Enquiry Order passed under Regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008, in respect of Unique Consulting & Trading Private Limited (Member of erstwhile Madras Stock Exchange)

WTM/SR/SEBI/ EFD-DRA2 /46/08/2017 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA S. RAMAN, WHOLE TIME MEMBER ORDER Under Regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008 in respect of M/s Unique Consulting & Trading Private Limited (Member of erstwhile Madras Stock Exchange - SEBI Registration No. INB0414522138 and INF041452138).

1. M/s Unique Consulting & Trading Private Limited (“Unique Consulting”) was registered with Securities and Exchange Board of India as a stock broker having SEBI Registration Nos. INB 041452138 and INF041452138 for Cash and F&O Segments respectively. Unique Consulting was a member of the erstwhile Madras Stock Exchange Limited (“MSE”). The Directors of Unique Consulting are Mr P. Shanmuga Ganesan (Promoter/Managing Director) Mr. K. Mathan Kumar (Promoter/Director), Ms U. Indira and Ms. Janet Jenetha.

2. Securities and Exchange Board of India(‘SEBI”) observed the following during an inspection of MSE in the year 2014: i. MSE received several complaints against M/s Unique Consulting and its Managing Director, Mr. P. Shanmuga Ganesan from some of its clients and other general investors alleging, inter alia, collection of deposits from them on the promise of assured returns, non-delivery of securities, non-pay out of funds for the concluded transactions. ii. The complainants also alleged that Mr. P. Shanmuga Ganesan had been absconding. iii. Pursuant to these complaints against Unique Consulting, MSE deactivated the trading terminal of Unique Consulting and blocked the Demat Client Beneficiary account of Unique Consulting maintained with MSE. iv. MSE undertook inquiry into the complaints and also undertook physical verification of the office of Unique Consulting. Pursuant to these, MSE suspended Unique Consulting from trading, and issued a public notice to this effect to caution the general public to not to deal with it.

3. Subsequently upon preliminary inquiry by SEBI, it was observed that Unique Consulting by misusing the certificate of registration granted to act as a Stock broker solicited its clients and general investors to entrust their funds and securities to it and also offered portfolio management and advisory services without obtaining the certificate of registration from SEBI to function as a Portfolio Manager. Further, Unique Consulting indulged in fund based activities involving personal financial liability and collected deposits from clients and general public in a fraudulent and deceitful manner by misrepresentation.

4. As the aforesaid activities of Unique Consulting were prima facie in violation of provisions of Securities and Exchange Board of India Act, 1992 ("SEBI Act"), Securities Contracts (Regulation) Rules, 1957 ("SCRR"), the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 ("Brokers Regulations"), the SEBI (Portfolio Managers) Regulations, 1993 (“PMS Regulations”) and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (“PFUTP Regulations”), SEBI passed an ad interim ex-parte order dated April 21, 2014 with the following directions: i. “restrain Unique Consulting (SEBI Stock Broker Registration No. INB041452138, and INF041452138) and its promoters/directors from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner; ii. direct Unique Consulting and its promoters/directors to cease and desist from undertaking the portfolio management activities or any unregistered activity in the securities market, directly or indirectly, in any manner whatsoever; iii. direct Unique Consulting and its promoter/directors to immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to the portfolio management activities or any unregistered activity in the securities market; iv. prohibit Unique Consulting and its promoters/directors from mobilizing funds from its clients or other general investors or offering any portfolio management activities, in whatever form.”

5. Thereafter, SEBI initiated proceedings against Unique Consulting under the SEBI (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”) and appointed a Designated Authority (“DA”) to inquire into the contravention of provisions of SEBI Act, SCRR, Broker Regulations, PMS Regulations and PFUTP Regulations by Unique Consulting.

6. The DA after considering the abovementioned allegations and the material available on record, vide Report dated April 23, 2015, in terms of Regulation 27 of the Intermediaries Regulations, recommended cancellation of the Certificate of Registration of Unique Consulting.

7. Thereafter, a Show Cause Notice (“SCN”) dated May 05, 2016 enclosing therewith the Report was sent to Unique Consulting (hereinafter referred to as “the Noticee”) advising it to show cause as to why appropriate penalty including the penalty recommended by the DA should not be imposed on it. The SCN sent through Speed Post with acknowledgment due to the Noticee was returned undelivered with the remark ‘no such addressee’. Thereafter, an opportunity of personal hearing before me was granted to the Noticee on June 15, 2017. It is noted that the hearing notice in the matter was served through publication in the newspapers viz., ‘The New Indian Express’ (English daily) and ‘Dinakaran’ (Tamil daily) Tirunelveli Edition Tamil Nadu, near to the last known address of the Noticee. Despite the same, neither the Noticee nor its authorized representative attended the personal hearing. The Noticee has also not filed any reply/written submissions till date.

8. Considering that no communication has been received from the Noticee and also considering the fact that the Noticee failed to avail the opportunity of personal hearing, I am of the view that the Noticee is deliberately avoiding the communication from SEBI and has also failed to co-operate with SEBI. In view of the same, I am constrained to proceed in this matter on the basis of the material available on record.

9. The issues that arise for consideration in the present case is whether the Noticee violated Section 12 of the SEBI Act, read with Regulation 3 of Portfolio Regulations, Rule 8 (3) (f) of the SCRR, Clause (5) of Code of Conduct prescribed for Stock Brokers in Schedule II read with Regulation 9 of the Brokers Regulations read with Section 12 A (a), (b) and (c) of the SEBI Act and Regulation 3 (b), (c), (d),4 (1) and 4 (2) (k) of the PFUTP Regulations.

10. Before dealing with the charges levelled against the Noticees, the relevant legal provisions, the contravention of which have been alleged in the instant case are reproduced hereunder:- SCRR "8. The rules relating to admission of members of a stock exchange seeking recognition shall inter alia provide that :

(3) No person who is a member at the time of application for recognition or subsequently admitted as a member shall continue as such if— ... (f) he engages either as principal or employee in any business other than that of securities or commodity derivatives except as a broker or agent not involving any personal financial liability, provided that— (i) the governing body may, for reasons, to be recorded in writing, permit a member to engage himself as principal or employee in any such business, if the member in question ceases to carry on business on the stock exchange either as an individual or as a partner in a firm, (ii) in the case of those members who were under the rules in force at the time of such application permitted to engage in any such business and were actually so engaged on the date of such application, a period of three years from the date of the grant of recognition shall be allowed for severing their connection with any such business, (iii) nothing herein shall affect members of a recognised stock exchange which are corporations, bodies corporate, companies or institutions referred to in items (a) to (k) of the proviso to sub-rule (4)."

SEBI Act Registration of stock brokers, sub-brokers, share transfer agents, etc. "12. (1) No stock broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market shall buy, sell or deal in securities except under, and in accordance with, the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act: Provided that a person buying or selling securities or otherwise dealing with the securities market as a stock broker, sub-broker, share transfer agent, banker to an issue, trustee of trust deed, registrar to an issue, merchant banker, underwriter, portfolio manager, investment adviser and such other intermediary who may be associated with securities market immediately before the establishment of the Board for which no registration certificate was necessary prior to such establishment, may continue to do so for a period of three months from such establishment or, if he has made an application for such registration within the said period of three months, till the disposal of such application: Provided further that any certificate of registration, obtained immediately before the commencement of the Securities Laws (Amendment) Act, 1995, shall be deemed to have been obtained from the Board in accordance with the regulations providing for such registration."

SEBI (Portfolio Managers) Regulations, 1993 REGISTRATION OF PORTFOLIO MANAGERS "3. Registration as portfolio manager. ─ No person shall act as portfolio manager unless he holds a certificate granted by the Board under these regulations: Provided that a merchant banker acting as a portfolio manager immediately before commencement of the Securities and Exchange Board of India (Portfolio Managers) (Second Amendment) Regulations, 2006 may continue to do so for a period of six months from such commencement or, if he has made an application for registration under these regulations within the said period of six months, till the disposal of such application." Broker Regulations “Conditions of registration. 9. Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely,- (a) ..................... (b) he shall abide by the rules, regulations and bye-laws of the stock exchange which are applicable to him; (e) he shall take adequate steps for redressal of grievances, of the investors within one month of the date of receipt of the complaint and inform the Board as and when required by the Board; (f) he shall at all times abide by the Code of Conduct as specified in Schedule II; and ..........................................” SCHEDULE II CODE OF CONDUCT FOR STOCK BROKERS “A General (5) Compliance with Statutory requirements: A Stock broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchanges from time to time as may be applicable to him.” Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.

" 12 A. No person shall directly or indirectly – (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made there under; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognized stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognized stock exchange, in contravention of the provisions of this Act or the rules or the regulations made there under." PFUTP Regulations "3. Prohibition of certain dealings in securities No person shall directly or indirectly— (b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of the Act or the rules or the regulations made there under; (c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange; (d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there under."

"4. Prohibition of manipulative, fraudulent and unfair trade practices (1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade practice in securities. (2) Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely:— (k) an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors."

11. I shall now proceed to deal with the charges alleged against the Noticee. On an examination of the material available on record such as complaints of investors along with documents furnished by them, the Report of DA dated April 23, 2015 and the SCN, etc., I note the following:

11.1 It is alleged that the Noticee closed its office without intimation to clients and stock exchange.  I note that the clients of the Noticee had complained to the investor service centre of MSE about the Noticee having collected funds from them and that the office (of the Noticee) was closed for some time. The details of some of the complaints received against the Noticee are as under:

Sr Client Name Nature of Complaint 1 S. Thangavelu Non-transfer of shares bought on account of the client 2 K. Thirumalai, Sale of 500 - shares of IOB - Non-receipt of sale proceeds 3 A. Pagam Piriyal Funds collected from the client assuring periodical returns 4 N. Asha Latha Funds collected from the client assuring periodical returns 5 N. Asha Latha 100 - shares of Punjab & Sind Bank of the client, sold without her concurrence 6 C. Prabhakaran Funds collected from the client assuring periodical returns 7 S. Subramanian Shares sold without the concurrence and knowledge of the client-sale proceeds not paid to the client

 MSE had deactivated the membership of the Noticee on December 20, 2012, for closure of the office of the Noticee without proper intimation to its clients and the stock exchange. MSE issued the SCN dated December 20, 2012 to Unique Consulting. However, there was no response to the same. MSE also conducted a physical verification of the availability of the office and the Directors of Unique on December 27, 2012 and during the visit it could not trace or locate the Directors of the Noticee.

11.2 It is alleged that the Noticee indulged in unauthorised collection of funds from the clients/members of public by making false promises:  I note that the Managing Director, Shri. P. Shanmuga Ganesan is alleged to have raised funds from members of public, illegally promising them huge regular assured returns. Additionally, some of the funds so raised were in the form of cash. Though the directors were not traceable by MSE, it is found that in response to the query of MSE made vide their e-mail dated December 25, 2012, the Managing Director of the Noticee had responded by an e-mail i.e., 20unique11@gmail.com on January 02, 2013, admitting collection of monies from the public. 11.3 It is alleged that the Noticee failed to (i) issue Contract Notes to the clients and (ii) Credit the shares to the Demat Accounts of the clients against the amounts deposited:  I note that Shri P. Shanmuga Ganesan had issued Deposit Certificates acknowledging the sum collected from the clients/ investors. The said Deposit Certificates were issued in the name of Unique Consulting and also displayed SEBI registration number. However, the complainants in their complaints stated that they neither received any contract notes nor any shares. In view of this, MSE suspended Unique Consulting from trading on December 31, 2012. MSE also issued a public notice on January 30, 2013 cautioning the general public not to deal with the Noticee in addition to seeking filings of claims from the existing clients and also the general public.

11.4 It is alleged that the Noticee misused its status as a SEBI registered intermediary and indulged in illegal activities:

 From the copies of deposit certificates issued by the Noticee it is noted that funds amounting to Rs.53.25 lakhs was collected from 21 entities (clients/general public) under different schemes. The details of the same are as under: Payment Amount Sl. No. Client Code Client Name Plan & term Date (in Rs.) Short term (3 Months) 03/10/2012 100000 Short term (3 Months) 04/10/2012 100000 PMS/Monthly 24/09/2012 100000 PMS/Monthly 10/08/2012 100000 Carat 1 269TVL0137 Short term (3 Months) 08/06/2012 100000 Prabhakaran K PMS/Monthly 13/07/2012 100000 Short term (3 Months) 21/05/2012 100000 Short term (3 Months) 10/08/2012 100000 PMS/Monthly 17/09/2012 100000 PMS/Monthly 03/10/2012 100000 269TVL0007 Bala Subramanian M Short term (3 Months) 26/05/2012 50000 2 Short term (3 Months) 03/07/2012 100000 269TVL0019 Veera Lakshmi B Short term (3 Months) 27/06/2012 50000 3 Short term (3 Months) 25/06/2012 50000 4 269TVL0096 Augustin PMS/Monthly 05/10/2012 200000 Arputharaj G PMS/Monthly 06/08/2012 200000 5 269TVLO118 Mrudula R S PMS/Monthly 09/06/2012 500000 6 269TVL0043 Lakshmanan K Short term (3 Months) 30/05/2012 50000 7 269TVL0123 Krishnaveni K Short term (3 Months) 16/05/2012 50000 8 269TVL0095 Subramanian S PMS/Monthly 03/10/2012 50000 9 269ADR0006 Pavithra K Short term (3 Months) 21/05/2012 100000 10 269ADR0008 Poothamani R Short term (3 Months) 25/09/2012 100000 11 269ADR0020 Ramasundaram E Short term (3 Months) 05/06/2012 50000 12 269TVL0012 Rama Nathan L Short term (3 Months) 08/09/2012 50000 13 269TVL0046 William Thomas T S PMS/Monthly 18/06/2013 100000 14 269TVL0103 Dharmaraj Jacob S PMS/Monthly 14/08/2012 725000 15 269TVL0032 Vijayalakshmi R Short term (3 Months) 04/05/2012 50000 16 269TVL0091 Uma M PMS/Monthly 08/05/2012 700000 17 269TVL0002 Nataraj S Short term (3 Months) 05/11/2012 50000 18 269TVL0051 Senthil Kumar K PMS/Monthly 21/06/2012 500000 19 269ADR0021 Vijayan K S V Short term (3 Months) 27/07/2012 400000 20 269TVL0025 Esakki A Short term (3 Months) 10/06/2012 50000 Short term (3 Months) 28/05/2012 50000 21 269TVL0034 Krishnan L Short term (3 Months) 26/04/2012 50000 Short term (3 Months) 26/05/2012 50000 Total 5325000

 I also note that considering the alleged irregularities committed by the Noticee, the Board of MSE had referred the matter to their Disciplinary Action Committee (DAC), which summoned all the four directors of the Noticee to appear before it on October 08, 2013. It is noted that only two of the directors viz., Shri K. Mathan Kumar and Ms. Janet Jenetha appeared before the DAC, while the other two directors viz. Shri P. Shanmuga Ganesan and Ms. U. Indira neither appeared before the DAC nor responded to the summons in any manner. It was stated by two complainants before DAC that the MD had conveyed to the investors, at the time of collection of deposits that the Deposit Certificates had to be received from SEBI and further it would take about 10 days to handover the certificates to the investors once it is received from SEBI.  The DAC of MSE had concluded that the explanations offered by Shri K. Mathan Kumar and Ms. Janet Jenetha did not add any merit to the allegations against Unique Consulting and since, Shri P. Shanmuga Ganesan and Ms. U. Indira did not respond in any manner, the DAC recommended expulsion of the membership of Unique Consulting from MSE w.e.f. October 08, 2013.  MSE also issued a circular dated October 11, 2013, to all its members as well as a public notice in all the leading dailies vide Notice dated October 23, 2013, notifying the said expulsion.  Further, MSE filed a formal complaint against the Noticee with the Superintendent of Police, Economic Offences (financial Institutions), Chennai for criminal intent and deceit. Considering the above and in the absence of any reply from the Noticee, I find that Unique Consulting had deceived the public by misusing its status as a SEBI registered intermediary.

11.5 It is alleged that the Noticee did not disclose its Bank Account with ICICI bank to the stock exchange:  During the physical verification of the office of the Noticee, MSE detected the existence of Bank account of the Noticee with ICICI Bank. I note from the report filed by MSE that the Noticee failed to disclose the bank account details to MSE. MSE also reported that upon enquiry with the branch manager of ICICI Bank it was noted that no high value transactions were executed in the said account.

11.6 It is alleged that the Noticee was holding the scrips in the Client-Beneficiary account to generate high turnover and to earn Brokerage:

 I note from the client wise holding statement as on December 24, 2012 obtained from MSE that for 28 clients, their scrips are held by Unique Consulting in the Client-Beneficiary account.  As per the data provided by MSE, Unique Consulting had a turnover of Rs.68.88 Crores and earned a brokerage of Rs.4.03 Lakh until the Noticee was suspended on December 20, 2012.

 From the complaints of the clients of the Noticee and also from the report of MSE it is noted that the Noticee purchased shares on behalf of some of its retail clients and that shares are lying in its demat account with depository participant CDSL. Such shares are required to be transferred to the clients who bought the shares. However, I note that the Noticee has held the shares in the Client-Beneficiary account.

11.7 It is alleged that the Noticee acted as an unauthorised Portfolio Manager:  I note that the Noticee solicited its clients and general investors to entrust their funds and securities to it and offered portfolio management and advisory services without having any valid certificate of registration issued by SEBI. The Noticee misused its status as SEBI registered intermediary and collected money through misrepresentation and allurement of high returns. In view of the aforesaid, I note that the Noticee misled the investors by making them believe that it was authorized to do the activities as described above as a portfolio manager by misusing the SEBI registration, which it had obtained to act as a stock broker. Hence, I find that the charges against the Noticee that it acted as unregistered portfolio manager in violation of Section 12(1) of SEBI Act read with Regulations 3 of the PMS Regulations, 1993 stands established.

11.8 Further, the Noticee’s fund mobilization gives rise to pecuniary liability towards those from whom the money has been collected as detailed in paragraph 11.4 of this order, which it cannot undertake, being a member of a recognized stock exchange and SEBI registered stock broker, in view of the prohibitions contained in Rule 8(3)(f) of SCRR.

As per Rule 8 (3) (f) of SCRR, a member of the Stock Exchange is prohibited from engaging in any business other than that of securities or commodity derivatives except as a broker or agent not involving any personal financial liability. In view of the same, I find that the Noticee by undertaking the above activities violated the Rule 8(3)(f) of SCRR.

12. From the abovementioned observations and facts and circumstances of the case, I am convinced that the Noticee being a registered stock broker has not maintained the high standards of integrity and fairness required in the conduct of its business. The Noticee has failed to exercise due diligence and proper care and to fulfil its obligations in a prompt, ethical and professional manner. By doing so the Noticee has violated Clause (5) of the Code of Conduct prescribed for stock brokers in Schedule II read with Regulation 9 of the Brokers Regulations. By raising funds beyond authority and adopting fraudulent means, the Noticee has in fact not adhered to the standards of the integrity expected from an intermediary in the securities market. By doing so, the Noticee also acted in fraudulent and deceitful manner which attracts prohibitions enshrined in Sections 12A (a), (b) and (c) of the SEBI Act and Regulations 3 (b), (c), (d),4(1) and 4(2) (k) of the PFUTP Regulations.

13. In view of the foregoing, I agree with the findings of the DA that the Noticee has indeed violated Section 12 of the SEBI Act, read with Regulation 3 of Portfolio Regulations, Rule 8 (3) (f) of the SCRR, Clause (5) of Code of Conduct prescribed for Stock Brokers in Schedule II read with Regulation 9 of the Brokers Regulations read with Section 12 A (a), (b) and (c) of the SEBI Act and Regulations 3 (b), (c), (d), 4 (1) and 4 (2) (k) of the PFUTP Regulations.

14. It is also noted that the Noticee has failed to respond to the SCN issued to it as part of this enquiry. Such an attitude of an intermediary cannot just be accepted. In view of the foregoing and considering the interests of the investors, I find that the action as recommended by the Designated Authority vide Report dated April 23, 2015 is commensurate with the defaults, non-compliances, contraventions and violations committed by the Noticee.

15. It is also noted that the Noticee was a stock broker of erstwhile Madras Stock Exchange. Vide SEBI’s Order dated May 14, 2015, Madras Stock Exchange exited in terms of Clause 8 of SEBI’s Exit Circular, 2012. Prior to exit, MSE had already suspended the Noticee and deactivated its trading terminal, frozen it’s demat account and also declared the Noticee as a ‘Defaulter’.

16. In view of the foregoing, I, in exercise of powers conferred under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008, hereby direct the cancellation of certificate of registration as a Stock Broker granted to M/s Unique Consulting & Trading Private Limited (SEBI Registration Nos. INB 041452138 and INF041452138).

17. The Show cause notice dated May 05, 2016 issued to the Noticee M/s Unique Consulting & Trading Private Limited is disposed of accordingly.

Place : Mumbai S. RAMAN Date : August 02, 2017 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA