Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

Under sub-section (3) of section 12 of the Securities and Exchange Board of India Act, 1992 read with regulation 27 of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008

In respect of: - Name of the Noticee PAN/Registration details Krisha Incap Services Private PAN: AAACK2230P Limited Stock Broker (SEBI Registration No.: INZ000014530)

Table of Contents Particulars Paragraph nos. Page nos. A. Background 1 and 2 2 B. Proceedings before 3 to 6 2 to 5 Designated Authority C. Proceedings before Whole 7 to 13 5 to 23 Time Member D. Examination of evidence 14 to 96 23 to 49 E. Conclusion 97 to 102 49 to 53 F. Order 103 to 105 53

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

A. BACKGROUND 1. The present proceedings have emanated from an Enquiry Report dated May 31, 2024, (hereinafter referred to as the “Enquiry Report”), submitted in terms of regulation 26 of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as “Intermediaries Regulations”) with respect to Krisha Incap Services Pvt Ltd. (hereinafter referred to as "Noticee”/"Stock Broker"). The Noticee is registered with SEBI as a Stock Broker (Registration no. INZ000014530).

2. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) had carried out joint inspection with Stock Exchanges in respect of stock broking activities of the Noticee for the period April 1, 2020 to November 30, 2021 (hereinafter referred to as the “Inspection period”) and made certain findings/observations during the course of inspection. The findings/observations were communicated to the Noticee vide email dated March 14, 2022. After examining the reply submitted by the Noticee vide email dated March 23, 2022, SEBI observed certain non-compliances by the Noticee, to the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the 'SEBI Act'), Regulations and Circulars made thereunder and the Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as ‘SCRR’).

B. PROCEEDINGS BEFORE THE DESIGNATED AUTHORITY 3. Pursuant to the findings/observations made in the course of inspection and the response of the Noticee to the same, SEBI initiated enquiry proceedings under Chapter V of the Intermediaries Regulations against the Noticee by appointing a Designated Authority (hereinafter referred to as “DA”) in the matter on August 24, 2023.

4. Based on the findings, the DA issued a show cause notice dated November 6, 2023 to the Noticee, in terms of regulation 25 of the Intermediaries Regulations for the following alleged violations:

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited a) Mis-Utilisation of Clients’ Funds: clause 1 of SEBI circular no.SMD/SED/CIR/93/23321 dated November 18, 1993 and clause 3 of Annexure of SEBI circular no. SEBI/H0/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016;

b) Quarterly/Monthly Settlement of Funds/Securities of Clients: clauses 8.1.1 and 8.1.4 of Annexure to SEBI circular no.SEBI/HO/MIRSD/M1RSD2/CIR/P/2016 /95 dated September 26, 2016 and clause12.e. of Annexure-A of SEBI circular no. SEBI/MIRSD/SE/Cir-19/2009 dated December 03, 2009;

c) Client Registration Process (KYC and KRA Process): clause 4 of SEBI circular no. MRD/DoP/Dep/SE/Cir-22/06 dated December 18, 2006, clause 3. ii. of SEBI circular no. MIRSD/Cir-26/2011 dated December 23, 2011, clause 7 of SEBI circular no. CIR'HO/MIRSD/DOP/CIR/P/2019/75 dated June 20, 2019, Annexure 1 and Annexure 3 of SEBI circular no. CIR/MIRSD/16/2011 dated August 22, 2011;

d) Enhanced Supervision of Stock Broker: clause 3. 2 of Annexure of SEBI circular no. SEBI/HO/MIRSD /MIRSD2/CIR/P/2016/95 dated September 26, 2016;

e) Verification of UCC- PAN, Email ID & Mobile numbers: clause 2.B.ii. and 2.B. iv. of SEBI circular no. CIR/MIRSD/15/2011 dated August 02, 2011;

f) Analysis of RBS Data: clause 6.1.1. e. of Annexure of SEBI circular no. SEBI/HO/MIRSD/ MIRSD2/CIR/P/2016/95 dated September 26, 2016;

g) Certification Requirement and CTCL Verification: clause B(8) of schedule II read with sub-regulation (f) of regulation 9 of the SEBI (Stock Broker) Regulations, 1992 (hereinafter referred to as "Stock Broker Regulations") and regulation 3 of the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007;

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited h) Maintenance of Client and General Ledger: clause A (2) and A (5) of Code of Conduct for Stock Brokers under Schedule II, read with sub-regulation (f) of regulation 9 of the Stock Broker Regulations and NSE circular no. NSE/INSP/38743 dated August 30, 2018;

i) Maintenance of Register of Securities, Holding Statement, Bank Book and Client Ledger in the Prescribed Standard Format : clause A (2) and A (5) of Code of Conduct for Stock Brokers under Schedule II, read with sub-regulation (f) of regulation 9 of the Stock Broker Regulations and NSE circular no.NSE/INSP/39393 dated November 13, 2018;

j) Display of Correct Information on Website : clause 2 of SEBI circular no. Cir/MIRSD/ 9 /2010 dated November 4, 2010;

k) Record of Order Placement: clause III of SEBI circular no. SEBI/HO/MIRSD/ DOP1/CIR/P/2018/54 dated March 22, 2018;

l) Segregation of Clients Funds and Securities: clause 1 of Annexure of SEBI circular no. SMD/SED/CIR/93/23321 dated November 18, 1993; clause 2.4.2 of Annexure of SEBI Circular no.SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016 and clause (f) of sub-rule (1) of rule 8 and clause(f) of sub-rule (3) of rule 8 of the SCRR;

m) Net Worth Verification: clause 6.1.l(i) & 6.1.l(j) of Annexure of SEBI circular no. SEBI/HO/MIRSD/MIRSD2CIR/P/2016/95 dated September 26, 2016 and sub-regulation (g) of regulation 9 of the Stock Broker Regulations read with NSE circular no. NSE/COMP/47873 dated April 02, 2021.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

5. Pursuant to transfer of the DA, another DA was appointed on December 19, 2023. In response to the show cause notice issued by the DA, the Noticee filed its reply vide email dated March 21, 2024. Further, a personal hearing was granted to the Noticee by the DA on April 19, 2024. Pursuant to hearing the Noticee filed additional submissions on April 23, 2024.

6. The DA after conducting the enquiry proceedings in terms of the Intermediaries Regulations, submitted an Enquiry Report dated May 31, 2024. In the Enquiry Report, the DA found that some of the violations alleged against the Noticee had been established. The DA also observed that the violations by the Noticee are grave in nature and the acts of the Noticee are detrimental to the interest of the investors in the securities market. Accordingly, the DA recommended suspension of certificate of registration of the Noticee for a period of six months in terms of regulation 26 of the Intermediaries Regulations.

C. PROCEEDINGS BEFORE THE WHOLE TIME MEMBER 7. Pursuant to the submission of Enquiry Report, a post-Enquiry Show Cause Notice dated July 4, 2024 (hereinafter referred to as “SCN”) based on the violations alleged in the Enquiry Report and listed at paragraph 4 above, was issued to the Noticee in terms of sub-regulation (1) of regulation 27 of the Intermediaries Regulations, calling upon it to show cause as to why action as recommended by the DA or any other action in terms of the Intermediaries Regulations, be not taken against it. The Enquiry Report was also enclosed alongwith the SCN that was served upon the Noticee. The SCN was sent to the registered address of the Noticee as well as to the alternate addresses. Thereafter, the SCN was also sent vide email dated July 08, 2024 to which the Noticee, vide email dated July 31, 2024, submitted its reply.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

8. Subsequently, a personal hearing in the matter was scheduled on September 24, 2024 and the hearing notice was served on the Noticee through the registered email. On the day of hearing, the Noticee appeared through its representatives (two Directors, namely Mr. Rupesh Kumar and Mr. Sanjay Mishra) and reiterated the submissions made vide reply dated July 31, 2024. During the hearing, the Noticee was advised to provide proof in the form of a No Objection Certificate (hereinafter referred to as “NOC”) from the exchanges certifying that the Noticee has settled the pending dues with respect to its clients. The Noticee made post hearing submissions vide emails dated September 26, 2024and October 7, 2024. In light of the aforesaid factual position, I am of the opinion that sufficient opportunity has been provided to the Noticee and the principles of natural justice have been duly followed in the matter.

9. The summary of submissions made by the Noticee vide above referred replies and during the hearing is as follows: a) The Noticee placed all its capital in its broking business and carried out fair trade practices but failed due to Covid-19. The Noticee provided data to NSE inspecting officials during inspection for the period 2020-21. NSE made certain observations and levied a penalty amounting to INR 2,12,200. b) NSE and SEBI had carried out joint inspection for the period from April 1, 2020 to November 30, 2021 and reply to the observations was sent to the inspecting officials on March 23, 2022. c) The Noticee had approached NSE for reactivation of its membership post Covid and that it wanted to transfer the membership alongwith change in control. In response to which the Noticee was instructed to fulfil all pending compliances and clear dues. In spite of all compliances and documentation its membership was not reactivated. d) The Noticee responded to the show cause notice dated November 6, 2023 vide email dated March 21, 2024. During hearing on April 19, 2024, Mr. Sanjay Kumar Mishra, Authorised Representative of the Noticee accepted the Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited violations and requested to kindly instruct NSE to activate its membership so that it can start the process of transfer with full control. Post the hearing in the month of May 2024, SEBI imposed a penalty of INR 12,00,000/- which was duly paid by the Noticee. e) The Noticee submitted that since last four years it has earned nothing and has been only paying penalties, requested to consider its financial condition and not suspend its membership. The Noticee also requested to grant permission to transfer the membership with full control.

10. In its post hearing submissions, the Noticee attached certain bank statements through which the Noticee claims the payouts for credit balance clients was processed with a request to acknowledge the same and issue orders for approval of surrender/transfer of its membership with exchanges.

11. I note that, the Noticee in its replies did not provide the NOC from the stock exchange as advised during the hearing in the instant matter. In response to further explanation being sought, the Noticee, forwarded an email which seems to be received from MCX. The email reads as follows: “In response to your email on the captioned subject, we would like to inform you that on the basis of submissions made by the you with respect to settlement of client funds wide email dated Dec 15, 2022; Dec 26, 2022 & Jan 5, 2023, substantiated with relevant records and after an examination of the same done by the Exchange, we would like to inform you that the same is found to be in order.” However, on further details sought from MCX, it was clarified by the MCX that the above reply did not pertain to the instant matter and pertained to Goldenmaple Commodities Pvt. Ltd. Further, as the transactions in the instant matter pertain to NSE, a query with respect to the settlement of pending dues by the Noticee with respect to its clients was sent to NSE. NSE vide its email dated November 26, 2024 submitted that the Noticee had settled the outstanding dues and the Investor Service Centre admissible claims with respect to its clients.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

12. After noting the submission of the Noticee, I now proceed to examine the matter on its merits. In the extant proceeding, it is required to ascertain whether the Noticee, by its acts and conduct, has violated the applicable provisions of securities law as mentioned in the enquiry report.

13. However, before proceeding further, it is necessary to refer to relevant provisions of law and the same are reproduced here under for reference:

SEBI Act, 1992 Registration of stock brokers, sub-brokers, share transfer agents, etc. 12(1)……… 12(2)……… 12(3) The Board may, by order, suspend or cancel a certificate of registration in such manner as may be determined by regulations: Provided that no order under this sub-section shall be made unless the person concerned has been given a reasonable opportunity of being heard.

Delegation. 19.The Board may, by general or special order in writing delegate to any member, officer of the Board or any other person subject to such conditions, if any, as may be specified in the order, such of its powers and functions under this Act (except the powers under section 29) as it may deem necessary.

Securities Contracts (Regulation) Rules, 1957. Qualifications for membership of a recognised stock exchange. 8. The rules relating to admission of members of a stock exchange seeking recognition shall inter alia provide that: (1)…. (2)…..

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited (3) No person who is a member at the time of application for recognition or subsequently admitted as a member shall continue as such if— ……… (f) he engages either as principal or employee in any business other than that of securities [or commodity derivatives] except as a broker or agent not involving any personal financial liability, provided that— (i) the governing body may, for reasons, to be recorded in writing, permit a member to engage himself as principal or employee in any such business, if the member in question ceases to carry on business on the stock exchange either as an individual or as a partner in a firm, (ii) in the case of those members who were under the rules in force at the time of such application permitted to engage in any such business and were actually so engaged on the date of such application, a period of three years from the date of the grant of recognition shall be allowed for severing their connection with any such business, (iii) nothing herein shall affect members of a recognised stock exchange which are corporations, bodies corporate, companies or institutions referred to in items (a) to (n)15 of the proviso to sub-rule (4).

SEBI (Intermediaries) Regulations, 2008 Cancellation or suspension of registration and other actions. 23. Where any person who has been granted a certificate of registration under the Act or regulations made thereunder, (a) fails to comply with any conditions subject to which a certificate of registration has been granted to him; (b) contravenes any of the provisions of the securities laws or directions, instructions or circulars issued thereunder; the Board may, without prejudice to any action under the securities laws or directions,

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited instructions or circulars issued thereunder, by order take such action in the manner provided under these regulations

Recommendation of action 26. (1) After considering the material available on record and the reply, if any, the designated authority may by way of a report, recommend the following measures- (i) disposing of the proceedings without any adverse action; (ii) cancellation of the certificate of registration; (iii) suspension of the certificate of registration for a specified period; (iv) prohibition of the noticee from taking up any new assignment or contract or launching a new scheme for such the period as may be specified; (v) debarment of an officer of the noticee from being employed or associated with any registered intermediary or other person associated with the securities market for such period as may be specified; (vi) debarment of a branch or an office of the noticee from carrying out activities for such period as may be specified; (vii) issuance of a regulatory censure to the noticee:

Order 27. (1) ……. ………. (5) After considering the facts and circumstances of the case, material on record and the written submission, if any, the competent authority shall endeavor to pass an appropriate order within one hundred and twenty days from the date of receipt of submissions under sub-regulation (2) or the date of personal hearing, whichever is later.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

SECURITIES AND EXCHANGE BOARD OF INDIA (STOCK-BROKERS) REGULATIONS, 1992 Conditions of registration. 9. Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely,- (a)…….. …….. (f) he shall at all times abide by the Code of Conduct as specified in Schedule II; and (g) he shall at all times maintain the minimum networth as specified in Schedule VI. ……...

SCHEDULE II CODE OF CONDUCT FOR STOCK BROKERS A. General. (1)….. (2) Exercise of due skill and care: A stock-broker shall act with due skill, care and diligence in the conduct of all his business. (3)…… (4)…… (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him.

B. Duty to the Investor (1) to (7)….

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited (8) Competence of Stock-Broker: A stock-broker should have adequately trained staff and arrangements to render fair, prompt and competence services to his clients.

SEBI (CERTIFICATION OF ASSOCIATED PERSONS IN THE SECURITIES MARKETS) REGULATIONS, 2007 Obligation to obtain certificate 3. (1) The Board may by notification in the Official Gazette require such categories of associated persons to obtain requisite certificate for engagement or employment with such classes of intermediaries and from such date as may be specified in the notification: Provided that an associated person employed or engaged by an intermediary prior to the date specified by the Board may continue to be employed or engaged by the intermediary if he obtains the certificate within two years from the said date.

Clause 1 of SEBI Circular no. SMD/SED/CIR/93/23321 dated November 18, 1993: 1. It shall be compulsory for all Member brokers to keep the money of the clients in a separate account and their own money in a separate account. No payment for transactions in which the Member broker is taking a position as a principal will be allowed to be made from the client’s account. The above principles and the circumstances under which transfer from client’s account to Member broker’s account would be allowed are enumerated below. A] Member Broker to keep Accounts: Every member broker shall keep such books of accounts, as will be necessary, to show and distinguish in connection with his business as a member - i. Moneys received from or on account of each of his clients and, ii. the moneys received and the moneys paid on Member’s own account.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

B] Obligation to pay money into "clients accounts". Every member broker who holds or receives money on account of a client shall forthwith pay such money to current or deposit account at bank to be kept in the name of the member in the title of which the word "clients" shall appear (hereinafter referred to as "clients account"). Member broker may keep one consolidated clients account for all the clients or accounts in the name of each client, as he thinks fit: Provided that when a Member broker receives a cheque or draft representing in part money belonging to the client and in part money due to the Member, he shall pay the whole of such cheque or draft into the clients account and effect subsequent transfer as laid down below in para D (ii). C] What moneys to be paid into "clients account". No money shall be paid into clients account other than - i. money held or received on account of clients; ii. such money belonging to the Member as may be necessary for the purpose of opening or maintaining the account; iii. money for replacement of any sum which may by mistake or accident have been drawn from the account in contravention of para D given below; iv. a cheque or draft received by the Member representing in part money belonging to the client and in part money due to the Member. D] What moneys to be withdrawn from "clients account". No money shall be drawn from clients account other than - i. money properly required for payment to or on behalf of clients or for or towards payment of a debt due to the Member from clients or money drawn on client’s authority, or money in respect of which there is a liability of clients to the Member, provided that money so drawn shall not in any case exceed the total of the money so held for the time being for such each client; ii. such money belonging to the Member as may have been paid into the client account under para 1 C [ii] or 1 C [iv] given above;

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited iii. money which may by mistake or accident have been paid into such account in contravention of para C above. E] Right to lien, set-off etc., not affected. Nothing in this para 1 shall deprive a Member broker of any recourse or right, whether by way of lien, set-off, counter-claim charge or otherwise against moneys standing to the credit of clients account.

SEBI Circular no. MRD/DoP/Dep/SE/Cir-22/06 dated December 18, 2006 4. Accordingly, all the stock exchanges/registered brokers/registered sub-brokers/listed companies/depositories/registered depository participants are advised to designate an e-mail ID of the grievance redressel division/compliance officer exclusively for the purpose of registering complaints by investors. The above entities are also advised to display the email ID and other relevant details prominently on their websites and in the various materials/pamphlets/advertisement campaigns initiated by them for creating investor awareness.

SEBI Circular no. MIRSD/ SE /Cir-19/2009 dated December 3, 2009. Annexure A Running Account Authorization 12. Unless otherwise specifically agreed to by a Client, the settlement of funds/securities shall be done within 24 hours of the payout. However, a client may specifically authorize the stock broker to maintain a running account subject to the following conditions: e. The actual settlement of funds and securities shall be done by the broker, at least once in a calendar quarter or month, depending on the preference of the client. While settling the account, the broker shall send to the client a ‘statement of accounts’ containing an extract from the client ledger for funds and an extract from the register of securities displaying all receipts/deliveries of Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited funds/securities. The statement shall also explain the retention of funds/securities and the details of the pledge, if any.

SEBI circular No. Cir/MIRSD/ 9 /2010 dated November 4, 2010 Display of Details by Stock Brokers (including Trading Members 2. In consultation with the Investors Associations and major stock exchanges, it has been decided that while a stock broker may use the brand name / logo of its group companies, it must display more prominently: (a) its name as registered with SEBI, its own logo, if any, its registration number, and its complete address with telephone numbers in its portal/web site, if any, notice / display boards, advertisements, publications, know your client forms, and member client agreements; (b) its name as registered with SEBI, its own logo, if any, its registration number, and its complete address with telephone numbers, the name of the compliance officer, his telephone number and e-mail address in contract notes, statement of funds and securities, and correspondences with the clients.

SEBI Circular No. CIR/MIRSD/15/2011 dated August 02, 2011 2. As an additional measure, it has now been decided in consultation with the major stock exchanges and market participants that the stock exchanges shall send details of the transactions to the investors, by the end of trading day, through SMS and E-mail alerts. This would be subject to the following guidelines: B. Uploading of mobile number and E-mail address by stock brokers ii. Stock brokers shall upload the details of clients, such as, name, mobile number, address for correspondence and E-mail address iv. Stock Brokers shall ensure that separate mobile number/E-mail address is uploaded for each client. However, under exceptional circumstances, the stock broker may, at the specific written request of a client, upload the Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited same mobile number/E-mail address for more than one client provided such clients belong to one family. ‘Family’ for this purpose would mean self, spouse, dependent children and dependent parents.

SEBI Circular No. CIR/MIRSD/16/2011 dated August 22, 2011 3. SEBI has devised the uniform documentation to be followed by all the stock brokers/ trading members; a copy thereof to be provided by them to the clients. The detailsof such documents are listed below: i. Index of documents giving details of various documents for client account opening process - Annexure-1 ii. Client Account Opening Form in two parts: a. Know Your Client (KYC) form capturing the basic information about the client and instruction/check list to fill up the form - Annexure-2. b. Document capturing additional information about the client related to trading account -Annexure-3

SEBI Circular No. MIRSD/Cir-26/2011 dated December 23, 2011 3. In-Person Verification (IPV): With regard to the requirement of in-person’ verification (IPV), SEBI has issued guidelines to the stock brokers and depository participants (DPs). However, in line with the uniformity brought out in the KYC procedure across intermediaries, the IPV requirements for all the intermediaries have now been streamlined and harmonized, as follows: …..ii. The intermediary shall ensure that the details like name of the person doing IPV, his designation, organization with his signatures and date are recorded on the KYC form at the time of IPV.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

SEBI Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016 2. Reporting of Bank and Demat accounts maintained by Stock Broker: 2.4. In line with the prevalent regulatory requirement, it is reiterated that; 2.4.2. Transfer of funds between "Name of Stock Broker - Client Account" and "Name of Stock Broker - Settlement Account" and client's own bank accounts is permitted. Transfer of funds from "Name of Stock Broker - Client Account" to "Name of Stock Broker - Proprietary Account" is permitted only for legitimate purposes, such as, recovery of brokerage, statutory dues, funds shortfall of debit balance clients which has been met by the stock broker, etc. For such transfer of funds, stock broker shall maintain daily reconciliation statement clearly indicating the amount of funds transferred.

3. Monitoring of Clients’ Funds lying with the Stock Broker by the Stock Exchanges 3.1. Stock Exchanges shall put in place a mechanism for monitoring clients’ funds lying with the stock broker to generate alerts on any misuse of clients’ funds by stock brokers, as per the guidelines stipulated in para 3.2 & 3.3 below. 3.2. Stock brokers shall submit the following data as on last trading day of every week to the Stock Exchanges on or before the next trading day: A- Aggregate of fund balances available in all Client Bank Accounts, including the Settlement Account, maintained by the stock broker across stock exchanges B- Aggregate value of collateral deposited with clearing corporations and/or clearing member (in cases where the trades are settled through clearing member) in form of Cash and Cash Equivalents (Fixed deposit (FD), Bank guarantee (BG), etc.)(across Stock Exchanges). Only funded portion of the BG, i. e. the amount deposited by stock broker with the bank to obtain the BG, shall be considered as part of B.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

C- Aggregate value of Credit Balances of all clients as obtained from trial balance across Stock Exchanges (after adjusting for open bills of clients, uncleared cheques deposited by clients and uncleared cheques issued to clients and the margin obligations) D- Aggregate value of Debit Balances of all clients as obtained from trial balance across Stock Exchanges (after adjusting for open bills of clients, uncleared cheques deposited by clients, uncleared cheques issued to clients and the margin obligations) E- Aggregate value of proprietary non-cash collaterals i.e. securities which have been deposited with the clearing corporations and/or clearing member (across Stock Exchanges) F- Aggregate value of Non-funded part of the BG across Stock Exchanges P- Aggregate value of Proprietary Margin Obligation across Stock Exchanges MC- Aggregate value of Margin utilized for positions of Credit Balance Clients across Stock Exchanges MF- Aggregate value of Unutilized collateral lying with the clearing corporations and/or clearing member across Stock Exchanges 3.3. Based on the aforesaid information submitted by the stock broker, Stock Exchanges shall put in place a mechanism for monitoring of clients’ funds lying with the stock brokers on the principles enumerated below: 3.3.1. Funds of credit balance clients used for settlement obligation of debit clients or for own purpose: Principle: The total available funds i.e. cash and cash equivalents with the stock broker and with the clearing corporation/clearing member (A + B) should always be equal to or greater than Clients’ funds as per ledger balance (C). Stock Exchanges shall calculate the difference i.e. G as follows – G = (A+B)-C

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

If difference G is negative, then the total available fund is less than the ledger credit balance of clients. The value of G may indicate utilisation of clients' funds for other purposes i.e. funds of credit balance clients are being utilized either for settlement obligations of debit balance clients or for the stock brokers' own purposes. The negative value of G acts as an alert to the Stock Exchanges. Thereafter, the absolute value of G shall be compared with debit balance of all clients as per client ledger D as follows: If the absolute value of (G) is lesser than |D|, then the stock broker has possibly utilised funds of credit balance clients towards settlement obligations of debit balance clients to the extent of value of G. If the absolute value of (G) is greater than |D|, then the stock broker has possibly utilised a part of funds of credit balance clients towards settlement obligations of debit balance clients and remaining part for his own purposes. In such cases the amount of client funds used for own purpose is calculated as follows: H= |G| -|D| 3.3.2. Funds of clients used for Margin obligation of proprietary trading: Stock Exchanges shall thereafter, verify whether the proprietary margin obligations (across Stock Exchanges) is less than the own funds and securities lying with the Stock Exchanges as collateral deposit, as follows: Principle: The sum of Proprietary funds and securities i.e. (G + E + F) lying with the clearing corporation/clearing member should be greater than or equal to Proprietary margin obligations (P) If value of G is positive (i.e. A+B > C), then proprietary funds are lying with the clearing corporation/clearing member and/or client bank accounts along with the clients funds to the extent of positive value of G.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

The sum of the proprietary funds (positive value of G), the value of proprietary securities (E) and the non-funded portion of bank guarantee (F) available in the Stock Exchanges is compared with the Proprietary margin obligations (P).If P > (G+E+F), then Stock Exchange shall calculate the difference I, which is the amount of proprietary margin obligation funded from clients assets. I = P - (G+E+F) If G is negative, then, value of G is considered as 0, as there is no proprietary funds lying with the stock exchange. The value of I indicates the extent of funds and securities of clients which is possibly utilised towards proprietary margin obligations. This value of I acts as an alert to the Stock Exchanges on the possible mis-utilisation of clients' assets towards proprietary margin obligations. 3.3.3. Funds of credit balance clients used for Margin obligations of debit balance clients and proprietary trading: Stock Exchanges shall thereafter, verify whether the clients funds lying with the clearing corporation/clearing member are utilised towards margin obligations of debit balance clients and proprietary margin obligations. Principle: The clients' funds lying with the clearing corporation/clearing member should be less than or equal to sum of credit clients' margin obligations (MC) and free collateral deposits available with the clearing corporation/clearing member (MF) If value of G is negative (i.e. A+B < C), then fund lying with the clearing corporation/ clearing member (B) is entirely clients' fund. In such cases, B is compared with Margin obligations of credit balance clients and the free deposits available with the clearing corporation/ clearing member. The value of J is calculated as under: J = B - (MC + MF)

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

If value of G is positive (i.e. A+B > C), then fund lying with the clearing corporation/clearing member (B) may contain proprietary and clients' fund. Hence, the value of clients funds lying with the clearing corporation/ clearing member i.e. (C-A) shall be considered in the place of B. In such cases, (C-A) is compared with Margin obligations of credit balance clients and the free deposits available with the clearing corporation/clearing member. The value of J, which is clients' funds utilised towards margin obligations of debit balance clients and proprietary margin obligations, is calculated as under: J = (C -A) - (MC + MF) The value of J, if positive, indicates the extent of clients' funds utilised towards margin obligations of debit balance clients and proprietary margin obligations. This value of J acts as an alert to the Stock Exchanges on the possible mis-utilisation of clients' funds towards margin obligations of debit balance clients and proprietary margin obligations. 3.4. Based on the alerts generated, Stock Exchange shall, inter-alia, seek clarifications, carry out inspections and initiate appropriate actions to protect the clients’ funds from being misused. Stock Exchanges shall also maintain records of such clarifications sought and details of such inspections. The aforesaid calculations are illustrated in tabular format in Table 1, 2 & 3 given at the end of the annexure. 3.5. Stock Exchanges shall put in place the aforesaid monitoring mechanism within three months from the date of this circular and carry out the monitoring of clients’ funds for all stock brokers, except for those who are carrying out only proprietary trading and/or only trading for institutional clients. 3.6. Stock Brokers shall ensure due compliance in submitting the information to the Exchanges within the stipulated time. ………………..

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

6. Standard Operating Procedures for Stock Brokers/Depository Participants - Actions to be contemplated by Stock Exchanges/Depositories for any event based discrepancies 6.1.1. Monitoring criteria for Stock Brokers e. Failure to submit data for the half yearly Risk Based Supervision within the time specified by Stock Exchange. i. If, at any point of time, Net worth of the Broker is negative or lower than 75 per cent of the requirement. j. In case stock broker shares incomplete/wrong data or fails to submit data on time.

8. Running Account Settlement 8.1. In partial modification of circular on running account settlement, the stock broker shall ensure that; 8.1.1. There must be a gap of maximum 90/30 days (as per the choice of client viz. Quarterly/Monthly) between two running account settlements. 8.1.4. Statement of accounts containing an extract from client ledger for funds & securities along with a statement explaining the retention of funds/securities shall be sent within five days from the date when the account is considered to be settled.

SEBI Circular no. SEBI/HO/MIRSD/DOP1/CIR/P/2018/54 dated March 22, 2018. Prevention of Unauthorised Trading by Stock Brokers III. To further strengthen regulatory provisions against un-authorized trades and also to harmonise the requirements across markets, it has now been decided that all brokers shall execute trades of clients only after keeping evidence of the client placing such order, which could be, inter alia, in the form of: a. Physical record written & signed by client, b. Telephone recording,

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited c. Email from authorized email id, d. Log for internet transactions, e. Record of messages through mobile phones, f. Any other legally verifiable record. When a dispute arises, the broker shall produce the above mentioned records for the disputed trades. However for exceptional cases such as technical failure etc. where broker fails to produce order placing evidences, the broker shall justify with reasons for the same and depending upon merit of the same, other appropriate evidences like post trade confirmation by client, receipt/payment of funds/securities by client in respect of disputed trade, etc. shall also be considered.

SEBI Circular No. CIR'HO/MIRSD/DOP/CIR/P/2019/75 dated June 20, 2019 7. Accordingly, the provisions with regard to running account settlement of clients’ funds and securities specified in SEBI Circulars MIRSD/SE/Cir-19/2009 dated December 03, 2009 and SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016 shall stand modified to the extent as stated hereinabove and the said circulars shall be applicable only as guidelines for running account settlement of clients’ “funds” only. NSE/INSP/38743 dated August 30, 2018 NSE/INSP/39393 dated November 13, 2018 NSE/COMP/47873 dated April 02, 2021 The above referred NSE circulars is available at the following link: https://www.nseindia.com/resources/exchange-communication-circulars

D. EXAMINATION OF EVIDENCE 14. I have carefully perused the material available on record including the Enquiry Report submitted by the DA, responses of the Noticee and applicable provisions of law. I shall now proceed to deal with the violations alleged in the SCN in seriatim.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

I. Mis-Utilisation of client’s funds : 15. During the inspection conducted of the Noticee, it was examined whether there were instances of misuse of client’s funds by the Noticee. In this regard, on sample basis the valuation of ‘G’, ‘I’ and ‘J’ (the explanation for the terms ‘G’, ‘I’ and ‘J’ has been provided in SEBI circular no.SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016, referred at para 13 above) was calculated for all the dates in the month of September 2020 and March 2021. This led to the observation that, in September 2020 the value of ‘G’ was negative on all the 22 dates and value of ‘J’ was positive on 20 dates. In March 2021 the value of ‘G’ is negative on 18 dates and value of ‘J’ is positive on 10 days. Thus, ‘G’ is negative in a total of 40 dates out of the total 42 sample dates. This analysis shows that the funds of credit balance clients was misutilised for meeting the obligations of debit balance clients and/or for the Noticee’s own purpose. The amount of misutilisation arrived at is in the range of INR 1.04 lacs to INR 17.90 lacs with an average misutilisation of INR 9.69 lacs. Further, the value of ‘J’ was positive for a total of 30 dates out of the total 42 sample dates. The positive value of ‘J’ shows the extent of funds and securities of clients being misutilised towards margin obligations of debit balance clients and/or for proprietory margin obligations. The amount misutilised is in the range of INR 0.01 lac to INR 3.63 lacs with an average of INR 84.43 thousand.

16. In view of the above analysis, the Noticee was alleged to have violated Clause 1 of SEBI circular no. SMD/SED/CIR/93/23321 dated November 18, 1993 and Clause 3 of Annexure of SEBI circular no.SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016.

17. I note that, as per SEBI circular no. SMD/SED/CIR/93/23321 dated November 18, 1993 (refer para 13 above), a stock broker is obligated to keep the money of the clients in a separate account and its own money in a separate account. Further, the stock

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited broker is not allowed to make payments from clients account, for transactions in which the stock broker is taking positions as a principal.

18. Further, I note that, the principle set by the SEBI circular no.SEBI/HO/MIRSD/MIRSD2 /CIR/P/2016/95 dated September 26, 2016 is that the total available funds i.e. cash and cash equivalents with the stock broker and with the clearing corporation / clearing member (A + B) should always be equal to or greater than Clients’ funds as per ledger balance (C). Stock Exchanges shall calculate the difference i.e. G as follows: G = (A+B)-C.

19. For better understanding, following may be referred to from SEBI Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016- “A” - Aggregate of fund balances available in all Client Bank Accounts, including the Settlement Account, maintained by the stock broker across stock exchanges “B” - Aggregate value of collateral deposited with clearing corporations and/or clearing member (in cases where the trades are settled through clearing member) in form of Cash and Cash Equivalents (Fixed deposit (FD), Bank guarantee (BG), etc.) (across Stock Exchanges). Only funded portion of the BG, i. e. the amount deposited by stock broker with the bank to obtain the BG shall be considered as part of B. “C” - Aggregate value of Credit Balances of all clients as obtained from trial balance across Stock Exchanges (after adjusting for open bills of clients, uncleared cheques deposited by clients and uncleared cheques issued to clients and the margin obligations) “D” - Aggregate value of Debit Balances of all clients as obtained from trial balance across Stock Exchanges (after adjusting for open bills of clients, uncleared cheques deposited by clients, uncleared cheques issued to clients and the margin obligations)

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited “E” - Aggregate value of proprietary non-cash collaterals i.e. securities which have been deposited with the clearing corporations and/or clearing member (across Stock Exchanges ) “F” - Aggregate value of Non-funded part of the BG across Stock Exchanges “P” - Aggregate value of Proprietary Margin Obligation across Stock Exchanges “MC” - Aggregate value of Margin utilized for positions of Credit Balance Clients across Stock Exchanges “MF” - Aggregate value of Unutilized collateral lying with the clearing corporations and/or clearing member across Stock Exchanges.

20. I note that, if ‘G’ is negative, then the total available fund is less than the ledger credit balance of clients. The value of ‘G’ may indicate utilisation of clients' funds for other purposes i.e. funds of credit balance clients are being utilized either for settlement obligations of debit balance clients or for the stock broker’s own purposes.

21. Further, as per the aforesaid circular, if value of G is negative (i.e. A+B < C), then funds lying with the clearing corporation/ clearing member (B) is entirely clients' fund. In such cases, B is compared with Margin obligations of credit balance clients and the free deposits available with the clearing corporation/ clearing member. The value of J is calculated as under: J = B - (MC + MF)

22. The value of J, if positive, indicates the extent of clients' funds utilised towards margin obligations of debit balance clients and proprietary margin obligations.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

23. The calculation given in inspection report for the sample dates for the months of September 2020 and March 2021 are given in the tables below:

Table No. 1 S.No. Date A B C G=(A+B)-C D MC MF J=(C-A)- (MC+MF1+MF2), if G>0 J=B- (MC+MF1+MF2), if G<0 1 01-Sep-20 21,597 45,52,928 59,23,429 -13,48,904 2,23,610 2,82,478 42,58,736 11,714 2 02-Sep-20 27,655 42,88,986 56,86,500 -13,69,859 1,85,290 79,687 40,60,619 1,48,680 3 03-Sep-20 1,26,949 42,88,986 57,98,020 -13,82,085 1,98,513 0 39,85,368 3,03,618 4 04-Sep-20 60,126 42,88,986 57,46,193 -13,97,081 1,86,498 0 39,25,221 3,63,765 5 07-Sep-20 3,31,959 42,88,986 60,81,169 -14,60,224 1,86,508 1,88,781 40,92,780 7,425 6 08-Sep-20 27,809 42,88,986 57,23,893 -14,07,098 1,85,582 34,487 42,49,498 5,001 7 09-Sep-20 25,803 42,88,986 54,80,702 -11,65,913 1,91,559 75,489 41,29,385 84,112 8 10-Sep-20 2,05,962 42,88,986 57,23,366 -12,28,418 1,73,882 1,31,583 40,85,298 72,106 9 11-Sep-20 25,170 42,88,986 55,47,500 -12,33,344 1,87,309 82,247 41,20,449 86,290 10 14-Sep-20 1,06,467 42,88,986 56,92,601 -12,97,148 2,12,093 81,919 40,84,434 1,22,633 11 15-Sep-20 79,876 42,88,986 55,70,131 -12,01,269 1,73,882 2,48,482 39,96,035 44,470 12 16-Sep-20 1,64,532 42,88,986 56,70,583 -12,17,065 1,86,479 5,06,871 37,39,927 42,189 13 17-Sep-20 28,761 42,88,986 55,77,692 -12,59,945 1,86,479 5,32,773 35,59,668 1,96,546 14 18-Sep-20 28,871 42,88,986 56,53,922 -13,36,065 1,89,889 0 38,35,649 3,05,397 15 21-Sep-20 2,62,696 42,88,986 60,18,510 -14,66,827 1,75,745 0 40,40,409 2,04,114 16 22-Sep-20 27,112 42,88,986 57,93,751 -14,77,653 1,80,191 1,47,940 41,10,637 1,32,295 17 23-Sep-20 25,371 42,88,986 56,20,967 -13,06,610 1,75,755 44,463 42,44,523 12,922 18 24-Sep-20 25,371 42,88,986 56,10,950 -12,96,593 1,75,755 46,054 42,42,932 27,772 19 25-Sep-20 24,371 42,88,986 54,75,812 -11,62,454 1,75,755 31,540 42,53,828 -21,550 20 28-Sep-20 3,10,116 42,88,986 57,29,768 -11,30,666 1,75,755 18,282 42,65,631 -59,417 21 29-Sep-20 18,045 39,80,069 57,77,274 -17,79,160 1,75,755 56,708 39,23,361 56,708 22 30-Sep-20 23,755 39,80,069 57,93,883 -17,90,059 1,75,755 82,772 38,95,069 85,001

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

Table No. 2 S.No. Date A B C G D MC MF J=(C-A)- (MC+MF1+MF2), if G>0 J = B - (MC+MF1+MF2), if G<0 1 01-Mar-21 2,16,946 39,80,069 53,11,417 -11,14,401 1,75,624 1,54,846 38,15,047 10,176 2 02-Mar-21 73,551 39,80,069 48,66,776 -8,13,156 1,75,624 78,350 38,77,525 24,194 3 05-Mar-21 38,088 39,80,069 47,99,405 -7,81,248 2,04,751 2,06,930 37,33,912 39,227 4 04-Mar-21 27,988 39,80,069 47,23,553 -7,15,496 2,22,738 1,40,979 37,87,674 51,416 5 03-Mar-21 27,988 39,80,069 47,10,739 -7,02,682 2,22,755 59,270 38,61,528 59,271 6 09-Mar-21 50,907 39,80,069 46,76,994 -6,46,018 1,63,234 79,423 38,88,034 12,613 7 10-Mar-21 15,907 39,80,069 46,22,201 -6,26,225 1,63,234 63,275 39,16,794 -0 8 12-Mar-21 15,907 39,80,069 44,77,415 -4,81,439 1,44,079 81,768 38,98,301 -0 9 08-Mar-21 2,46,588 39,80,069 47,04,848 -4,78,191 1,63,274 87,345 38,91,474 1,250 10 17-Mar-21 69,087 39,80,069 45,24,535 -4,75,378 1,29,655 77,384 39,02,685 -0 11 16-Mar-21 69,988 39,80,069 44,47,596 -3,97,538 1,55,183 89,171 38,78,019 12,879 12 18-Mar-21 33,004 39,80,069 43,96,969 -3,83,896 1,29,655 66,322 39,13,747 -0 13 15-Mar-21 74,335 39,80,069 44,27,145 -3,72,741 1,44,079 1,37,843 38,42,226 -0 14 19-Mar-21 22,056 39,80,069 43,52,732 -3,50,607 1,42,125 77,017 39,03,053 -0 15 22-Mar-21 13,150 39,80,069 42,75,316 -2,82,097 1,39,064 54,452 39,19,080 6,538 16 23-Mar-21 14,150 39,80,069 41,64,420 -1,70,201 1,29,355 69,766 39,10,304 -0 17 24-Mar-21 12,132 39,80,069 41,61,556 -1,69,354 1,39,673 62,764 39,17,306 -0 18 25-Mar-21 12,132 39,80,069 40,97,157 -1,04,955 1,31,042 26,022 39,54,048 -0 19 31-Mar-21 17,735 37,13,625 37,29,085 2,276 1,40,994 3,188 37,10,984 -547 20 26-Mar-21 11,226 39,80,069 36,92,448 2,98,848 1,29,748 22,466 39,54,877 2,726 21 30-Mar-21 17,806 39,80,069 36,72,032 3,25,844 1,29,748 15,484 39,79,522 -14,937

24. As seen from the tables above, the value of ‘G’ was found to be negative for 40 sample dates, and value of ‘J’ was found to be positive for 30 sample dates.

25. I note that the Noticee in its reply before the DA did not dispute the findings with regard to the values of ‘G’ and ‘J’ on the sample dates and also have accepted the alleged violations in its reply dated July 31, 2024 filed in the extant proceedings. The Noticee

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited submitted that it had subsequently transferred funds to clients account, however, no supporting documents was placed in support of its contention.

26. Further to the above submissions of the Noticee before the DA, the Noticee in its reply to the post enquiry SCN, did not provide any reply to dispute the above finding in the enquiry report. In the contrary, it reiterated its submission made before the DA, that it accepts the violations. Even during the personal hearing before me, the Noticee was advised to submit documentary evidence in support of its claim that it has settled all the dues of its clients.

27. In response to the above referred documentary evidence sought during the hearing, the Noticee vide email dated September 26, 2024 forwarded certain bank account statements through which the Noticee claimed to have processed pay outs to its credit balance clients alongwith an excel sheet showing credit of clients in the books of the Noticee. I note that, during the hearing, the Noticee was specifically advised to provide proof in the form of an NOC from the exchanges certifying that the Noticee has settled the pending dues with respect to its clients. On further query, the Noticee forwarded an email, received from MCX. However, the email did not provide details as sought from the Noticee during the hearing. Clarification was sought from MCX on the email received from the Noticee to which MCX stated that the referred email did not pertain to the instant matter but was with respect to the matter of Goldenmaple Commodities P. Ltd. Further, as the transactions in the instant matter pertain to NSE, a query with respect to the settlement of pending dues by the Noticee with respect to its clients was sent to NSE. NSE vide its email dated November 26, 2024 submitted that the Noticee had settled the outstanding dues and the Investor Service Centre admissible claims with respect to its clients. In view of the same, I note that the Noticee had subsequently processed the pay outs to all its credit balance clients with respect to the instant matter.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

28. In this regard, I note that Hon’ble Securities Appellate Tribunal, in the matter of Samco Securities Ltd. vs. SEBI (Appeal No. 493 of 2021decided on March 30, 2022), as regards the seriousness of mis-utilization of client’s fund has held as under: “We find that mis-utilization of the clients’ credit funds is a grave issue and not in the interest of the securities market. A stockbroker has to treat each of its client as separate and independent entity and ensure that each clients’ accounts are settled separately and individually. In this regard, the appellant was statutorily obliged to abide by the directions issued under the SEBI circulars dated November 18, 1993 and September 26, 2016.”

29. Considering the aforesaid and the fact that the Noticee has not disputed the alleged violations, I find that on 40 sample instances there was misutilisation of funds of credit balance clients by the Noticee for meeting the obligations of debit balance clients and/or for its own purpose, as well as 30 sample instances where clients' funds were utilized towards margin obligations of debit balance clients and proprietary margin obligations.

30. In this regard, I note that the measure taken by SEBI vide the aforesaid circulars are intended to increase transparency in fund/ client management by stock brokers and provide safeguard with regard to risk management. The funds in client's accounts cannot be applied for any purpose other than meeting that specific clients’ obligation as permitted in the said circulars.

31. In view of the above, I agree with the findings of the DA and hold that the allegations of misutilisation of funds of clients by the Noticee stands established and the Noticee has violated provisions of clause 1 of Annexure of SEBI circular no. SMD/SED/CIR/93/ 23321 dated November 18, 1993 and Clause 3 of Annexure of SEBI circular no.SEBI/HO/MIRSD/MIRSD2/ CIR/P/2016/95 dated September 26, 2016.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

II. QUARTERLY/MONTHLY SETTLEMENT OF FUNDS/SECURITIES OF CLIENTS: 32. On examination of the settlement sheet, trial balances and securities holding form of the Noticee, the following was noted: a) With respect to active clients, there was delay in settlement of 8 clients out of the total 94 clients (Minimum delay of 94 days and maximum delay of 184 days). Further, from the total 94 clients, the Noticee did not settle the accounts of 34 active clients on 60 instances out of the total 470 instances for which the funds & securities value is INR 1.01 crores. b) While comparing the quarter to quarter trial balance of inactive clients till June 30, 2021 and on comparison of month on month trial balance for the period from August 31,2021 to November 30, 2021, it was seen that the Noticee did not settle funds of 75 inactive clients on 174 instances which amounted to INR 0.65 crores during the inspection period.

33. In view of the above, it was alleged that Noticee has violated the following provisions of SEBI circulars: a) Clause 8.1.1. and 8.1.4. of Annexure of SEBI/HO/MIRSD/MIRSD2/ClR/ P/2016/95 dated September 26, 2016. b) Clause 12. e. of Annexure-A of SEBI Circular SEBI/MIRSD/SE/Cir-19/2009 dated December 03, 2009.

34. As per above provisions, between two running account settlements the maximum permissible gap is of 90 days for quarterly settlements and 30 days for monthly settlements. In addition to the same, the broker within 5 days from date of settlement, is required to send a statement of accounts which contains an extract of client ledger for funds and securities alongwith a statement giving an explanation with respect to retention of funds and securities and the details of pledge if any.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

35. Having gone through the allegation and the DA report, I agree that there is a need to examine the delay for 8 active clients which is in the range of 94 to 184 days and non-settlement of 34 active clients for 60 instances out of the total 470 instances. With respect to inactive clients, the comparison of quarter to quarter and month to month trial balance shows that the Noticee has not settled the funds of 75 inactive clients on 174 instances which amounted to INR.0.65 crores during the inspection period.

36. In this context the DA has noted the submissions of the Noticee that the instances of non-settlement of accounts in a timely manner and instances of failure by the Noticee to carry out settlement for both active and inactive clients was due to the following reasons:-(i) hospitalization of one of the directors of the Noticee (ii) change of bank accounts by inactive clients. The DA report noted that the Noticee has accepted the violations and also failed to provide any documentary evidence in support of the above reasons stated by it for its failure.

37. With regard to the above observations of the DA, I note that, SEBI circulars mandates that the stock brokers should settle the funds of clients periodically, so that clients’ funds are not kept unsettled by the stock broker for indefinite period on any pretext. The circular was issued with a view to instill greater transparency and discipline in the dealings between the clients and the stock brokers and to keep the investor informed about his/her account, so as to curb any misutilisation of funds by the stock brokers, thereby safeguarding the integrity of the market.

38. I note that, the Noticee in its reply in the extant proceedings has not disputed the alleged violations committed by it. In view of the same, I find that, there is a delay in the settlement of 8 active clients out of the total 94 clients with a minimum delay of 94 days and maximum delay of 184 days. Further, the Noticee failed to settle the accounts of 34 active clients on 60 instances out of the total 470 instances for which the funds & securities were valued at INR1.01 crores. The Noticee also failed to settle

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited the funds of 75 inactive clients on 174 instances which amounted to INR 0.65 crores. Accordingly, I hold that the Noticee has violated the provisions of clause 8.1.1. and 8.1.4. of Annexure to SEBI circular no. SEBI/HO/MIRSD/MIRSD2/ClR/P/2016/95 dated September 26, 2016 and sub clause (e) of clause 12 of Annexure-A of SEBI circular no. SEBI/MIRSD/ SE/Cir-19/2009 dated December 03, 2009.

III. CLIENT REGISTRATION PROCESS (KYC AND KRA PROCESS) 39. During inspection, it was observed that 5 out of 10 client registration documents had following major irregularities: a) One instance of Know Your Client (KYC) not filed properly; b) Details of Compliance officer and CEO not found in KYC; c) In-person verification (IPV) details not filled; d) Contravening clause pertaining to running account authorization of securities has been included in KYC. The clause is contravening as running account of ‘securities’ has been discontinued.

40. In view of the above, it was alleged that the Noticee has violated the following provisions of SEBI circulars: a) Clause 4 of SEBI circular no. MRD/DoP/Dep/SE/Cir-22/06 dated December 18, 2006; b) Clause 3. ii. of SEBI circular no. MIRSD/Cir-26/2011 dated December 23,2011; c) Clause 7 of SEBI circular no. CIR/HO/MIRSD/DOP/CIR/P/2019/7 dated June 20, 2019; d) Annexure 1 and Annexure 3 of SEBI circular no. CIR/MIRSD/16/2011 dated August 22, 2011.

41. As per the above provisions, (i) there is a need to have a designated email id for the purposes of registration of complaints and this email ID needs to be displayed in order

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited to create investor awareness; (ii) the details of person carrying out the in-person verification should be recorded in the KYC form (iii) the guidelines for running account settlement of clients is restricted only to ‘funds’ and discontinued with respect to ‘securities’ (iv) index of documents and document stating additional information about client related to its trading account is required to be maintained as provided in SEBI circular no. CIR/MIRSD/16/2011 dated August 22, 2011.

42. Having perused the above allegations against the Noticee, I note that the DA report states that the Noticee submitted that it was not having an electronic account opening form during the covid period and had opened around 15-20 accounts in which certain errors may have occurred.

43. I note that in the extant proceedings, the Noticee has not made any submissions with respect to the above violation. Rather the Noticee had reiterated the submission it made before the DA where he had accepted the aforesaid violations.

44. In view of the aforesaid, I find that there were irregularities in the client registration process followed by the Noticee. It is noted that (i)there were discrepancies in the filing of the KYC; (ii) there was a failure to providing the details of the CEO and compliance officer in the KYC form; (iii) IPV details were not filed (iv) contravention clause pertaining to running account authorisation for securities was included in the KYC though the same was discontinued. In view of the above, I hold that the Noticee has violated:- clause 4 of SEBI circular no. MRD/DoP/Dep/SE/Cir-22/06 dated December 18, 2006; clause 3.ii. of SEBI circular no. MIRSD/Cir-26/2011 dated December 23,2011; clause 7 of SEBI circular no. CIR/HO/MIRSD/DOP/CIR/P/2019/7 dated June 20, 2019 and Annexure 1 and Annexure 3 of SEBI circular no. CIR/MIRSD/16/2011 dated August 22, 2011.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

IV. ENHANCED SUPERVISION OF STOCK BROKER 45. During inspection, it was observed that the Noticee had submitted incorrect report of weekly supervision data. The collateral deposited with clearing corporation; margin utilized for positions of credit balance clients & free/unblocked collateral deposited with clearing corporation were reported incorrectly. The details of the same are as followed: Table No. 3 Particulars Date Value Value Difference (In Reported by Calculated Rs) Trading Member during (TM) (In Rs) inspection (In Rs) Collateral deposited with 26-03-2021 68,00,013/- 39,80,069.38 28,19,943.62 clearing corporation in form 26-11-2021 68,00,013/- 39,80,069.38 28,19,943.62 of Cash and Cash Equivalents Margin utilized for positions 26-11-2021 12,934/- 25,594.8 -12,660.8 of Credit Balance Clients Free/unblocked Collateral 26-03-2021 67,74,821/- 39,54,877.17 28,19,943.83 deposited with Clearing 26-11-2021 67,87,079/- 39,67,135.22 28,19,943.78 corporation (In Rs.)

46. The above table shows that on three instances, namely (i)cash and cash equivalent collateral deposited with clearing corporation (ii) margin utilised for credit balance clients and (iii) free collateral deposited with clearing corporation, the Noticee had reported incorrect information of weekly supervision data. The above table no. 3 gives details of the ‘value reported by the TM’ and the actual value which the Noticee failed to report as per the clause 3.2 of SEBI circular dated September 26, 2016.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

47. In view of the above, it was alleged that the Noticee violated Clause 3.2 of Annexure of SEBI Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016.

48. As per the clause 3.2 of the aforesaid circular, stock brokers are mandated to submit the following data on the last trading day of every week to the stock exchanges on or before the next trading day: (i)aggregate of fund balances available with clients and collateral deposits with clearing corporations (ii) aggregate value of:- credit and debit balances of clients; proprietory non cash collaterals; non-funded part of bank guarantee; proprietary margin obligations; margin utilised for positions of credit balance clients and unutilised collateral.

49. The DA noted that the Noticee contended that the deposit with NSE was INR 68 lacs and accordingly the Noticee submitted that the reporting done by it is correct. However, the Noticee has not placed any evidence in support of this submission. Further, the Noticee has not provided any additional reply in the extant proceedings also in support of its contention. In view of the above, I agree with the findings of the DA that the reporting by the Noticee is incorrect. The submission of correct information under the enhanced supervision system was imperative for effective monitoring by Stock Exchanges of clients’ funds lying with the stock brokers through this mechanism.

50. In view of the above, I hold that the Noticee has violated Clause 3.2 of Annexure of SEBI Circular no. SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

V. VERIFICATION OF UNIQUE CLIENT CODE (UCC)- PAN, EMAIL ID & MOBILE NUMBERS 51. During inspection, it was found that: (i) the Noticee had opened multiple Unique Client Codes (UCC) against single PAN; and (ii) there was mismatch in client address and PAN details for 90 clients. In view of the above observations, it was alleged, that the Noticee violated Clause 2.B. ii. and 2.B. iv. of SEBI circular no. CIR/MIRSD/15/2011 dated August 02, 2011.

52. As per the above provisions, stock brokers should upload the details such as name, mobile number and address of its clients and also ensure that separate mobile number and e-mail address is uploaded for each of its client.

53. During inspection, it was found that two UCC were allotted for a single PAN. The DA in its observation to the above allegation, stated that, as per records, there were no two different UCC with same PAN numbers. In view of the above findings, the DA stated that the violation of Clause 2.B. iv. of SEBI circular no. CIR/MIRSD/15/2011 dated August 02, 2011 against the Noticee cannot be established.

54. On perusal of the records, I find that the UCC details of client namely Anshu Suman having PAN: BHZPS1967D is shown as ‘GM533’ against the last trade date of March 16, 2021 and in another entry, the UCC is shown as ‘GM553’ for the same client with same PAN and the only difference being the last trade date which is January 6, 2021. In view of the same, the observation in the inspection report that on one instance the Noticee had allotted two different UCC for one PAN is established. However, I note that this one instance could be on account of typo error.

55. Further, with respect to the allegation of mismatch of clients addresses, it was noted that for 90 clients there was mismatch in clients address and PAN details as per back office records of the Noticee and as per stock exchange records. The Noticee in its Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited submission before the DA had stated that all client addresses are same as per the Aadhar record of the clients, which can be cross verified with contract note. Further, the Noticee also submitted that its back office vendor is from West Bengal and due to error at their end, ‘West Bengal’ was reflected in the records of the addresses for all clients. The Noticee brought this error to the notice of the vendor and the same was rectified.

56. The DA noted that the Noticee had uploaded the requisite details, however, there was a system issue as regards the mismatch in the clients addresses which should be treated as at most a technical lapse and hence found that the violation cannot be established. In view of the findings above, the DA stated that the violation of Clause 2.B. iv. of SEBI circular no. CIR/MIRSD/15/2011 dated August 02, 2011 against the Noticee cannot be established.

57. With respect to the client address data pertaining to the 90 clients, under the column head ‘client address state’ incorrectly shows ‘West Bengal’. The submission given by the Noticee as referred as para 55 above has been accepted by the DA. On perusal of the material placed before me, I note that the details of the address of the clients have been correctly captured in the individual columns where the break up of the address is reflected. However, in the column ‘client address state’, ‘West Bengal’ is reflected incorrectly for all clients.

58. Considering my findings at paras 54 and 57 above, I am inclined to give benefit to the Noticee and hold that the alleged violations of Clause 2.B. ii. and 2.B. iv. of SEBI circular no. CIR/MIRSD/15/2011 dated August 02, 2011 do not stand established against the Noticee.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

VI. ANALYSIS OF RISK BASED SUPERVISION (RBS) DATA 59. During inspection, the RBS data was analysed and it was observed that the Noticee did not report loan balances of INR 45,73,253 as on March 31, 2021. The records as per inspection showed a loan balance of INR 45.73 lacs extended to 8 parties as on March 31, 2021 which was not reported by the Noticee to the stock exchanges. Therefore, it was alleged that the Noticee violated Clause 6.1.1.e of Annexure of SEBI circular no.SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016.

60. As per the above provisions, a stock broker needs to submit data to stock exchanges with respect to RBS within the timeframe provided by stock exchanges. The violation of the above provision also applies in case the data submitted by the stock broker is incomplete or wrong.

61. The DA has noted that the evidence based on which the violation has been alleged is not supported by documents and the only document placed on record is a list having the names of eight entities and the loan amounts outstanding against their names as on March 31, 2021. The DA noted that the violation at para 59 cannot be established due to insufficient material on record to prove that the Noticee extended loans to eight entities.

62. I have perused the document based on which the DA had arrived at the findings as stated at para 61 above. I note that the only documentary proof placed on record in the inspection is the list which shows the name of the eight entities and the amount shown against them as closing balance as on March 31, 2021. There is no other evidence in the form of bank details or entries in the books of accounts. The document placed being insufficient evidence, I am inclined to agree with the DA and hold that the Noticee has not violated Clause 6.1.1.e of Annexure of SEBI Circular SEBI/H0/MIRSD/MIRSD2 /CIR/P/2016/95 dated September 26, 2016.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

VII. CERTIFICATION REQUIREMENT 63. It was observed during inspection that, the associated person of the member was not having NISM series VII- Securities Operations and Risk Management Certification and therefore, it was alleged that the Noticee violated sub-clause (8) of clause B of Schedule II read with sub-regulation (f) of regulation 9 of the Stock Broker Regulations and regulation 3 of the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007.

64. The above provisions require the stock broker to have adequately trained staff. The registration granted to the stock broker is interalia subject to the stock broker to abide by the Code of Conduct as specified under Schedule II of the Stock Broker Regulations. In addition to this, the associated person employed/engaged by the stock broker requires to obtain the requisite certificate for being in employment or association with the stock broker.

65. It is alleged that associated persons employed by the Noticee were not having NISM series VII- Securities Operations and Risk Management Certification. The Noticee has contended before the DA that they had three staff members and one of them was having NISM certification, however due to Covid the certification for other staff could not be obtained. It is an accepted fact that the associated persons employed by the Noticee did not have the requisite certification as required under the provisions stated at para 63.

66. In view of the above, I agree with the DA and hold that the Noticee has violated sub-clause (8) of clause B of schedule II read with sub-regulation (f) of regulation 9 of the Stock Broker Regulations and regulation 3 of the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

VIII. MAINTENANCE OF CLIENT AND GENERAL LEDGER 67. On verification of trial balances and client ledgers, it was observed during inspection that the Noticee had not maintained client ledgers properly. The Noticee debited amounts from client's ledgers through Journal Voucher (JV). In some cases, in the narration the reason for such debits was cited as "Advanced brokerage" and in many cases there were no narrations and in many instances actual bank transactions were recorded as JVs. As per the trial balance as on 30-11-2021, value of creditors was Rs 0.40 crores, however, after reversing JVs entries in aforesaid manner, the revised creditors clients will be of INR0.56 crores. It was therefore, alleged that the Noticee violated sub-clause (2) and (5) of clause A of Code of Conduct for Stock Brokers under Schedule II, read with sub-regulation (f) of regulation 9 of the Stock Brokers Regulations and NSE circular no. NSE/INSP/38743 dated August 30, 2018.

68. The above provisions requires the stock broker to exercise due skill and care in the conduct of its business alongwith compliance with the statutory requirements. In addition to the same, the above referred NSE circular provides the formats in which the stock broker needs to maintain the register, holding statement, bank book, client ledger.

69. In reply to the above allegation, the Noticee stated that it had charged account opening fee of INR 1000/- for which JV entries were made in the client ledger. Secondly, the Noticee had charged advance brokerage which were later adjusted with the trades executed. Further, the Noticee was closing its business and therefore reversed the brokerage to client ledger and this is the difference in the amounts which were seen while carrying out the reversal of JV entries.

70. The DA found that it was mandatory for the Noticee to comply with the requirements as stated in Schedule II of the Code of Conduct for Stock Brokers. The NSE circular referred at para 67 above, provides specific formats in which the data pertaining to Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited register, holding statement, bank book, client ledger needs to be maintained by the Noticee. The submission made by the Noticee as stated at para 69 above, when perused alongwith the allegations against the Noticee makes it clear that the Noticee had not maintained the records as per the provisions of the Stock Broker Regulations and NSE circular dated August 30, 2018. Further, it is also noted that the Noticee did not provide any documentary evidence with respect to its submission stated at para 69 above. In view of the above, I agree with the DA and hold that the Noticee has violated Clause A (2) and A (5) of Code of Conduct for Stock Brokers under Schedule II, read with Regulation 9 (f) of the Stock Brokers Regulations and NSE circular no.NSE/INSP/38743 dated August 30, 2018.

IX. MAINTENANCE OF REGISTER OF SECURITIES (ROS), HOLDING STATEMENT, BANK BOOK AND CLIENT LEDGER IN THE PRESCRIBED STANDARD FORMAT 71. It was observed that the Noticee did not maintain holding statement, ROS, client ledger and bank book properly. Sample of the same is given below:  Details like "Narration", "Settlement number", "Reference number" & "Purpose" etc. are not being recorded properly in Bank books.  In ledgers, details like "Transaction Type" and "Particulars/ Narrations" is missing in many instances.  In ROS "Purpose" is not being recorded.  In holding statement "Member Account Type" is not appearing.

72. It was therefore, alleged that the Noticee has violated sub-clause (2) and (5) of clause A of Code of Conduct for Stock Brokers under Schedule II, read with sub-regulation (f) of regulation 9 of the Stock Brokers Regulations and NSE circular no. NSE/INSP/39393 dated November 13, 2018.

73. The above provisions requires the stock broker to exercise due skill and care in the conduct of its business alongwith compliance with the statutory requirements. In Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited addition to the same, the above referred NSE circular provides the revised formats in which the register of securities, holding statement, bank book and client ledger needs to be maintained.

74. In reply to the above allegation, the Noticee stated that since it was not a member of depository, the format was not maintained and this resulted into non-compliance. The DA noted that the holding statement, ROS, client ledger, bank book maintained by the Noticee, lacked details as specified by NSE circular dated November 13, 2018 and hence found that the Noticee had committed the violation mentioned at para 72 above.

75. I note that, the maintenance of records in the prescribed format is to be done by the Noticee irrespective of the fact that the Noticee is a member with the depository or not. Based on the facts mentioned above, it is seen that the Noticee had failed to maintain the records as specified in the NSE circular dated November 13, 2018. Furthermore, the reply given by the Noticee also supports the fact that the Noticee had not complied with the NSE circular referred above. Considering this, I am in agreement with the DA and hold that the Noticee has violated sub-clause (2) and (5) of clause A of Code of Conduct for Stock Brokers under Schedule II, read with sub-regulation (f) of regulation 9 of the Stock Brokers Regulations and NSE circular no. NSE/INSP/39393 dated November 13, 2018.

X. DISPLAY OF CORRECT INFORMATION ON WEBSITE 76. During the inspection, it was verified whether the following details were displayed by the Noticee on its portal /web site:-  its SEBI registration name,  own logo if any,  registration number,  its complete address with telephone numbers  an E-mail ID designated for Investor Complaints

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

 compliance officer name, his telephone number and e-mail address where applicable.

77. It was observed that Noticee did not display correct details of its address and compliance officer on its website. Therefore, it was alleged that the Noticee violated Clause 2 of SEBI circular no. Cir/MIRSD/ 9/2010 dated November 4, 2010.

78. The above provision requires the stock broker to display its name, logo, registration number, address, telephone numbers etc. on its website. It was noted that the Noticee in its submissions accepted the above violation. Further, the factual findings prove that the Noticee was non-compliant with respect to the parameters required to be displayed on its website. The DA found that the Noticee had violated the provision referred at para 77 above.

79. There is no disagreement on the facts stated above that the Noticee needs to be compliant with the provisions referred at para 77 above, however, it failed to comply with the same. In view of the above, I agree with the findings of the DA and hold that the Noticee has violated clause 2 of SEBI circular no. Cir/MIRSD/ 9/2010 dated November 4, 2010.

XI. RECORD OF ORDER PLACEMENT 80. SEBI vide circular no. CIR/H0/MIRSD/MIRSD2/CIR/P/2017/I08 dated September 26, 2017 mandated that all brokers shall execute trades of clients only after keeping evidence of the client placing such order, which could be, inter alia, in the form of physical record written & signed by client, telephone recording, etc. During the course of inspection, the contract notes and call recording data of the Noticee was analysed and the following was observed:

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

Table No.4 S. No DATE UCC Mode Comments Client name Shobha Khera, however, a male voice is placing order. Order 1 07/08/2020 GM588 Call recording placed for UCC 588 and not GM588. 2 07/08/2020 LK008 Call recording Recording matches with contract note 3 07/08/2020 PU003 No record available 4 13/08/2020 GM016 broker submitted client came to Visitor register for the entire inspection office and put trade period is blank, hence the submission is 5 13/08/2020 GM105 unacceptable. 6 13/08/2020 GM608 7 13/08/2020 LK035 No record available 8 13/08/2020 SP001 9 20/08/2020 GM613 10 20/08/2020 RP001 11 20/08/2020 RP002 12 20/08/2020 RP003 Since the order book mentions order 13 26/08/2020 RP010 number which matches with contract 14 26/08/2020 RP011 order book note, the same appears to be post trade 15 26/08/2020 RP014 intimation/confirmation 16 26/08/2020 RP013 17 26/08/2020 RP019 18 26/08/2020 RP028 19 26/08/2020 RP030 No record available 20 26/08/2020 RP030

81. Based on the findings in the aforesaid table, it was alleged that the Noticee violated Clause III of the SEBI circular no. SEBI/HO/MIRSD/DOP1/CIR/P/2018/54 dated March 22, 2018.

82. As per the above provisions, every stock broker mandatorily requires to keep evidence of its clients placing order which would be a physical record, telephone log record, emails, log for internet transactions, records of message on mobile phones or any other legally verifiable record.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

83. As seen from the table no. 4 above, out of the total 20 sample instances analysed, it is observed that only in one instance the recordings provided by the Noticee is seen to be as per the specified parameters. In another instance, the Noticee has submitted that it is the client’s husband who picked the call on the client’s behalf. For the remaining 18 instances the Noticee has failed to provide the recordings as per the requisite requirements. The Noticee in its reply has admitted to not having records as required to be in terms of the aforesaid circular.

84. In view of the above, the DA found that the Noticee has violated the alleged provisions of the above referred SEBI circular dated September 26, 2016. Further, as the Noticee has not made any further submissions in contention of the allegations referred at para 81 above, I am in agreement with the findings of the DA and hold that the Noticee has violated Clause III of the SEBI circular no. SEBI/HO/MIRSD/DOP1/ CIR/P/2018/54 dated March 22, 2018.

XII. SEGREGATION OF CLIENTS FUNDS AND SECURITIES 85. It was observed that the Noticee paid & received fund from/ in its settlement account and client account from non-client entities. In net INR 0.43 lacs were received in settlement account. It was observed that the Noticee transferred fund of clients from settlement bank accounts to own bank accounts. In net, the Noticee transferred INR 11.42 lacs from its own account to settlement account. The Noticee paid/received a total fund of INR 145.17 Lakh in this account through such transactions.

86. Therefore, it was alleged that the Noticee violated:  Clause 1 of Annexure of SEBI circular no.SMD/SED/CIR/93/23321 dated November 18,1993,  Clause 2.4.2 of Annexure of SEBI circular no.SEBI/H0/MIRSD/MIRSD2/CIR/P/ 2016/95 dated September 26, 2016 and  Rule 8(1)(f) and Rule 8(3)(f) of SC(R) Rules, 1957.

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

87. Provisions of the aforesaid SEBI circulars mandate that the stock broker to have separate account for keeping the money of its clients and its own money. It also provides the factors under which such transfers are allowed. Further, the provisions also provide the parameters within which the transfer of funds between the broker account and the clients account is permissible and the subsequent requirement to maintain daily reconciliation statement indicating the funds transferred under such transactions. Clause (f) of sub-rule (1) and (3) of rule 8 of SCRR, applies for engaging as Principal in business other than that of securities involving personal financial liability.

88. It is seen from the inspection report that the Noticee paid & received funds from/in its settlement account and client account from non-client entities. INR 0.43 lacs in net have been received in the settlement account maintained by the Noticee. It was also observed that the Noticee transferred an amount of INR 11.42 lacs in net of client’s funds from client settlement bank accounts to its own bank accounts. Further, the Noticee paid/received a total fund of INR 145.17 Lakh in its own account from various parties who were entities other than its clients. It is noted that the Noticee has not given any specific reply contending this allegation and has accepted the violation.

89. I have perused the facts in the inspection report alongwith the findings of the DA. I note that the Noticee has not disputed the allegations levelled against it. I also note that the Noticee has accepted the violations before the DA and even in its reply submitted before me, the Noticee reiterated its acceptance of violations.

90. In view of the above, I am in agreement with the findings of the DA and hold that the Noticee has violated Clause 1 of Annexure of SEBI circular no.SMD/SED/CIR/ 93/23321 dated November 18,1993; Clause 2.4.2 of Annexure of SEBI Circular

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited

SEBI/H0/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016 and Rule 8(1)(f) and Rule 8(3)(f) of SC(R) Rules, 1957.

XIII. NET WORTH VERIFICATION 91. It was observed that the Noticee did not submit the correct value of free reserve, fixed assets, doubtful debts and prepaid expenses while calculating its Networth. As on September 30, 2021, net worth submitted by the Noticee to the Exchange was INR 1.03 Crore. However, revised net worth after considering actual values under various heads was INR 0.57 Crore. The revised net worth was not in compliance with the net worth requirement of the Noticee.

92. It was therefore, alleged that the Noticee violated Clause 6.1.1(i) & 6.1.1 (j) of Annexure of SEBI circular no. SEBLHO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016 and sub-regulation (g) of regulation 9 of the Stock Broker Regulations read with NSE circular no. NSE/COMP/47873 dated April 02, 2021.

93. In terms of sub-regulation (g) of regulation 9 of the Stock Broker Regulations, a Stock Broker is required to maintain the minimum networth as per the specified criteria. Further, the provisions of the above referred SEBI circular dated September 26, 2016 provides that, if at any point of time its networth is negative or below 75% of the requirement or when the broker submits incomplete/ wrong data or fails to submit data on time, the standard operating procedure envisages action to be taken by the stock exchanges.

94. It is seen that the Noticee while calculating its networth, did not take into account the correct value of free reserve, fixed assets, doubtful debts and prepaid expenses and hence as on September 30, 2021 the net worth submitted by the Noticee to the Exchange was INR 1.03 Crore. However, after considering actual values under various heads the revised net worth was INR 0.57 Crore. The actual value arrived at Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited shows that the Noticee was not in compliance with the net worth requirement as provided under provisions mentioned at para 92 above.

95. The Noticee did not make any submissions in respect of the alleged violations referred above and had in fact accepted the violations. The DA found that the Noticee has violated the allegations stated against it as mentioned at para 92 above.

96. Considering the above, I see no reason to differ with the findings of the DA as there are no contentions from the Noticee on these violations. In the absence of any additional documents in reply to the allegations I hold that the Noticee has violated Clause 6.1.1(i) & 6.1.1 (j) of Annexure of SEBI circular no. SEBLHO/MIRSD/MIRSD2/ CIR/P/2016/95 dated September 26, 2016 and sub-regulation (g) of regulation 9 of the Stock Broker Regulations read with NSE circular no. NSE/COMP/47873 dated April 02, 2021.

E. CONCLUSION 97. In view of my above stated findings, I hold that the Noticee has violated the following provisions: a) Mis-Utilisation of Clients’ Funds: clause 1 of SEBI circular no.SMD/SED/CIR/93/23321 dated November 18,1993 and clause 3 of Annexure of SEBI circular no. SEBI/H0/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016;

b) Quarterly/Monthly Settlement of Funds/Securities of Clients: clauses 8.1.1 and 8.1.4 of Annexure to SEBI circular no.SEBI/HO/MIRSD/M1RSD2/CIR/P/2016 /95 dated September 26, 2016 and clause12.e. of Annexure-A of SEBI circular no. SEBI/MIRSD/SE/Cir-19/2009 dated December 03, 2009;

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited c) Client Registration Process (KYC and KRA Process): clause 4 of SEBI circular no. MRD/DoP/Dep/SE/Cir-22/06 dated December 18, 2006, clause 3. ii. of SEBI circular no. MIRSD/Cir-26/2011 dated December 23, 2011, clause 7 of SEBI circular no. CIR'HO/MIRSD/DOP/CIR/P/2019/75 dated June 20, 2019, Annexure 1 and Annexure 3 of SEBI circular no. CIR/MIRSD/16/2011 dated August 22, 2011;

d) Enhanced Supervision of Stock Broker: clause 3. 2 of Annexure of SEBI circular no. SEBI/HO/MIRSD /MIRSD2/CIR/P/2016/95 dated September 26, 2016;

e) Certification Requirement: clause B(8) of schedule II read with sub-regulation (f) of regulation 9 of SEBI (Stock Broker) Regulations, 1992 (hereinafter referred to as "Stock Broker Regulations") and regulation 3 of the SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007;

f) Maintenance of Client and General Ledger: clause A (2) and A (5) of Code of Conduct for Stock Brokers under Schedule II, read with sub-regulation (f) of regulation 9 of Stock Broker Regulations and NSE circular no. NSE/INSP/38743 dated August 30, 2018;

g) Maintenance of Register of Securities, Holding Statement, Bank Book and Client Ledger in the Prescribed Standard Format : clause A (2) and A (5) of Code of Conduct for Stock Brokers under Schedule II, read with sub-regulation (f) of regulation 9 of Stock Broker Regulations and NSE circular no.NSE/INSP/39393 dated November 13, 2018;

h) Display of Correct Information on Website : clause 2 of SEBI circular no. Cir/MIRSD/ 9 /2010 dated November 4, 2010;

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited i) Record of Order Placement: clause III of SEBI circular no. SEBI/HO/MIRSD/ DOP1/CIR/P/2018/54 dated March 22, 2018;

j) Segregation of Clients Funds and Securities: clause 1 of Annexure of SEBI circular no. SMD/SED/CIR/93/23321 dated November 18, 1993; clause 2.4.2 of Annexure of SEBI Circular no.SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016 and clause (f) of sub-rule (1) of rule 8 and clause(f) of sub-rule (3) of rule 8 of SCRR;

k) Net Worth Verification: clause 6.1.l(i) & 6.1.l(j) of Annexure of SEBI circular no. SEBI/HO/MIRSD/ MIRSD2CIR/P/2016/95 dated September 26, 2016 and sub-regulation (g) of regulation 9 of Stock Broker Regulations read with NSE circular no. NSE/COMP/47873 dated April 02, 2021.

98. For the reasons mentioned in the preceding paragraphs, I find that the Noticee has violated the provisions of law as mentioned at paragraph 97 above. I note that according to the DA, the Noticee has violated majority of the provisions as alleged in the SCN as given at para 4 above. I also note that an adjudication order dated May 31, 2024 has been passed against the Noticee alongwith its Directors with respect to identical allegations arising out of the same inspection, wherein a penalty of INR 12 Lakh has been imposed jointly and severally on the Noticee alongwith its Directors. With respect to the above adjudication order, the Noticee alongwith its Directors has filed an appeal before the Honb’le Securities Appellate Tribunal (Hon’ble SAT). As per the directions of Hon’ble SAT, the Noticee and its Directors has deposited an amount of INR 5 lacs. It is true that Enquiry and Adjudication proceedings are separate and independent of each other. Even if penalty is imposed, direction under sub-section (3) of section 12 of the SEBI Act can also be passed. However, I am of the view that direction has to be in proportion to the gravity of the violation. For technical/procedural violations of minor nature, adjudicating proceeding may be taken

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited as sufficient enforcement action. However, it is seen that there are certain violations like mis-utilization of clients’ fund and Quarterly/Monthly settlement of funds/securities of clients which cannot be considered as technical violations of minor nature. It is also noted that sub-regulation(1) of regulation 27 of the Intermediaries Regulations allows the Competent Authority to take action other than recommended by DA.

99. In addition to the above and as already stated in the preceding paragraphs, NSE had confirmed that the Noticee has settled the outstanding dues and the Investor Service Centre admissible claims with respect to its clients for the inspection period in the instant matter. Further, as on date, I note that there are no complaints pending against the Noticee on SEBI Complaints Redressal System (SCORES). This can be taken as the mitigating factor.

100. Having regard to the facts and circumstances of the instant proceeding, I do not agree with the recommendation of the DA for suspension of certificate of registration of the Noticee for a period of six months. In my view, in terms of clause (iv) of sub-regulation (1) of regulation 26 of the Intermediaries Regulations prohibition to the Noticee from taking up any new assignment i.e. new clients for a period of two months from the date of this order would commensurate with the violations committed by it and the same would meet the ends of justice, on account of the following mitigating facts:- (i) NSE has confirmed that the Noticee has settled the outstanding dues and the Investor Service Centre admissible claims with respect to its clients for the inspection period in the instant matter. (ii) No investor complaints are pending against the Noticee on SEBI Complaints Redressal System (SCORES).

101. I note that in terms of sub-regulation (5) of regulation 27 of the Intermediaries Regulations, after considering the facts and circumstances of the case, material on Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited record and the written submissions made by the Noticee, it would be endeavoured to pass the order in 120 days from the date of receipt of the submissions or personal hearing, whichever is later. Further, in terms of section 19 of the SEBI Act, 1992, the power to pass such order has been delegated to Whole Time Members of the Board.

102. In the present case, the written submissions on behalf of the Noticee were filed on October 7, 2024 and the present order is being passed within 120 days of receipt of said written submissions.

F. ORDER

103. I, in exercise of the powers conferred upon me under sub-section 3 of section 12 and section 19 of the SEBI Act, 1992 read with sub-regulation 5 of regulation 27 of the Intermediaries Regulations, hereby issue that the Noticee is prohibited from taking up new assignment i.e. new clients for a period of two months from the date of this order.

104. A copy of this order shall be forwarded to Krisha Incap Services Private Limited and all the Recognized Stock Exchanges to ensure necessary compliances.

105. This order shall come into effect with immediate effect.

Sd/- DATE: December 02, 2024 KAMLESH C. VARSHNEY PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in the matter of Enquiry Proceedings in respect of Krisha Incap Services Private Limited