In the matter of Summary Proceedings against the Stock Brokers who defaulted in payment of Registration Fees

1. Vide an order dated August 11, 2005 under Regulation 16(1) of the extant SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002, SEBI had appointed an Officer to conduct summary proceeding intera alia against M/s. Maliram Makharia Finstock Pvt. Ltd. (SEBI Regn. No. INB010972034) (Maliram), who had allegedly defaulted in the payment of registration fees as a stock broker. The Officer submitted report recommending suspension of the certificate of registration for a minimum period of six months or till such time the outstanding registration fees is paid, whichever is later. SEBI accepted the recommendation of the Officer vide a common order dated October 29, 2009. On an appeal, Hon’ble Securities Appellate Tribunal set aside the said order qua Maliram and remanded the matter with a direction to pass a fresh order, only after affording Maliram an opportunity of making a written representation against the enquiry report. Maliram has submitted a written representation dated April 21, 2010.

2. I have considered the recommendation of the Officer, the written representation of Maliram and the material available on records.

3. Maliram has submitted that one Mr. Shyamlal Thakordas Dalal was registered with SEBI as a stock broker. The individual membership right of Mr. Dalal was converted to corporate membership of M/s. Maliram Makharia Finstock Pvt. Ltd. with effect from November 4, 1997. Therefore, it is entitled to fee continuity benefit on such conversion.

4. I note from Paragraph 4 in Schedule III to the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 (Regulations) that if an individual converts its membership into a corporate membership, such corporate entity shall be exempt from payment of fees for the period for which the individual has already paid the fees subject to satisfaction of certain conditions. The first condition, therefore, to be satisfied for the fee continuity benefit is conversion of individual membership to corporate membership.

5. I find that vide letter dated September 4, 1996, Mr. Dalal, who was a member of the Bombay Stock Exchange Limited (BSE), surrendered to SEBI his registration certificate as a stock broker for cancellation as he intended to transfer his membership of BSE to Maliram. Mr. Dalal passed away on November 8, 1996. One Mr. Natwarlal Thakordas Dalal, who claimed to be the only surviving legal heir of Mr. Dalal, claimed the said membership right of Mr. Dalal. To this claim, Maliram, vide its letter dated November 22, 1996 to BSE, submitted as under: “At the outset we have to state that in consideration of a sum of Rs. 1 crore paid by us to Shyamlal T. Dalal (now deceased), Shyamlal T. Dalal has sold and / or transferred all his rights in card bearing No.632 of the Bombay Stock Exchange much prior to his demise on 8th November 1996. Pursuant to the aforesaid sale and after having received the aforesaid consideration, the deceased vendor had made an application on 18th October 1996 nominating our company as his successor and tendered resignation from your association”. BSE, vide its letter dated November 19, 2009 to SEBI, has stated that the membership right of late Mr. Shyamlal Thakordas Dalal had been transferred to Maliram on August 13, 2007.

6. It is clear from the above records that Maliram acquired membership of BSE on transfer from Mr. Dalal by paying due consideration and SEBI cancelled the registration of Mr. Dalal and granted a fresh registration to Maliram. It is not a case of conversion of individual membership right of Mr. Dalal to corporate membership of Maliram, as now falsely claimed by Maliram. Since the very first condition for fee continuity benefit is not satisfied, I am not examining the satisfaction of other conditions. Therefore, Maliram is not entitled to fee continuity benefit on corporatization.

7. I note that in terms of Regulation 6A (1), registration granted to a stock broker is subject to the condition that it pays the fees in the manner provided in the Regulations. Regulation 10(1) requires a stock broker to pay fees as specified in Schedule III. The Schedule III requires a stock broker to pay the fees computed with reference to annual turnover of the preceding financial year by first day of October. I note that Maliram failed to pay the fees as per Regulations by October for the preceding financial year. It did not pay subsequently despite follow up from SEBI and rather made false claims of corporatisaton. Regulation 10(2) authorizes SEBI to suspend the registration of a stock broker who fails to pay the fees required under the Regulations. Under Regulation 27(vii), a stock broker is liable for actions, including suspension of registration, if it has failed to pay fees as per Schedule III. It is clear from the enquiry report and the records of SEBI that Maliram has not paid fees in accordance with the Regulations and no more fulfils the condition of registration, and is, therefore, liable for the actions under Regulation 10(2) read with Regulation 27(vii). I, therefore, agree with the recommendation of the Officer.

8. I note that the SEBI (Procedure for Holding Enquiry by the Enquiry Officer and Imposing Penalty) Regulations, 2002 have since been repealed and replaced by the SEBI (Intermediaries) Regulations, 2008.

9. I, therefore, in exercise of the powers conferred upon me under section 19 of the SEBI Act, 1992 read with Regulation 33B(5) and (6) of the SEBI (Intermediaries) Regulations, 2008, hereby suspend the certificate of registration of M/s. Maliram Makharia Finstock Pvt. Ltd. (SEBI Regn. No. INB010972034) till the time outstanding registration fees is paid in full.

10. A copy of this Order shall be served on the Bombay Stock Exchange Limited of which Maliram is a member for necessary action.

11. This order shall come into force on the expiry of 21 days from the date of this Order.

DATE: February 14, 2011 M. S. SAHOO PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA