Confirmatory Order in the matter of M/s Unickon Securities Private Limited

1. Vide an ex-parte ad interim order dated May 26, 2014 (hereinafter referred to as the 'interim order') Securities and Exchange Board of India (SEBI) had, inter alia, prohibited Unickon Securities Private Limited (hereinafter referred to as 'USPL'), and its directors namely, Mr. Gajendra Nagpal and Mr. Ram Mohan Gupta (hereinafter collectively referred to as ‘the noticees’ and individually by their respective names) from accessing the securities market and further prohibited them from buying, selling or dealing in securities market, either directly or indirectly or being associated with the securities market in any manner whatsoever, with immediate effect, till further directions; and also to cease and desist from the activities related to the securities market. These entities were also advised to file their objections, if any, within twenty one (21) days from the date of the said order and avail of an opportunity of personal hearing, if they so desire. 2. Vide letter dated June 16, 2014, Mr. Ram Mohan Gupta filed replies on behalf of USPL and himself. Mr. Gajendra Nagpal filed his replies vide letters dated June 12, 2014, June 24, 2014 and October 11, 2014. An opportunity of personal hearing was also granted to the noticees on November 20, 2014 as per their request. On the date scheduled for the hearing, Mr. Gajendra Nagpal was represented by Mr. Abhik Kumar, Advocate and himself while Mr. Ram Mohan Gupta appeared on behalf of USPL and himself. The submissions of the noticees are summarized below:- A. Mr. Gajendra Nagpal: (i) The complaints from investors were received from January 2014 onwards whereas Mr. Gajendra Nagpal had resigned from the board of USPL on September 06, 2013 and had

Order in the matter of Unickon Securities Private Limited informed SEBI, National Stock Exchange of India Ltd. (NSE), and BSE Limited (BSE) in this regard through his letters dated February 14, 2014. (He has relied upon postal records to support his claims). He did not receive any further communication from any regulator pursuant to his intimation of resignation. However, USPL did not inform the Registrar of Companies regarding his resignation from USPL. (ii) As Mr. Gajendra Nagpal had tendered his resignation on September 06, 2013, and the same was accepted as well by USPL on the same date and as such he ceased to be the director of USPL. He was, therefore, unaware of the on-site inspection by SEBI, NSE, BSE and CDSL and as such cannot be held guilty for non-co-operation with the regulators for not providing the requisite information during the inspections. (iii) Mr. Gajendra Nagpal had entered into a Settlement Agreement with Mr. Ram Mohan Gupta and Share Purchase Agreement with Mr. Ram Mohan Gupta and USPL. As per the terms and conditions stipulated under the said agreements, Mr. Ram Mohan Gupta had taken over USPL on 'as is where is' basis.

In view of the same, Mr. Gajendra Nagpal should not be held liable for the complaints arising from January 2014 onwards. (iv) There were no complaints during the time Mr. Gajendra Nagpal was the director of USPL. All the complaints being referred to in the interim order therefore should be attributed to the time period post his resignation. B. USPL and Mr. Ram Mohan Gupta: (i) Mr. Ram Mohan Gupta was based in Mumbai from October 01, 2006 till April 30, 2013 during which he was handling Sales and Marketing for Equity and Commodity for both USPL and Unickon Commodities Pvt. Ltd. (ii) In May 2012, some shareholders of Unickon group issued a legal notice informing/ accusing directors for mismanagement of books of accounts in the entire group. (iii) Mr. Gajendra Nagpal was the person in control of the day to day affairs of USPL. Mr. Gajendra Nagpal also controlled and managed a company named i360 Staffing and Training Solutions Pvt. Ltd. (hereinafter referred to as “i360”) which was incorporated in August 2012. (iv) As per the KPMG audit report of August 2012 for the years 2009-10 and 2010-11, i360 owed an amount of around `19.5 crores approximately to Unickon group of companies.

(v) In December 2012, the shareholders served another legal notice upon the entire group including Mr. Ram Mohan Gupta, Mr. Gajendra Nagpal, and CFO Mr. Vikas Mallan. (vi) Subsequent to the resignation of Mr. Vikas Mallan in April 2012, it was discovered that during the month of December 2011 he had taken an amount of `50 to 60 lacs from the accounts of USPL. This withdrawal of funds was approved later on as incentive by Mr. Gajendra Nagpal. (vii) Mr. Ram Mohan Gupta had made repetitive attempts to seek the retrieval of books of accounts for understanding the gravity of the allegations by the shareholders. However, he was denied access quoting that this required prior approval of Mr. Gajendra Nagpal. (viii) Subsequently, a Settlement Agreement between Mr. Ram Mohan Gupta and Mr. Gajendra Nagpal and a Share Purchase Agreement between Mr. Ram Mohan Gupta and Mr. Gajendra Nagpal and USPL was entered into in September 2013 in terms of which Mr. Ram Mohan Gupta was able to gain access to the accounts of USPL. (ix) On examination of these, Mr. Ram Mohan Gupta noticed that many expenses shown in the accounts of the company were fake and false invoices had been created indicating the purchase of laptops /computers.

Several invoices had been raised in the name of non-existent companies. (x) Money had also been siphoned off in the name of monthly conveyance expenses to the employees which were never paid to them. (xi) Also, prior approval for change in management was not taken from SEBI or any other regulatory authority or exchanges. (xii) Upon examination, it was also found prior to taking over in September, 2013 that USPL had not done settlement for funds and stocks of the client accounts for approximately last 05-06 quarters accounts within one working day. (xiii) The present difficulties and failures of USPL are on account of the above mentioned irregularities by Mr. Gajendra Nagpal. Hence, Mr. Ram Mohan Gupta should not be held responsible for the siphoning off of the client's money/shares from USPL. 3. I have carefully considered the allegations/ charges against the noticees, their replies and relevant material available on record. In the instant case, it is observed that the directions issued vide ad interim ex-parte order against the noticees were interim in nature and were issued on the basis of prima facie findings.

I note that the investigation in the matter is still in progress. Therefore, the limited issue to be considered at this stage is pending completion of investigation whether the ad-interim ex-parte directions issued vide the interim order dated May 26, 2014 needs to be continued, revoked or modified in any manner, in so far as it relates to the noticees herein. 4. I note that the interim order was passed against the noticees based on the prima facie findings that: (a) the noticees have failed to furnish the complete information to SEBI during the inspection; (b) USPL also failed to submit the internal audit report for the half year ending September 2013 onwards to NSE and BSE and a large number of investor complaints were pending against USPL for “non-receipt/delay in payment of funds and securities”; (c) the noticees have raised funds by pledging the securities of its clients/investors illegally and these were subsequently diverted to the other businesses of the noticees. 5. Pursuant to the directions in the interim order, the demat accounts of USPL which included the client beneficiary account containing the securities of the clients of USPL were frozen by the depositories.

6. I have perused the replies/submissions of the noticees and note that none of the noticees have disputed the allegations/charges levelled in the interim order. Evidently, there are two groups amongst the noticees. While USPL and Mr. Ram Mohan Gupta constitute one group, Mr. Gajendra Nagpal constitutes the other. I note that each group of the noticees has tried to put the blame for the lapses/violations on the other group. The extent of the role of Mr. Gajendra Nagpal and Mr. Ram Mohan Gupta in non-receipt/delay in payment of funds and securities and also siphoning off the clients’ dues from USPL to other related entities is yet to be ascertained distinctly. Further, it has also not been clearly brought out as to which period the complaints against USPL pertain to, i.e., prior to the settlement and share purchase agreement entered between Mr. Gajendra Nagpal and Mr. Ram Mohan Gupta and USPL or post. These facts require independent examination.

7. I note that the investigation in the matter is still in progress and the findings thereof would reveal the specific role of the entities in the dealings of USPL. I note that the directions issued vide the interim order are interim in nature and were issued on the basis of prima facie observations. I, therefore, am of the view that pending completion of investigation in the matter, it would not be appropriate to give any conclusive findings as to any fact or submissions made by the entities. I, therefore, am not inclined to agree with these contention of the noticees. 8. The activities of the noticees were found to be prima facie in violation of the provisions of the Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992, the Securities and Exchange Board of India Act, 1992 and circulars as mentioned in the interim order. I find that the noticees have not been able to show sufficient and plausible cause to draw any inference other than those drawn in the interim order with regard to their activities in the securities market. Further, the continuance of the noticees in the stock market will adversely affect the interest of the investors and will have long term impact on the integrity of the securities market.

In the light of above facts and circumstances, I, therefore, am of the considered view that no intervention is called for, at this stage, in either vacating the interim directions or modifying it in respect of the noticees herein. 9. In view of the foregoing, I, in exercise of the powers conferred upon me under section 19 of the Securities and Exchange Board of India Act, 1992 read with sections 11(1), 11(4) and 11B thereof, hereby confirm the directions issued in respect of Unickon Securities Private Limited (PAN: AAPFS5325P), Mr. Gajendra Nagpal (PAN: AADPN5511A) and Mr. Ram Mohan Gupta (PAN: AGDPG7175M) vide ex-parte ad interim order dated May 26, 2014. 10. It has also been brought to my notice that USPL had neither cooperated in the proceedings before the Investor Grievance Redressal Panel (IGRP)/Investor Grievance Redressal Committee (IGRC) of the stock exchanges for redressal of the investor complaints/grievances nor paid the claims decided in favour of the clients at IGRP/IGRC which were held for resolution of the investor complaints. Pursuant to this, the stock exchanges, viz. NSE and BSE initiated disciplinary proceedings against USPL under their respective bye-laws.

While NSE expelled USPL with effect from September 05, 2014, BSE expelled it and also declared it as a defaulter with effect from September 10, 2014. These stock exchanges also issued public notices inviting the claims of the investors within specified days (NSE: 90 days and BSE: 120 days from the dates of the respective notices issued by them). 11. NSE and BSE have informed SEBI that the value of estimated claim pending at these stock exchanges is much more than the deposit of USPL lying with these stock exchanges and that there are securities lying in the demat accounts of USPL which are frozen pursuant to the interim order and which could partially cover the shortfall of deposits of USPL at the stock exchanges. In view of these peculiar facts and circumstances, in a meeting held on October 17, 2014 with NSE and BSE, it was agreed that the securities lying with the depositories in the demat account of USPL should be transferred to the demat account of the Defaulter Committee of NSE maintained by the National Securities Clearing Corporation Ltd. (NSCCL) and utilized for the purpose of settlement of pending claims of the clients of USPL.

I am of the view that such approach would be in the interest of the investors whose claims are pending against USPL. 12. I, therefore, allow the utilization of the securities lying in the demat accounts of USPL (PAN: AAPFS5325P) with the depositories for settlement of the pending claims of the clients of USPL. NSE and BSE shall utilize such securities for settlement of the claims of the clients of USPL as per their respective by-laws and in co-ordination with each other. 13. This order is without prejudice to any enforcement action that SEBI may deem necessary against the aforesaid noticees in the matter, on completion of the investigation. 14. This Order shall continue to be in force till further directions.

Sd/-

DATE: MARCH 2nd, 2015 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA