Order in the matter of Geofin Comtrade Limited

WTM/MPB/EFD-1-DRA-II/ 36 /2018 SECURITIES AND EXCHANGE BOARD OF INDIA MS. MADHABI PURI BUCH, WHOLE TIME MEMBER Order Under Regulation 28 of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 In respect of Sl. No NAME PAN 1. Geofin Comtrade Limited (Formerly known as “Geojit AADCG3019R Comtrade Limited”)

In Re Inspection of Documents.

1. Geofin Comtrade Limited (Formerly known as “Geojit Comtrade Limited”) (hereinafter referred to as “GCL” / “Noticee”) a commodity broker / member of National Spot Exchange Limited (hereinafter referred to as “NSEL”), Multi Commodity Exchange of India Ltd (hereinafter referred to as “MCX”), National Commodity & Derivatives Exchange Limited (hereinafter referred to as “NCDEX”), National Multi Commodity Exchange of India Limited (hereinafter referred to as “NMCE”) and Ace Derivatives and Commodity Exchange Limited (hereinafter referred to as “ACE”).

2. Pursuant to the default at NSEL in 2012 and Economic Offences Wing’s (hereinafter referred to as “EOW”) initial investigations / arrests / complaints received from investors against the members / brokers of NSEL (including GCL), NSEL vide complaint letters dated March 17, 2015 and March 24, 2015 and EOW via report dated April 04, 2015 had requested Securities and Exchange Board of India (hereinafter referred to as “SEBI”) to take appropriate/necessary action.

3. It is noted that on September 28, 2015, Forward Market Commission (hereinafter referred to as “FMC”) got merged with SEBI and pursuant to this merger, GCL on December 16, 2015 had made an application to SEBI for registration as a commodity broker. Further, it is noted that as per Finance Act 2015, an intermediary may continue to buy, sell or deal in a Order in respect of Geofin Comtrade Limited commodity derivatives as a commodity broker, if it has made an application for such registration within a period of 3 months till the disposal of such application.

4. Further, pursuant to merger of FMC with SEBI, the regulation and supervision of the commodity derivatives brokers has been entrusted to SEBI. Therefore, in view of the abovementioned NSEL complaint letters and EOW report, SEBI had appointed Mohan & Mohan Associates, Chartered Accountants (hereinafter referred to as “Auditor”), to carry out performance audit/inspection of GCL.

5. Audit report along with Annexures were submitted by the auditor to SEBI. Based on the findings of the auditor and further analysis of the same by SEBI, it was decided by SEBI to initiate enquiry proceedings against GCL in terms of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as “Intermediaries Regulations”).

6. SEBI vide order dated October 06, 2016 had appointed a Bench of Designated Authorities to enquire into the alleged violations of various provisions of the SEBI (Stock Brokers & Sub Brokers) Regulations, 1992, (hereinafter referred to as the “Brokers Regulations”), SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”), Forward Contracts (Regulation) Act, 1952, (hereinafter referred to as “FCRA”), Prevention of Money Laundering Act, 2002 (hereinafter referred to as “PMLA”), Central Government Notifications and various Circulars / Code of Conduct, Guidelines, Bye Laws, Business Rules etc. of FMC / SEBI / NSEL / NCDEX / MCX.

7. In terms of regulation 27 of the Intermediaries Regulations, the Designated Authorities vide Enquiry Report dated April 11, 2017 in respect of GCL recommended inter alia, that the application of GCL submitted for registration as a commodity broker may not be considered in the interest of securities market and the application of the Noticee may be rejected. Subsequently, SEBI issued Show Cause Notice dated April 24, 2017 enclosing a copy of Enquiry Report dated April 11, 2017 (hereinafter referred to as “SCN” / “Enquiry Report”) to GCL wherein the Noticee were advised to reply to the SCN within 21 days from the receipt thereof.

8. GCL vide letter dated May 15, 2017 had acknowledgment the receipt of SCN. Order in respect of Geofin Comtrade Limited

9. GCL vide various letters/emails dated June 05, 2017, July 11, 2017, August 09, 2017, September 15, 2017, September 19, 2017, September 21, 2017, October 04, 2017, October 18, 2017, November 20, 2017, January 05, 2018 and January 18, 2018 etc. had sought inspection of documents as well as copies of documents and submitted that SEBI has not provided complete inspection of all relevant documents to them. However, SEBI submitted that it had granted inspection to GCL on July 06, 2017 and copies of all relied upon documents were also provided to GCL through various letters dated August 29, 2017, November 08, 2017 and January 05, 2018.

10. In the interest of natural justice and as per regulation 28(2) of Intermediaries Regulations, the Noticee was granted an opportunity of personal hearing on January 23, 2018 at SEBI, Head Office, Mumbai vide notice of hearing dated December 26, 2017.

11. Further, the Noticee vide various aforesaid letters stated that the documents sought were required by them to finalize their reply and hence requested to grant an opportunity of hearing only after receipt of their detailed reply in the matter. In this regard, the Noticee had also cited the Order of Hon’ble Supreme Court in the matter of SEBI v. Price Waterhouse (Civil Appeal No. 6001 – 6002 and 6003-6004 of 2012 decided on 10.01.2017) wherein Supreme Court had held that a party before SEBI is entitled to get all the material on SEBI’s record.

12. GCL vide letter dated January 18, 2018 had stated that the inspection of documents has not been completed and requested to grant the inspection of documents and also requested to adjourn the hearing scheduled before Whole Time Member. GCL further requested 4 weeks’ time from the date of completion of inspection to submit their detailed reply and hearing be fixed after the receipt of their detailed reply. Accordingly, SEBI vide email dated February 07, 2018 has re-scheduled the hearing to February 20, 2018.

13. In view of the stand of SEBI that it has granted inspection of all relied upon documents and the stand of the Noticee that they are entitled to get additional documents and their request that a hearing be fixed only after they file detailed reply based on all the requested documents, in order to overcome the impasse resulting from the conflicting stands, SEBI vide email dated February 20, 2018 informed the Noticee that the hearing scheduled would be in respect of inspection of documents. Order in respect of Geofin Comtrade Limited

14. On February 20, 2018 Mr. Dipan Merchant, Senior Counsel, Ms.Dimple Merchant, Mrs. June Goveia and Mr. Punit Kachalia, Advocates from I.V. Merchant & Company, Ms. Isha Raman, Advocate along with Mr. Simon Mathews, from GCL, Authorized Representatives (hereinafter referred to as “ARs”) of GCL appeared for the hearing. ARs made their oral submission with respect to inspection of documents. The matter was heard at length.

15. During the hearing, ARs of GCL stated that GCL has sought for inspection of documents as well as copies of documents by their various letters/emails and submitted that SEBI has not provided complete inspection of all relevant documents to them, whereas SEBI states that all relied upon documents were provided to GCL vide inspection granted on July 06, 2017 and copies of documents were also provided to GCL through various letters dated August 29, 2017, November 08, 2017 and January 05, 2018.

16. During the course of hearing ARs were advised to submit their rationale for seeking various additional documents in the matter. ARs submitted that the rationale for seeking the documents is based on three categories viz., (A) Documents necessary for dealing with the issue of jurisdiction (B) Documents necessary for dealing with the issue of discrimination and (C) Documents relating to the merits of the case referred to or relied upon in the Enquiry Report. ARs once again submitted the list of below mentioned documents of which inspection / copies were not provided to GCL. ARs explained the rationale/relevance of seeking inspection of below mentioned documents. ARs further stated that complete inspection of all documents as well as copies of the same are required to make a comprehensive reply to SCN as the said documents relate to the specific averments/allegations made in the SCN. Detailed item by item discussion held during the hearing was as follows:

Order in respect of Geofin Comtrade Limited “……… Table No. 1 Sr. no. Documents / Information sought Observations and Conclusion 1. Names of all the other trading GCL states that it is alleged by SEBI that the contracts members to whom any Show entered into by the trading members / Cause Notice has been issued by brokers/defaulters/investors were illegal futures SEBI in NSEL matter contracts in commodities and violated several provisions of FCRA Act, 1952. As per Section 20 of Forward Contract (Regulation) Act any trade done in contravention of the Act results into prosecution and penalty. Therefore, this information is relevant to determine whether SEBI has initiated action against other individuals who were trading on same paired contract on NSEL which according to SEBI was an illegal future contract or Whether SEBI has concluded that they have not violated the provision of FCRA. SEBI explained to GCL that it cannot claim equality in illegality (negative equality) and the argument that SEBI has not proceeded against other individuals who were trading on same paired contract on NSEL is not a ground for GCL as GCL has to establish its case on merit and not by claiming negative equality. Further, SEBI clarified to GCL that the selection of 5 brokers including GCL was on the basis of objective criteria viz., based on 2 documents i.e. EOW report and NSEL complaints, copies of which were already provided to GCL.

Further, it was clarified by SEBI that at the moment, qua the NSEL matter, no proceedings have been initiated against any other brokers (other than the 5 brokers) or any investors; however, SEBI has the power to initiate any proceedings in future as it deems fit.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion Given this unequivocal stand by SEBI, GCL has all the information it needs to make its representations qua the issue of discrimination and would not be disadvantaged in any way without access to the additional documents/information sought in this regard.

SEBI’s stand on the same stands confirmed / clarified. 2. Names of all the other individuals/ GCL submits that the rationale is the same as Sr. no. 1 Listed companies to whom any above of this table. Show Cause Notice has been issued by SEBI in this matter (if SEBI’s clarification is same as Sr. no. 1 above of this any) table.

3. Copy of files/evidence indicating GCL states that only two investor complaints have been unauthorized trading done by us received out of which one complaint has already been on behalf of our client. with withdrawn and the other complaint is not related to unauthorized trading. Therefore SEBI is called upon to provide the relevant complaints to show that unauthorized trading was done by GCL.

SEBI states that Enquiry Report draws its inference from documents such as Audit reports and annexures attached to it, NSEL complaints, EOW Report, FMC order etc. The said documents were already provided to GCL.

Further, GCL is directed to refer Enquiry Report including paragraph 82 of Enquiry Report.

SEBI’s stand on the same stands confirmed / clarified. 4. List of NSEL members who have GCL states that the requested information is particularly been granted registration by SEBI relevant on the issue of discrimination against them. in any capacity Further, GCL also states that it will help them to understand the SEBI’s rational behind granting

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion registration to other trading members of NSEL / brokers despite being aware that these NSEL trading members / brokers were trading in the same paired contracts and in the same breath denying registration to GCL. Hence, this information is relevant to determine whether SEBI has granted registration to other NSEL brokers who were trading in same paired contacts on NSEL platform.

SEBI’s clarification is same as Sr. no. 1 above of this table. 5. List of NSEL brokers who have GCL states that the requested information is particularly been denied registration by SEBI relevant on the issue of discrimination against GCL. pursuant to its application to SEBI Further, GCL also states that it will help them to in any capacity determine whether SEBI has taken similar action against any other NSEL trading members / brokers who were trading in same pattern or has decided to absolve. SEBI’s clarification is same as Sr. no. 1 above of this table. 6. Total numbers of investors who GCL states that SEBI has alleged that the contracts had traded on NSEL entered into by the trading members / brokers/defaulters/investors were illegal futures contracts in commodities and violated several provisions of FCRA Act, 1952. As per Section 20 of Forward Contract (Regulation) Act any trade done in contravention of the Act results into prosecution and penalty. Therefore, this information is relevant to determine whether SEBI has initiated action against the NSEL defaulter members who were also trading in paired contracts or has concluded that they have not violated the provisions of FCRA. Further this will also help them to understand whether SEBI has taken any discriminatory stand in the said matter.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion SEBI’s clarification is same as Sr. no. 1 above of this table.

7. Number of entities out of above GCL submits that the rationale is the same as Sr. no. 6 (i.e. investor) against whom any above of this table. proceedings have been initiated in the context of their trading on SEBI’s clarification is same as Sr. no. 1 above of this NSEL table.

8. Number of defaulters who had GCL submits that the rationale is the same as Sr. no. 6 traded on NSEL from the date of above of this table. commencement of operation of NSEL SEBI’s clarification is same as Sr. no. 1 above of this table.

9. Number of NSEL defaulters GCL submits that the rationale is the same as Sr. no. 6 against whom any proceedings above of this table. have been initiated by SEBI. SEBI’s clarification is same as Sr. no. 1 above of this table.

10. Copies of replies/affidavits filed GCL states that this information is important to by SEBI in any High Court(s)in the determine whether SEBI and FMC have any jurisdiction context of any case related to on NSEL trading. NSEL SEBI is instructed to convey their stand with respect to the same.

It is clarified by SEBI that since GCL has applied to SEBI, for the purpose of granting registration to GCL to act as a commodity broker, SEBI has jurisdiction to determine whether GCL is a fit and proper person to act as a commodity broker. SEBI further states that the existence or absence of jurisdiction is determined only by statute.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion Thus, GCL is not disadvantaged in any way without access to the additional documents/information sought in this regard.

SEBI further explained that the requested document has not been relied upon by the SEBI in the SCN.

SEBI’s stand on the same stands confirmed / clarified. 11. Copies of Agenda note and GCL submits that the rationale is the same as Sr. no. 10 minutes of SEBI Board related to above of this table. merger of FMC with SEBI in respect of NSEL matter SEBI’s clarification is same as Sr. no. 10 above of this table.

12. Complete details of proceeding if GCL states that this information is necessary to any initiated by SEBI against the understand the jurisdiction of SEBI in the NSEL matter. depositories in context of & with GCL further clarified that the documents are required to reference to NSEL matter and address the issue of discrimination. trading in NSEL. SEBI’s clarification w.r.t. issue of discrimination is same as Sr. no. 1 and w.r.t. issue of jurisdiction is same as Sr. no. 10 above of this table.

13. Details of proceeding if any GCL submits that the rationale is the same as Sr. no. 12 initiated against clearing member above of this table. by SEBI in context of & with reference to NSEL matter and SEBI’s clarification w.r.t. issue of discrimination is same trading in NSEL. as Sr. no. 1 and w.r.t. issue of jurisdiction is same as Sr. no. 10 above of this table.

14. List of top 100 NSEL brokers by GCL states that this information is relevant to determine turnover for each settlement cycle the number of brokers trading on same paired contract and their turnover in figure. on NSEL.

SEBI’s clarification is same as Sr. no. 1 above of this table.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion 15. Complete copy of material GCL states that SEBI has avoided providing this considered by Board/WTM while information by saying that they have provided copy of ordering of appointment of auditor report and relevant analysis made by SEBI. Designated Authorities in our However, GCL states that it had sought material matter including relevant file considered by WTM. GCL further states that this notes by SEBI information is important to determine whether WTM had considered all relevant information including stand taken by SEBI/FMC on jurisdiction to reach the prima facie conclusion to issue Show Cause Notice.

SEBI explained that file notings are for internal purpose. The material considered by the Board/WTM was Audit Report and analysis made by SEBI. The copy of the same was already provided to GCL. Further, communique of appointment of Bench of Designated Authorities was also given to GCL.

In respect of issue of jurisdiction, SEBI’s clarification is same as Sr. no. 10 above of this table.

SEBI’s stand on the same stands confirmed / clarified.

16. File notings relating to proposal This information is important to determine whether WTM and approval for initiation of had considered all relevant information including stand Enquiry Proceeding by designated taken by SEBI/FMC on jurisdiction to reach the prima authorities in the said matter facie conclusion to issue Show Cause Notice.

SEBI’s clarification is same as Sr. no. 15 above of this table.

17. Trade data submitted by NSEL to GCL states that they require Trade data from 2009 to FMC. 2014.

SEBI explained that the requested primary data has not been relied upon by the SEBI in the SCN.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion And if GCL rationale is discrimination then SEBI’s clarification is same as Sr. no. 1 above of this table

SEBI’s stand on the same stands confirmed / clarified.

18. Documents proving that GCL states that this information is very important as in “illegalities of the transactions SCN, SEBI has made an allegation on the basis of said carried out” in NSEL by brokers document. This information is also important to were pointed out by FMC and determine whether SEBI and FMC had any jurisdiction Ministry of Consumer Affairs. on NSEL.

During the hearing SEBI clarified that all the communication was to NSEL and not to any members of NSEL.

In respect of issue of jurisdiction, SEBI’s clarification is same as Sr. no. 10 above of this table.

19. Copy of audit report of M/s. SGS GCL states that copy is not legible.

SEBI may provide the best possible legible copy to GCL.

 Documents sought vide letter dated October 04, 2017:

Table No. 2

Sr. no. Documents / Information sought Observations and Conclusion 1. Copy of file notings recording the GCL states that the file noting has not been given. This approval for issuing letter dated information is relevant to understand the jurisdiction of April 04, 2016 by SEBI for SEBI / FMC on NSEL. Relevant file notings would have appointment of the auditor to look also recorded why such action was not required to be into our trading on National Spot taken against other NSEL members. Exchange Limited (NSEL)

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion SEBI submitted that no such noting is available on record approving the issuance of letter dated April 4, 2016. The communication of appointment of auditor and the approval for appointment of auditor are different. The approval for appointment of auditor has been granted by the Competent Authority. SEBI further states that copy of letters issued to the Auditor were also marked to GCL.

Further, it is clarified by SEBI that since GCL has applied to SEBI, for the purpose of granting registration to GCL to act as a commodity broker, SEBI has jurisdiction to determine whether GCL is a fit and proper person to act as a commodity broker. SEBI further states that the existence or absence of jurisdiction is determined only by statute. Thus, GCL is not disadvantaged in any way without access to the additional documents/information sought in this regard.

SEBI further clarified to GCL that the selection of 5 brokers including GCL was on the basis of objective criteria viz., based on 2 documents i.e. EOW report and NSEL complaints, copies of which were already provided to GCL.

Further, it was clarified by SEBI that at the moment, qua the NSEL matter, no proceedings have been initiated against any other brokers (other than the 5 brokers) or any investors; however, SEBI has the power to initiate any proceedings in future as it deems fit.

Given this unequivocal stand by SEBI, GCL has all the information it needs to make its representations qua the issue of discrimination and would not be disadvantaged

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion in any way without access to the additional documents/information sought in this regard.

SEBI’s stand on the same stands confirmed / clarified. 2. Any document indicating that SEBI GCL states that this information is relevant to understand had any jurisdiction over NSEL at the jurisdiction of SEBI on NSEL trading. any given point of time It is clarified by SEBI that since GCL has applied to SEBI, for the purpose of granting registration to GCL to act as a commodity broker, SEBI has jurisdiction to determine whether GCL is a fit and proper person to act as a commodity broker. SEBI further states that the existence or absence of jurisdiction is determined only by statute. Thus, GCL is not disadvantaged in any way without access to the additional documents/information sought in this regard.

SEBI’s stand on the same stands confirmed / clarified. 3. Any document indicating that GCL states that this information is relevant to understand FMC, at any point, had jurisdiction the jurisdiction of FMC/SEBI on NSEL trading. GCL to take any action against the further states that the information is required to brokers of NSEL. determine whether SEBI has selectively assumed jurisdiction in our matter.

SEBI’s clarification is same as Sr. no. 1 above of this table.

4. Copy of file noting on the basis of During the hearing, GCL did not contest / press for which letter dated April 4, 2016 discussion on this item. was issued by SEBI SEBI explained that file notings are for internal purpose. SEBI further states that copy of letters issued to the Auditor were also marked to GCL.

SEBI’s stand on the same stands confirmed / clarified.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion 5. Copy of file noting of SEBI dealing During the hearing, GCL did not contest / press for with the Audit Report of M/s Mohan discussion on this item. and Mohan Associates SEBI submitted that letters issued to auditors regarding their appointment and the terms of appointment can be given. SEBI explained that file notings are for internal purpose and the cyrstalised outcome in the form of analysis of the Audit Report was given to GCL.

SEBI is directed to give the copy of the letters issued to auditors regarding their appointment and the terms of appointment.

SEBI’s stand on the same stands confirmed / clarified.

6. Copy of file noting approving letter GCL states that this information is relevant to understand dated October 06, 2016 for the jurisdiction of SEBI on NSEL. appointing the Designated Authorities SEBI explained that file notings are for internal purpose and the cyrstalised outcome in the form of communique of appointment of Designated Authorities was already given to GCL.

SEBI is advised to provide the relevant portion/extract of file notings stating the appointment of Designated Authorities and their names to GCL.

In respect of issue of jurisdiction, SEBI’s clarification is same as Sr. no. 2 above of this table.

SEBI’s stand on the same stands confirmed / clarified.

7. Out of 22 defaulter brokers of GCL states that the requested information is relevant on NSEL (buyers), name of the the issue of discrimination against GCL. defaulter brokers whose

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion performance audit/inspection of SEBI clarified to GCL that the selection of 5 brokers books of accounts have been including GCL was on the basis of objective criteria viz., ordered by SEBI based on 2 documents i.e. EOW report and NSEL complaint, copies of which were already provided to GCL.

Further, it was clarified by SEBI that at the moment, qua the NSEL matter, no proceedings have been initiated against any other brokers (other than the 5 brokers) or any investors; however, SEBI has the power to initiate any proceedings in future as it deems fit.

Given this unequivocal stand by SEBI, GCL has all the information it needs to make its representations qua the issue of discrimination and would not be disadvantaged in any way without access to the additional documents/information in this regard.

SEBI’s stand on the same stands confirmed / clarified. 8. Volume of NSEL for the last 10 During the hearing, GCL did not contest / press for settlement cycles which was not discussion on this item. attributable to pair contract as described in para 5.2 of the SCN. SEBI explained that the para 5.2 of SCN does not refer to any such last 10 settlement cycles.

SEBI’s stand on the same stands confirmed / clarified 9. Any evidence of GCL offering During the hearing, GCL did not contest / press for inducement to the client as discussion on this item. mentioned in para 5.5 of the SCN SEBI states that the documents are audit reports, PPT and analysis made by SEBI. The copy of audit reports, PPT and analysis made by SEBI were already provided to GCL.

SEBI’s stand on the same stands confirmed / clarified.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion 10. Any documents or evidence During the hearing, GCL did not contest / press for indicating that Geojit Credit discussion on this item. Private Limited is NBFC of GCL SEBI states that the documents are audit reports and analysis made by SEBI. The copy of audit reports and analysis made by SEBI were already provided to GCL.

SEBI’s stand on the same stands confirmed / clarified.

11. Any document or evidence to During the hearing, GCL did not contest / press for substantiate that GCL had discussion on this item sanctioned loans disproportionate to client’ income level as alleged in SEBI states that the documents are EOW interim report, page 19 Para E (a) of SCN dated audit reports and annexures attached to it, PPT and April 24, 2016 analysis made by SEBI. The copy of EOW interim report, audit reports, PPT and analysis made by SEBI were already provided to GCL. Further, GCL is directed to refer Enquiry Report including paragraph 84 of Enquiry Report.

SEBI’s stand on the same stands confirmed / clarified.

 Additional list of documents sought during the hearing:

Table No. 3

Sr. no. Documents / Information sought Observations and Conclusion 1. Names of NSEL brokers and GCL states that SEBI in its Show Cause Notice dated persons of such NSEL brokers April 24, 2017, at para 1, page no. 2 has asserted that it against whom a look out notice has received reference from EOW. Thus, this issued by EOW of Mumbai Police information is important to determine the nature and in context of NSEL matter details of the action, if any taken by SEBI on the basis of information of EOW against any brokers who were all

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion trading in paired contract on NSEL platform, for which SCN has been issued to GCL.

SEBI clarified to GCL that the selection of 5 brokers including GCL was on the basis of objective criteria viz., based on 2 documents i.e. EOW report and NSEL complaints, copies of which were already provided to GCL.

Further, it was clarified by SEBI that at the moment, qua the NSEL matter, no proceedings have been initiated against any other brokers (other than the 5 brokers) or any investors; however, SEBI has the power to initiate any proceedings in future as it deems fit.

Given this unequivocal stand by SEBI, GCL has all the information it needs to make its representations qua the issue of discrimination and would not be disadvantaged in any way without access to the additional documents/information in this regard.

SEBI’s stand on the same stands confirmed / clarified.

2. Ministry of Finance, Government GCL states that this information is relevant to of India, vide its letter dated understand the jurisdiction of FMC/SEBI on NSEL November 20, 2015 through its file trading. no. 10/8/2015-CD has directed It is clarified by SEBI that since GCL has applied to SEBI to not to take upon itself any SEBI, for the purpose of granting registration to GCL to regulatory function with respect to act as a commodity broker, SEBI has jurisdiction to trading in National Spot Exchange determine whether GCL is a fit and proper person to act (NSEL). Therefore, SEBI should as a commodity broker. provide us the following: SEBI further states that the existence or absence of a. File notings of SEBI dealing with jurisdiction is determined only by statute. the said letters.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion b. Copy of communication between Thus, GCL is not disadvantaged in any way without SEBI and Department of Economic access to the additional documents/information sought Affairs with regards to the said in this regard. letter. SEBI’s stand on the same stands confirmed / clarified. 3. Copy of order dated 06 October GCL states that in Show Cause Notice it is clearly 2016. (Refer Paragraph 2, Page 2 mentioned about appointment of designated authority of the Enquiry Report) u/s 24 of SEBI Act 1992. The copy of this order is necessary to understand the jurisdiction of SEBI in NSEL matter.

SEBI is advised to provide the same.

Further, SEBI’s clarification is same as Sr. no. 2 above of this table.

4. Annual Report of NSEL for the GCL states that this documents was mentioned in FMC period from 2005-06 to 2012-13 order, hence should be provided to them as FMC order is the part of enquiry report.

GCL may obtain the copy of annual reports from ROC. Further, SEBI may give the document if available.

SEBI’s stand on the same stands confirmed / clarified.

5. Offer letter to NSEL by the seller GCL states that this documents was mentioned in FMC with reference to short term order, hence should be provided to them as FMC order contract (Point 7.1.1 of FMC is the part of enquiry report. order) SEBI states that the said document was attached as exhibit-40 of Grant Thornton report. Further, Grant Thornton report and all exhibits attached to it was already provided to GCL.

SEBI’s stand on the same stands confirmed / clarified.

Order in respect of Geofin Comtrade Limited

 Documents referred in FMC Order dated December 17, 2013;

Table No. 4

Sr. no. Documents / Information sought Observations and Conclusion 1 Commissions’ letter dated 29th GCL states that the document is referred to in the FMC February, 2012 to DCA. Order dated December 17, 2013 therefore they are called upon.

SEBI explained that copy of FMC order dated December 17, 2013 along with 23 annexures (in CDs) were given to GCL on November 08, 2017. SEBI states that the requested document was given to GCL on November 08, 2017.

SEBI is advised/instructed to give the document again.

SEBI’s stand on the same stands confirmed / clarified. 2 Letter dated 29th May, 2012 by GCL submits that the rationale is the same as Sr. no. 1 NSEL. above of this table. SEBI states that the requested document was given to GCL on November 08, 2017.

SEBI is advised/instructed to give the document again.

SEBI’s stand on the same stands confirmed / clarified. 3 Letter dated 31st May, 2012 by GCL submits that the rationale is the same as Sr. no. 1 DCA. above of this table. SEBI states that the requested document was given to GCL on November 08, 2017.

SEBI is advised/instructed to give the document again.

SEBI’s stand on the same stands confirmed / clarified.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion 4 Document directing the MD and GCL submits that the rationale is the same as Sr. no. 1 the CEO of NSEL by the above of this table. Commission dated 1st August, 2013. SEBI states that the same was not relied upon in the SCN / enquiry report.

SEBI’s stand on the same stands confirmed / clarified. 5 Offer letter to NSEL by the seller GCL submits that the rationale is the same as Sr. no. 1 with reference to the short term above of this table. contracts. SEBI states that the said document was attached as exhibit-40 of Grant Thornton report. Further, Grant Thornton report and all exhibits attached to it was already provided to GCL.

SEBI’s stand on the same stands confirmed / clarified. 6 Issuance of warehouse receipt by GCL submits that the rationale is the same as Sr. no. 1 NSEL. above of this table.

SEBI states that the primary or secondary document of warehouse receipts were not relied upon in the SCN / enquiry report.

SEBI’s stand on the same stands confirmed / clarified. 7 Review of the Forensic auditor. GCL submits that the rationale is the same as Sr. no. 1 above of this table.

SEBI is advised/instructed to check the existence of the document, and if available SEBI is advised to provide the document.

SEBI’s stand on the same stands confirmed / clarified. 8 Minutes of the proceedings of the board meeting of the board of GCL submits that the rationale is the same as Sr. no. 1 directors of NSEL dated 19th above of this table. December, 2009. Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion

SEBI states that the requested document was given to GCL on November 08, 2017.

SEBI is advised/instructed to give the document again.

SEBI’s stand on the same stands confirmed / clarified. 9 Minutes of the board meeting of GCL submits that the rationale is the same as Sr. no. 1 FTIL dated 29th January, 2010. above of this table. SEBI states that the requested document was given to GCL on November 08, 2017.

SEBI is advised/instructed to give the document again.

SEBI’s stand on the same stands confirmed / clarified. 10 Annual reports of NSEL for the GCL submits that the rationale is the same as Sr. no. 1 period from 2005-06 to 2012-13. above of this table.

GCL may obtain the copy of annual reports from ROC. Further, SEBI may give the document if available.

SEBI’s stand on the same stands confirmed / clarified. 11 Legal agreement dated 10th GCL submits that the rationale is the same as Sr. no. 1 October, 2012 between NSEL and above of this table. NCS Sugars Ltd. SEBI states that the same was not relied upon in the SCN / enquiry report.

SEBI’s stand on the same stands confirmed / clarified. 12 Minutes of Board meeting relating GCL submits that the rationale is the same as Sr. no. 1 to registration of IBMA dated 3rd above of this table. August, 2009 and the same is referred to in the FMC Order dated SEBI states that the same was not relied upon in the SCN 17th December, 2013 therefore they / enquiry report.

Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion are called upon. 22nd February, SEBI’s stand on the same stands confirmed / clarified. 2010.

13 Document of information provided GCL submits that the rationale is the same as Sr. no. 1 by the then MD of NSEL dated 13th above of this table. September, 2013. SEBI is advised/instructed to check the existence of the document, and if available SEBI is advised to provide the copy of the document.

SEBI’s stand on the same stands confirmed / clarified. 14 Letter dated 23rd August, 2013 GCL submits that the rationale is the same as Sr. no. 1 addressed to NSEL and confirmed above of this table. by FMC. SEBI is advised/instructed to check the existence of the document, and if available SEBI is advised to provide the copy of document.

SEBI’s stand on the same stands confirmed / clarified. 15 Consent given by Grant Thornton GCL submits that the rationale is the same as Sr. no. 1 to FMC vide email dated 27th above of this table. September, 2013 and vide letter SEBI is advised/instructed to check the existence of the dated 28th September, 2013. documents, and if available SEBI is advised to provide the copy of documents.

SEBI’s clarification is same as Sr. no. 1 above of this table. 16 Document of communication by the GCL submits that the rationale is the same as Sr. no. 1 Commission dated 20th November, above of this table. 2013 to GCL. SEBI states that the same was not relied upon in the SCN / enquiry report. Order in respect of Geofin Comtrade Limited

Sr. no. Documents / Information sought Observations and Conclusion

SEBI’s stand on the same stands confirmed / clarified.

17 Written submissions by the noticees GCL submits that the rationale is the same as Sr. no. 1 dated 6th December, 2013. above of this table.

SEBI states that the same was not relied upon in the SCN / enquiry report.

SEBI’s stand on the same stands confirmed / clarified. 18 Advertisement hosted by FTIL GCL submits that the rationale is the same as Sr. no. 1 dated 21st July, 2013. above of this table.

SEBI explained that copy of FMC order dated December 17, 2013 along with 23 annexures (in CDs) were given to GCL on November 08, 2017. SEBI states that the requested document is a part of annexures and the same was already given to GCL.

SEBI is advised/instructed to give the document again.

SEBI’s stand on the same stands confirmed / clarified.

………”

17. With respect to the issue of jurisdiction, on the basis of documents available on record, it is observed that since the Noticee has applied to SEBI, for the purpose of granting registration to the Noticee to act as a commodity broker, SEBI has jurisdiction, inter alia, to determine whether the Noticee is a fit and proper person to act as a commodity broker. Further, the existence or absence of jurisdiction is determined by statute as the statute can vest or oust the jurisdiction and any representations or statements made by any party are not material to the arguments on jurisdiction. Thus, I am of the view that the Noticee is not disadvantaged in any way without access to additional documents/information in this regard. Order in respect of Geofin Comtrade Limited

18. With respect to the issue of discrimination, I note that, the following observations of the Hon’ble Supreme Court in the context of argument of discrimination to claim negative equality in Union of India and anr. vs. International Trading Co. and anr. (AIR 2003 SC 3983) dated May 07, 2003, would be squarely applicable to the facts of this case.

“……two wrongs do not make one right. A party cannot claim that since something wrong has been done in another case directions should be given for doing another wrong. It would not be setting a wrong right, but would be perpetuating another wrong. In such matters there is no discrimination involved. The concept of equal treatment on the logic of Article 14 of the Constitution of India, 1950 (in short ‘the Constitution’) cannot be pressed into service in such cases. What the concept of equal treatment presupposes is existence of similar legal foothold. It does not countenance, repetition of a wrong action to bring both wrongs on a par. Even if hypothetically it is accepted that a wrong has been committed in some other case by introducing a concept of negative equality the respondents cannot strengthen their case. They have to establish the strength of their case on some other basis and not by claiming negative equality……”

19. While Hon’ble Supreme Court has clearly laid down the non-availability of the above ground of discrimination to establish the strength of one’s case, even otherwise, when an argument of discrimination is advanced on the ground of violation of Article 14 of the Constitution of India, the same is in effect challenging the decision taken by SEBI in its administrative capacity to launch action against the Noticee. I consider that this quasi-judicial forum is not the right forum to test the decision, already taken by SEBI in its administrative capacity on this ground. Needless to say, Noticee has other appropriate forum for judicial review of administrative action of SEBI on the ground of perceived discrimination.

20. Without prejudice to paragraphs 18 & 19 above, with respect to the issue of discrimination, on the basis of documents available on record, it is noted that the stand taken by SEBI in selection of the 5 brokers (including Noticee) for initiating proceedings against them is that the selection was on the basis of two documents i.e. EOW report and NSEL complaints; and admittedly copies of both documents have been provided to the Noticee. It is also noted that, at the moment, qua the NSEL matter, no proceedings have been initiated against any other brokers (other than the 5 brokers) or any investors; however, needless to say, SEBI has the Order in respect of Geofin Comtrade Limited power to initiate any proceedings as it deems fit, if warranted at any point of time as per law. Thus, I am of the view that given this unequivocal stand by SEBI, the Noticee has all the information it needs to make its representations qua the issue of discrimination and would not be disadvantaged in any way without access to additional documents/information in this regard.

21. During the hearing, GCL was advised to submit a revised list of documents required for inspection. It is noted that GCL was granted another opportunity of inspection of documents on February 21, 2018. Authorized Representative of GCL appeared for inspection scheduled on February 21, 2018. From the proceedings of inspection of documents dated February 21, 2018 and Table Nos. 1, 2, 3 & 4 mentioned above at paragraph 16, followings are noted:

(a) Copies of documents mentioned at Sr. No. 18 & 19 of Table no. 1, Sr. No. 1, 4, 5 & 6 of Table No.2, Sr. No. 4 of Table No.3, and Sr. No. 1,2,3,7,8,9,10,13,15 & 18 of Table No. 4 were provided to the Noticee at the time of inspection held on February 21, 2018. (b) The documents mentioned at Sr. No. 1,2,4,5,6,7,8,9,12,13,14 &17 of Table No. 1, Sr. No. 1,3 & 7 of Table No. 2 and Sr. No. 1 of Table No. 3 lead to the issue of discrimination. The issue of discrimination is discussed at paragraph 20 above. (c) The documents mentioned at Sr. No. 10, 11, 12, 13, 15, 16 & 18 of Table No. 1, Sr. No. 1, 2 & 3 of Table No. 2 and Sr. No. 2 & 3 of Table No. 3 lead to the issue of jurisdiction. The issue of jurisdiction is discussed at paragraph 17 above. (d) I note that the documents referred at Sr. No. 14 of Table no. 4 is not mentioned in FMC order. Hence, the said documents was not relied upon in the SCN /Enquiry Report. (e) The stand of SEBI in respect to the documents mentioned at Sr. No. 3, 15, 16, 17 & 18 of Table No. 1, Sr. No. 4,5,6,8,9,10 & 11 of Table No.2, Sr. No. 5 of Table No.3 and Sr. No. 4,5,6,11,12,16 & 17 of Table No. 4 is confirmed.

22. While discussing on the scope of right of fair hearing, in Kanwar Natwar Singh vs Directorate of Enforcement & Anr (MANU/SC/0795/2010), the Hon’ble Supreme court in its order dated October 05, 2010 reiterated that “…the right to fair hearing is a guaranteed right. Every person before an Authority exercising the adjudicatory powers has a right to know the evidence to be used against him. This principle is firmly established and recognized Order in respect of Geofin Comtrade Limited by this Court in Dhakeswari Cotton Mills Ltd. Vs. Commissioner of Income Tax, West Bengal [(1955) 1 SCR 941, MANU/SC/0073/1954]……”

23. The Hon’ble Supreme Court further held in its order dated October 05, 2010 passed in Kanwar Natwar Singh vs Directorate 0f Enforcement & Anr (MANU/SC/0795/2010) that “…even the principles of natural justice do not require supply of documents upon which no reliance has been placed by the Authority to set the law into motion. Supply of relied on documents based on which the law has been set into motion would meet the requirements of principles of natural justice”. “…Concept of fairness is not a one way street. The principles of natural justice are not intended to operate as roadblocks to obstruct statutory inquiries. Duty of adequate disclosure is only an additional procedural safeguard in order to ensure the attainment of the fairness and it has its own limitation.

24. I also note that Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”) made the observations of in the matter of Shri B. Ramalinga Raju v. SEBI (SAT order dated May 12, 2017, MANU/SB/0057/2017) …. “There can be no dispute that while determining the rights and obligations of the parties the quasi judicial authority must adhere to the principles of natural justice which inter alia, includes the obligation to furnish requisite documents on the basis of which charges are framed and permit cross-examination of the persons whose statements are relied upon ….”

25. I also note that the Noticee has placed reliance on the decision of the Hon’ble Supreme Court in case of SEBI v. Price Waterhouse (Civil Appeal No. 6003-6004 of 2012 decided on 10.01.2017). However, as regards the applicability of the said decision of Hon’ble Supreme Court to other cases in general, the following observations of Hon’ble SAT in the matter of Shri B. Ramalinga Raju v. SEBI (SAT order dated May 12, 2017, MANU/SB/0057/2017) are noteworthy:

“… Apex Court in case of Price Waterhouse has specifically recorded that the directions given in that case are general directions given as and by way of clarifications without going into the merits of the case. Therefore, directions given in the facts of Price Waterhouse cannot be said to be the ratio laid down by the Apex Court applicable to all other cases. In these circumstances, appellants are not justified in contending that the Order in respect of Geofin Comtrade Limited directions given by the Apex Court in case of Price Waterhouse must be applied to the case of the appellants.”

Thus, the observations of Hon’ble Supreme Court in the matter of SEBI v. Price Waterhouse being case specific in nature, cannot be applied to the facts of the present case. In view of the above facts, circumstances and observations of Hon’ble SAT, I am not inclined to accede to the request of Noticee for grant of inspection of all the documents collected during examination as the relied upon documents have already been granted in consonance with the principles of natural justice.

26. Thus, upon consideration of the submissions of the Noticee, I note that Noticee has availed various opportunities of inspection of documents and has already obtained the copies of various documents from SEBI as outlined above and hence I am of the view that a fair opportunity to defend the case has thereby been granted to the Noticee by way of granting inspection of documents. However, it is noted that till date Noticee has not submitted any reply on merits of the allegations specified in the SCN relying on those documents of which they have already taken inspection.

27. I note that till now approximately 16 months have lapsed since the issuance of SCN and approximately 24 weeks have passed since the last inspection, the Noticee has neither submitted its reply on merit nor attended any hearing on merit. I am of the view that, if the Noticee does not submit its reply on merits in the matter within the time limit specified at paragraph 31 of this order or requests additional time to submit its reply on merits or if the Noticee does not appear on the date of hearing mentioned at paragraph 31 of this order or requests continuously for adjournment of hearing, then from now onwards such requests of time and adjournment can only be seen as dilatory tactics of the Noticee.

28. I note that the issue of jurisdiction and discrimination is discussed at paragraphs 17 and 20 above respectively. From paragraph 21, I note that pursuant to the hearing, SEBI had granted another opportunity of inspection to the Noticee and at the time of inspection copies of documents mentioned at para 21(a) were provided to the Noticee. I also note that SEBI had confirmed its stand in respect of documents mentioned at para 21(b), 21(c), 21(d) and 21(e). Order in respect of Geofin Comtrade Limited

I am of the view that Noticee is not disadvantaged in any way without access to additional documents / information.

29. In summary, I am of the view that the Noticee has already been provided with all the relevant documents and clarifications which enable the Noticee to submit its defence in the present proceedings.

30. As a normal practice, the outcome on the issues of inspection is addressed by way of administrative notices/letters sent by SEBI. If formal orders are to be passed on every objection/issues raised by each Noticee in every proceeding, it will ultimately result in a multiplicity of orders in one and the same proceeding and further result in delay of dispensation of justice and also clog-up the quasi-judicial and appellate forum with unwarranted litigations. This will become a tool in the hands of entities who may not have substantive submissions to make on merit and seek to delay and wriggle out of rigors of timely enforcement action by raising such pleas with the intention of delaying final adjudication of the case on merits. SEBI has already passed an order on the aspect of outcome of inspection in a related matter Phillip Commodities India Pvt. Limited stating that the said order will not be cited as precedent. In the interest of uniformity to the related matter this order is passed. Thus, I am of the opinion that this order should not be cited as a precedent in every matter where inspection is sought by parties. This order is passed to clarify expressly this stand i.e. outcome on the issues of inspection shall be addressed/communicated by way of administrative notices/letters.

31. Thus, in the interest of conclusion of the proceedings initiated vide SCN dated April 24, 2017, I direct the Noticee to submit its reply on merit within a period of 3 weeks from the date of this order and to appear for a personal hearing on merits on September 27, 2018 at 10:30 A.M., Head Office, Mumbai. If the Noticee opts not to submit a reply on merits or appear for the personal hearing on merits on the scheduled date or do both, then, in the interest of justice and to avoid any further delay in bringing the present quasi-judicial proceedings to its logical conclusion, the proceedings on merits shall proceed ex-parte on the basis of material available with SEBI.

Order in respect of Geofin Comtrade Limited

32. A copy of this order may be served on the Noticee by e-mail/ speed-post/hand-delivery immediately.

-Sd- Date: AUGUST 30, 2018 MADHABI PURI BUCH Place: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in respect of Geofin Comtrade Limited