Order in respect of Sanchay Fincom Ltd. and Sanchay Finvest Ltd. in the matter of Mr. Sanjay Dangi and other associates

1. The Securities and Exchange Board of India (hereinafter referred to as SEBI) vide an ad-interim ex-parte Order dated December 2, 2010 hereinafter referred to as the Order), had issued certain directions in the matter of Mr. Sanjay Dangi, his associates and other entities in various scrips. In the said Order, the stock stock brokers, Sanchay Fincom Limited and Sanchay Finvest Limited were directed not to buy, sell or deal in the securities in their own/proprietary account in any manner till further directions in this regard and not to take/deal with fresh/new clients with immediate effect until further orders

2. Subsequent to the aforesaid SEBI order, vide letter dated December 31, 2010 both the stock brokers sought time to file the reply. Thereafter, vide letter dated January 20, 2011, Sanchay Finvest Limited filed reply. Sanchay Fincom Limited filed its reply vide letter dated January 18, 2011 and also sought opportunity of personal hearing. An opportunity of personal hearing was provided to both of them on February 10, 2011. Mr. Vinay Chauhan, Counsel alongwith Mr. Naresh Sharma, Director of both the stock brokers and Mr. Avinash Tiwari, CEO of Sanchay Finvest Limited appeared for the stock brokers and made submissions before me.

3. I have considered the submissions made on behalf of both the aforesaid stock brokers. The issue for consideration in this Order would be to decide whether the ad-interim ex-parte directions issued vide the said Order against them need to be continued, modified or revoked in the light of their submissions and the facts and circumstances of the matter.

4. As stated in the Order, SEBI had initiated an investigation, on the basis of a reference and documents (as mentioned in the Order) received from the Income Tax Department (the IT Department), to find out whether there was any concentration of shareholding of the company Murli Industries Limited (hereinafter referred to as MIL) among the ten entities mentioned therein and whether there was any attempt to manipulate the shares of MIL before the FCCB issue. The said reference had informed SEBI of the manipulation in the shares of MIL and the profit sharing arrangement between MIL and one Mr. Sanjay Dangi. Based on the preliminary findings of the aforesaid investigation, it appeared to SEBI that the Dangi group entities (as defined in the Order) have influenced the price rise in the various scrips during the ‘pricing period’ of FCCBs and thereafter, exited the scrips at a profit, as per the alleged agreement made with the promoters of the company. The said SEBI order has covered the trading of Dangi Group entities in five scrips i.e. MIL, Ackruti City Limited (hereinafter referred to as ACL), Welspun Gujarat Stahl Rohern Limited (hereinafter referred to as Welspun), Brushman India Limited (hereinafter referred to as BIL) and RPG Transmission Limited (hereinafter referred to as RPG). SEBI observed noticeable trading by the Dangi group entities in the shares of the aforesaid companies, which were prima facie responsible for the increase in the share price as well as spurt in trading volume. It is mentioned in the Order as to how the share price was inflated through the trading by the Dangi group entities. The manner of establishment of new higher price and variation in the last traded price because of the trades of the Dangi group entities during the relevant period had been explained in detail in the Order.

5 I note that in the Order, the reference to these two stock brokers is given below:

Sanchay Fincom Limited a. Para 37 (Page23) alleging that certain Dangi Group entities traded through the stock stock broker and Mr. Sanjay Dangi & Mrs. Alpna Dangi belong to the promoter group of Sanchay Fincom Limited. b. Para 51 (Page 38) stating the past actions taken against Sanchay Fincom Limited. c. Para 53(f) (Page 41) directing Sanchay Fincom Limited not to buy, sell or deal in the securities in their own/proprietary account in any manner till further directions in this regard and not to take/deal with fresh/new clients with immediate effect until further orders d. Page 55 listing the role and action taken against Sanchay Fincom Limited in various other matters in SEBI.

Sanchay Finvest Limited a. Para 37 (Page23) alleging that certain Dangi Group entities traded through the stock stock broker and Mr. Sanjay Dangi, Mrs. Alpna Dangi and Mr. Sunil Dangi belong to the promoter group of Sanchay Finvest Limited. One of the offices of the stock stock broker, Sanchay Finvest Limited is located at the office of Pacific Corporate Services Limited, a Dangi group entity. b. Para 51 (Page 38) stating the past actions taken against Sanchay Fincom Limited. As a listed company, the stock broking firm Sanchay Finvest Limited has failed to comply with the clauses of listing agreement prompting BSE to initiate appropriate penal actions. c. Para 53(f) (Page 41) directing Sanchay Finvest Limited not to buy, sell or deal in the securities in their own/proprietary account in any manner till further directions in this regard and not to take/deal with fresh/new clients with immediate effect until further orders d. Page 55 listing the role and action taken against Sanchay Finvest Limited in various other matters in SEBI.

6. Sanchay Fincom Limited has submitted that it is registered with SEBI since October 20, 2000 as a BSE stock broker and it transacts only in cash segment of the securities market. Over the years, SEBI/BSE has conducted inspection of their systems and operations and the same were found satisfactory except for stray technical violations. More than 85% of its capital belongs to promoter Sharma family comprising of Mr. Suresh Sharma, Mr. Naresh Sharma, Mr. Narottam Sharma alongwith their relatives and group entities whereas Mr. Sanjay Dangi and Mrs. Alpana Dangi holds 10% & 5% respectively. Mr. Sanjay Dangi is also continuing as director of Sanchay Fincom Limited. Though Mr. Sanjay Dangi was its promoter director, he never attended any board meeting and had no role in the affairs of Sanchay Fincom Limited. Similarly, Mr. Sanjay Dangi and Mrs. Alpana Dangi have not attended any shareholders meeting. Regarding the location of office in the premises of Pacific Corporate Services Limited (now known as Mentor Capital Limited), it is stated that the same is operational since September 2002 and was set up there with the permission of its director, Mr. Sanjay Dangi. Out of the alleged Dangi entities, only two entities i.e. Ashok Finstock Limited (hereinafter referred to as AFL) and Mrs. Alpana Dangi are its clients. AFL is registered with Sanchay Fincom Limited as a client since October 2004 and mainly used to do jobbing transactions. AFL was having good financial track record and there was no default in meeting payment/delivery obligations. The details of transactions done by AFL during 2006-10 (year-wise) including the aforesaid five scrips are as follows:

Volume (Number of shares) Year Scrip Buy Sell 2006-07(No. of scrips Traded – ACL 19238 19238 124) MIL 3,99,444 4,08,377 RPG 30,97,150 30,88,259 Welpsun 42,42,802 42,43,684 2007-08(No. of scrips Traded – ACL 47,82,485 47,80,126 126) BIL 3860 3800 MIL 39506 40227 RPG 9,44,904 9,56,521 Welspun 3,22,90,560 3,22,41,321 2008-09(No. of scrips Traded – ACL 3318068 3314670 54) BIL 20,67,936 19,96,819 RPG (new name “KEC”) 20 20 Welpsun 47,71,852 47,50,417 2009-10(No. of scrips Traded – ACL 6,34,357 6,33,149

82) BIL 1,92,016 1,93,733 RPG (new name “KEC”) 3795 3795 MIL 0 91 Welpsun 93,52,917 93,50,750 Regarding the trading pattern observed in the scrip of MIL, it is stated that MIL had issued certain price sensitive announcement during the examination period like acquisition of land from MIDC for Mines and Greenfield Cement plant (November 23,2006) etc. The stock broker further stated that MIL is a fundamentally sound company and there was nothing unusual which could lead to suspicion about trading of AFL. Similar submissions were made in respect of the trading of AFL in other four scrips i.e. ACL, BIL, RPG and Welpsun. During the examination period mentioned in the Order, apart from AFL, other clients of Sanchay Fincom Limited have also traded in these five scrips. At the relevant time, it was dealing on behalf of thousands of clients in various scrips with huge turnover. Sanchay Fincom Limited also referred to the decision of the Hon’ble Securities Appellate Tribunal in the matter of Kasat Securities Limited Vs. SEBI, to support its contention that there has to be material on record to show that the stock broker was involved in the manipulation activities. It submitted that it has not done proprietary trading in any of the five scrips mentioned above. In compliance of the directions stated in the Order, its client-beneficiary demat account (Client ID - 11080147, DP ID – IN 300484) is also frozen alongwith other demat accounts and that the said demat account contains securities exclusively belonging to the clients. Mrs. Alpana Dangi has traded during 2006-07 & 2009-10 through Sanchay Fincom Limited and there was no trading in the interim period. The details of transaction done by her during 2006-10 (year-wise) including the aforesaid five scrips are as follows:

Volume (Number of shares) Year Scrip Buy Sell 2006-07(No. of scrips Traded – 10) RPG 100 100 2009-10(No. of scrips Traded – 11) ACL 50 50 Welpsun 100 100

Sanchay Fincom Limited also submitted that AFL and Mrs. Alpana Dangi had only shared a client-stock broker relationship with it.

7. Sanchay Finvest Limited had also made similar submissions as that of Sanchay Fincom Limited. It was submitted that it is registered with SEBI since 2000 as a NSE stock broker. Over the years, SEBI/BSE has conducted inspection of their systems and operations and the same were found satisfactory except for stray technical violations. More than 50% of its capital belongs to promoter Sharma family comprising of Mr. Suresh Sharma, Mr. Naresh Sharma, Mr. Narottam Sharma alongwith their relatives and group entities whereas Mr. Sanjay Dangi, Mrs. Alpana Dangi & Mr. Sunil Dangi collectively holds 6.30% respectively. Mr. Sanjay Dangi is also continuing as director of Sanchay Finvest Limited. Though Mr. Sanjay Dangi is admitted to be its promoter director, it is stated that he never attended any board meeting and has no role in its affairs. Similarly, none of the aforesaid three shareholders (Mr. Sanjay Dangi, Mrs. Alpana Dangi & Mr. Sunil Dangi) have attended any shareholders meeting. Regarding the location of office in the premises of Pacific Corporate Services Limited (now known as Mentor Capital Limited), it is stated that the same is operational since September 2002 with the permission of the common director Mr. Sanjay Dangi. Out of alleged Dangi entities, only two entities i.e. Ashok Finstock Limited (hereinafter referred to as AFL) and Mrs. Alpana Dangi are clients of Sanchay Finvest Limited. It was submitted that AFL is registered with Sanchay Finvest Limited as a client since October 2004 and mainly used to do jobbing transactions. AFL was having good financial track record and there was no default in meeting payment/delivery obligations. The details of transaction done by AFL during 2006-10 (year-wise) including the aforesaid five scrips are as follows:

Volume (Number of shares) Year Scrip Buy Sell 2006-07(No. of scrips Traded – 67) RPG 11,83,712 11,91,557 Welpsun 38,45,361 38,47,295 2007-08(No. of scrips Traded –52) ACL 36,30,291 36,33,024 MIL 31790 30678 RPG 6,13,290 6,02,756 Welspun 3,03,98,737 3,04,46,458 2008-09(No. of scrips Traded – 28) ACL 25,44,915 25,47,939 Welpsun 32,48,622 32,69,015 2009-10(No. of scrips Traded – 35) ACL 5,22,002 5,23,232 RPG (new name “KEC”) 2957 2957 Welpsun 75,00,528 75,03,006

Sanchay Finvest Limited has also furnished the same reasons for the trades of AFL in the aforesaid five scrips. In F&O segment, AFL has not traded in the scrip of Welpsun and no information is provided about the trades of AFL in ACL during January 2009-March 2009. During the examination period mentioned in the Order, apart from AFL, other clients of Sanchay Finvest Limited have also traded in these five scrips. At the relevant time, it was dealing on behalf of thousands of clients in various scrips with huge turnover. It has not done proprietary trading in any of the five scrips mentioned above. Though Sanchay Finvest Limited have been alleged to have committed violations of the law as stock broker but the directions issued are in capacity of proprietary traders and not stock brokers. In compliance of the directions stated in the order, its client –beneficiary demat account (Client ID - 11080155, DP ID – IN 300484) is also frozen alongwith other demat accounts and the said demat account contains securities exclusively belonging to the clients. In this regard, for the purpose of reconciliation of shares lying in the account, information was sought from the stock stock brokers. Sanchay Finvest Limited has submitted that it has already provided all the information to SEBI/stock exchanges. Mrs. Alpana Dangi has traded during 2006-07, 2009-10 and 2010-11 through Sanchay Finvest Limited and there was no trading in the interim period. The details of transaction done by her during 2006-11 (year-wise) including the aforesaid five scrips are as follows:

Volume (No. of shares) Year Scrip Buy Sell 2006-07(No. of scrips Traded – 1) Welpsun 500 500 2009-10 No details provided by Sanchay Finvest Limited 2010-11(No. of scrips Traded – 19) None of the five scrips Nil Nil

Sanchay Finvest Limited also submitted that it shared only a client-stock broker relationship with the aforesaid clients.

8. I note that both the stock brokers i.e. Sanchay Fincom Limited & Sanchay Finvest Limited are owned by Sharma family, alongwith relatives & group entities having more than 85% & 50% of the capital of respective stock brokers. The observations against both the stock brokers are also similar in the Order dated December 2, 2010. However, certain distinguishing factors between the two entities are listed below:

S. No. Sanchay Fincom Limited Sanchay Finvest Limited 1 BSE member NSE member 2 Deals in Cash Segment Deals in Cash as well as F&O segment 3 Not listed Listed at BSE 4 Not located at the premises of Located at the premises of Mentor Capital Mentor Capital Limited Limited 5 No shareholding by Mr. Sunil Dangi Mr. Sunil Dangi holds cumulatively 6.30% of the capital with Mr. Sanjay Dangi & Mrs. Alpana Dangi

It is noted from the Annual Return of Sanchay Fincom Limited for the financial year 2003-04 that Mr. Sanjay Dangi holds the position of director since June 1, 2000. As per reply of Mr. Sanjay Dangi dated May 4,2011, he resigned from the directorship of Sanchay Fincom Limited and Sanchay Finvest Limited on February 14, 2011 i.e. two and half months after the issuance of the Order. Thus, association of Mr. Sanjay Dangi with these stock brokers began in year 2000, continued during the examination period mentioned in the Order for various scrips and the disassociation happens on February 14, 2011. It is submitted that Mr. Sanjay Dangi has not attended any board or shareholders meeting. However, it is an admitted position for both Sanchay Fincom Limited and Sanchay Finvest Limited that Mr. Sanjay Dangi and Mrs. Alpana Dangi belong to the promoter group of Sanchay Fincom Limited and Mr. Sanjay Dangi, Mrs. Alpana Dangi and Mr. Sunil Dangi belong to promoter group in Sanchay Finvest Limited. Mr. Sanjay Dangi remained a director on the board of both these broking firms during the relevant period. It is also an admitted position that he resigned from the directorship of both these firms only in February 2011, i.e. much after the date of the SEBI order dated December 02, 2010. It is also worth noting that Sanchay Finvest Limited as well as Sanchay Fincom Limited, as admitted in their replies, had trading terminals located in the same address as that of Mentor Capital Limited i.e. 713 Raheja Centre, Nariman Point, Mumbai 400

021. The fact that the broking firm is located in the premises of an entity which is controlled by the Dangi group (Mr. Sanjay Dangi, Mr. Sunil Dangi and Mrs. Alpana Dangi are major shareholders of Mentor Capital Limited, holding more than 68% its capital. Mr. Sanjay Dangi and Mrs. Alpana Dangi are also on the board of directors of Mentor Capital Limited also points towards inter-linkages and associations of the Dangi group and its entities and Sanchay Finvest Limited and Sanchay Fincom Limited on a much larger scale. Such association seen in isolation may appear to be a trivial fact but considering the overall scheme of things, the role of Dangi group entities as a whole as analysed in the order, cannot be ignored either. Thus, for example, the proximity between Mr. Sanjay Dangi and Sanchay Finvest Limited as well as Sanchay Fincom Limited can be judged from the permission granted by him to them for setting up office in the premises of Mentor Capital Limited.

9. It is also noteworthy that Ashok Finstock Limited, an entity based in Surat is registered as a client of Sanchay Finvest Limited which does not have their trading terminals in Surat and is trading in huge volume, running into crores with this Mumbai based stock broker, located at the premises of an entity owned and controlled by Mr. Sanjay Dangi and his family members. It is informed by NSE that Sanchay Finvest Limited never had any terminal at Surat and the same entity has location at the premises of Mentor Capital Limited. BSE has informed that Sanchay Fincom Limited has only one terminal (18) located at Surat w.e.f. May 31,2007 and the same was discontinued since November 15,2010. AFL is registered as a client of Sanchay Fincom Limited since October 2004 and in the absence of terminal at Surat, the mode of placing orders and the person who places orders on behalf of a day trader AFL needs examination. The association of Mr. Sunil Dangi, brother of Mr. Sanjay Dangi, continues with AFL as statutory auditor, even after his resignation as director on May 1, 2005. Further, the directors who resigned from Ashok Finstock Limited on the said date (Mr. Sanjay Patel & Mr. Manoj Pamecha) along with Mr. Sunil Dangi are presently the directors of Mentor Capital Limited. Again while these facts seen in isolation may seem innocuous, considering the totality of such facts and circumstances, do give a strong indication of close links between Dangi group entities, Sanchay Finvest and Sanchay Fincom and Ashok Finstock Limited as a whole. The specific role of these entities needs to be unraveled in a detailed investigation which has already been ordered in the matter. I note that AFL has traded in all the five aforesaid scrips and substantially in Welpsun.

10. I note that AFL is alleged to be a Dangi entity in the order and traded significantly as compared to other entities in various scrips discussed therein. The tables stated below are mere reproduction of Table 10, 11,13,14,17 & 18 of the order but they clearly illustrate the contribution of AFL in establishing the new price and executing trades at LTP & LTP+. Table 10 Remarks Instances of gross buy volume Trades New LTP +LTP At LTP (quantity) price or above LTP Total trades 1507 88 697 454 1151 252608 % to total 5.84 46.25 30.13 76.38 Trades of Dangi 537 57 297 167 464 104454 group Entities as buyers Mentor Capital 65 2 44 18 62 29000 Limited Ashok Finstock 472 55 253 149 402 75454 Limited Other buyers 970 31 (19 400 287 (121 687 (184 clients) (133 clients) clients) clients) % to total 35.6 64.77 42.6 36.78 40.3 41 % to Dangi group 10.61 55.3 31.09 86.4 entities trades

Table 11 Remarks Instances of gross buy volume (quantity) Entity Trades New LTP +LTP At LTP or Name high above LTP BSE Total trades 22,878 476 10,482 6,401 16,883 2,192,906 % to total 2.08 45.82 27.98 73.8 trades

Trades of 3,735 164 1,903 1,207 3,110 710,977 Sanjay Dangi Entities as buyers Mentor 614 3 331 211 542 284,208 Capital Limited Supersun 7 0 3 3 6 20,600 Trading Co. Pvt. Limited Top city 21 0 8 13 21 12,656 Mercantile Co. Pvt. Limited Ashok 3,093 161 1,561 980 2,541 393,513 Finstock Limited Other 19785 312 8579 5194 (1276 13773 buyers (154 (1375 entities) (1815 clients) clients) clients) % of total 16.33 34.45 18.15 18.86 18.42 32.42 trades % to Sanjay 4.39 50.95 32.32 83.27 Dangi trades

Table 13 Remarks Instances of gross buy Volume Entity Name Trades New LTP +LTP At LTP or (quantity) price above LTP BSE Total 949,205 4127 559,093 200,651 759,744 56,604,869 % to total 100 0.43 58.9 21.14 80.04 Dangi 39,939 77 27,269 5,499 32,768 7,858,388 group as buyers Mentor Capital 2,317 12 1,368 694 2,062 2,317,823 Limited Supersun 515 0 351 94 445 418,943 Trading Co. Pvt. Limited Top city 821 0 565 166 731 521,201 Mercantile Co. Pvt. Limited Ashok Finstock 36,286 65 24,985 4,545 29,530 4,600,421 Limited Other buyers 909266 4050(715 531824 195152 726976 clients (42653 (33369 (50007 clients) clients) clients) % to 100 1.86 68.28 13.77 82.05 Dangi group trades NSE Total 1,459,471 3612 946,40 262,06 1,208,475 55,681,658 9 6 % to total 100 0.25 64.85 17.96 82.8

Dangi 46,866 90 34,064 5296 39,360 5,228,119 group as buyers Mentor Capital 1509 0 1,049 341 1,390 965,713 Limited Supersun 911 0 726 119 845 399,336 Trading Co. Pvt. Limited Top city 913 0 707 136 843 305,218 Mercantile Co. Pvt. Limited Ashok Finstock 43533 90 31,582 4700 36,282 3,557,852 Limited Other buyers 1412605 7522 912351 256770 1169121 (768 (50314 (38425 (58326 clients) clients) clients) clients) % to 100 0.19 72.68 11.30 83.98 Dangi group trades

Table 14 Remarks Instances of gross buy volume Entity Trades New LTP +LTP At LTP or (quantity) Name price above LTP BSE Total 24,480 218 11,909 6,727 18,636 15,189,195 % to total 100 0.89 48.65 27.48 76.13 Dangi group 4,753 84 2,335 1,801 4,136 3,039,682 Entities as buyers Mentor 393 7 195 177 372 930,342 Capital Limited Ashok 4,332 77 2,132 1,607 3,739 2033709 Finstock Limited Amit 28 0 8 17 25 75631 Business Limited Other 19727 132 (49 9574 4926 14500 buyers clients) (1484 (1123 (1848 clients) clients) clients) % to total 19.42 38.53 19.61 26.77 22.19 20.01 % to Dangi 100 1.77 49.13 37.89 87.02 group trades

Table 17 Remarks Instances of gross buy volume Entity Trades New LTP +LTP At LTP or (quantity) Name Price above LTP BSE Total 1,689,887 2042 1,001,332 348,001 1,349,333 226,782,626

% to 0.12 59.25 20.59 79.85 total Dangi 19,935 39 14,292 1,685 15,977 10,427,664 Entities as buyers Mentor 1,567 1 1,136 260 1,396 29,82,660 Capital Limited Amit 568 0 452 35 487 1,72,898 Business Limited Alpana 1 0 1 0 1 100 Sanjay Dangi Ashok 17,799 38 12,703 1390 14,093 72,72,006 Finstock Limited Other 16,69,952 2003 9,87,040 3,46,316 13,33,356 entities (774 (92,070 (68,215 (1,09,411 clients) clients) clients) clients) % to 0.20 71.69 8.45 80.15 Dangi group trades

Table 18 Remarks Instances of gross buy Volume Entity Trades New LTP +LTP At LTP or (Quantity) Name price above LTP BSE Total 201,044 887 105,603 47484 153,087 20,777,642 % to 100 0.44 52.53 23.62 76.15 total Dangi 20,697 142 13,731 4310 18,041 5,073,289 Entities as buyers Ashok 18736 129 12591 3652 16,243 3,295,532 Finstock Limited Mentor 1796 13 1076 568 1644 1,550,757 Capital Limited Top city 85 0 40 38 78 161,000 Mercantile Co. Pvt. Limited Supersun 80 0 24 52 76 66,000 Trading Co. Pvt. Limited Other 1,80,347 745 (307 91872 43173 135045 entities clients) (13146 (10513 (16379 clients) clients) clients) % to 10.29 16.01 13 9.08 11.78 24.42 total % to 100 0.69 66.34 20.82 87.17 Dangi group trades

I note from the above tables that AFL acting in concert with Mentor Capital Limited has contributed towards establishing new price in the shares of the five companies, discussed in the Order, and also executed transactions at LTP as well as LTP+ to maintain the price of the respective scrips.

11. Since both these stock brokers have raised another issue regarding freezing of their client beneficiary account by depositories pursuant to SEBI Order, I would deal with this also, since it is emanating from the said Order. I note that pursuant to the order, demat accounts of Sanchay Fincom Limited & Sanchay Finvest Limited are frozen. After the issuance of the order, both the stock brokers represented that their client beneficiary account (Client ID – 11080147) & (Client ID – 11080155) were also frozen and contains securities of their clients only. Based on the representations, SEBI has asked stock exchanges and depositories to cross verify the nature and purpose of the various demat accounts held by the said stock brokers and ascertain the factual veracity of the submissions made by the aforesaid stock stock brokers that the shares in the frozen beneficial owner account belongs to their clients other than those against whom SEBI has passed directions in the said order and then, take appropriate action. I note that both the stock exchanges are working towards resolving the issue. SEBI has also received complaints from various clients of these stock brokers about non payment of funds and non release of securities. Despite there being no direction against them for non payment of money, these stock brokers are not making payments to their clients even for clients who traded in F&O segment only. Sanchay Finvest Limited has stated in its reply dated January 20, 2011 that it has supplied all the information to the stock exchanges. But, as informed by NSE to SEBI, it has failed to provide the complete documents till date. Thus, due to cavalier approach of Sanchay Finvest Limited in providing the documents, NSE is taking time to resolve the issue. Accordingly, the release of shares into the accounts of their clients is getting delayed and such act is definitely not in the interest of investors. Being a registered intermediary, duty is cast on these stock brokers to serve their clients diligently and ensure smooth functioning of the securities market.

The contention of both the stock brokers is that the aforesaid demat accounts were marked as client beneficiary accounts and thus, should not have been frozen by the Depositories. On perusal of the account opening documents of these two accounts, I note that there is no reference of the said account designated as “margin account”, for the purpose of holding shares of clients for margin purposes. Further, the said accounts were used for holding shares for trades of clients and for proprietary trading as well, as evident from the report of Chartered Accountant appointed by BSE. Hence the contention of the stock broker that the said accounts were used for clients only is not tenable. From the said report, it is also seen that there are shares lying in the demat account of Sanchay Fincom Limited from the year 2001-02 onwards. It is unlikely that a client will continue to hold the shares in the account of the stock broker for more than 10 years. These stock brokers already had history of violations by them and had been penalised by SEBI/Stock exchanges accordingly. Thus, it appears that the role of these stock brokers is not just limited to Dangi group entities but may extend to other scrips for other clients. It is imperative that this logjam of non reconciliation of the holdings in these account and non-payment of genuine dues of clients is resolved at the earliest. I hereby direct both Sanchay Fincom and Sanchay Finvest to immediately provide the pending information to both exchanges.

12. Therefore, considering the preliminary findings, the facts and circumstances of the case so far and the submission of the entities, I am of the considered view that the interim ex-parte directions against them should continue. Since the investigation is in progress, it would consider the submissions/contentions and the documents furnished by them and arrive at conclusions as to the involvement or otherwise of them in this matter. The role of the entities would be reviewed on completion of the investigation and appropriate course of proceedings would be taken, as deemed fit, in accordance with law.

13. In view of the foregoing, I, in exercise of the powers conferred upon me under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Sections 11(4), 11B and 11D thereof, hereby confirm the ad-interim ex-parte directions issued vide the Order dated December 02, 2010 against Sanchay Fincom Limited and Sanchay Finvest Limited.

14. The investigation in the matter shall be concluded expeditiously and appropriate action as warranted, be taken in accordance with law,.

DR. K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

PLACE: MUMBAI DATE: JULY 19, 2011