Order in the matter of Grishma Securities Private Limited

UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008.

IN THE MATTER OF:

Name of the Entity SEBI Registration No. PAN GRISHMA SECURITIES PRIVATE INZ000232632 AABCG1300K LIMITED

Background –

1. Grishma Securities Private Limited. (“GSPL” / “Noticee”) is a Registered Stock Broker having membership of BSE Ltd. (“BSE”), National Stock Exchange of India Ltd. (“NSE”) and Metropolitan Stock Exchange of India Ltd. (“MSE”) and holding Certificate of Registration No. INZ000232632 (Earlier Registration Nos. INB/F 011127132, INB/F/E 231127136, INE 261127136 and INE 271127131).

2. Securities and Exchange Board of India (“SEBI”) passed an order dated July 31, 2013 against GSPL in the matter of IPO of Tijaria Polypipes Ltd. (“TPL”), inter-alia, restraining GSPL from buying, selling or otherwise dealing in securities, in its proprietary account, directly or indirectly for a period of five years. Order in the matter of Grishma Securities Pvt. Ltd.

3. Consequently, SEBI initiated Enquiry Proceedings against the noticee under Regulation 27(iv) of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 (since renamed as SEBI (Stock Brokers) Regulations, 1992) (“Broker Regulations”) and Regulation 23 and Regulation 27 of the SEBI (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”) for not complying with the ‘fit and proper person’ (“FPP”) criteria as laid down in Schedule II to the Intermediaries Regulations.

4. The Designated Authority (“DA”) submitted the Enquiry Report (“DA Report”) on October 31, 2018, inter-alia, observing that the SEBI restraint order dated July 31, 2013 against GSPL questioned the fulfilment of its eligibility to continue to hold registration as a Stock Broker and concluded that the noticee was not complying with the fit and proper person criteria as laid down in Schedule II of the Intermediaries Regulations read with Regulation 27(iv) of Broker Regulations and Regulation 23 of Intermediaries Regulations. In view of the above, DA recommended that the certification of Registration of GSPL as a stock broker be cancelled.

5. A Show Cause Notice dated November 15, 2018 (“post-enquiry SCN”) under Regulation 28(1) of Intermediaries Regulations was issued by SEBI calling upon the noticee to show cause as to why action as recommended in the DA Report or any other penalty should not be taken against it, by the Competent Authority, in view of non-compliance with the requirement of FPP criteria as observed in the DA Report. Gist of the observations contained in the DA Report is given below:

a. SEBI, vide order dated July 31, 2013 issued under Section 11 and 11B of SEBI Act, inter-alia, restrained GSPL from buying, selling or otherwise dealing in securities, in its proprietary account, directly or indirectly, for a period of five years. Further, the directors of GSPL, Chandrika Gandhi, Ketan Shah and Chhabil Shah were also restrained from buying, selling or otherwise dealing in securities, directly or indirectly, for a period of five years.

b. It was, inter-alia, observed in the said order that:

i. GSPL used funds and securities of other clients and of its compliance officer to meet the margin obligations arising out of huge loss incurred by Jivraj Zala, one of its clients, on the first day of trading in the scrip of TPL.

ii. GSPL designed a scheme using front entities for assisting TPL to divert IPO proceeds towards trading by Jivraj Zala in its scrip.

iii. GSPL, along with its Directors and compliance officers and two clients, in circumvention of the policies laid down by way of SEBI Act and Regulations, played a fraud on genuine investors.

c. The SEBI order dated July 31, 2013 was challenged before Hon’ble Securities Appellate Tribunal (“SAT”) vide Appeal No. 151 of 2013. SAT, vide its order dated October 28, 2013, dismissed the appeal.

d. An application made by GSPL for permanent registration as a Depository Participant was rejected by SEBI on the ground that it had failed to fulfil FPP criteria in accordance with Regulation 7 read with Schedule II of the Intermediaries Regulations read with Regulation 19(cc) of SEBI (Depositories and Participants) Regulations, 1996, in view of the directions against the noticee in the SEBI order dated July 31, 2013.

e. Another Enquiry Proceedings was also initiated against GSPL for alleged violation of provisions of Section 12A(a), (b), (c) and (d) of the SEBI Act, 1992, Section 23D of the Securities Contracts (Regulation) Act, 1956, Regulation 3(a), (b), (c), 4(1), 4(2)(a), (d) and (p) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”), Regulations 26(xiii), 26(xvi), 27(xii), 27(xiv) and 27(xvi) of Broker Regulations, and Clause A(1), A(2), A(3) and A(4) of Code of Conduct in Schedule II read with Regulation 7 of Broker Regulations, wherein SEBI, vide order dated December 16, 2014, inter-alia, prohibited GSPL from taking up any new assignment or contract or launch a new scheme (i.e. not to take new clients / customers) for a total period of 3 years in respect of its business as a stock broker.

f. The extant Enquiry proceedings against GSPL was initiated for not complying with the FPP criteria as laid down in Schedule II to the Intermediaries Regulations in view of the restraint orders passed against GSPL and its directors. The prohibitory / restraint directions issued by SEBI against GSPL and its directors vide orders dated December 28, 2011, November 05, 2012, July 31, 2013 and December 16, 2014 have brought out the role of the noticee and casts a shadow on the fulfilment of eligibility by the noticee to continue to hold the registration as a Stock Broker.

Reply and Submissions

6. The noticee, vide letter dated February 28, 2019, submitted replies against the findings of the DA. Submissions made therein are summarized below:

a. The DA Report is contrary to law and also contrary to Regulation 27 of Intermediaries Regulations as the DA has submitted the report without application of mind and without considering noticee’s submissions.

b. DA Report is only a compilation of previous SEBI orders and did not reveal any independent enquiry on its own.

c. The DA Report did not disclose the reasons and grounds for the adverse conclusions against the noticee and the recommendation for cancellation of the certificate of registration.

d. The allegations against the noticee are baseless and without substance and no adverse recommendation / order ought to be passed against the noticee as the noticee has already completed the restraint / prohibition period for the alleged violations as contemplated in the Show Cause Notice (“SCN”).

e. The noticee’s certificate of registration has already been suspended for three years and any further action in this regard would amount to double jeopardy and would violate Article 19(g) of the Constitution.

f. The SEBI order dated July 31, 2013, inter-alia, directed the Enquiry Officer to conduct an independent enquiry and submit enquiry report without being influenced by the observations and findings in the said order.

g. DA has issued an SCN dated August 06, 2013 under Regulation 25(1) of the Intermediaries Regulations for the same cause of action that was the subject matter of the Final order.

h. The noticee had filed an appeal before the Hon’ble Supreme Court in July 2014 against the SAT order dismissing the appeal filed against the SEBI order dated July 31, 2013 and the same is still pending.

i. DA, in his report dated April 30, 2014, had concluded that the noticee had violated Section 12A(a), (b), (c) and (d) of the SEBI Act, 1992, Section 23D of the Securities Contracts (Regulation) Act, 1956, Regulation 3(a), (b), (c), 4(1), 4(2)(a), (d) and (p) of PFUTP Regulations, Regulations 27(xii), 27(xiv) and 27(xvi) of Broker Regulations, and Clause A(1), A(2), A(3) and A(4) of Code of Conduct in Schedule II read with Regulation 7 of Broker Regulations.

j. Pursuant to the aforesaid recommendation of DA, SEBI-WTM, vide order dated December 16, 2014, passed an order restraining the noticee from conducting its business as a stock broker for a period of 3 years.

k. As such, the Enquiry proceedings referred to in the SEBI order dated July 31, 2013, has come to logical conclusion and the noticee underwent the prohibition of 3 years in terms of the SEBI order dated December 16, 2014 and was at liberty to re-commence its stock broking business after the said prohibition which got over in January 2015.

l. The noticee had filed appeal before Hon’ble SAT against the SEBI order dated December 16, 2014. However, the said appeal was disposed of as not pressed as the period of suspension had already been concluded and the noticee had served the term of restraint.

m. Since the enquiry proceedings referred to in the SEBI order dated July 31, 2013 stood concluded, the present proceedings does not survive and amounts to double jeopardy.

n. The initiation of the present proceedings is unfair, arbitrary and in violation of the due process of law and no further regulatory intervention is called for in the matter when on the same cause of action and on the basis of similar allegations, the noticee has been penalized by two separate orders of SEBI.

o. The noticee has also been restrained from undertaking any trades in its proprietary account for a period of 5 years vide SEBI order dated July 31, 2013.

p. Pursuant to the expiry of the restraint period, the noticee has recommenced its stock broking business on BSE since 2015 and on NSE since 2017. There have not been any further allegations or complaint of any unfair, fraudulent, illegal transactions or any misconduct or violation of any regulation against the noticee since then.

q. The orders of restraint / prohibition made by SEBI and upheld by SAT were under challenge before Hon’ble Supreme Court and hence the same has not attained finality and hence, the proceedings pursuant to the post enquiry SCN be dropped.

r. The allegations in the post enquiry SCN are duplicitous in as much as they depend solely on the earlier restraint orders passed by SEBI.

s. There is no additional material to indicate that the noticee is not a FPP to do business as an intermediary or stock broker. SEBI is relying on the same orders it had passed against the noticee in the same matter and on the same cause of action to declare the noticee as not fit and proper person.

t. The penalty of suspension will become meaningless if the suspension is the sole ground for cancellation of the registration in a different proceeding.

u. The DA was appointed vide order dated March 28, 2014 and the SCN was issued on January 12, 2018. However, the lapse of 4 years have not been explained in the SCN.

v. The post enquiry SCN is silent as to which conduct of the noticee in the securities market has been taken in to consideration by the DA to allege that the noticee failed to fulfil the FPP criteria.

w. Hon’ble Supreme Court, vide order dated August 10, 2018, directed that the extant proceedings may be completed but the final order shall not be implemented without the leave of the court.

7. Thereafter, an opportunity of personal hearing was granted to the noticee on September 25, 2019, wherein it was represented by authorised representatives, viz. Shri. KRCV Sheshachalam, Advocate, Shri. Mihir Ghelani, CEO and Shri. Paresh Vinchli, Compliance Officer.

8. During the hearing, the noticee, through its representatives, made oral submissions refuting the allegations contained in the SCN dated November 15, 2018 and also made additional written submissions vide letter dated October 07, 2019. The gist of the said submissions is given below:

a. The extant proceedings are based on the findings in the order of SEBI WTM in the matter of Tijaria Polypipes Ltd, which has been challenged before Hon’ble Supreme Court and had not reached a finality.

b. Enquiry proceedings mentioned in the WTM order dated July 31, 2013 had already been concluded and no other enquiry proceedings were mentioned therein.

c. The allegation of not ‘fit and proper’ should have been raised in the first SCN issued by the Designated Authority / Enquiry Officer (DA) in the initial Enquiry Proceedings.

d. WTM could have considered the FPP criteria in the earlier Enquiry Proceedings as the fact of debarment of 5 years was known to the WTM at that point in time.

e. The conclusion in the DA order is merely based on the findings in the WTM order and there was no independent application of mind by DA in the matter.

f. DA failed to address the preliminary objection raised by the noticee on ‘double jeopardy’ in his report.

g. DA refused to give a personal hearing to the Noticee.

h. On merits of the case, the noticee has already been debarred for 5 years and suspended for 3 years and hence, there cannot be another direction on the same matter.

i. If a three years suspension of registration triggers a cancellation of registration, the penalty of suspension would have no meaning and every case of debarment and suspension would result in cancellation. This was not the scheme of the regulations.

j. The extant proceedings are therefore excessive, repetitive and unnecessary.

k. In the absence of any fresh allegation of violations, it is unfair and arbitrary to hold that the Noticee is not fit and proper merely based on the debarment order in the past.

9. In view of the above, the noticee submitted that the recommendation by the DA shall not be accepted as the noticee has already undergone the penalties imposed by SEBI for the violations and no further action / proceedings can be initiated against the noticee for the same violations.

Consideration and Findings

10. I have considered the findings of the DA Report along with the written and oral submissions made by the noticee. I note that following issues warrant consideration in the matter:

a. Whether the extant proceedings amounts to duplication of proceedings in view of earlier Enquiry Proceedings which culminated with SEBI order dated December 16, 2014?

b. Whether principle of double jeopardy is applicable in the matter considering the facts and circumstances of the present case?

c. Whether the statutory appeal preferred by the noticee before the Hon’ble Supreme Court in the matter would impact the extant proceedings?

d. Whether the noticee fails to comply with the FPP criteria in view of the observations and findings in the DA Report?

e. If yes, whether the situation warrants cancellation of the certificate of registration of the noticee, as recommended by the DA?

11. The primary contention raised by the noticee in its replies / submissions is that the extant Enquiry Proceedings amounted to duplication as another Enquiry proceedings alleging similar violations was initiated and had culminated in an order dated December 16, 2014, inter-alia, prohibiting the noticee from taking up any new assignment or contract or new clients / customers for a period of 3 years in respect of its business as a stock broker. It was also submitted that the noticee had been restrained from trading in its proprietary account for a period of 5 years for the same set of violations, vide SEBI order dated July 31, 2013.

12. I note that proceedings under Section 11(4) and 11B of the SEBI Act, 1992 read with Regulation 11(1) of the PFUTP Regulations, were initiated against the noticee and its directors for violations of Sections 12A(a), (b) and (c) of SEBI Act, 1992 read with Regulations 3(a)-(d), 4(1) and 4(2)(a)-(b) and 4(2)(e) of the PFUTP Regulations. SEBI, vide order dated July 31, 2013, found that the noticee and its directors violated the aforesaid provisions and, inter-alia, restrained the noticee from buying, selling or otherwise dealing in securities, in its proprietary account, directly or indirectly, for a period of 5 years.

13. The earlier enquiry proceedings initiated against the noticee vide SCN dated November 30, 2012 culminated in SEBI order dated December 16, 2014. In the said order, SEBI WTM, inter-alia, observed as follows:

“20. For reasons detailed in the preceding paragraphs9–19, I find that Grishma has violated the provisions of Section 12A (a)–(d) of the SEBI Act read with Regulations 3(a)–(c), Regulations 4(1) and 4(2)(a), (d)and (p)of the PFUTP Regulations, 2003. In addition, I find that as a registered Stock Broker, Grishma is also guilty of violating the provisions of Section 23D of the SCRA, Regulations 26(xiii), 26(xvi), 27(xii), 27(xiv) and 27(xvi); Clauses A(1), A(2), A(3) and A(4) of the Code of Conduct specified under Schedule II read with Regulation 7 of Stock Brokers Regulations.

21.Enquiry proceedings are mainly disciplinary proceedings initiated against intermediaries registered with SEBI. Section 12(3) of the SEBI Act provides that: "The Board may, by order, suspend or cancel a certificate of registration in such manner as may be determined by regulations...".I find that the fraudulent, manipulative and illegal activities committed by Grishma were part of a larger scheme, which affected the integrity of the securities market and resulted in the execution of trades in the scrip of TPL to the detriment of genuine investors” 14. In view of the foregoing, SEBI prohibited the noticee from taking up any new assignment or contract or launch a new scheme (i.e. not to take new clients / customers) for a total period of 3 years in respect of its business as a stock broker.

15. I note that the extant enquiry proceedings initiated vide SCN dated January 12, 2018 have been initiated under Regulation 25(1) of the Intermediaries Regulations in the context of existence of a restraint order against the noticee questioning its continued fulfilment of the FPP criteria. I find that the first enquiry proceedings against the noticee was for violation of various provisions of the SEBI Act, PFUTP Regulations and Broker Regulations, as detailed at para 13 above whereas the extant enquiry proceedings have been initiated with the specific purpose of determining whether the noticee fulfils FPP criteria to be eligible to continue to hold certificate of registration as a stock broker. The technical defence of double jeopardy will not lie in the context of the alleged violations, since the same arise out of separate provisions in different Regulations entailing different consequences.

16. The extant enquiry proceedings are not a proceeding in the nature of prosecution intended to penalise the noticee but a proceeding to examine the eligibility of the noticee to continue holding certificate of registration as a stock broker, in line with the criteria laid down in Schedule II to the Intermediaries Regulations. Further, as already discussed at para 15 above, the scope of the extant enquiry proceedings is totally different from that dealt with by the earlier enquiry proceedings. Accordingly, the extant enquiry proceedings do not amount to duplication and double jeopardy is not attracted in the matter.

17. Another issue to be decided in the matter is whether the proceedings pending before the Hon’ble Supreme Court would act as a bar on the extant proceedings. The noticee has submitted that it has challenged the SEBI order dated July 31, 2013 before the Hon’ble Supreme Court and hence, the restraint order has not reached finality. I note that the noticee had filed an Interim Application before the Hon’ble Supreme Court to stay the extant proceedings. However, Hon’ble Supreme Court, vide order dated August 10, 2018 dismissed the appeal and directed that the “SEBI proceedings may culminate in an order which shall not be enforced without prior leave to this court.” I also note that while the restraint order dated July 31, 2013 has been upheld by the Hon’ble SAT vide order dated October 28, 2013 and has been challenged before the Hon’ble Supreme Court, the restraint order against the noticee vide SEBI order dated December 16, 2014 has attained finality as the appeal filed by the noticee was disposed of as not pressed vide order dated January 13, 2017. In view of the above, I find that there is no bar in going ahead with the extant proceedings. However, SEBI shall take prior leave of the Hon’ble Supreme Court before enforcing the order.

18. Having addressed the aforesaid contentions of the noticee, I now proceed to examine whether the noticee fulfils the FPP criteria in view of the existence of restraint orders against the noticee, it being one of the criteria in Clause (b) of Schedule II of Intermediaries Regulations. The DA found the Noticee to not fulfil the FPP criteria as there were two restraint orders passed by SEBI against the Noticee and recommended cancellation of certificates of registration of the noticee, as a stock broker.

19. The question that now arises for my consideration is whether the existence of restraint orders in the past can be said to have an adverse impact on the Noticee, from the FPP perspective, based on the facts and circumstances of the case. Before proceeding further, the relevant provisions of law are extracted hereunder:

SEBI (Stock Brokers) Regulations, 1992 Regulation 27 “Liability for action under the Enquiry Proceeding Regulations. 27. A stock broker shall be liable for any action as specified in Chapter V of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 including suspension or cancellation of his certificate of registration as a stock broker, if he— (i) …….. (ii) …… (iii)……. (iv) has been found to be not a fit and proper person by the Board under these or any other regulations;

SEBI (Intermediaries) Regulations, 2008 Consideration of application Regulation 7 (1)…… (2) Any application for grant of certificate:- (a) ……. (b) ……. (c)…….. (d) ……..

(e) where the applicant is not a FPP as stated in Schedule II; (f)………. shall be rejected by the Board for reasons to be recorded by the Board in writing.

Cancellation or suspension of registration and other actions. Regulation 23 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, instructions or circulars issued thereunder, by order take such action in the manner provided under these regulations.

Action in case of default. Regulation 27 27.After considering the representations, if any, of the noticee, the facts and circumstances of the case and applicable provisions of law or directions, instructions or circulars administered by the Board the designated authority shall submit a report, where the facts so warrant, recommending, –(i) suspension of certificate of registration for a specified period; (ii) cancellation of certificate of registration; (iii) prohibiting the noticee to take up any new assignment or contract or launch a new scheme for the period specified in the order; (iv) debarring a principal officer of the noticee from being employed or associated with any registered intermediary or other registered person for the period specified in the order; (v) debarring a branch or an office of the noticee from carrying out activities for the specified period; (vi) warning the noticee.

Schedule II Criteria for determining a ‘fit and proper person’ For the purpose of determining as to whether an applicant or the intermediary is a ‘fit and proper person’ the Board may take account of any consideration as it deems fit, including but not limited to the following criteria in relation to the applicant or the intermediary, the principal officer, the director, the promoter and the key management persons by whatever name called – (a) integrity, reputation and character; (b) absence of convictions and restraint orders; (c) competence including financial solvency and net worth; (d) absence of categorization as a wilful defaulter.”

20. A combined reading of Regulations 7(2), 23, 27 and Schedule II of the Intermediaries Regulations, inter-alia, indicate that a stock broker shall comply with the requirement of FPP criteria as laid down in Schedule II to the Intermediaries Regulations on a continuous basis and SEBI may take suitable action as it may deem fit, including suspension and cancellation of registration in the event the intermediary fails to comply with the said requirement. Further, for determining whether an intermediary is an FPP, SEBI may take into account, inter-alia, integrity, reputation and character and absence of convictions and restraint orders against the intermediary, its principal officer, directors, promoters and key management personnel.

21. SEBI vide an interim order dated December 28, 2011, inter-alia, restrained the noticee and its directors from buying, selling or dealing in any securities, in any manner whatsoever, till further orders. The directions contained in the said interim order were confirmed by an order dated November 05, 2012. SEBI, vide final order dated July 31, 2013 restrained GSPL from buying, selling or otherwise dealing in securities, in its proprietary account, directly or indirectly, for a period of 5 years. Further, the directors of the noticee, viz. Chandrika H. Gandhi, Ketan C. Shah, Chhabil C. Shah and its CEO/Compliance Officer Mihir Ghelani were also restrained from buying, selling or otherwise dealing in securities, directly or indirectly, for a period of 5 years. Further, vide order dated December 16, 2014, the noticee was prohibited from taking up any new assignment or contract or launch a new scheme (i.e. not to take new clients / customers) for a total period of 3 years in respect of its business as a stock broker.

22. From the above, I observe that there has been multiple restraint orders against the noticee and its directors for violation of provisions of the SEBI Act, PFUTP Regulations and Broker Regulations. I also note that there have been serious observations in the said orders against the Noticee which resulted in issuance of directions imposing such restraints. The order, inter-alia, observed that the Noticee allowed certain entities to trade without collecting adequate margin funds and used the funds and securities of other clients and that of its compliance officer to meet the margin obligation arising out of huge loss incurred by such entities.

23. I also note that an application filed by the noticee for permanent registration as a Depository Participant (“DP”) was rejected by SEBI vide letter dated December 19, 2013 on the ground that it had failed to fulfil the FPP criteria as provided in Regulation 7 read with Schedule II of Intermediaries Regulations read with Regulation 19(cc) of SEBI (Depository Participant) Regulations, 1996 (“DP Regulations”).

24. Having observed that there were restraint orders against the noticee and the observations therein were serious in nature, raising questions on integrity, reputation and character of the noticee, I proceed to examine the effect of such restraint orders on the FPP status of the noticee. As far as an intermediary is concerned, the FPP criteria laid down in Schedule II of Intermediaries Regulations is undisputedly a continuous requirement. The question is as to whether a restraint order passed against an intermediary under section 11B will have an adverse effect on the “fit and proper” requirement of the entity, as prescribed in the Intermediaries Regulations. In other words, the question is whether an intermediary, against which there is a past regulatory action, would automatically become an unfit person to carry out its activities as an intermediary or not. Another question that arises for consideration is whether a person found to be falling short of meeting the requirement of fit and proper can be said to continue to be so permanently or is the requirement / defect curable subsequently.

25. I note that the various scenarios mentioned in Schedule II to the Intermediaries Regulations, are intended to be indicative and lists out certain criteria that would require consideration while determining the FPP status of an entity. While the history of past convictions, restraint orders, negative net worth in the past etc. stipulated in Schedule II are important and independent criteria for considering whether an entity is a ‘fit and proper person’ and thereby eligible for registration, I am of the view that these criteria are not to be applied mechanically. The FPP criteria needs to be assessed holistically considering the facts and circumstances of each case including the criteria enlisted at Schedule II of the Intermediaries Regulations, as well as the number of years that have elapsed after commission of violations, the possibility of reformation or rectification over a period of time, the chances of recurrence of the same violations etc.

26. The restraint orders by SEBI against the noticee, issued vide orders dated December 28, 2011, November 05, 2012, July 31, 2013 and December 16, 2014 were in existence from the period December 28, 2011 till December 27, 2016. The application for permanent registration as a DP was also made by the noticee during the said period and was rejected citing failure to fulfil FPP criteria. The noticee has served the period of restraint and restarted its business as a stock broker after the period of restraint got over.

27. The FPP status is one of the enlisted eligibility criteria and in my view, it cannot be deemed to be a permanent incurable and irreparable parameter. Just as the eligibility of an entity changes over a period of time owing to changes in facts and circumstances of each case, an entity deemed to be a ‘fit and proper person’ could cease to be so and the vice-versa should also be a possibility.

28. In short, I am of the opinion that a balanced view needs to be taken in the matter, considering the restraints already undergone by the entity, the gravity of the violations that resulted in the restraint orders, the lapse of period since the commission of violations and the subsequent conduct of the noticee since the expiry of the restraint period.

29. In the extant matter, the noticee had violated provisions of the SEBI Act, 1992 and the regulations made thereunder and consequently was restrained for a period of 5 years (in respect of proprietary account trading) and 3 years (in respect of taking up new clients) vide SEBI orders dated July 31, 2013 and December 16, 2014 respectively. Considering the same and the violations that resulted in these restraint orders, it can be observed that the noticee was not in compliance with the FPP criteria during the said period of restraint. However, noticee has since served restraints for a period of 5 years and the period of restraint expired in December 2016. Thereafter, the noticee has recommenced business on BSE and on NSE since 2017 and there have not been any further allegations or complaint on the subsequent activities of the noticee. Further, no major complaints have been received against it in the SEBI SCORES system. From the records produced before me, I also observe that no action has been initiated by SEBI for any other violations committed by the noticee after the lapse of the restraint.

30. I also note that the underlying violations adjudged in the Section 11B proceedings and Enquiry proceedings which led to the two restraint orders against the Noticee, are same and are flowing from the role of the Noticee in facilitating trading in the scrips of Tijaria Polypipes Limited on its first day of trading post IPO leading to steep fall in the share prices. I note that another Whole Time Member of SEBI has examined the said violations and deemed it fit to restrain the Noticee from buying, selling or otherwise dealing in securities in its proprietary account, for a period of 5 years and prohibited it from taking new clients for a period of 3 years. I also find it important to consider that the present proceedings have also been initiated in connection with the same underlying violations as that dealt with in the Section 11B and Enquiry orders.

31. Considering the above, I am inclined to take a view that the present activities of the noticee do not indicate any material event that would adversely affect its FPP status. In the absence of any incriminating evidence to the contrary, I am of the view that holding the noticee as not a ‘ fit and proper person’ based on violations committed in the year 2011 and after serving the restraint period may not meet the ends of justice. Thus, I do not find any justification at this stage, to continue to hold the noticee as not a ‘fit and proper person’ in accordance with the provisions of Schedule II of the Intermediaries Regulations, considering the facts and circumstances of the case.

Directions

32. In view of the above, in exercise of powers conferred on me under Section 12 (3) of the SEBI Act read with Regulation 27 and Regulation 28 of the SEBI (Intermediaries) Regulations, 2008, and upon consideration of the facts and circumstances as above, I hereby dispose of the extant enquiry proceedings and the SCN dated November 15, 2018 against the noticee, i.e. Grishma Securities Private Limited without any direction.

33. In view of the directions of the Hon’ble Supreme Court in Civil Appeal No. 8121- 8122/2014 (I.A. No. 97165 of 2018) issued vide its order dated August 10, 2018, the noticee may appropriately bring this order to the notice of the Hon’ble Supreme Court.

DATE: March 20, 2020 G. MAHALINGAM PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA