clients. I also seen that the necessary details have been duly filled up.
2.0.8. However, I have seen that the member has failed to enter into agreement with these clients. According to the above mentioned circulars it is mandatory on the part of the member to into an agreement with the client. I have also observed that the flaws/irregularities found out by the inspection team in the client registration form have been duly rectified by the member subsequently. However, member has admittedly failed to rectifiy the irregularity of non-entering into an agreement with its clients subsequently (till the date of hearing before me).
2.0.9. At the time of hearing, the member has admitted that they had not entered into agreement with any of their clients.
2.0.10.In view of this, I am of the strong opinion that the member has grossly committed the violation and therefore there is no doubt in my mind to hold him guilty and impose for penalty under section 15B of the SEBI Act, 1992.
3.0. CHARGE : Non-delivery of shares to clients
3.0.1. It was observed by the Inspection Team that there were six examples in which there was a delay of transfer / retention of money by the member. The client codes in which such delay has occurred were as under:
3.0.2. Further, it has also been observed that there were a few instances of retention of huge credit balances of the clients for more than one month by the member. The names of the clients are as under:
3.0.3. Thus, the member has violated SEBI Circular no. SMD/Policy/Circular-11/97 dated May 7, 1999 read with Circular no. SMD/SED/CIR/93/23321 dated 18/11/1993 as per which deliveries shall be given within two working days of the payout.
3.0.4. APPRECIATION OF EVIDENCE AND FINDING
3.0.5. During the course of proceedings, the member has submitted that all the 6 incidents as pointed out by the inspection team of SEBI were related to non-delivery of scrips. The client wise explanation is as under:
3.0.6. According to first two client codes, there was a delay on our part for non delivery of scrips. Regarding S001, there was a delay on our part for non delivery of scrips since in between there were holidays and for the rest codes i.e. G007, N002, and P003 at that point of time they had not opened demat accounts. Subsequently, we have transferred all the deliveries to the respective accounts.
3.0.7. Regarding Mrs Vidya, I would like to submit that a Xerox copy of the letter dated August 25, 2004 is being enclosed. Regarding Chaya Shankar, these were family accounts and running in nature, a credit balance in a particular account was being offset against a debit balance. The family accounts were Shri Chaya Shankar, Krishna Shankar and Indu Shankar. A letter from Shri Chaya Shankar dated 20.8.04 is being enclosed.
3.0.8. In this regard, I accept the submissions made by the member as far as client no. 3, 4, 5 and 6 are concerned i.e. client codes S001, G007, N002, P003. However, it is admitted position that regarding the first two clients bearing client code nos. J008 and D003 the member has retained the delivery of the scrip beyond the specific of time limit i.e. 48 hours as mentioned in the above said circulars.
3.0.9. In view of the above admission of the member I do not have any hesitation to hold him guilty and impose penalty under section 15 F(b) of SEBI Act, 1992.
4.0. CONCLUSION
4.0.1. In order to adjudge the quantum of penalty, I have to consider the following factors as per the Section 15J of the SEBI Act, 1992 :
4.0.2. As regards the disproportionate gain or unfair advantage there are no quantifiable figures available with respect to the default observed on the part of the member. There are also no figures or data to quantify the amount of loss caused to an investor or group of investors as a result of the default.
5.0. ORDER
5.0.1. The submissions of the member have been considered and dealt in detail as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under sections 15 B and 15F(b) of the SEBI Act, 1992. In view of the same and in exercise of the powers conferred under section 15-I (2) of the SEBI Act, 1992, read with, Rule 5 of the said Rules, I hereby impose a penalty of Rs.50,000/- (Rupees Fifty Thousand Only) on the member. The member shall pay this amount of penalty of Rs.50,000/- 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.
5.0.2. The said demand draft should be forwarded to the Chief General Manager of SEBI, MIRS Department (DPS - I) at SEBI, World Trade Centre, 29th Floor, Cuffe Parade, Mumbai 400 005.
SANDEEP P. DEORE ADJUDICATING OFFICER |