Enquiry Proceedings Order - Grishma Securities Private Limited

WTM/SR/IVD/EFD/118/12/2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: S. RAMAN, WHOLE TIME MEMBER ORDER UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008. IN THE MATTER OF INITIAL PUBLIC OFFERING OF TIJARIA POLYPIPES LIMITED. IN RESPECT OF M/S GRISHMA SECURITIES PRIVATE LIMITED, STOCK BROKER [SEBI REGISTRATION NOS.: INB011127132 (BOMBAY STOCK EXCHANGE LIMITED)/INB231127136 (NATIONAL STOCK EXCHANGE OF INDIA LIMITED)].

Background –

1. Tijaria Polypipes Limited (hereinafter referred to as “TPL”), a company incorporated under the Companies Act, 1956, came out with an Initial Public Offering (hereinafter referred to as “IPO”) of 1,00,00,000 equity shares of a face value of ₹10 each, issued at a premium of ₹50 per equity share, wherein it raised ₹60 Crores to fund its proposed expansion and diversification plans. The aforesaid fixed price IPO which opened on September 27, 2011 and closed on September 29, 2011, was reportedly over-subscribed by 1.2 times. TPL allotted 71,64,406 shares in the retail individual investors category (constituting 71.64% of the total IPO shares) and 28,36,001 shares to the Qualified Institutional Buyers (hereinafter referred to as “QIBs”) (constituting 28.36% of the total IPO shares). The shares of TPL were listed on the Bombay Stock Exchange Limited (hereinafter referred to as “BSE”) and the National Stock Exchange of India Limited (hereinafter referred to as “NSE”).

2. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted a preliminary investigation in respect of trading in the scrip of TPL, upon observing a steep fall in the share price on the first day of listing i.e. October 14, 2011. The preliminary investigation prima facie revealed that on October 14, 2011, the share price of TPL in NSE, fell from the highest price of ₹67.75 per share to ₹16.50 per share while in BSE, it fell from the highest price of ₹67.80 per share to ₹16.05 per share. The preliminary investigation prima facie revealed that TPL, through layered transactions, diverted a substantial part of its IPO proceeds in order to offset losses sustained by certain entities/individuals, who allegedly purchased shares from retail allottees/QIBs in the IPO, at a premium to the issue price. The preliminary investigation prima facie also revealed that M/s Grishma Securities Private Limited (hereinafter individually referred to as “Grishma”) inter alia was the stock broker for Jivraj Zala (hereinafter referred to as “Zala”) and had facilitated trading by that entity.

3. In view of the prima facie observations made in the preliminary investigation, SEBI vide an ad– interim ex–parte Order dated December 28, 2011 (hereinafter referred to as “Interim Order”) inter alia prohibited Grishma and its Directors i.e. Shri Chandrika H. Gandhi, Shri Ketan C. Shah and Shri Chhabil C. Shah alongwith its CEO/Compliance Officer i.e. Shri Mihir Ghelani (hereinafter collectively referred to as “Grishma, its Directors and Compliance Officer”); Vimal Patel (hereinafter referred to as "Patel") and Vanraj Kahor (hereinafter referred to as "Kahor") from buying, selling or dealing in securities, in any manner whatsoever, till further orders for the prima facie violation of the provisions of the SEBI Act, 1992 (hereinafter referred to as “SEBI Act”) read with the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations, 2003”). The aforesaid Interim Order was subsequently confirmed as against Grishma, its Directors and Compliance Officer on November 5, 2012 (hereinafter referred to as “Confirmatory Order”).

4. Pursuant to the abovementioned Interim Order, SEBI conducted a detailed investigation regarding trading in TPL's IPO in order to examine the role of certain entities/individuals who traded in that scrip on the day of listing and immediately thereafter. On the basis of findings made in the aforesaid investigation, a Show Cause Notice (hereinafter referred to as “SCN”) dated November 30, 2012, was issued to Grishma, its Directors and Compliance Officer, Patel and Kahor under Sections 11(4) and 11B of the SEBI Act, calling upon them to show cause as to why appropriate action including restraining them from buying, selling or dealing in securities for a specified period should not be issued, for the violations alleged in the SCN. In addition, a supplementary SCN (hereinafter referred to as “Supplementary SCN”) dated January 11, 2013, was issued to Grishma, its Directors and Compliance Officer. The aforementioned SCN and Supplementary SCN were disposed of vide SEBI's Order dated July 31, 2013 (hereinafter referred to as “Final Order”), with the following directions against Grishma, its Directors and Compliance Officer – i. "Grishma is restrained from buying, selling or otherwise dealing in securities, in its proprietary account, directly or indirectly, for a period of five years.

I note that vide the Interim Order dated December 28, 2011, Grishma was restrained from accessing the securities market and prohibited from buying, selling or dealing in the securities market till further orders. In this context, I note that enquiry proceedings have been initiated against Grishma under the SEBI (Intermediaries) Regulations, 2008. The restraint imposed on Grishma vide the aforesaid Interim Order in respect of its stock broking business shall continue till the completion of the enquiry proceedings. The enquiry officer shall endeavour to submit the enquiry report to the Competent Authority as expeditiously as possible, without being influenced by the observations and findings in this order, in order to facilitate completion of the enquiry proceedings by passing of a final order by that Authority. ii. Shri Chandrika H. Gandhi, Shri Ketan C. Shah, Shri Chhabil C. Shah and Shri Mihir Ghelani are restrained from buying, selling or otherwise dealing in securities, directly or indirectly, for a period of five years. iii. Patel and Kahor are restrained from buying, selling or otherwise dealing in securities, directly or indirectly, for a period of five years."

5. Grishma, its Directors and Compliance Officer challenged the above-mentioned Final Order dated July 31, 2013, before the Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”), which vide Order dated October 28, 2013, in Appeal No. 151 of 2013, observed that:

“28. We have, therefore, no hesitation in holding that no discriminatory or arbitrary treatment is meted out to the appellants in passing the impugned order dated July 31, 2013 passed by the learned WTM and the same is hereby upheld. It is further held that various circulars issued by the SEBI from time to time have led to a well developed margining system in India. The collection of margins as a regulatory requirement prescribed by the SEBI is a pre-requisite. Its sanctity cannot be undermined by allowing the appellants to bypass such requirement of margin collection beforehand. Such an act puts the entire system at risk making it a systemic issue which may have serious repercussion on the capital market. Therefore, collection of margin as a risk management tool to cover for counter party risk is an integral part of the regulatory system conceived and implemented in practice by SEBI consistently. In fact, as per SEBI‟s approach in this regard, it is to be noted that the members should have a prudent system of risk management to protect even themselves from the client‟s default. Thus, a robust margin system prevents a Broker or even a stock exchange from taking huge positions without adequate collateral which may generate very high profit or loss. In fact, non–collection of margins at the client level by a Broker and/or its non–reporting, attracts heavy fines and penalties, as is stipulated by SEBI‟s circular dated August 10, 2011. No circular authorizes the use by a broker of funds and/or securities of clients to cover margin requirements of other clients. Such action is, in fact, prohibited. In fact, under Regulation 26(xiii) of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, a broker using securities of funds of a client for his own purpose or for the purpose of any other clients is liable for a monetary penalty. Therefore, the contention of the appellants in this regard that margin is their prerogative is misconceived and hence rejected. 29. …The appeal is bereft of any merit and the same is hereby dismissed.”

Enquiry Proceedings against Grishma –

6.1 During the intervening period, SEBI also initiated Enquiry Proceedings against Grishma, being a registered intermediary, in terms of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred to as “Intermediaries Regulations”), by appointing a Designated Authority (hereinafter referred to as “DA”) in respect thereof, vide Communication of Proceeding of Whole Time Member dated March 14, 2013. The DA issued a SCN dated August 6, 2013, which inter alia contained the relevant extracts of the Investigation Report. The DA enquired into the alleged violation of the following provisions of law, viz. – i. Section 12A(a), (b), (c) and (d) of the SEBI Act; ii. Section 23D of Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "SCRA"); iii. Regulations 3(a), (b), (c), 4(1), 4(2)(a), (d) and (p) of the PFUTP Regulations, 2003; iv. Regulations 26(xiii), 26(xvi), 27(xii), 27(xiv) and 27(xvi) of SEBI (Stock Brokers and Sub- Brokers) Regulations, 1992 (hereinafter referred to as "Stock Brokers Regulations"); v. Clauses A(1), A(2), A(3) and A(4) of the Code of Conduct for Stock Brokers under Schedule II read with Regulation 7 of the Stock Brokers Regulations.

6.2 For the violations as stated above, the DA, in his report dated April 30, 2014, found that Grishma had contravened the following provisions of law, viz. – i. Section 12A(a), (b), (c) and (d) of the SEBI Act; ii. Regulations 3(a), (b), (c), 4(1), 4(2)(a), (d) and (p) of the PFUTP Regulations, 2003; iii. Regulations 27(xii), 27(xiv) and 27(xvi) of the Stock Brokers Regulations; iv. Clauses A(1), A(2), A(3) and A(4) of the Code of Conduct for Stock Brokers under Schedule II read with Regulation 7 of the Stock Brokers Regulations.

6.3 In view of the above, the DA recommended that the Certificate of Registration (INB231127136) of Grishma at NSE may be suspended for a period of six months and Certificate of Registration of Grishma at BSE (INB011127132), may be suspended for a period of three months.

Post – Enquiry SCN dated September 23, 2014 –

7.1 After considering the Enquiry Report, post – enquiry SCN [under Regulation 28(1) of the Intermediaries Regulations] dated September 23, 2014, was issued to Grishma (enclosing therein a copy of the Enquiry Report), advising it to show cause as to why action as recommended by the DA or that of a higher nature should not be imposed on it, as deemed fit by the Competent Authority.

7.2 As per the post – enquiry SCN read with the Enquiry Report, Grishma was inter alia alleged to have – i. Manipulated the ledger of Zala to give an impression that some funds were available in his client account with Grishma, on the day of his trading; ii. Used the funds and securities of other clients for making the margin payments of Zala; iii. Used the funds of its Compliance Officer/CEO, Ghelani for making the margin payments of Zala; iv. Entered into synchronised trades on behalf of Zala; v. Permitted Zala, who had received funds to the extent of ₹3.8 Crores from TPL, to trade on the first day of listing in that company's scrip without collecting any funds from him towards margin amount payable to stock exchanges (despite the fact that such client did not have significant risk – taking capacity). On account of such trading by its client i.e. Zala, Grishma facilitated exit to the QIBs.

7.3 Grishma replied to the abovementioned SCN vide letter dated November 18, 2014.

7.4 Thereafter, an opportunity for personal hearing before the Designated Member (hereinafter referred to as “DM”) was granted to Grishma on December 3, 2014. Pursuant to the personal hearing, Grishma submitted additional written submissions to the SCN vide letter dated December 4, 2014. In its replies/written submissions and during the aforesaid hearing, Grishma inter alia made the following submissions – i. The restraint already undergone (vide SEBI's Order dated July 31, 2013) by Grishma of approximately one year and seven months was to be reduced from the period of restraint imposed by such order. It will therefore be seen that Grishma continues to be visited with debilitating restraints, which are disproportionate, excessive, and most importantly, not in aid of any pending investigations or proceedings – akin to keeping someone in custody without necessity for the same in any ongoing investigations or trial. ii. Grishma has been restrained from exercising their fundamental right to transact in the securities market since December 28, 2011. SEBI, now seeks to enhance the penalty to be imposed to one “of a higher nature” without providing any basis for proposing to deviate from the recommendations made by due process of the Enquiry Proceedings.

iii. Despite an express request made by Grishma, the DA did not even provide an opportunity of hearing vitiating these proceedings entirely. iv. Grishma has also not been provided with a full, fair and effective opportunity of inspection of documents and records. Vide letter dated November 22, 2013, Grishma sought certain documents and records which have not been provided and no response was forthcoming. v. There is no finding whatsoever in the Enquiry Report that Grishma acted as a front for Zala, as alleged repeatedly by SEBI in the Interim Order and the Order dated July 31, 2013. There is no reference in such Report that Grishma was either the “focal point” or the “catalyst”, a theme which was were freely used by SEBI by way of an ipse dixit in the Ex- Parte Order and the order of July 31, 2013, without any basis. It is therefore evident that the DA did not find any material to sustain the charge that Zala acted as a front of Grishma. Therefore, the only case against Grishma is that it had not complied with the margin requirements. It is respectfully submit that an alleged margin default can never justify such drastic, disproportionate restraints on Grishma. vi.

SEBI’s actions in the instant case in relation to what is essentially an alleged margin non-collection issue would be contrary to precedent and SEBI’s own stance in dealing with such matters. In support of this argument the case of Geojit BNP Paribas Financial Services Limited and Networth Stock Broking Limited is cited. vii. The Enquiry Report simply repeats the allegation that Grishma manipulated Zala’s client ledger on the basis that the date of receipt of funds is at variance with Grishma’s bank statements. The ledger account reflects the date of physical receipt of the cheque and not the date on which the underlying funds were credited in the account. viii. The recording of date of the receipt of the cheques is in accordance with the mercantile system of accounting. Further, this is also in accordance with circulars issued by SEBI. SEBI’s circular dated August 27, 2003, permits collection of margin amounts by cheque. SEBI Circular No. MRD/SE/Cir-33/2003/27/08 dated August 27, 2003, which inter-alia prohibits brokers from accepting cash “from clients whether against obligation or as margin for purchase of securities".

There is no obligation in law which requires a stock broker receiving margin payments by cheque to record only the actual date of credit of funds in the client ledger as the date of receipt of margins. ix. Grishma also referred to SEBI’s Circular No. MRD/DoP/SE/Cir-07/2005 SEBI dated February 23, 2005, titled “Comprehensive Risk Management Framework for the Cash Segment” allows brokers to decide the mode of collection of margin money, thereby also allowing brokers to follow a practice of collecting margin money by means of a post dated cheque. Further, Grishma also submitted that on October 13, 2011, a day prior to Zala’s trades in TPL shares, Grishma received 7 cheques for approximately ₹3.65 Crores and the date of receipt of the cheques was the date posted in the ledger. It is also not in dispute that these cheques were honored. x. It is alleged in the Enquiry Report that Grishma did not collect margin money i.e. the collateral collected in order to cover the risks associated with the trades, from Zala for the trades on October 14, 2011. As stated above, on October 13, 2011 i.e. one day prior to Zala’s trades in the shares of TPL, Grishma collected seven cheques, equivalent to approximately ₹3.65 Crores.

Grishma’s bank account statement with YES Bank shows that approximately ₹1.78 Crores was received from Zala on October 15, 2011 itself. Similarly, the entire amount of approximately ₹1.87 Crores was received and credited in the bank account of Grishma on October 17,2011 i.e. prior to the pay–in date for the trades of October 14, 2011. Thus, on October 17, 2011, a sum of ₹3.65 Crores was collected by Grishma as margin, one day prior to pay in date of Zala’s trades that were undertaken on October 14, 2011. Instead of dealing with these submissions, shockingly, the Enquiry Report falsely states that copy of bank account statement of YES Bank, which SEBI itself had relied on to issue a show cause notice, was not furnished by Grishma and therefore Grishma has failed to establish its submissions. xi. Further, the Enquiry Report also wrongly represents that the trades undertaken by Zala in the shares of TPL were the first trades executed by the notice as a stock broker on behalf of Zala. However, the factual position is that first trades were by Zala executed on October 13, 2011, in the scrip of Jain Irrigation and MVL Ltd. Grishma has submitted contract notes issued to Zala in this regard.

Zala incurred a profit of around ₹53,169.49 on account of his trades on October 13, 2011. Further, there was a credit balance of ₹3.66 Crores in the account of Zala as on October 13, 2011, which is before the trades of Zala on October 14, 2011. xii. Similarly, the submissions of Grishma in relation to the BSE Circular dated November 4, 2003, which sets a permissible limit of 25 times of the Base Minimum and Additional Capital deposited with the Exchange by the member, although recorded in the Report, has not been dealt with at all. Grishma had in its reply submitted that on October 14, 2011, the maximum exposure limit at any given point of time was about 35 Lakh shares of TPL. Considering an average rate of ₹60 per share, this limit translates into about ₹21 Crores. This exposure is much less than 10 times the value already collected from Zala as against the permissible limit of 25 times of the value in Zala’s account. Thus, it has been demonstrated there had indeed been no manipulation of the client ledger as Grishma’s actions of recording the date of receipt of the cheque in the ledger followed a well-established mercantile system of accounting and was in consonance with well recognized industry practice.

Further, Grishma had collected adequate funds from Zala towards the margin requirement for his trades in the shares of TPL, and consequently, the related allegation as to Grishma using funds and securities of Grishma and third parties towards such margin requirements of Zala have to fall. xiii. The Enquiry Report alleges that the amount of approximately ₹5.97 Crores was received partly from Patel and partly from Grishma's Compliance Officer i.e. Mihir Ghelani, in order to meet Zala’s margin requirements in relation to the trades in TPL. A perusal of Grishma’s bank account with Axis Bank shows that the amount of ₹85,00,000 and ₹25,00,000 was received from Patel by way of two cheques dated October 5, 2011 and October 4, 2011. The same were deposited and credited in Grishma’s bank account on October 13, 2011. On that same day i.e. on October 13, 2011, based on the instructions of Patel the entire amount of ₹1,10,00,000 was reversed and paid back to the client against his ledger credit. The Enquiry Report acknowledges this by stating that a substantial amount of Rs 85,00,000 was indeed reversed.

Yet, because the Enquiry Report was unable to find the reference to the entry of Rs 25,00,000 being reversed, it simply concludes that the charge of funding stands established despite acknowledging that a substantial amount of Rs 85,00,000 was returned to Vimal Patel. Further, it is also submitted that Patel’s ledger account for all the three segment i.e. BSE Cash, NSE Cash and NSE Derivative Segment on October 13, 2011 at the end of the day and on the start of trading on October 14, 2011 showed a debit balance of ₹16,52,909.76. Grishma had also in the reply clarified that the amount of ₹1,14,00,000 that Grishma had obtained from Patel was in fact in Grishma’s own F&O settlement account maintained with Axis Bank and not in the account of Patel. It was also pointed out that these funds were transferred to Grishma's current account in Axis Bank and thereon to the settlement account of BSE and NSE Cash segment in Axis Bank for the purpose of payment of the margin requirement. Therefore, the allegation that funds of Patel was used for the purpose of making good the margin requirement is untenable.

The Enquiry Report does not deal with these submissions at all. Further, the Enquiry Report has dropped the charge that sums of ₹50,00,000, ₹76,00,000 and ₹74,00,000 was obtained by Grishma from Patel who in turn obtained these funds from Vanraj Kahor, to meet the margin obligations of Zala. It was clarified that an amount of ₹2,00,00,000 was received from Patel on October 15, 2011, the same was reversed and repaid to Patel on October 17, 2011, itself and was not utilized to make good the margin requirements. It is therefore clear that the charge that Grishma used funds of Patel to meet margin requirements of Zala does not stand established xiv. The Enquiry Report alleges that securities worth ₹66,00,000 of Patel, Goenka and Bhatt were used for meeting the margin shortfall for the losses incurred by Zala on the BSE. It is alleged that shares of Shasun Pharmaceuticals worth around ₹17,22,00,000 and ₹13,53,00,000 of Grishma's clients Patel and Bhatt respectively and 66,697 shares of DB Realty Ltd. received from Goenka worth ₹35,91,633.45 were used towards funding the margin requirement for Zala's trades on the BSE.

Grishma had submitted that the allegations are erroneous and contrived. It was explained that the shares pledged were withdrawn pursuant to the instructions of Grishma's client to balance the exposure between cash and securities, which a broker is required to maintain, and this was not done with an intention to meet the margin requirement of Zala. xv. Further, with regard to the finding in the Investigation Report that 28,000 shares of Shasun Pharmaceuticals were obtained from Patel and 22,000 shares of Shasun Pharmaceuticals were obtained from Bhatt for the purpose of meeting margin requirement of Zala, Grishma submitted that these shares were received between April 29, 2011 to November 12, 2011, for balancing the exposure limit between cash and securities which a broker is required to maintain and in order to settle outstanding positions which these clients had in respect of their trades. Grishma submitted that these transactions had nothing whatsoever to do with Zala's trades in the TPL scrip. Similarly, the 66,697 shares of DB Realty Ltd. received from Goenka were provided in order to clear outstanding positions which Goenka had with Grishma in respect of his trades. xvi.

With reference to the allegation in the Enquiry Report that the Compliance Officer of Grishma transferred a sum of ₹2,20,00,000 to Grishma's account and the same was used for meeting the margin requirements for the losses occurred by Zala in the scrip of TPL, Grishma submitted that the allegation is baseless. The bank account statement of Grishma shows that the sum of ₹2,20,00,000 was transferred by Grishma Intermediaries Private Limited. ("Grishma Intermediaries"). The said sum of ₹2,20,00,000 was paid by the Compliance Officer to Grishma Intermediaries towards his trades in commodities towards his debit balance as also margin call for his trades in gold and silver futures in the MCX, arising out of his trades in gold and silver futures in the MCX. xvii. Grishma submitted that the value of Ghelani's futures trades in gold and silver on October 14, 2011 and October 17, 2011, was ₹96,63,060 and ₹80,14,410 respectively. The aggregate value of Ghelani's trades on October 14, 2011 and October 17, 2011 was ₹1,76,77,470. It is pertinent to note that October 15, 2011 and October 16, 2011, fell on Saturday and Sunday.

Grishma has submitted the contract notes issued by Grishma Intermediaries to Mr Mihir Ghelani in this regard. xviii. The MCX has also issued several circulars requiring members to collect adequate margins failing which the trading member would be subject to monetary penalties. Therefore, the payment of ₹2,20,000,00 to Grishma Intermediaries was towards meeting margin obligations of Ghelani and the inference in SCN that the said amount was transferred to meet Zala's margin obligation of Zala is absurd and untenable. Accordingly, the question of providing any misleading information to SEBI cannot and does not arise. Therefore, the question of Grishma contravening the provisions of Section 12A of the SEBI Act and the PFUTP Regulations, 2003, is untenable. xix. The allegations of synchronized trades on behalf of Zala are baseless as the trades in the scrip of TPL were not proprietary trades but trades executed on behalf of the client wherein there was no contact or communication between Grishma and the counterparty and further, the orders were matched in accordance with the order matching mechanism of the stock exchange.

SEBI had adduced no evidence to establish that Grishma was aware of the fact that the trades were synchronized and such evidence is an essential pre-requisite for a charge of synchronized trade to be made. xx. Grishma also relied on the well settled proposition of law in Networth Stock Broking Ltd. v. SEBI (Appeal No. 5 of 2012), wherein the Hon'ble SAT stated that "Merely because a trade has matched both in regard to price and quantity and that the buy and sell orders were placed at the same time it cannot lead to the conclusion that the broker had knowledge of fictitious trades being executed between the buyer and the seller". xxi. The Enquiry Report acknowledges that one of the terminals from which the orders were placed was at Ahmedabad and another one was located at Mumbai. The Enquiry Report acknowledges in passing that it is "surprising" that Zala was present personally at the office of Grishma i.e. in Mumbai and at Ahmedabad, almost at the same point of time. Grishma submitted in the past, that the address for the terminals had changed. The Enquiry Report instead of drawing the correct conclusion that the placement of orders by Zala in this manner from locations as distant as Ahmedabad and Mumbai was physically impossible instead concludes that charge of synchronized trading stands established. xxii.

The Enquiry Report alleges that Zala had provided an exit to QIBs, who had subscribed to the shares of TPL in the IPO and offloaded these shares at a premium to Zala, who suffered huge losses. The Enquiry then erroneously states that Grishma facilitated the exit to QIBs. At the outset, Grishma acted as a broker to Zala. According to SEBI's own case that Zala was funded by TPL and could absorb the losses suffered by him. xxiii. There is no allegation that the funds for these trades were provided by Grishma. Further, there is not a whisper of what action SEBI had taken against the QIBs. If the transactions are genuine and no action is taken against the beneficiaries of the exit, it would be absurd to suggest that a person who merely acted a broker to counter party, who provided the exit, is to be acted against. SEBI has not established how Grishma can be held responsible for the fact that Zala provided at exit to QIBs. xxiv. Post – Enquiry SCN was not issued by the DM.

8. I have considered the SCN; replies/additional written submissions made by Grishma alongwith their submissions during the personal hearing before me and all other relevant material available on record. In light of the aforesaid, I shall now proceed to deal with the charges levelled in the SCN against Grishma.

Consideration of Issues and Findings –

A. Before dealing with the merits of the case, I shall proceed to deal with the preliminary objections raised by Grishma.

9. Imposition of penalty “of a higher nature” without any basis for proposing to deviate from the recommendations made by due process of the Enquiry Proceedings.

9.1 Grishma has inter alia submitted that SEBI seeks to impose penalty “of a higher nature” without any basis for proposing to deviate from the recommendations made by due process of the Enquiry Proceedings. In this regard, I note that – i. Any Enquiry Report submitted by the DA to the concerned DM, pursuant to an enquiry conducted under the Intermediaries Regulations, is only recommendatory in nature and is not binding on that DM. In this context, reliance is placed on the observations of the Hon’ble SAT in SMC Global Securities Ltd vs. SEBI (Appeal No. 152 of 2013 – January 31, 2014), wherein it held:

“On a perusal of the Intermediary Regulations as reproduced above it becomes clear that the DA's report is nothing but a recommendation to the DM elucidating the nature of the violation committed by the wrongdoer. The DM is under no obligation to stick to the charges as leveled in the DA's report or to go by the penalty recommended therein, and there is nothing in the Intermediaries Regulations to suggest otherwise. For purposes of the Intermediaries Regulations, the DA's report is the result of merely an inspection conducted by the DA to give the DM a preliminary opinion on facts and the law with respect to the violation in question. Nowhere in the Intermediaries Regulations is there even a semblance of suggestion that the DA's report is binding on the learned DM in any form regarding any element contained therein. The learned DA's report is, as clearly spelt out in the Intermediaries Regulations themselves, only a recommendation and as such giving it any kind of tangibility is out of the question. The DM has all the necessary discretion to enhance or reduce the penalty recommended by the DA depending upon the facts, violations and the circumstances of the case. Therefore, the learned DM followed the law by looking at the matter afresh and framing allegations followed by a penalty he deemed fit.”

9.2 Having regard to the abovementioned observations of the Hon’ble SAT, I find that the DM is very much within his right to seek enhancement of penalty against an entity subsequent to the submission of an Enquiry Report. I also note that in the instant proceedings, the post – enquiry SCN issued to Grishma clearly outlined additional facts on the basis of which, inter alia penalty “of a higher nature” may be deemed appropriate. I, therefore, find no merit in Grishma’s contention.

10. An opportunity of hearing was not provided by the DA.

10.1 Grishma has submitted that despite an express request having been made by it, the DA did not provide an opportunity of hearing vitiating these proceedings entirely.

10.2 In this regard, I note that as per the procedure specified in Regulations 25 – 27 of the Intermediaries Regulations, the DA, if he/she finds reasonable grounds to do so, issue SCN to the registered intermediary requiring it to show cause as to why the certificate of registration granted to it, should not be suspended or cancelled or why any other action provided therein should not be taken. Such registered intermediary shall submit to the DA its written representation within the period specified in the notice along with documentary evidence, if any, in support thereof. After considering the representations, if any, the DA is then required to submit the Report to the concerned DM. On receipt of Enquiry Report and recommendation of the DA, Post – Enquiry SCN, if deemed appropriate, is issued to the Noticee. Upon receipt of reply from the concerned Noticee to such SCN, the DM may pass appropriate order after considering the reply, if any, received from that Noticee and providing that Noticee with an opportunity of being heard.

10.3 Upon a consideration of the abovementioned, I find that under the Intermediaries Regulations, the DA is not mandated to afford an opportunity of hearing to a Noticee against whom a pre – enquiry SCN has been issued. However, I find that such requirement for providing an opportunity of hearing, which is necessitated in order to ensure compliance with the principles of natural justice and for meeting the ends of justice, is nonetheless made available to such Noticee before the DM, subsequent to issuance of Post – Enquiry SCN. I, therefore, find no infirmity with the procedure adopted by DA before submission of the Enquiry Report.

11. Post – Enquiry SCN was not issued by the DM.

11.1 Grishma has submitted that the Post – Enquiry SCN was not issued by the DM.

11.2 In this regard, I note that – i. As per the Intermediaries Regulations read with the SEBI (Delegation of Powers) Order, 2010 (hereinafter referred to as "DoP Order"), Post– Enquiry SCN is authorised by the DM designated for that purpose i.e. Whole Time Member who is in charge of the department from where the case emanates. In this case too, similar approval was taken in accordance with the Intermediaries Regulations read with the DoP Order, pursuant to which, Post – Enquiry SCN was issued to Grishma.

ii. Subsequent to the above, the DM designated for the purpose of passing appropriate order i.e. this Authority, after considering the reply, if any, of Grishma and providing it with an opportunity of being heard, may pass appropriate order.

iii. Upon a consideration of the above, I find that the balance between investigation and quasi – judicial functions in order to ensure no element of bias, has been maintained. Further, the issuance of Post–Enquiry SCN does not conclude any findings in respect of the violations committed by Grishma.

11.3 I, therefore, find no infirmity with the procedure adopted for issuance of Post – Enquiry SCN.

12. Inspection of documents and records was not provided.

12.1 Grishma has submitted that it was not provided with a full, fair and effective opportunity of inspection of documents and records, as sought vide letter dated November 22, 2013.

12.2 I note that in response to the abovementioned request, SEBI had earlier been provided Grishma with an opportunity for inspection of documents on October 9, 2013 and November 18, 2013. On those dates, I note that the authorized representatives of Grishma had requested for certain documents and the same were provided to them.

B. Having dealt with the preliminary objections raised by Grishma, I shall now proceed to deal with the merits of the case.

13. Manipulation of Client Ledger of Zala and non–collection of margin.

13.1 Grishma has inter alia submitted that the Enquiry Report simply repeats the allegation that it manipulated Zala’s client ledger on the basis that the date of receipt of funds is at variance with Grishma’s bank statements. Grishma has further submitted that the ledger account reflects the date of physical receipt of the cheque and not the date on which the underlying funds were credited in the account and the recording of date of receipt of cheques is in accordance with the mercantile system of accounting. Grishma also referred to SEBI’s Circular No. MRD/DoP/SE/Cir-07/2005 SEBI dated February 23, 2005, titled “Comprehensive Risk Management Framework for the Cash Segment”, which allows brokers to decide the mode of collection of margin money, thereby also allowing brokers to follow a practice of collecting margin money by means of a post dated cheque. Grishma submitted that on October 13, 2011, a day prior to Zala’s trades in TPL shares, it received 7 cheques for approximately ₹3.65 Crores and the date of receipt of the cheques was the date posted in the ledger and such cheques were duly honored. In this regard, I note that – i. Zala was a walk-in client with an income in the bracket of below ₹5 Lakhs (as per the KYC documents provided by Grishma to SEBI). Zala's trading account with Grishma was opened on September 17, 2011 i.e. only 10 days prior to the IPO of TPL. On October 14, 2011, Zala had not traded in any other scrip except TPL.

ii. Zala, trading through Grishma, in the scrip of TPL on the first day of its listing i.e. October 14, 2011, incurred a loss of ₹9,95,07,852 (comprising of ₹3.20 Crores on BSE and ₹6.74 Crores on NSE).

iii. As per the NSE client ledger of Zala (maintained by Grishma), ₹1,78,55,000 was received by Grishma on October 13, 2011. However, as per Grishma's bank statement (NSE Client Account, YES Bank Ltd, Cadel Road Branch), the amount was actually received on subsequent dates i.e. ₹8,55,000 was received on October 15, 2011 and the balance amount of ₹1,70,00,000 was received on October 17, 2011.

iv. As per the BSE client ledger of Zala (maintained by Grishma), ₹1,87,00,000 was received by Grishma on October 13, 2011. However, as per Grishma's bank statement (BSE Client Account, YES Bank, Cadel Road Branch), the amount of ₹1,87,00,000 was actually received on October 17, 2011.

v. From the Investigation Report, it is observed that cheques received by Grishma from Zala, on October 13, 2011, were post-dated cheques (dated October 15, 2011; October 17, 2011; October 19, 2011, etc.) as on the date they were claimed to have been handed over to Grishma i.e. October 13, 2011. Grishma, admittedly, entered the date of the receipt of such post-dated cheques i.e. October 13, 2011, in the client ledger of Zala and not the date of actual receipt of funds for the said client. Details of the cheques submitted by Grishma to SEBI are provided as under:

Sr. No. No. of cheques Date of cheque Total value 1 3 15/10/2011 ₹1,17,55,000 2 9 17/10/2011 ₹6,07,00,000 3 6 19/10/2011 and after ₹4,12,10,000 Total 18 - ₹11,36,65,000 vi. I note that the collection of margin especially upfront margin is a risk containment measure undertaken by a stock broker. In case of default by its client in making the payments, the same (default) is met with the security deposit, collected in the form of margins. In this context, I note that Grishma was required to pay margin amount viz. VAR & Extreme Loss Margin and Mark to Market (MTM) Margin towards the loss incurred by Zala in the scrip of TPL, on the first day of its listing.

vii. As regards Grishma’s submission in respect of the SEBI Circular No. MRD/DoP/SE/Cir- 07/2005 dated February 23, 2005, which stated: "Members should have a prudent system of risk management to protect themselves from client default. Margins are likely to be an important element of such a system. The same shall be well documented and be made accessible to clients and the Stock Exchange", I crave leave to rely on the observations of the Hon’ble SAT in its abovementioned Order dated October 28, 2013, wherein it observed:

“19. While elaborating and streamlining a Comprehensive Risk Management Framework for the cash market, the SEBI Circular dated February 23, 2005, lays greater importance on advance collection of margin by introducing a more stringent margining structure. This was done in the light of experience gained in the past under various circulars issued by SEBI from time to time. The circular relied upon by the appellants has to be read in totality and also keeping in view the larger objective which it seeks to achieve. Similarly, there are subsequent Master Circulars by SEBI on the same subject issued on December 31, 2010, April 13, 2012 and April 17, 2013. A minute perusal of these Master Circulars does not suggest that the collection of margin is left to the sweet will of the members or stock exchanges. Margin money is a pre-requisite and the requirements laid down by SEBI from time to time in this regard are mandatory and not merely directory which can be flouted by a member as per his own subjective decision. Any transaction carried out by a member or a stock exchange without due regard to such margin requirement is liable to be interfered and struck down if found unjustified in the facts and circumstances of a given case.”

viii. As noted from the preceding paragraphs, Grishma had not collected any upfront margin amount from Zala (only post-dated cheques were taken) and therefore, in the event of default by Zala in honoring his trade obligations, Grishma would not have been able to mitigate the consequences of such default. It is indeed surprising that a walk-in client with an income of below ₹5 Lakhs, trading through Grishma only from October 14, 2011, was allowed to take such a huge gross exposure in the securities market to the tune of ₹ 32,72,57,123.70 on BSE and ₹ 34,72,73,566.10 on NSE. Such exposure was allowed by Grishma through acceptance of post-dated cheques from Zala and incorrectly reflecting receipt of funds in his client ledger on October 13, 2011 i.e. before the actual date of receipt of funds in Grishma's bank account, thereby creating an impression that funds were readily available on the day Zala traded. The callous manner in which Zala was allowed to take such a huge gross exposure by Grishma in the scrip of TPL is against the very object of requiring stock brokers to collect margin money upfront from clients.

ix. The huge gross exposure to a walk-in client, who as per KYC documents did not have the financial means, indicates that there was indeed a larger design behind permitting such exposure to a walk-in client i.e. Zala, to trade in the scrip of TPL without collecting any margins. In reality there were no funds available in the account of Zala for his trades. The funds for the same were arranged by Grishma through its Compliance Officer/CEO, Ghelani and using other clients’ funds/securities. It indicates that Grishma was keen on executing substantial trades in the scrip of TPL on the day of listing and used the trading account of Zala for the same. Therefore, despite the fact that there was no credit balance in the account of Zala, Grishma executed large volume trades amounting to several tens of Crores of rupees on his behalf, which resulted in a loss of ₹9,95,07,852 for Zala, in respect of trades executed on that single day i.e. October 14, 2011.

x. Upon a consideration of the abovementioned discussion, I find that only a book entry was made in the ledger account by Grishma without the actual receipt of necessary funds from its client, Zala. In this context, I find it difficult to accept that Zala, who was a walk-in client with an income of below ₹5 Lakhs, was able to take such huge gross exposure in the scrip of TPL. The aforesaid facts indicate that Grishma made such book entry in the ledger account for the purpose of facilitating trading by Zala in the scrip of TPL. In view of the aforesaid, I find that the charge of manipulation of client ledger and non-collection of adequate margins from a walk-in client stands established against Grishma.

14. Use of Third Party Funds and Securities for making margin payments of Zala.

14.1 Grishma has inter alia submitted that the Enquiry Report does not deal with the submissions made by it in respect of the allegation that funds of Patel was used for the purpose of making good the margin requirement. Further, Grishma has submitted that the allegation regarding use of funds of third parties by Grishma is erroneous. In this regard, I note that – i. Zala was required to make substantial pay-outs for his trades in the shares of TPL on October 14, 2011. Since the trades happened on October 14, 2011, the settlement had to be done on T+2 i.e. October 18, 2011 (excluding Saturday and Sunday which fell in between such days). The source of funds used by Grishma for depositing the margin amount with NSE and BSE towards trading done on behalf of its clients on October 14, 2011, was investigated. For the same, information was sought from NSE, BSE and the respective Clearing Corporations, viz. National Securities Clearing Corporation Ltd. (hereinafter referred to as "NSCCL") and Indian Clearing Corporation Ltd. (hereinafter referred to as "ICCL").

NSE: As per the information provided by NSE, it is noted that – a. On October 14, 2011, the client level margin requirement of Grishma for the trading done on behalf of its clients in the cash segment of NSE was as follows: Client name VAR & Extreme Loss Mark to Market Total Margin Margin (₹) Margin (₹) requirement (₹) Shri Chetan 0.00 40,05,681.70 40,05,681.70 Dave Shri Jivraj Zala 2,87,44,575.20 6,07,00,091.50 8,94,44,666.50 Total 9,34,50,348.20 b. The total margin requirement of Grishma for trades on behalf of its clients on NSE on October 14, 2011, was ₹9,34,50,348.20. As on October 13, 2011, in addition to the base minimum capital of ₹1 Crore in cash and ₹25 Lakhs as Bank Guarantee, ₹7,63,000 was available with NSE towards margin deposit in the form of cash given by Grishma. The additional margin deposits brought in by Grishma as on October 14, 2011, during market hours was as follows:

Sr. No. Particulars Amount in (₹) 1 Cash Deposits 2,77,63,000.00 2 Bank Guarantee 75,00,000.00 3 Securities 2,53,97,639.59 Total 6,06,60,639.59 c. Till the end of trading day of October 14, 2011, total margin provided by Grishma (excluding the base minimum capital of ₹10 Lakhs, which is required to be maintained at all times) was ₹7,21,60,639.59. The break-up of the same is given below:

Sr. No. Particulars Amount in (₹) 1 Cash Deposits 2,77,63,000 2 Bank Guarantee 1,00,00,000 (25,00,000 + 75,00,000) 3 Base Minimum Capital 90,00,000 (1,00,00,000 – 10,00,000) 4 Securities 2,53,97,639.59 Total 7,21,60,639.59 d. At the end of the trading day on October 14, 2011, Grishma had a margin shortfall of ₹2,12,89,708.81. NSE received ₹1.2 Crores at 06:01 p.m. and ₹7.24 Lakhs at 6:31 p.m. from Grishma, after market hours on October 14, 2011. There was a shortfall of margin by ₹85,64,757.17, due to the trading done by Grishma on October 14, 2011 (Settlement No. N 2011196), which was required to be brought in prior to the start of trading on October 17, 2011 (Settlement No. N 2011197), to prevent deactivation of the trading terminals of Grishma.

e. NSE informed that ₹2 Crores was received by NSCCL from Grishma before the start of the market hours on October 17, 2011. Also, another ₹4.5 Crores was received by NSCCL from Grishma at 04:05 p.m. i.e. after the start of trading on October 17, 2011, but before the close of trading on October 17, 2011. The funds of ₹2 Crores received by NSCCL before the start of the market hours on October 17, 2011, were taken by NSCCL towards clearing the outstanding margin of Grishma with respect to the trading done by it in Settlement No. N 2011196. Thereafter, Grishma was allowed to continue trading.

f. The following table shows the funds transferred to NSCCL by Grishma – Current Account (Axis Bank) and the ultimate source of these funds that were earmarked by NSCCL as margin towards Settlement No. N2011196 were from:

Date Amount transferred to the Ultimate source of funds for amount transferred to Clearing corporation by the Clearing Corporation broker towards margin (₹) Amount (₹) Name of the Client Account from where funds were transferred 14/10/2011 2,70,00,000 85,00,000 Vimal P Patel 25,00,000 Vimal P Patel 1,41,00,000 Grishma F&O A/c and around ₹1.14 Crore was from the trades of Shri Vimal Patel in F&O segment 1,00,00,000 Grishma Securities Pvt. Ltd. 14/10/2011 7,24,951.64 20,00,000 Mihir Ghelani 14/10/2011 1,20,00,000 2,00,00,000 Mihir Ghelani 17/10/2011 2,00,00,000 50,00,000 Vimal P Patel 76,00,000 Vimal P Patel 74,00,000 Vimal P Patel 5,97,24,951.64 g. The funds amounting to ₹5,97,24,951.64 (provided by Grishma towards margin requirement of Zala for his trading in the scrip of TPL on the first day of listing i.e. October 14, 2011), were majorly transferred from the client account of Patel (client of Grishma) and also partly from Ghelani, the CEO/Compliance Officer of Grishma. Further, the primary source for the ₹4.5 Crores transferred from Grishma's NSE Settlement Account to NSCCL's account on October 17, 2011, were as follows:

Date Amount transferred to the Ultimate source of funds Clearing corporation by the Amount (₹) Name of the Client broker towards margin (₹) Account from where funds were transferred 17/10/2011 4,50,00,000 8,60,000 Jivraj Zala 44,00,000 Jivraj Zala 70,00,000 Jivraj Zala 50,00,000 Jivraj Zala 50,00,000 Jivraj Zala 1,00,00,000 Jivraj Zala 1,00,00,000 Jivraj Zala h. The amount of ₹4.5 Crores that was transferred on October 17, 2011 to NSCCL by Grishma after the start of market hours, were the funds largely transferred from the bank account of Zala to the Client Account of Grishma on October 17, 2011. A perusal of the bank account of Zala with Yes Bank revealed that as on October 14, 2011, the balance in his bank account throughout the day was ₹30000, and it was only on October 15, 2011 that funds of ₹1,17,55,000 was received in his Yes Bank account.

i. The bank account of Zala was with Yes Bank whereas the NSE clearing account of Grishma was in Axis Bank. Besides, the bank account of Grishma's other clients viz. Patel and Kahor, were with Axis Bank itself. It is pertinent to note that Kahor transferred ₹77.50 Lakhs, ₹75 Lakhs and ₹47.50 Lakhs from his bank account to the bank account of Patel on October 15, 2011 and Patel, in turn, transferred ₹76 Lakhs, ₹74 Lakhs and ₹50 Lakhs to the NSE Client Account of Patel on the same date. These funds, in turn, inter alia formed part of the ₹2 Crores that were transferred on October 17, 2011, by Grishma to the Clearing Corporation, to tide over the shortfall in margin before the opening of trading hours on October 17, 2011.

j. Further, ₹2,53,97,640 was brought by Grishma towards margin deposit on October 14, 2011, in NSE, in the form of securities pledged in favour of NSCCL. The break-up of the margin brought by Grishma in the form of securities is as follows: SYMBOL Quantity Net Value* (₹) BHARTIARTL 500 1,71,078.80 GTOFFSHORE 500 52,604.20 KWALITY 150000 2,46,84,543.30 PRESTIGE 2500 2,33,690.20 RELIANCE 190 1,45,946.30 TVSMOTOR 2000 1,09,777.20 TOTAL 2,53,97,640.00 k. From the above, out of ₹2.53 Crores margin deposited by Grishma with NSCCL in the form of securities, ₹2.46 Crores was in the form of 1.5 Lakhs shares of Kwality Dairy Ltd. It was observed that the said shares had come from the demat account of Grishma (A/c no. IN30133020879906 held with NSDL). A perusal of the said demat account of Grishma revealed that on October 13, 2011, 1.5 Lakhs shares of Kwality Dairy Ltd. were pledged towards margin requirement. On the same day, the said account of Grishma had received the same 1.5 Lakhs shares of Kwality Dairy Ltd. from demat A/c no. 1202910000002459 with CDSL, which was also found to be in the name of Grishma. A perusal of the said demat account of Grishma with CDSL revealed that Grishma had received the said 1.5 Lakhs shares of Kwality Dairy Ltd. from Patel in the form of off-market credit.

l. In view of the above, I find that funds of Patel were used by Grishma to tide over the margin shortfall for trading done by Zala on October 14, 2011. I find that Grishma also used shares worth ₹2.46 Crores of Patel for meeting the margin shortfall of Zala in the scrip of TPL on October 14, 2011 i.e. the first day of listing.

BSE: As per the information provided by BSE, it is noted that – a. The client level margin requirement of Grishma for the trading done by it on October 14, 2011, in cash segment of BSE, is given below:

Client name VAR & Extreme Loss Mark to Market Total Margin Margin (₹) Margin (₹) requirement (₹) Shri Chetan 8,93,670 36,64,242 4557912 Dave Shri Jivraj Zala 0 3,20,38,992 3,20,38,992 G001 12816 0 12816 Vimal Patel 30,20,464 8,580 3029044 b. Therefore, the total margin requirement of Grishma for its trades on October 14, 2011 was ₹3.96 Crores, out of which the MTM margin was ₹3.57 Crores. The margin requirement for the trades of Zala was ₹3.2 Crores, which was for the trades in the scrip of TPL. The margin deposits brought in by Grishma as on October 13, 2011, during market hours as given by BSE is provided below: Sr. No. Particulars Amount in (₹) 1 Cash Deposits 1,25,000 2 Bank Guarantee 2,15,00,000 3 Securities 1,27,48,297 Total 3,43,73,297 c. There was a margin requirement of ₹1,40,86,814 for MTM losses on October 14, 2011. Grishma had deposited an amount of ₹1,10,00,000 on October 14, 2011 towards margin. A perusal of the source of amounts paid by Grishma to ICCL on October 14, 2011 reveals the following:

Date Amount transferred to the Ultimate source of funds for amounts transferred to Clearing corporation by the the Clearing Corporation broker towards margin (₹) Amount (₹) Name of the Client Account from where funds were transferred 14/10/2011 50,00,000 1,41,00,000 Grishma Securities Pvt. Ltd. – NSE F&O Settlement A/c No. 004010200405027 Axis Bank Ltd.

14/10/2011 50,00,000 1,00,00,000 Grishma Securities Pvt. Ltd A/c no. 2321600000064 with DCB 14/10/2011 10,00,000 4,52,956 Pay out received and 5,34,307 14/10/2011 35,86,814 2,00,00,000 Mihir Ghelani

1,45,86,814 d. For the margin of ₹1,45,86,814 brought in on October 14, 2011, Grishma provided the funds from its own F&O A/c, current account and also the funds received from Ghelani. From the above table, it is seen that for the ₹50 Lakhs transferred to ICCL, the credit was received from Grishma – NSE F&O Settlement A/c. A perusal of the NSE F&O Settlement A/c of Grishma (A/c no. 004010200405027 with Axis Bank Ltd.) revealed that prior to the transfer of ₹1,41,00,000 from the said account which was used for meeting the settlement obligation on BSE and NSE, the said account received the following credits: Sr. Particulars Amount in (₹) Description No. 1 11/10/2011 81,14,149.70 IL&FS Securities Services Ltd.-NSE Derivatives CL 2 12/10/2011 1,61,662.00 IL&FS Securities Services Ltd.-NSE Derivatives CL 3 13/10/2011 58,41,037.35 IL&FS Securities Services Ltd.-NSE Derivatives CL 1,40,16,849.05 e. During the course of the investigation, NSE was advised to provide the trading details of Grishma in the F&O segment for the said trades. As per the details provided by NSE, the trades by Grishma in the NSE F&O segment were in its own account as well for Patel. The break-up of the client wise pay out was obtained from IL&FS Securities Services Ltd. and the same revealed that the pay outs were primarily for the trades of Patel in the F&O segment as detailed below:

Sr. Particulars Amount of pay out MTM pay out of Shri Vimal Date of trade No. (₹) Patel (₹) 1 11/10/2011 81,14,149.70 69,81,015.00 10/10/2011 2 12/10/2011 1,61,662.00 6,31,776.25 11/10/2011 3 13/10/2011 58,41,037.35 51,25,147.50 12/10/2011 1,41,16,849.05 127,37,938.75

In this context, it is observed that Patel was receiving pay-outs from Grishma for his trades in the segment.

f. From the above, it is observed that out of ₹1.41 Crores used for the meeting the margin requirement of Zala, around ₹1.14 Crores was for the trades of Patel in the F&O segment on NSE.

g. With regard to the securities worth ₹1,27,48,297 provided as margin (with hair cut), as per the details provided by BSE, the following shares were pledged for the margin on October 13, 2011:

Sr. No. Name of the securities No. of shares pledged 1 DB Realty Ltd. 1,37,459 2 Elgi Equipments Ltd. 40,000 3 Shasun Pharmaceuticals Ltd. 50,000 h. As per the details provided by BSE, the shares were pledged from the demat A/c no. 1202910000002459 of Grishma. The following table shows the receipt of the said shares in the aforesaid account of Grishma:

Sr. No. Particulars Name of the scrip No. of shares Name of the entity from whom received 1 07/10/2011 DB Realty Limited-EQ 66,697 Pramod K. Goenka 2 13/10/2011 DB Realty Limited-EQ 70,462 IL&FS Securities Services Ltd 3 13/10/2011 Shasun Pharma 50,000 IL&FS Securities Services Ltd 4 13/10/2011 Elgi Equipments 40,000 IL&FS Securities Services Ltd i. IL&FS Securities Services Ltd., the clearing member of Grishma in the F&O segment, informed SEBI that the abovementioned shares were returned to Grishma as it had made a request vide letter dated October 12, 2011, for IL&FS Securities Services Ltd. to withdraw the abovementioned shares placed by it, as collateral on the Derivatives segment of NSE. The shares so withdrawn were pledged with the clearing corporation of BSE on October 13, 2011. The timing of withdrawal of shares pledged with IL&FS is very important as it shows pre-planning on the part of Grishma in respect of trading by Zala in the scrip of TPL on the listing day. Knowing very well that the trading will result in losses, which will require additional margins to be provided to the clearing corporations, Grishma withdrew the shares pledged by it with its Clearing member in the F&O segment and pledged the said shares with BSE for additional margins.

j. It was noted that the 50,000 shares of Shasun Pharmaceuticals returned by IL&FS Securities Services Ltd. to Grishma on October 13, 2011, were earlier given by Grishma to IL&FS Securities Services Ltd. on September 08, 2011 as margin for its trades in the F&O segment. Out of the said 50,000 shares, 28,000 shares had come from the demat account of Patel and 22,000 shares had come from the demat account of one Shri Priyesh Arvind Bhatt (hereinafter referred to as "Bhatt"). The closing price of Shasun Pharmaceuticals on October 12, 2011 was ₹61.50 per share. Thus, Grishma had used the shares of Shasun Pharmaceuticals worth around ₹17.22 Lakhs and ₹13.53 Lakhs of its clients Patel and Bhatt respectively as margin (totaling to ₹30.75 Lakhs). Also, Grishma used 66,697 shares of DB Realty Ltd. received from one Shri Pramod K. Goenka (hereinafter referred to as "Goenka") and the value of the said shares was ₹35,91,633.45 taking into consideration closing price of the scrip on October 12, 2011 was ₹53.85 per share.

k. In view of the above, I find that Grishma inter alia used the funds and securities of its 3 clients viz. Patel, Bhatt and Goenka, for meeting the margin requirement of Zala.

14.2 As regards the allegation in the Enquiry Report that the Compliance Officer of Grishma transferred a sum of ₹2,20,00,000 to Grishma's account and the same was used for meeting the margin requirements for the losses incurred by Zala in the scrip of TPL, Grishma submitted that the allegation is baseless. Grishma has submitted that the payment of ₹2,20,000,00 to Grishma Intermediaries Pvt. Ltd. (hereinafter referred to as "Grishma Intermediaries") was towards meeting margin obligations of Ghelani and the inference in SCN that the said amount was transferred to meet Zala's margin obligation of Zala is absurd and untenable; accordingly, the question of providing any misleading information to SEBI cannot and does not arise. Therefore, the question of Grishma contravening the provisions of Section 12A of the SEBI Act and the PFUTP Regulations, 2003, is untenable.

14.3 In this regard, I note that Ghelani had made payments of ₹2 Crores and ₹20 Lakhs to Grishma Intermediaries. The aforesaid amount was transferred from the account of Grishma Intermediaries to the account of Grishma which was ultimately used for meeting the margin requirements for the losses incurred by Zala in the scrip of TPL on October 14, 2011. In the statement dated May 21, 2012, recorded before SEBI and letter to SEBI dated August 21, 2012, Ghelani had mentioned that he made the payments to Grishma Intermediaries towards the ledger debit and margin call for his trading in commodities. Ghelani was advised to provide documents in support of his contention. Ghelani, vide email dated May 24, 2012, forwarded his ledger statement with Grishma Intermediaries in MCX, to SEBI. As per the aforesaid ledger statement, Grishma Intermediaries received ₹2.2 Crores from Ghelani on October 14, 2011. I note that as on October 13, 2011, there was a debit balance of ₹64,55,007.18 in the account of Ghelani. After the payments of ₹2.2 Crores received from Ghelani, the account had a credit balance of ₹1.55 Crores as on October 14, 2011. Therefore, I find that the payments totalling ₹2.2 Crores made by Ghelani was not for clearing the debit balance as after the said payments, his account had a credit balance of over ₹1.55 Crores.

In order to ascertain whether Ghelani had any margin call requirement as claimed by him on October 14, 2011, the trading details of Ghelani in MCX were sought for. The Forwards Market Commission (hereinafter referred to as "FMC"), in reply to SEBI's request to MCX regarding the trade details of Ghelani, vide letter dated June 1, 2012, had forwarded the trade details of Ghelani for the period from October 1, 2011 to November 15, 2011. It was observed that during the aforesaid period, Ghelani started trading only from October 17, 2011 and did not execute any trade before that. Ghelani had traded in gold on October 17 and 18, 2011. From the aforesaid, it is clearly evident that Ghelani did not have a margin call requirement on October 14, 2011, as claimed by him in his statement recorded before SEBI. Also, a perusal of the bank account of Ghelani shows that he had transferred ₹2 Crores to the bank account of Grishma Intermediaries, Client Account on October 14, 2011 and the same was transferred to the account of Grishma Intermediaries. It may be noted that money was not transferred from the account of Grishma Intermediaries to MCX on the said date but was instead transferred to the account of Grishma Intermediaries and was then further routed to the account of Grishma - Current Account and the same was subsequently transferred for meeting the margin requirement of Zala.

This contradicts the assertion that Ghelani had a ledger debit and margin call from MCX and the amount was transferred for the same. Therefore, it can be inferred that the payments of ₹2.2 Crores made by Ghelani was primarily for meeting the margin requirement of Zala for his trading in the scrip of TPL on October 14, 2011.

14.4 I find that Grishma utilized the funds from its Compliance Officer/CEO, Ghelani to make margin payments to the exchange on account of the shortfall in margin towards the trades done by Zala in the scrip of TPL on the first day of its listing. I note that the failure by Grishma to segregate its own funds from that of its client’s and the subsequent usage of such funds to facilitate Zala's trades constitutes a serious irregularity.

14.5 In view of the aforesaid discussion, I find that if the funds and securities of Grishma's clients i.e. Patel, Bhatt and Goenka alongwith that of Ghelani had not been used; there would have definitely been a margin shortfall due to the huge loss-making trades executed by Zala. In view of the same, I find that the charge against Grishma of utilization of its own money and also other clients' money and shares for meeting margin requirements of Zala, stands established.

15. Synchronised Trades on behalf of Zala –

15.1 Grishma submitted that allegations of synchronized trades on behalf of Zala are baseless as the trades in the scrip of TPL were not proprietary trades but trades executed on behalf of the client wherein there was no contact or communication between Grishma and the counterparty and further, the orders were matched in accordance with the order matching mechanism of the stock exchange.

15.2 It is observed that Zala had entered into synchronised trades with the following entities/individuals (entities/individuals who had allegedly provided exit to certain allottees in TPL‟s IPO)

on both BSE and NSE. Certain instances of the aforementioned synchronised trades are given below:

Major Traded Time counterparty Traded Price Buy order Sell Order Difference Trade Time Sellers to Zala’s Quantity Time Time between the buy orders ₹ trades 12:10:56 12:10:52 12:10:56 4 seconds Salasar Stock 2,83,987 51 Broking Limited 13:28:20 13:28:13 13:28:20 7 seconds Lopa Saumil 3,50,000 19.5 15:03:47 15:03:41 15:03:47 6 seconds Bhavnagari Volga International 1,00,000 19.5 15:03:47 15:03:40 15:03:47 7 seconds Limited Pinac Stock Brokers Pvt. 29888 19.5 15:03:47 15:03:41 15:03:47 6 seconds Limited

15.3 From the abovementioned details, I note that there was an almost exact matching in the quantity, rate and also proximity in the time of entering buy/sell orders by Zala and the related entities/individuals (who had purchased shares from retail allottees/QIBs in TPL’s IPO) i.e. Lopa Saumil Bhavnagari, Pinac Stock Brokers Pvt. Limited, Salasar Stock Broking Ltd., Volga International Limited. The aforesaid facts show that Zala’s orders were synchronised and entered with prior understanding to match with the orders entered by such related entities/individuals. I note that placing of orders in this manner cannot be termed as regular and normal, because on the one hand a person is taking the buy position and at the same time the related entity/individual is taking the sell position. This also holds true when the person is taking the sell position and at the same time the related entity/individual is taking the buy position. I note that no bonafide investor would indulge in this kind of trading in the normal course of business. It can be inferred from the trading patterns in the instant case that the same were done with the ulterior motive of creating artificial volume in the securities market. Therefore, it is concluded that the trades in the scrip of TPL which resulted in the synchronised deals were not genuine sale – purchase transaction and had the effect of creating artificial volume. Further, such artificial trades generate interest of genuine investors, who in turn trade in such scrip on seeing the increased trading activity.

15.4 From the Investigation Report, it is also observed that as per the NSE Trade Log, on October 14, 2011, Zala placed buy orders during the period from 9:15:02 to 15:29:35. The dealers of Grishma who had placed the orders for Zala on NSE were Ms. Arti C Dave and Chetna Mayekar. The orders placed by Ms. Arti C Dave were from 2 CTCL ID’s (380015003001 and 400019004007). It is observed that the orders placed from 9:15:02 to 10:42:48 were placed from the CTCL ID 400019004007, those from 11:44:44 to 12:42:49 were placed from CTCL ID 380015003001, from 13:27:57 to 14:08:44 were placed from CTCL ID 400019004007 and the order placed at 14:39:08 was placed from CTCL ID 380015003001.

15.5 As per NSE records, the location address of the CTCL ID 380015003001 is at Ahmedabad (408, Shyamet Complex, Behind Panina Pole Polytechnic, Ambavadi, Ahmedabad, Gujarat, 380015) and the location address of CTCL ID 400019004007 is at Mumbai (92/4,Nirbhay Niwas, Bhaudaji Cross Road 10, Matunga (C.R), Mumbai, Maharashtra, 400019).

15.6 From the Investigation Report, it is observed that while replying to the query regarding the mode of placement of orders by Zala, Grishma vide email dated October 31, 2011, had stated that the orders were placed to Grishma by Zala himself, at Grishma's office. It is surprising to note that Zala was present personally at Grishma's office in both Mumbai and Ahmedabad at almost the same point of time.

15.7 Further, the Investigation Report reveals that out of the buy and sell orders for 67,34,064 shares placed by Zala on BSE, trades for 19,12,865 shares out of the total quantity of 33,67,032 shares traded by him on BSE, were placed through the terminal allotted to Ghelani.

15.8 I note that in the screen based trading, the manipulative or fraudulent intent can be inferred from various factors such as conduct of the party, pattern of transactions, etc. Such intention may be demonstrated from the attending circumstances as observed by Hon'ble SAT in the following cases, viz. – a. Ketan Parekh vs. SEBI, Appeal no. 2/2004, Order dated July 14, 2006 – The Hon'ble SAT had inter alia observed: "The nature of transactions executed, the frequency with which such transactions are undertaken, the value of the transactions, … the conditions then prevailing in the market are some of the factors which go to show the intention of the parties. This list of factors, in the very nature of things, cannot be exhaustive. Any one factor may or may not be decisive and it is from the cumulative effect of these that an inference will have to be drawn."

b. Grishma Securities Pvt. Ltd. vs. SEBI, Appeal no. 117/2006, Order dated August 8, 2010 – The Hon'ble SAT had inter alia observed: "Synchronized trades, however, can be executed with a view to manipulate the price or the volumes of the traded scrip or both or with some other ulterior purpose and whether a synchronized trade has been executed with a manipulative intent or not will have to be gathered from the intention of the parties for which there would seldom be any direct evidence. Their intention will have to be gathered from the surrounding circumstances including the pattern of trading, the frequency of the trades and their volumes, the explanations furnished by the parties and brokers etc. In the case before us, the only explanation furnished by the appellants is that their clients were day traders/jobbers and that they were watching the trades on the screen when the buy and sell orders were punched into the system. They have denied any collusion either between themselves or with their respective clients/parties and claim to be innocent. From the details of the trades executed between the two appellants and having regard to the trading system, we do not think that such large number of trades could match between the same parties through the same brokers unless the trading system was being abused. Even the day traders cannot have the same counter party every time. It is also on record that the two brokers were known to each other and so were the parties. This would further lend credence to the fact that they executed manipulated trades."

c. Mr. Bhavesh Pabari vs. SEBI, Appeal no. 104/2012, Order dated July 3, 2012 – The Hon'ble SAT had inter alia observed: "When a large number of entities are involved and allegation is of fraud and manipulating the securities market, case of each entity is to be viewed with reference to its role in manipulating the trades and its role in executing synchronized/circular/reversal trades."

15.9 Having regard to the abovementioned observations, I, therefore, find that such conduct of Grishma in allowing Zala to indulge in synchronised trade constitutes a serious irregularity in the market and also disturbs the market equilibrium. I, therefore, find that the allegation against Grishma that it executed synchronized trades on behalf of Zala stands established.

15.10 In support of its submission that it cannot be responsible for the trades executed by the clients, Grishma has relied upon the Order of the Hon'ble Tribunal in Networth Stock Broking vs. SEBI (Appeal No. 5 of 2012). In this context, I crave leave to rely on the observations of the Hon’ble SAT in its abovementioned Order dated October 28, 2013, wherein it observed:

“We have gone through the SEBI‟s orders in the cases of Geojit BNP Paribas Finance and Securities Ltd. and Networth Stock Broking Ltd. In both cases, the only allegation was that the broker had failed to exercise due care and diligence while permitting his clients to trade. It was observed in both orders that the brokers permitted the clients to trade only after their cheques were cleared and exposure was given only after they had sufficient credit balances. Further, the brokers had given the same level of exposure to all clients who were registered with them during the same period. The exposure provided to the clients was within the range of 8-10 times the margin/credit, which was as per the policy for all other clients and no exception was made for the clients in question. All of these factors clearly distinguish these cases from the present one.”

16. Facilitating exit of QIBs from the scrip of TPL.

16.1 Grishma has submitted that there is not a whisper of what action SEBI had taken against the QIBs and if the transactions are genuine and no action is taken against the beneficiaries of the exit, it would be absurd to suggest that a person who merely acted a broker to counter party, who provided the exit, is to be acted against. Grishma further submitted that SEBI has not established how it can be held responsible for the fact that Zala provided exit to QIBs.

16.2 It is observed from the Enquiry Report that out of the 3100 applicants who were allotted shares in TPL’s IPO, they were 3 QIBs who offloaded their shares on the first day of listing/trading itself. Details in respect of the shares allotted and offloaded by the aforementioned QIBs are provided below –

QIB Number of Shares Number of shares Profit (in ₹) allotted offloaded Sparrow Asia Diversified 9,74,739 9,74,739 19,49,000 Opportunities Fund IPRO Funds Limited 9,30,631 8,13,131 16,26,000 Credo India Thematic Fund 9,30,631 9,30,631 18,61,000 Limited

16.3 It is further observed from the Enquiry Report that Zala bought substantial number of shares offloaded by the three QIBs at ₹62 per share in the following manner: Traded Traded Price QIB Buy order Time Sell Order Time Trade Time Quantity ₹ 11:17:12 10:53:45 11:17:12, 11:17:40, 11:17:39 10:56:07 11:44:51 11:44:51 10:56:11 CREDO 4,53,215 62 10:56:15 10:59:43 11:11:27 11:22:19 11:17:12 10:44:33 11:17:12, 11:17:40, 11:17:39 10:46:31 11:44:40, 11:44:51 11:44:40 10:47:39 SPARROW 2,94,517 62 11:44:51 11:16:19 11:22:04 11:22:14 11:44:40 11:22:04 11:44:40, 11:44:51 11:26:02 11:44:51, 11:45:22 IPRO 2,35,555 62 11:45:22 11:27:15 11:30:29 11:44:40

16.4 From the above table, it is observed that within a short span of time, Zala bought a total of 9,83,287 shares from the abovementioned 3 QIBs at ₹62. Zala then sold those shares at ₹19.50 thereby incurring a huge monetary loss.

16.5 In this context, it is pertinent to mention that contrary to its submissions, in the instant case there is enough material on record to show that Grishma was facilitating execution of large number of trades amounting to several Crores of rupees by Zala in the scrip of TPL on the day of listing of such scrip. Further, as stated above, Grishma arranged its own funds to meet the margin requirements of its client, Zala. This was also done by taking securities and funds from its other clients. Hence, it is apparent from the facts of the case that Grishma was facilitating execution of large number of trades by Zala in the scrip of TPL. As a result of the abovementioned trading, Grishma was able to facilitate the exit of QIBs from the scrip of TPL through Zala, who was allowed to trade by Grishma in that scrip on the first day of listing, without collecting any funds from him towards the margin amount payable to stock exchanges despite the fact that he was a walk-in client with insufficient risk – taking capacity.

Conclusion –

17. In view of the abovementioned paragraphs 9–16, I find that:

i. Zala was allowed to trade on the first day of listing in the scrip of TPL by Grishma, without collecting any funds from him towards the margin amount payable to stock exchanges in spite of the fact that the client was a walk-in client with Grishma, whose account was opened just ten days prior to the date the IPO of TPL. This resulted in Zala incurring a loss of ₹ 9,95,07,852. ii. Grishma tried to send the investigation on a wrong trail by manipulating the client ledger of Zala to give an impression that some funds were available in the client account of Zala with Grishma on the day of trading by him in the scrip of TPL. iii. Grishma used the funds and securities of its other clients, viz. Patel, Bhatt and Goenka to meet the margin obligation arising out of the huge loss incurred by Zala on the first day of trading in the scrip of TPL on both BSE and NSE. iv. Grishma also used the funds of its CEO/Compliance Officer, Ghelani to meet the margin obligation arising out of the abovementioned loss incurred by Zala. Grishma failed to segregate its own funds from that of its client’s and its subsequent usage to facilitate trades by Zala in the scrip of TPL was a serious irregularity. v. IPO proceeds were transferred by TPL to Zala routing it through the accounts of Patel and Kahor, clients of Grishma. Therefore, Patel and Kahor were the front entities of Grishma. vi. Grishma permitted such a huge exposure to Zala who did not have any track record of trading with them as they were aware that funds would subsequently be received in Zala’s account through layered transactions. The above acts of Grishma brings out the scheme designed by them using front entities, viz. Patel and Kahor, for assisting TPL to divert its IPO proceeds towards trading by Zala in its scrip. vii. Grishma circumvented the policies laid down by way of the SEBI Act and Regulations, to play a fraud on genuine investors, who entered in the scrip on the first day of trading.

18. The aforesaid actions of Grishma have also resulted in non–compliance of the following SEBI's Circulars, viz. – a. SEBI/MRD/SE/Cir- 33/2003/27/08 dated August 27, 2003, which prohibits third party receipt/payment of funds and securities. b. MRD/DoP/SE/Cir-11/2008 dated April 17, 2008 – In case client collateral is found to be mis-utilised, the stock broker would attract appropriate deterrent penalty for violation of norms provided under SCRA, SEBI Act, SEBI Regulations and Circulars, Exchange Byelaws, Rules, Regulations and Circulars. c. MIRSD/SE/Cir-19/2009 dated December 3, 2009 – 8. There shall be mandatory document dealing with policies and procedures for … (d) imposition of penalty/delayed payment charges by either party, specifying the rate and the period (This must not result in funding by the stock broker in contravention of the applicable laws).

19.1 It is pertinent to refer to the judgment of the Hon'ble Securities Appellate Tribunal in the matter of V. Natarajan vs. SEBI, SAT Appeal No.104 of 2011, wherein it was held as follows:- "… we are satisfied that the provisions of Regulations 3 and 4 of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003, were violated. These regulations, among others, prohibit any person from employing 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 an exchange. They also prohibit persons from engaging 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 that are listed on stock exchanges. These regulations also prohibit persons from indulging in a fraudulent or unfair trade practice in securities which includes publishing any information which is not true or which he does not believe to be true. Any advertisement that is misleading or contains information in a distorted manner which may influence the decision of the investors is also an unfair trade practice in securities which is prohibited. The regulations also make it clear that planting false or misleading news which may induce the public for selling or purchasing securities would also come within the ambit of unfair trade practice in securities… … A basic premise that underlies the integrity of securities market is that persons connected with securities market conform to standards of transparency, good governance and ethical behaviour prescribed in securities laws and do not resort to fraudulent activities."

19.2 Reference may also be made to the following observations made by the Hon'ble Supreme Court in its judgment dated April 26, 2013, in N. Narayanan v. Adjudicating Officer SEBI (Civil Appeal Nos.4112-4113 of 2013) wherein it held that: "SEBI, the market regulator, has to deal sternly with companies and their Directors indulging in manipulative and deceptive devices, insider trading etc. or else they will be failing in their duty to promote orderly and healthy growth of the Securities market. Economic offence, people of this country should know, is a serious crime which, if not properly dealt with, as it should be, will affect not only country‟s economic growth, but also slow the inflow of foreign investment by genuine investors and also casts a slur on India‟s securities market. Message should go that our country will not tolerate “market abuse” and that we are governed by the “Rule of Law”. Fraud, deceit, artificiality, SEBI should ensure, have no place in the securities market of this country and „market security‟ is our motto."

20. For reasons detailed in the preceding paragraphs 9–19, I find that Grishma has violated the provisions of Section 12A (a)–(d) of the SEBI Act read with Regulations 3(a)–(c), Regulations 4(1) and 4(2)(a), (d) and (p) of the PFUTP Regulations, 2003. In addition, I find that as a registered Stock Broker, Grishma is also guilty of violating the provisions of Section 23D of the SCRA, Regulations 26(xiii), 26(xvi), 27(xii), 27(xiv) and 27(xvi); Clauses A(1), A(2), A(3) and A(4) of the Code of Conduct specified under Schedule II read with Regulation 7 of Stock Brokers Regulations.

21. Enquiry proceedings are mainly disciplinary proceedings initiated against intermediaries registered with SEBI. Section 12(3) of the SEBI Act provides that: "The Board may, by order, suspend or cancel a certificate of registration in such manner as may be determined by regulations…". I find that the fraudulent, manipulative and illegal activities committed by Grishma were part of a larger scheme, which affected the integrity of the securities market and resulted in the execution of trades in the scrip of TPL to the detriment of genuine investors. Therefore, SEBI had taken necessary steps vide Interim Order against TPL and many other entities including Grishma. SEBI was justified in doing so considering the gravity of fraud involved in the matter. On considering the totality of the facts and circumstances, the interest of securities market, the market participants and my observations/findings, I am of the considered view that the following order would meet the ends of justice.

Order – 22.1 I note that vide the Interim Order dated December 28, 2011 (later confirmed through the Confirmatory Order on November 5, 2012), Grishma was inter alia restrained from accessing the securities market and prohibited from buying, selling or dealing in the securities market till further orders.

22.2 Further, I note that vide SEBI Order dated July 31, 2013, it was directed as follows:

"Grishma is restrained from buying, selling or otherwise dealing in securities, in its proprietary account, directly or indirectly, for a period of five years. I note that vide the Interim Order dated December 28, 2011, Grishma was restrained from accessing the securities market and prohibited from buying, selling or dealing in the securities market till further orders. In this context, I note that enquiry proceedings have been initiated against Grishma under the SEBI (Intermediaries) Regulations, 2008. The restraint imposed on Grishma vide the aforesaid Interim Order in respect of its stock broking business shall continue till the completion of the enquiry proceedings. The enquiry officer shall endeavour to submit the enquiry report to the Competent Authority as expeditiously as possible, without being influenced by the observations and findings in this order, in order to facilitate completion of the enquiry proceedings by passing of a final order by that Authority."

22.3 I, in exercise of the powers conferred upon me in terms of Section 12(3) and Section 19 of the SEBI Act read with Regulation 28 of the Intermediaries Regulations, hereby prohibit Grishma, Stock Broker [SEBI Registration Nos.: INB011127132 (BSE)/INB231127136 (NSE)], from taking up any new assignment or contract or launch a new scheme (i.e., not to take new clients/customers) for a total period of 3 years in respect of its business as a stock broker.

22.4 In this context, I note that Grishma has already undergone the restraint/prohibition 'in respect of its stock broking business' for a period of approximately 2 years and 11 months. It is clarified that the restraint/prohibition already undergone by Grishma pursuant to the abovementioned SEBI Orders, shall be taken into account while computing the period of restraint/prohibition being imposed vide this Order.

23. This Order shall come into force with immediate effect.

Place: Mumbai S. RAMAN Date: December 16, 2014 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA