Order in compliance with the directions of Hon'ble High Court of Gujarat in the matter of Satpal K. Yadav Vs SEBI and another

WTM/PS/83/MIRSD/MARCH/2012 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER In compliance with the directions of the Hon’ble High Court of Judicature of Gujarat at Ahmedabad issued in the matter of Satpal K. Yadav Vs. Securities and Exchange Board of India and Another (Special Civil Application No. 12577 of 2010), vide order dated October 06, 2010 1. The Hon’ble High Court of Judicature of Gujarat at Ahmedabad, vide order dated October 06, 2010 in the Special Civil Application no. 12577 of 2010 advised the petitioner (Mr. Satpal K. Yadav) to make a detailed representation with complete details to the Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) and further directed SEBI to consider the grievance of Satpal K. Yadav and pass appropriate reasoned order in accordance with law, within four months after giving reasonable opportunity of hearing.

2. In compliance with the order of the Hon’ble High Court, Satpal K. Yadav vide letter dated November 13, 2011 submitted his grievance to SEBI. The brief facts of the case as stated by the petitioner, Satpal K. Yadav are as follows: Satpal K. Yadav had approached one Mr. Ripendra Mehta, the sole proprietor of Corbett Ripe Securities, a sub-broker to Anagram Stock Broking Limited (hereinafter referred to as ‘Anagram’) for opening a trading account in August, 2006 and filled the necessary application form. In this regard, Ripendra Mehta demanded security in the form of shares and cash. Pursuant to this, Satpal K. Yadav had issued a cheque for a sum of `15,000 in the name of ‘Ripen Stock Broking’ and also delivered certain shares as security to Ripendra Mehta, details of which shares are detailed hereunder: - 100 shares of Indraprastha Gas Limited - 500 shares of Surana Tele - 266 shares of IDFC Limited - 50 shares of Bharat Electronics Limited - 100 shares of Kotak Bank

Thereafter, the client no. RY109 was allotted to the petitioner and he started trading in the shares. It has been submitted that Satpal K. Yadav had traded in the shares till September, 2007. As per the statement of accounts, issued by Ripendra Mehta on the letter head of Ripen Stockbroking, the book profit of Satpal Yadav was shown as `31,989. Further, as per the client ledger provided by Ripendra Mehta to Satpal Yadav detailing the transactions carried out in the pool account from June 13, 2007 to September 21, 2007, show that scrips available as deposit and scrips of Infosys (2 lots) and Crude (1 lot). When Satpal K. Yadav tried to contact Ripendra Mehta, he remained unavailable. Satpal K. Yadav has submitted that he has neither received the said book profit of `31,989 nor the shares from Ripendra Mehta till the date of application.

Satpal K. Yadav in his letter has contended that Anagram and Corbett Ripe Securities have violated the statutory provisions/ duties towards the retail/ small investors and requested SEBI to take necessary action as against these.

3. Thereafter, SEBI sought information from Anagram and Ripendra Mehta, the proprietor of the sub-broker Corbett Ripe Securities. Anagram, vide its letter dated December 16, 2010 replied and submitted that the petitioner was not its client and that they had no relationship with him directly or through Ripendra Mehta. It was also submitted that Satpal K. Yadav had neither executed any member client agreement with it nor executed any tri-partite agreement with Corbett Ripe Securities and Anagram. Further, it has been submitted that they had not issued any client code viz. RY109 to Satpal K. Yadav or any other client and they had no relationship/ dealing with Ripen Stock Broking Company. Anagram has admitted that Corbett Ripe Securities was its sub-broker and that there has been no dealing between Corbett Ripe Securities and Anagram after October, 2007.

Anagram also relied upon a letter dated December 06, 2010 received from Ripendra Mehta wherein he has admitted his liability towards Satpal K. Yadav and stated that it was a private/ personal arrangement between him and the petitioner for trading in the market and sharing of profits. In the said letter Ripendra Mehta has admitted his liability towards Satpal K. Yadav and has agreed to pay-back the same. Anagram also submitted that Corbett Ripe Securities was registered as its sub-broker and they have no dealings with it after October, 2007 and the notice of termination was issued to it on March 01, 2008.

4. Ripendra Mehta vide letter dated December 06, 2010 addressed to SEBI submitted that Satpal K. Yadav was his friend and wished to make money in the share market with the shares he was already having, without opening account in his name. It was in this regard that Ripendra Mehta suggested to Satpal K. Yadav about transferring the shares in the demat account of Ripendra Mehta. Ripendra Mehta kept these shares with his principal broker as collateral and carried out the trading. It has been submitted by Ripendra Mehta that he used to send Satpal K. Yadav, the details of the transactions and the share of profits due to Satpal K. Yadav. Later on, Ripendra Mehta submitted that, due to the market crash, his account had margin shortage and the scrips held as collaterals were sold out by the principal broker, which details were duly informed to Satpal K. Yadav. Satpal K. Yadav refused to accept the loss and Ripendra Mehta agreed to accept the entire responsibility of the loss and compensate the loss. Ripendra Mehta vide this letter has submitted that, it is his responsibility to clear the dues and he will do when he is in a position to do so. He submitted that it is a personal matter and requested SEBI to ignore the complaint. Similar submissions were forwarded by Ripendra Mehta to SEBI vide another letter of his dated December 29, 2010.

5. Pursuant to these, SEBI vide letter dated December 23, 2010, forwarded the replies of Ripendra Mehta and Anagram to Satpal K. Yadav seeking his comments. However, no reply was received from the petitioner. Therefore,

SEBI sent another letter dated January 11, 2011 to Satpal K. Yadav, asking about the contradictions, tripartite agreement, contract notes issued, connection with Ripendra Mehta and the total claim as against Ripendra Mehta. In the meantime, SEBI also issued a letter dated January 11, 2011 to Ripendra Mehta advising him to provide certain additional information relating to the case.

Satpal K. Yadav through his advocate vide letter dated January 19, 2011 replied to the letter of SEBI submitting therein that he had entered into an agreement with Ripendra Mehta, proprietor, Corbett Ripe Securities and the trading was done through him on the exchange. It was submitted that Ripendra Mehta accepted the application and a deposit of `15,000 from him, but he had not received the tripartite agreement. Satpal K. Yadav also submitted that the security in the form of money and shares was given to Ripendra Mehta, on his demand, as he had no knowledge that the securities were required to be given directly to the broker. He further submitted that Ripendra Mehta later on forwarded the said securities as collaterals to Anagram. It is also submitted that the value of the five scrips at the relevant time was about `2.75 lac. Satpal K. Yadav also said that he was not having any connection with Ripen Stock Broking Company and Ripendra Mehta. The contract notes were supplied to him by the authorized signatories of Ripen Stock Broking Company and as he was not aware of the SEBI norms/ guidelines and he did not pay any attention to it. He had no agreement with Ripendra Mehta to share profits or loss in the ratio of 70:30 and Ripendra Mehta had charged brokerage for purchasing and selling of shares. Further, Ripendra Mehta had deposited security obtained as collaterals with the principal broker namely Anagram. The loss of profit is about `32,000 as in October, 2007. He has stated that he is unaware of the other name for Ripendra Mehta’s business. His claim is against Ripendra Mehta for the loss of the security deposit and non-payment of profit and expenses, interest, etc. which comes to `6 lacs.

Ripendra Mehta vide his email dated February 04, 2011, submitted to SEBI that he had an account with Anagram with the client code 11200921 and do not exactly remember the date of the last trade done.

6. SEBI also issued a letter to Anagram dated March 17, 2011 for furnishing certain information/ documents relevant to the present case. Anagram vide its letter dated March 24, 2011 submitted that Satpal K. Yadav was neither a client of Anagram/ Anagram Capital Limited nor Corbett Ripe Securities. Further, it is also submitted that they had no knowledge about the existence of Ripen Stock Broking Company.

SEBI vide another letter dated May 10, 2011 again asked Satpal K. Yadav to furnish the contract notes along with the demat statement/ any document showing transfer of shares to Ripendra Mehta, statement received from Ripendra Mehta etc. Satpal K. Yadav replied to this vide his letter dated June 20, 2011 and submitted the documents available with him like the copy of receipt of `15,000, copies of summarized holding statements, copies of a few contract notes, copy of the statement/ ledger of transactions etc. Satpal K. Yadav has submitted that Ripendra Mehta had charged brokerage in each transaction and he had not appointed him as portfolio manager and there is no agreement for sharing profit at 70:30.

7. Thereafter, in terms of the order of the Hon’ble High Court, SEBI granted an opportunity of personal hearing to Satpal K. Yadav, Ripendra Mehta and Anagram on January 19, 2012. However, the same was rescheduled to February 14, 2012 due to official exigencies. In the meantime, Satpal K. Yadav vide his letter dated February 13, 2012 showed his inability to appear for the personal hearing and requested to decide the matter on the basis of the written submissions filed by him.

8. In view of the above, I proceed with the matter on the basis of the material available on record including the submissions made by Satpal K. Yadav, Ripendra Mehta and Anagram. The Hon’ble Court has directed SEBI to examine the grievance of Satpal K. Yadav and find whether Anagram and Ripendra Mehta have failed in discharging their legal obligation.

9. On perusing the documents that have been referred above, I am unable to find any wrongdoing on Anagram’s part, the broker with whom Corbett Ripe Securities was registered as sub-broker. It is seen that Satpal K. Yadav has not produced any agreement he ought to have entered as a client dealing in securities, with Anagram/ Corbett Ripe Securities, before opening an account for trading in the securities market. Further, there is nothing on record to show that the shares provided by Satpal K. Yadav were sold by Anagram in the market. Anagram in his submissions has said that the client code RY109 was not issued by it. Satpal K. Yadav also has not produced anything to prove the contrary. Further, I note that Anagram has submitted that it had not executed any trade for Ripendra Mehta or Corbett Ripe Securities from August, 2006 till February, 2011.

10. Based on the facts available on record, I arrive at a prima facie conclusion that Ripendra Mehta had accepted shares in his personal account and also money from Satpal K. Yadav. It is also the case of both the parties that Ripendra Mehta had taken shares and money of Satpal K. Yadav and caused loss to him. I note that Ripendra Mehta was the proprietor of Corbett Ripe Securities. From the available records, it is seen that the shares of Satpal K. Yadav accepted by Ripendra Mehta were not deposited with Anagram and the same were handled by Ripendra Mehta at his will. It is seen that Satpal K. Yadav has failed to submit copies of delivery instruction slips/ any other document in support of his claim of transfer of shares to Ripendra Mehta. To confirm the claim of Satpal K. Yadav, SEBI sought information from National Securities Depository Limited and Central Depository Services (India) Limited in order to ascertain the transfer of shares from the demat account of Satpal K. Yadav to Ripendra Mehta. The information obtained by SEBI revealed that Satpal K. Yadav had transferred following shares in off-market to Ripendra Mehta on June 06, 2007: - Bharat Electronics Limited – 50 shares

- Glodyne Technoserve Limited – 100 shares - Kotak Mah. Bank – 100 shares - SREI Infra Finance – 100 shares It is also further revealed that upon receiving the shares, Ripendra Mehta sold these through another broker on June 08, 2007. Considering this, the submission of Ripendra Mehta regarding the shares received from Satpal K. Yadav, given as collateral to the principal broker is not correct. I note that Ripendra Mehta had accepted cheque from Satpal K. Yadav in the name of one Ripen Stock Broking for the purpose of trading in the securities. I have perused the contract notes, statements/ ledger of transactions issued by Ripendra Mehta to Satpal K Yadav and found that they are similar to the contract notes prescribed by the stock exchanges for the stock broker and also charged brokerage.

11. These acts of Ripendra Mehta, the proprietor, Corbett Ripe Securities are prima facie not in compliance with the SEBI Circular bearing no. SEBI/MIRSD/DPS-1/Cir-31/2004 dated August 26, 2004, which mandates that payment shall be made only by account payee cheque in favour of the firm/ company of the trading member and delivery of shares to be given to the concerned member.

After having considered the case on merits, in my opinion, the practice adopted by Ripendra Mehta is prima facie in violation of the established principles of trading in the securities market and the code of conduct prescribed for sub-brokers in Schedule II under Regulation 15 of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.

12. In view of the foregoing, in compliance with the directions of Hon’ble High Court of Gujarat at Ahmedabad, I observe as under:

- Ripendra Mehta, proprietor, Corbett Ripe Securities is prima facie found acting in violation of the Clauses A(1), A(2) and C(4) (as applicable at the relevant point of time) of the code of conduct prescribed for sub-brokers in Schedule II under Regulation 15 of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992. - The case against Anagram appears to be weak as neither the shares nor the money had come to its account. - As regards the claim of Satpal K. Yadav against Ripendra Mehta, I note that SEBI is not the appropriate forum for such claims. He may take other remedies available under law.

13. Therefore, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 24(1) of the Securities and Exchange Board of India (Intermediaries) Regulation, 2008 hereby direct that proceedings under the Securities and Exchange Board of India (Intermediaries) Regulation, 2008 shall be initiated as against Corbett Ripe Securities (prop: Ripendra Mehta).

14. It is clarified that the findings recorded in this order are prima facie in nature. The designated authority shall conduct the proceedings uninfluenced by any of the observations made above.

DATE : MARCH 27, 2012 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA