Order in the matter of Amit Saraogi (Proprietor of Amit Saraogi and Company)

WTM/GM/EFD/ 65 /2020–21 SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI FINAL ORDER UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 27(5) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008. IN THE MATTER OF – NOTICEE SEBI REGISTRATION NO. AMIT SARAOGI (PROPRIETOR OF AMIT SARAOGI AND COMPANY) INB031468417

BACKGROUND:

1.1 Amit Saraogi and Company is a Proprietorship concern of Amit Saraogi (“Noticee”), having SEBI Registration no. INB031468417 and a member of the Calcutta Stock Exchange (“CSE”) to act as a stock broker.

1.2 Vide a letter dated February 16, 2016, Securities and Exchange Board of India (“SEBI”) had informed the Noticee that it had been decided to carry out an inspection for the period April 1, 2012 till date (“Inspection Period”) to verify that:

a. The books of accounts and other books were being maintained in the manner required under the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (“Stock Brokers Regulations”); b. The provisions of the securities laws such as Securities Contract (Regulation) Act, 1956, SEBI Act, 1992 (“SEBI Act”) and the directions or Circulars, Bye–laws, Rules or Regulations made thereunder were being complied with. c. The Noticee was also requested to send the information sought by SEBI as per the prescribed inspection questionnaire (enclosed in the aforementioned letter) by February 29, 2016.

1.3 Vide a letter dated February 26, 2016 (incorrectly mentioned as February 26, 2014), the Noticee had sought an extension of time (till the first or second week of April 2016) to provide the relevant information and data to SEBI on account of having undergone an operation of his knee and having been prescribed bed rest for a month thereafter. Incidentally, in the aforesaid letter, the Order in the matter of Amit Saraogi (Proprietor of Amit Saraogi and Company)

Noticee had not annexed any other document(s) to substantiate the grounds stated for the adjournment request.

1.4 Vide a letter dated March 2, 2016, SEBI informed the Noticee that inspection being a time bound process, the request for extension of time was not acceptable and accordingly advised it to submit the information sought vide the SEBI letter dated February 16, 2016, immediately. SEBI also informed the Noticee that the inspection will commence from March 11, 2016.

1.5 On the scheduled date of inspection, the Noticee was not present at his office i.e. 18B Brabourne Road, 2nd Floor, Room no. 207, Kolkata - 700001. However, an individual, Buban Singh, who was present at the Noticee’s office, informed the SEBI officials that he was not aware of any inspection. The SEBI officials thereafter, instructed Buban Singh to contact the Noticee but instead were informed that the Noticee was out of station. Subsequent to the inspection, the Noticee had failed to submit the information sought by SEBI and had also not offered any explanation to SEBI for not being present at his office on March 11, 2016.

1.6 Subsequently, vide an e–mail dated October 3, 2017, SEBI had sought information regarding the status of the Noticee from CSE. In its reply dated October 3, 2017, CSE informed SEBI that the Noticee had last traded on March 28, 2017. Thereafter, vide an e–mail dated October 4, 2017, SEBI had sought information regarding the no. of days and trading volume of the Notice for the period from March 11, 2017 till date, from CSE. In its reply dated October 6, 2017, CSE informed SEBI that the Noticee had traded for two days on the BSE Limited (“BSE”)–Capital Market Segment from March 11, 2017 to October 6, 2017 with a trading volume of ₹2,03,92,029.81.

1.7 Subsequently, SEBI initiated enquiry proceedings against the Noticee in terms of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”). SEBI vide an Order dated May 9, 2019 under Section 19 of the SEBI Act read with Regulation 24(1) of the Intermediaries Regulations appointed a Designated Authority (“DA”) to enquire into the violations under Regulation 23(b) of the Intermediaries Regulations and Regulation 27(ix) of the Stock Brokers Regulations as alleged against the Noticee, as per the provisions of the Intermediaries Regulations and to submit the report with recommendations accordingly.

ENQUIRY BY THE DESIGNATED AUTHORITY:

1.8 A Show Cause Notice dated June 24, 2019 (“Enquiry SCN”), was issued to the Noticee under Regulation 25(1) of the Intermediaries Regulations enclosing inter alia a copy of CSE’s above mentioned e–mails dated October 3 and October 6, 2017, respectively. The Noticee was called upon to show cause as to why appropriate recommendations for the alleged violations should not be made against it, by the DA, in terms of Regulation 27 of the Intermediaries Regulations read with Section 12(3) of the SEBI Act. The Noticee was also advised to submit its reply along with documentary evidence(s), if any, within 21 days from the date of receipt of the Enquiry SCN. The Enquiry SCN was duly served upon the Noticee by sending it at its address via speed post. As no reply had been received from the Noticee, another opportunity vide a letter dated July 23, 2019, was provided to him to file written representation(s) in terms of the Intermediaries Regulations. However, despite service of the aforementioned letter, the Noticee did not file any reply.

1.9 Thereafter, upon completion of the enquiry, an Enquiry Report dated September 3, 2019 (“Enquiry Report”) was submitted by the aforesaid DA to the Designated Member (“DM”). In the Enquiry Report, the DA had inter alia noted that:

A. The Noticee was sporadically active in the securities market at the relevant time but however, had failed to produce books of accounts to the Inspecting Authority, SEBI. B. The Noticee had failed to cooperate with the inspection and did not provide information and assistance in connection with the inspection as required from a SEBI registered intermediary.

1.10 In view of the above, the DA had observed that the Noticee had violated the following provisions of Regulations 21(1), 21(2) and 21(4) of the Stock Brokers Regulations and was thus, liable for action in terms of Regulation 23(b) of the Intermediaries Regulations and Regulation 27(ix) of the Stock Brokers Regulations.

“Obligations of stock–broker on inspection by the Board. 21(1) It shall be the duty of every director, proprietor, partner, officer and employee of the stock-broker, who is being inspected, to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to the transactions in securities market within such time as the said officer may require. (2) The stock-broker shall allow the inspecting authority to have reasonable access to the premises occupied by such stock-broker or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the stock-broker or any other person and also provide copies of documents or other materials which, in the opinion of the inspecting authority are relevant. … (4) It shall be the duty of every director, proprietor, partner, officer and employee of the stock broker to give to the inspecting authority all assistance in connection with the inspection, which the stock broker may reasonably be expected to give.”

1.11 In accordance with Regulation 27 of the Intermediaries Regulations read with Section 12(3) of the SEBI Act, the DA recommended that the Certificate of Registration granted to the Noticee as stock broker be suspended for a period of three (3) months.

1.12 Incidentally, after the submission of the Enquiry Report on September 3, 2019, the Noticee had replied to the Enquiry SCN vide a letter dated September 4, 2019 (received at SEBI on September 9, 2019).

POST–ENQUIRY PROCEEDINGS BY THE DESIGNATED MEMBER:

2.1 A post–enquiry Show Cause Notice dated October 3, 2019 (“SCN”), was issued to the Noticee enclosing a copy of the Enquiry Report submitted by the DA and calling upon it to show cause in terms of Regulation 28(1) of the Intermediaries Regulations as to why action as recommended by the DA should not be imposed against the Noticee in terms of Regulation 28(2) of the said Regulations, as deemed fit by the DM.

2.2 Subsequent to the issuance of SCN, an opportunity of personal hearing was granted to the Noticee on August 11, 2020. The Noticee appeared for the hearing conducted on the WebEx App through Advocate Vikas Bengani. The Noticee reiterated the submissions made in the reply dated September 4, 2019, to the Enquiry SCN and the reply dated August 7, 2020 to the SCN, respectively, and also filed additional submissions vide an e–mail dated August 28, 2020.

2.3 Vide the aforementioned replies/submissions, the Noticee had inter alia stated:

i. The Inspecting Authority was well aware of the Noticee’s inability to provide the information of Books of Accounts during the inspection, as stated in the Noticee’s letter dated February 26, 2016. The request for extension of time made vide the aforesaid letter was rejected by the Inspecting Authority on the grounds that said inspection is a time bound process. However, the Stock Brokers Regulations do not specify any specific time period for submission of the Report to SEBI and thus, the Inspecting Authority had discretion to allow time to the Noticee since he had a valid reason for his absence. ii. The inspection team arbitrarily rejected the request for adjournment of inspection even though it was submitted that the Noticee’s proprietor i.e. Amit Saraogi, was suffering from knee injury. The Noticee is trying to get a Medical Certificate from his family doctor who treated him. Unfortunately, due to Covid-19 Pandemic, the Noticee could not contact his doctor. The clinic of the doctor is still not opened. Therefore, the Noticee requires more time to submit the Medical Papers. Please note that the Noticee duly informed the inspection team about his injury so there is no afterthought in this. There is no business activity presently going on. Presently, the Noticee’s broking business activities are at a standstill. iii. The SCN does not indicate any such fact that would show that the SEBI inspection team was denied access to the office of the Noticee or the documents and books in the Noticee’s office. The Noticee is submitting the books of accounts, records and other documents as per requirement of the Stock Brokers Regulations and hereby undertakes to cooperate with the learned authority for the purpose of inspection of the said books of accounts. iv. The Noticee does not have a big clientele base. Further, no investor complaint has been made against the Noticee nor has it defaulted in its commitments to the exchange and its clients. The Noticee’s has no business activity presently going on.

CONSIDERATION OF ISSUES AND FINDINGS:

On a perusal of the material available on record including the Enquiry Report, SCN and reply/submissions received from the Noticee, the following is noted:

3.1 Under the provisions of Regulation 21 of the Stock Brokers Regulations, it is observed that a responsibility has been cast on the stock broker who is being inspected along with its proprietor, etc. to produce to the Inspecting Authority such books, accounts and other documents in his custody or control and furnish him with information relating to the transactions in securities market within such time as the said officer may require. Further, the stock broker is mandated to allow the Inspecting Authority to have reasonable access to its premises and also extend reasonable facility for examining any books, records, etc. in its possession and also provide copies of documents relevant to the Inspecting Authority. The stock broker is also mandated to provide all necessary assistance in connection with the inspection. From the facts stated in the preceding paragraphs, it is noted that the Noticee had failed to cooperate with the Inspecting Authority during the inspection and had also failed to submit any reply to the inspection questionnaire forwarded by the Inspecting Authority prior to and after the inspection. In other words, the Noticee had failed to ensure compliance with the regulatory process of inspection, which is necessary for supervision and regulation of SEBI registered intermediaries. It was unbecoming on the part of the Noticee to avoid the information requisitioned during the inspection and also thereafter, especially considering the fact that it was active in the securities market with a trading volume of ₹2,03,92,029.81 (as noted from the information received from CSE). In such a situation where cooperation and compliance with the Inspection Authority, by the registered intermediary, is extremely necessary, it is imperative that no allowance is provided for the Noticee’s indifference to the regulatory process of inspection and also its failure to perform the mandatory requirements laid down in the Stock Brokers Regulations. If SEBI was obstructed in its inspections without sufficient cause, it would be unable to fulfill its duties of protection of the interests of investors and regulation of the securities market.

3.2 In this context, reliance is placed on the Order of the Hon’ble Securities Appellate Tribunal (“SAT”) in the matter of Balkrishna C. Parsana vs. SEBI, Appeal no. 67/2003 – Order dated September 11, 2003, wherein while examining the issue of violation of Regulations 21(1) and 21(2) of the Stock Brokers Regulations by the appellant therein for failing to make available the requisite books for inspection by SEBI, it had observed:

“5. I have considered the rival submissions made by the parties in their respective pleadings. The fact that the Appellant did not produce Sauda Book and Contract notes for inspection till 2.12.2002 remains undisputed. … It is not the Respondent’s case that the Appellant was not maintaining these records. The charge is that these records were not produced for inspection when the same was called for. Periodical inspection of the records of intermediaries is absolutely necessary to ascertain the extent of compliance of the Regulations by them and to take timely corrective action in such cases where action is warranted. Those who fail to co-operate with inspecting team in this regard deserve to be suitably dealt with. According to the Respondent “Time is the key essence in any regulatory inspection”. Expeditious inspection is the duty of the Respondent and those who fail to co-operate in the inspection are not immune from the penal consequences. SEBI Act has given adequate power to the Respondent to effectively carry out enquiries and inspections. Penal consequences have also been provided in the SEBI Act in this regard. The Respondent is not at the mercy of the Appellant to get the records for inspection, in time. In terms of Section 11(2)(i) (of the SEBI Act), the Respondent is empowered to call for information, undertake inspections, conduct inquiries and audits of intermediaries including stock Brokers. … 6. … It is not that SEBI should wait for years to get the books to complete the inspection and only on getting all the books inspection report could be submitted. The Respondent is empowered to penalise the errant stock broker for his failure, by invoking the powers provided under the SEBI Act/Stock Brokers Regulations.”

3.3 It is also noted that the Noticee had not submitted any evidence to corroborate the grounds stated in the adjournment request made vide the letter dated February 26, 2016 and had failed to appear or file any representation before the DA in respect of the proceedings arising from the Enquiry SCN. Further, in these proceedings, the Noticee has merely submitted an inability to obtain the relevant documents evidencing the reasons for treatment, date of treatment along with period of treatment relating to the supposed knee operation stated to have been undergone by him, which information ought to have been available with him in the first instance even when the same was sought for, during the hearing. I am therefore of the considered opinion that no credence can be accorded to the Noticee’s submissions in the instant proceedings in light of its conduct during the inspection and subsequently, in the enquiry proceedings conducted by the DA.

3.4 For the reasons mentioned in the preceding paragraphs, I find myself in agreement with the findings of the DA that the Noticee had violated the provisions of Regulations 21(1), 21(2) and 21(4) of the Stock Brokers Regulations. Having regard to the facts and circumstances of the instant proceedings, I accept the recommendation of the DA that the Certificate of Registration granted to the Noticee as a stock broker, be suspended for a period of three (3) months. I note that Regulation 28 including Regulation 28(2) of the Intermediaries Regulations was omitted by the SEBI (Intermediaries) (Amendment) Regulations, 2021, with effect from January 21, 2021. Accordingly, as per the amended Regulation 27 of the Intermediaries Regulations, an appropriate order after considering the facts and circumstances of the case, may be passed by the DM under Regulation 27(5) of the said Regulations.

ORDER –

4.1 I, in exercise of the powers conferred upon me under Section 19 read with Section 12(3) of the SEBI Act read with Regulation 27(5) of the Intermediaries Regulations, hereby suspend the certificate of registration of the Noticee, i.e. Amit Saraogi (Proprietor of Amit Saraogi and Company), (Member, CSE having SEBI Registration No. – INB031468417), for a period of three (3) months.

4.2 This Order shall come into force immediately on the expiry of twenty one (21) days from the date of this Order.

4.3 A copy of this Order shall be served on the Noticee immediately. A copy of this Order shall also be served on the recognized Stock Exchanges and Depositories.

Place: Mumbai G. MAHALINGAM Date: January 29, 2021 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA