Order in respect of Classic Share & Stock Broking Services Ltd. in the matter of Silverline Technologies Ltd.

ORDER Under Section 12(3) of the SEBI Act read with Regulation 28(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

IN RESPECT OF CLASSIC SHARE & STOCK BROKING SERVICES LTD. IN THE MATTER OF SILVERLINE TECHNOLOGIES LTD.

1. During the investigation into the matter of dealing in shares of M/s Silverline Technologies Limited, previously known as Silverline Industries, conducted by SEBI for the period October 01,1999 to June 09,2000, it was inter alia, observed that there were certain matched trades between M/s Classic Shares and Stock Broking Services Limited (hereinafter referred to as "the noticee") and M/s Triumph International Finance Ltd., M/s Triumph Securities Pvt. Ltd. and Milan Mahendra Securities Pvt. Ltd. It was also observed that the notice had executed certain transactions in the shares of the company that were cross deals. The investigations also revealed that in few instances the noticee had transferred the net receivable obligations of its client, M/s Classic Credit to the demat account of another client, M/s Vidyut Investments.

2. The above transactions and conduct of the noticee were prima facie observed to be in violation of the provisions of regulations 4(b) ,(c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (PFUTP Regulations 1995), clauses A (3) and A (4) of Schedule II under regulations 7 of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 ( the Stock Brokers Regulations). Accordingly, SEBI initiated proceedings under section 12(3) of SEBI Act read with regulation 5(1) of SEBI (Procedure for Holding Enquiry and Imposing Penalty) Regulations, 2002 (since repealed) and appointed an Enquiry Officer to enquire into the alleged violation by the noticee.

3. After repeal of the Enquiry Proceedings Regulation; the Enquiry Officer / Designated Authority (hereinafter referred to as 'the DA') continued with the proceedings in view of provisions of regulation 38 (2) of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as 'the Intermediaries Regulations'). The DA in his Report dated

January 31, 2011 found that allegation of cross trade and matched trades do not stand against the noticee for want of evidence. As regards the allegation of transferring net receivable obligations of one of its client's to another client's demat account, the DA observed that the noticee could not provide any evidence in support of its contention that shares were transferred to the respective client's accounts as instructed by the client. In view of the same, the DA has found that the noticee has indulged in the activity detrimental to the interests of the investors and has thus violated the provisions of clause A (4) of Code of Conduct for Stock Brokers as specified in Schedule II read with regulation 7 of Stock Brokers Regulations.

4. After considering the Report, a show cause notice dated May 02, 2011 (SCN) was issued under regulation 28(1) of the Intermediaries Regulations calling upon the noticee to show cause as to why the action as recommended by the DA should not be taken against it. The noticee vide its reply dated June 01, 2011 submitted that since the DA has observed that alleged violation of clause A(4) of Code of Conduct could only be established, no warning may be issued against it as recommended.

5. An opportunity of personal hearing was granted to the noticee on February 07, 2012 to which the noticee sought an adjournment vide letter February 06, 2012. Another personal hearing was scheduled on February 28, 2012 which was adjourned. The noticee vide its letter dated March 7, 2012 reiterated its submissions made in the letter dated June 01, 2011 and submitted that the noticee does not wish a personal hearing in the matter. Therefore, I proceed in the matter on the basis of the material available on record.

6. I have carefully considered the Report of the DA, the SCN and replies of the noticee. I note that the SCN dated May 02, 2011 calls upon the noticee to explain its position on the action recommended by the DA in his Report dated January 31, 2011. I further note that after examination of the show cause notice dated August 13, 2004 issued in the enquiry proceedings and documents relied upon, the Enquiry Officer has found that the charges of violation of regulation 4(b), 4(c) and 4(d) of the PFUTP Regulations 1995 could not be established against the noticee for want of evidence. Therefore, the question to be determined in this proceeding is whether the noticee transferred the net receivable obligation of M/s Classic Credit Ltd. to the demat account of M/s Vidyut Investments Ltd. and if yes, whether this transfer was detrimental to the interest of the investors.

7. In the letter dated September 13, 2004, the noticee has admitted that net obligations of M/s Classic Credit Ltd. have been transferred to the demat account of M/s Vidyut Investments Ltd. However, it was done as per the instruction of its client. I note that at no point of time in the matter, the noticee has submitted any evidence about clients’ instructions for such transfer of obligations. Therefore, there is no reason to take a view other than that taken by the DA in his Report I am of the opinion that this activity of the noticee is detrimental to the interest of investors.

8. Regulation 7 of the Stock Brokers Regulations mandates the stock brokers to abide by the Code of Conduct as specified in Schedule II. Clause A(4) of the Code of Conduct for Stock Brokers provides that stock-broker shall not indulge in any act detrimental to the investors' interest. I find that having indulged in the activity that is detrimental to the interests of investors the noticee has contravened clause A(4) of the Code of Conduct for Stock Brokers specified in Schedule II under regulation 7 of Stock Brokers Regulations.

9. The DA has also found that available records do not indicate the quantum / number of instances of such third party credit of securities. I also note that there is no material on record to suggest that the noticee has made any gain as a result of the violation and also there is no allegation of manipulation on account of such activity of the noticee. In the facts and circumstances of this case, I, therefore, am of the opinion that warning as recommended by the DA to the noticee will be commensurate with the violation found by the DA.

10. I, therefore, in exercise of powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992, read with regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008, hereby issue a warning to the noticee i.e., Classic Share & Stock Broking Services Ltd. and direct it to refrain from indulging in any act that is detrimental to the interest of investors and securities market, in future.

11. This order shall come into force with immediate effect.

Date: March 30th, 2012 Rajeev Kumar Agarwal Place: Mumbai Whole Time Member Securities and Exchange Board of India