Order in the matter of Inspection of Vishal Vijay Shah

WTM/GM/EFD/ 15 /2020–21 SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI FINAL ORDER UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008. IN THE MATTER OF INSPECTION OF – NOTICEE SEBI REGISTRATION NO. VISHAL VIJAY SHAH INB011277614

BACKGROUND:

1.1 Securities and Exchange Board of India (“SEBI”) had carried out an inspection of books of accounts and other records of Vishal Vijay Shah (“Vishal Shah/Noticee”), a registered Stock Broker, for the period April 1, 2013 to March 16, 2015 (“Inspection Period”). The aforementioned inspection revealed several irregularities which were prima facie in violation of the provisions of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (“Stock Brokers Regulations”) and certain SEBI Circulars (reproduced in the subsequent paragraphs of this Order).

1.2 Subsequently, SEBI initiated Enquiry Proceedings against the Noticee in terms of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”). SEBI vide an Order dated October 26, 2016 under Section 19 of the SEBI Act, 1992 (“SEBI Act”) read with Regulation 24(1) of the Intermediaries Regulations appointed a Designated Authority (“DA”) to enquire into the violations alleged against the Noticee and submit the report in accordance with the provisions of the Intermediaries Regulations.

Order in the matter of Inspection of Vishal Vijay Shah

ENQUIRY BY THE DESIGNATED AUTHORITY:

1.3 A Show Cause Notice dated August 31, 2017 (“Enquiry SCN”), was issued to the Noticee under Regulation 25 of the Intermediaries Regulations enclosing inter alia a copy of the Inspection Report. The Noticee was called upon to show cause as to why appropriate recommendations should not be made against it by the DA in terms of Regulations 23 and 27 of the Intermediaries Regulations. The Noticee was also advised to submit its reply along with documentary evidences, if any, within a specified period.

1.4 During the intervening period the aforementioned DA was transferred. Accordingly, SEBI vide an Order dated October 4, 2017 under the aforementioned provisions of the SEBI Act and Intermediaries Regulations, appointed another DA. Thereafter, upon completion of the enquiry, an Enquiry Report dated March 8, 2018 (“Enquiry Report”) was submitted by the aforesaid DA to the Designated Member (“DM”). In the Enquiry Report, the DA had noted that:

A. The client funds were mis–utilised by the Noticee for settlement of obligations of debit balance of other clients and also for the Noticee’s own purposes. B. Acceptance of payments from third parties in cash and making payments to third parties on behalf of clients and withdrawal of cash from the clients’ bank accounts. C. Transfer of shares received as pay out on behalf of one client, to other clients who had not traded in the scrip during the Inspection Period. D. Settlement obligations of one client were met out from shares received as pay–out on behalf of another client. E. Clients’ securities were used by the Noticee for purposes other than settlement of client obligations.

1.5 In view of the above, the DA had observed that the Noticee had violated the following provisions of securities law:

A. SEBI Circulars no. SMD/SED/CIR/93/23321 dated November 18, 1993, on regulation of transactions between clients and brokers; B. SEBI Circulars no. SMD-1/23341 dated November 18, 1993, on regulation of transactions between clients and members; C. SEBI Circular no. SEBI/MRD/SE/Cir–33/2003/27 dated August 27, 2003, on mode of payment and delivery in respect of securities; D. SEBI Circular no. MRD/DoP/SE/Cir–11/2008 dated April 17, 2008, on collateral deposited by clients with brokers; E. Clauses A(1), (2) and (5) of the Code of Conduct for Stock Brokers as specified in Schedule II of Regulation 9 of the Stock Brokers Regulations, for failure to adhere to the prescribed Code of Conduct in respect of high standard of integrity, due skill, care and compliance with statutory requirements.

1.6 In light of the above and in accordance with Regulation 27 of the Intermediaries Regulations, the DA recommended that the Certificate of Registration granted to the Noticee be suspended for a period of one year.

POST–ENQUIRY PROCEEDINGS BY THE DESIGNATED MEMBER:

2.1 Thereafter, a post–enquiry Show Cause Notice dated March 23, 2018 (“SCN”), was issued to the Noticee enclosing a copy of the Enquiry Report submitted by the DA and calling upon it to show cause in terms of Regulation 28(1) and 28(2) of the Intermediaries Regulations as to why action as recommended by the DA or any other penalty should not be imposed, as deemed fit by the DM.

2.2 Subsequent to the issuance of SCN, an opportunity of personal hearing was granted to the Noticee on August 7, 2019 and the Noticee appeared for the hearing through Advocate Vikas Bengani. The Noticee tendered written submissions on that date reiterating the submissions made in the reply dated January 22, 2018, as submitted to the DA, which are reproduced below.

2.3 Vide written submissions dated August 7, 2019 read with the Noticee’s earlier submissions dated January 22, 2018, the Noticee inter alia submitted as under:

i. Gross creditors and my bank a/c has a mismatch of ₹58,91,163: There was never such a difference of amount between banks and gross creditors. For example, there could be some clearing cheques, which had not been reflected in the bank for clearing purpose. Being a share broker, there could always be debtors and creditors both. Such a mismatch between clients and banks is practically very difficult and as there is no own trading, the question of misutilization is very difficult.

ii. Payment of personal or business purpose work cheque issued from client A/c: The total amount of cheques issued are of ₹88378 in which ₹44878 were issued to the Varun Tours was for our proprietor for business promotion. Definitely the cheques were issued from wrong A/c by mistake and we have reversed that entry also as it is a very small firm with less of manpower some mistake are inevitable and the amount used is also very small and we feel you should take this matter leniently.

iii. RTGS which has come in our A/c in our clients name coming from different party: We would want to state that this fund was receivable to us from our clients. The clients had purchased the stock and there was this shortage of funds we had to follow them for the same the client had asked us for the bank details and we passed them so clients gave this credit in our Account from different parties without our knowledge as a RTGS cannot be stopped coming in the banks and we have reversed the entries with these parties.

iv. Cash Deposited and withdrawal: As per your observation there has been a withdrawal of ₹2,49,000 and deposit of ₹6,45,500 so in this instance there has been a deposit ₹3,96,500. As the deposit and the withdrawal has been done in many instances and a very small quantity amount which nearly does not prove us of dealing in cash or misutilization of client funds there has been a deposit of ₹25001 also so kindly take this matter leniently. In the matter between Sunil Kothari and Saurabh Nagarseth the trade of Sterlite Indus was made for Saurabh Nagarseth by mistake the trade went into Sunil Kothari Account and it was an error which was confirmed to BSE also.

v. Delivery of Shares: Our clients were regular traders with us; sometimes they used to buy shares for a very short period of time they used to request us to keep the delivery in our Account so it could be easier for them to trade as well transfer of shares. Share were kept in our beneficiary A/c at their request and with their knowledge.

vi. Transfer to non–clients: This was done on clients’ request and we had taken specific letter. As you would see in observation there are only 5-6 instances in which this thing has happened. We assure you this would not be repeated even once in the future.

vii. The Noticee also prayed for leniency in view of the monetary penalty of ₹15 Lakhs imposed against the Stock Broker vide SEBI Adjudication Order dated February 23, 2018 for the same violation as alleged in the Enquiry Report. The Noticee further submitted that whatever lapses that have occurred were due to inadequate staff and unavoidable reasons and the same will not be repeated in future.

CONSIDERATION OF ISSUES AND FINDINGS:

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

3.1 Mis–utilization of client funds: As per the Inspection Report, a. In order to ascertain whether or not client funds were used for purposes other than for settlement of clients’ obligations/trading, SEBI had sought to verify whether the total funds lying in the client and settlement bank accounts (as per the bank account statements) and the fixed/cash deposits placed with BSE as margin deposits were equal to or in excess of the gross creditors at the end of the day as per trial balance excluding debits/credits for unsettled trades. Accordingly, it was noted that for 10 days, total cash and cash equivalents lying in the client and settlement bank accounts and with BSE at the end of the day were less than the gross creditors as per trial balance, which indicated that the client funds were mis–utilized by the Noticee either for settlement of obligations of debit balance of clients or for its own purpose. The amounts of funds mis–utilized over the aforesaid period ranged from ₹6,74,784.95 to ₹1,25,84,358.27.

b. Further, in order to ascertain whether funds of clients having credit balance were used as margin for proprietary trading or trading of clients having debit balances, SEBI had sought to verify whether the total client funds lying with BSE was less than the sum of margin exposure granted to credit balance clients and free margin deposits with BSE. Accordingly, it was noted that while BSE did confirm that there was no proprietary trading, nonetheless, for 13 days, clients’ funds having credit balance were mis–utilized for granting exposure to clients having debit balance. The amounts of funds mis–utilized over the aforesaid period ranged from ₹23,418.28 to ₹25,54,188.78.

c. For example, an analysis of one day’s funds in the bank accounts for September 10, 2013, revealed the following: TABLE I – DETAILS REGARDING MISUTILIZATION OF CLIENT FUNDS ANALYSIS OF FUND POSITION AS ON 10.09.2013 AS PROVIDED BY THE NOTICEE AMOUNT (IN ₹) GROSS CREDITORS (EXCLUDING UNSETTLED TRADES) (C) 1,27,82,182.41 BANK ACCOUNT BALANCES AS PER BANK ACCOUNT STATEMENT: 1. CLIENT ACCOUNT 16,84,646.10 2. SETTLEMENT ACCOUNT 17,54,264.98 SUB-TOTAL (A) 34,38,911.08 CASH AND CASH EQUIVALENTS LYING WITH THE EXCHANGE (B) 34,52,108.00 TOTAL MIS-MATCH (CLIENT FUNDS MIS UTILIZED FOR SETTLEMENT OF OBLIGATIONS OF DEBIT BALANCE CLIENTS OR FOR OWN PURPOSES) (G) = C – A – B 58,91,163.33 GROSS DEBTORS (EXCLUDING UNSETTLED TRADES) (D) 23,58,065.28 AS G > D, MIS–MATCH 1 (CLIENT FUNDS MIS UTILIZED FOR SETTLEMENT OF OBLIGATIONS OF DEBIT BALANCE CLIENTS ) = D 23,58,065.28 MIS–MATCH 2 (CLIENT FUNDS MIS UTILIZED FOR OWN PURPOSES) = G – D 35,33,098.05 FREE MARGIN DEPOSITS WITH THE EXCHANGE (MF) 14,47,793.55 MARGIN DEPOSIT UTILISED FOR GRANTING EXPOSURE TO CREDIT BALANCE CLIENTS (MC) 19,02,723.50 CLIENT FUNDS LYING WITH THE EXCHANGE = B, AS C > (A+B) 34,52,108.00 1,01,590.95 MIS-MATCH 3 (CLIENT FUNDS UTILIZED TOWARDS GRANTING EXPOSURE TO DEBIT BALANCE CLIENTS) = B – MC – MF d. In its reply, the Noticee has denied the allegation regarding mis–utilization of client funds merely stating that the amount arrived at through the analysis conducted above cannot be true as there was never such a huge difference of amount between banks and gross creditors. I note that the DA had observed that the Noticee had failed to refute the charge regarding mis–utilization of client funds. In this context, I note that apart from the aforesaid example at Table I, there were several instances of mis–utilization of client funds as stated at paragraph 3.1 a. and b. for which no convincing explanation has been provided by the Noticee. Further, even where the Noticee has contended that such mismatch could have occurred on account of some clearing cheques, which had not been reflected in the bank for clearing purpose, no evidentiary documents have been submitted by it to substantiate such contention.

e. Further, as noted from the Inspection Report, the following 8 instances of payments for personal/business purposes of the Noticees, were observed in the client and settlement bank accounts, with amounts ranging from ₹5,000 to ₹28,402:

TABLE II – DETAILS REGARDING MISUTILIZATION OF CLIENT FUNDS BANK OF INDIA – A/C NO. 008620110001786 DATE NARRATION AS PER BANK ACCOUNT NARRATION AS PER BANK BOOK DEBIT (₹) 25.04.2013 VARUN TOURS OFFICE EXPENSES 16,476 25.04.2013 VARUN TOURS OFFICE EXPENSES 28,402 29.04.2013 RBS OFFICE EXPENSES 6,500 10.05.2013 REL. INFRA ELECTRICITY CHARGES REL. INFRA 6,000 7.06.2013 REL. ENERGY ELECTRICITY CHARGES REL. ENERGY 13,000 11.07.2013 REL. INFRA SAURABH CHANDRAKANT NAGARSETH 8,000 5.08.2013 REL. INFRA SAURABH CHANDRAKANT NAGARSETH 5,000 7.09.2013 REL. ENERGY SAURABH CHANDRAKANT NAGARSETH 5,000 f. As regards the allegation regarding utilization of funds for personal/business purposes, the Noticee had accepted that the cheques for the above mentioned amounts of ₹88378 were issued from the wrong bank accounts and also for the Noticee’s Proprietor’s business promotion. The Noticee had further submitted that it had reversed the entries, which had occurred by mistake. I find that the cheques were issued from the wrong bank accounts by the Noticee thereby indicating mis–utilization of funds for personal/business purposes. I am also not inclined to accept the contention raised by the Noticee that such mis–utilization occurred by mistake. Further, no evidence of reversal entries have been provided by the Noticee. Having regard to the aforementioned, I agree with the DA’s findings that such practice by the Noticee demonstrated total lack of systems and control on the nature of expenses to be met out from the special purpose bank accounts. It is therefore clear that the clients’ funds were utilised for the Noticee’s personal or business purposes.

g. From the bank statements, more than 600 transactions (payments/receipts) with non–clients for amounts as high as ₹30 Lakhs, were observed in the client and settlement bank accounts. Further, on cross checking bank books/client ledgers with bank statements, it was observed that for all such non–client transactions, the bank books reflected that amounts were received either from the client Saurabh Chandrakant Nagarseth (for majority of transactions) or the client, Jatin Chheda (for a few transactions). For example, for a transaction which occurred on April 2, 2013, while the bank statement indicated that an amount of ₹9,35,000 was received through RTGS from Ramdevi Fab (a non–client), the bank book stated that such amount was received from Saurabh Chandrakant Nagarseth, a client of the Noticee. The following transactions of a similar nature were also observed on different dates in client and settlement accounts:

TABLE III – DETAILS EVIDENCING MISMATCH BETWEEN BANK STATEMENT AND BANK BOOK/CLIENT LEDGER BANK OF INDIA CLIENT ACCOUNT NO. 008620110001786: VISHAL VIJAY SHAH CLIENT A/C NARRATION AS PER BANK BOOK / NAME OF DATE DEBIT CREDIT NARRATION AS PER BANK STATEMENT CLIENT-IN WHOSE LEDGER ENTRY WAS MADE 2.04.2013 935000 RTGS/RAMDEVI FAB SAURABH CHANDRAKANT NAGARSETH 2.04.2013 915000 RTGS/RAMDEVI FAB SAURABH CHANDRAKANT NAGARSETH 4.09.2013 1000000 VIPUL SHAH SAURABH CHANDRAKANT NAGARSETH 4.09.2013 1400000 VIPUL SHAH SAURABH CHANDRAKANT NAGARSETH 5.10.2013 900000 RTGS/NARAYAN FABRICS SAURABH CHANDRAKANT NAGARSETH 28.02.2014 2500000 RTGS/NETFORM X INFORMATION JATIN CHHEDA TABLE IV – DETAILS EVIDENCING MISMATCH BETWEEN BANK STATEMENT AND BANK BOOK/CLIENT LEDGER BANK OF INDIA SETTLEMENT ACCOUNT NO. 008620110001787: VISHAL VIJAY SHAH SETTLEMENT A/C NARRATION AS PER BANK BOOK / NAME OF DATE DEBIT CREDIT NARRATION AS PER BANK STATEMENT CLIENT-IN WHOSE LEDGER ENTRY WAS MADE 11.05.2013 1000000 VIPUL SHAH SAURABH CHANDRAKANT NAGARSETH 15.05.2013 500000 VIPUL SAURABH CHANDRAKANT NAGARSETH 23.04.2013 893722 RTGS/PARAG A. MADHANI HUF SAURABH CHANDRAKANT NAGARSETH 22.07.2013 800000 VIPUL SAURABH CHANDRAKANT NAGARSETH 14.11.2013 150000 VIPUL B. SHAH SAURABH CHANDRAKANT NAGARSETH h. In its reply, the Noticee has contended that the funds were transferred to the Noticee’s client and settlement accounts by its clients on account of shortage of funds due to stock/share purchased by them. Further, the Noticee had submitted that such transactions have been reversed. Upon a consideration of the above, it is observed that the funds have been received/paid from/to individuals and entities other than the Noticee’s clients from the Noticee’s client and settlement accounts. Further, no evidence of reversal entries have been provided by the Noticee.

i. The following instances of cash deposits (13 instances ranging from ₹10,000 to ₹2,00,000)/withdrawals (5 instances of approx. ₹50,000) were also observed in the client bank accounts:

TABLE V – CASH DEPOSITS/WITHDRAWALS IN CLIENT BANK ACCOUNTS DATE DEBIT CREDIT BANK CLIENT BANK A/C NO. NARRATION AS PER BANK BOOK 05.04.2013 49000 BOI 008620110001786 CASH ON HAND 12.04.2013 15000 BOI 008620110001786 CASH ON HAND 15.05.2013 25000 BOI 008620110001786 SAURABH CHANDRAKANT NAGARSETH 21.05.2013 40000 BOI 008620110001786 CASH ON HAND 7.06.2013 150000 BOI 008620110001786 SAURABH CHANDRAKANT NAGARSETH 14.06.2013 49000 BOI 008620110001786 SAURABH CHANDRAKANT NAGARSETH 17.07.2013 49000 BOI 008620110001786 SAURABH CHANDRAKANT NAGARSETH 2.08.2013 200000 BOI 008620110001786 SAURABH CHANDRAKANT NAGARSETH 16.08.2013 10000 BOI 008620110001786 SAURABH CHANDRAKANT NAGARSETH 22.11.2013 10000 BOI 008620110001786 CASH ON HAND ON 12-NOV-2014 24.03.2014 50000 BOI 008620110001786 TO CASH 24.03.2014 50000 BOI 008620110001786 TO CASH 27.03.2014 50000 BOI 008620110001786 TO CASH 29.03.2014 50000 BOI 008620110001786 TO CASH 28.10.2014 25000 HDFC 00600340073901 KARAN JAIN 13.11.2014 50000 HDFC 00600340073901 ARCHANA JAIN 19.08.2014 2500 HDFC 00600340073901 CASH ON HAND 21.08.2014 20000 HDFC 00600340073901 KARAN JAIN TOTAL 249000 645500 j. In its submissions, the Noticee has pleaded for leniency while stating that the deposits and withdrawals though done in many instances, were for a small quantity which ‘nearly’ do not prove dealing in cash or misutilization of client funds by the Noticee. I am unable to accept the aforementioned submission of the Noticee. On the contrary, a consideration of the aforementioned facts indicate that the Noticee indulged in misutilization of client funds. I am therefore, in agreement with the DA’s findings that the above mentioned instances of misutilization of client funds, acceptance of payments from third parties/in cash and making payments to third parties on behalf of clients and withdrawal of cash from the client bank account were in violation of the following provisions of the SEBI Circulars dated November 18, 1993 and April 17, 2008 with respect to segregation of clients’ funds and securities and Circular No. SEBI/MRD/SE/Cir–33/2003/27/08 dated August 27, 2003, as reproduced below:

“SEBI Circular No. SMD/SED/CIR/93/23321 dated November 18, 1993 1. 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. 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; iii. Money which may by mistake or accident have been paid into such account in contravention of para C above.

SEBI Circular No. SMD-1/23341 dated November 18, 1993: Member-brokers should not accept cash for purchases of securities and / or give cash against sales of securities. All payments received / made should be strictly by “Crossed - Payee A/c” cheques.

SEBI Circular No. MRD/DoP/SE/Cir-11/2008 dated April 17, 2008 Brokers should have adequate systems and procedures in place to ensure that client collateral is not used for any purposes other than meeting the respective client’s margin requirements / pay-ins. Brokers should also maintain records to ensure proper audit trail of use of client collateral.

SEBI Circular No. SEBI/MRD/SE/Cir- 33/2003/27/08 dated August 27, 2003: It is reiterated that brokers and sub-brokers should not accept cash from the client whether against obligations or as margin for purchase of securities and / or give cash against sale of securities to the clients. All payments shall be received / made by the brokers from / to the clients strictly by account payee crossed cheques / demand drafts or by way of direct credit into the bank account through EFT, or any other mode allowed by RBI. The brokers shall accept cheques drawn only by the clients and also issue cheques in favour of the clients only, for their transactions. However, in exceptional circumstances the broker or sub-broker may receive the amount in cash, to the extent not in violation of the Income Tax requirement as may be in force from time to time.”

3.2 Co–mingling of clients’ securities: As per the Inspection Report, a sample of 5 scrips were selected for analysis by SEBI to ascertain whether or not there were transfers of shares received as pay out on behalf of one client, to other clients who had not traded in the scrip during the Inspection Period. Further, such analysis was also necessitated to determine whether or not settlement obligations of one client were met out from shares received as pay–out on behalf of another client. Accordingly, the analysis of said scrips revealed the following:

a. Analysis of trading by the Noticee’s clients in the scrip of Sterlite Industries (India) Limited (“Sterlite Industries”): As per BSE’s record, the following trades were done in the scrip of Sterlite Industries – TABLE VI – TRADES BY THE NOTICEE’S CLIENTS IN THE SCRIP OF STERLITE INDUSTRIES CLIENT NAME TRADE DATE BUY SELL NET QTY. SUNIL KAINHIYALAL KOTHARI 23.08.2013 5000 - 5000 13.08.2016 1316 1316 0 SAURABH CHANDRAKANT NAGARSETH 20.08.2013 25000 25000 0 22.08.2013 75000 55000 20000 23.08.2013 5000 -5000 b. During the Inspection, it was observed (as shown in the above table) that the client viz. Saurabh C. Nagarseth net purchased 20000 shares on August 22, 2013. These 20000 shares were received in Client beneficiary Account No. 10959175 maintained by the Noticee with DP IndusInd bank on August 26, 2013. On August 23, 2013, the clients, viz. Saurabh C. Nagarseth and Sunil Kothari net sold 5000 shares each. The settlement of these shares was done out of aforesaid 20000 shares purchased on behalf the client, Saurabh C. Nagarseth. This clearly indicates the settlement obligation of the client, Sunil Kothari, was met out of shares received as payout on behalf of the client, Saurabh C. Nagarseth.

c. The extract of transactions in the shares of Sterlite Industries in the Client beneficiary Account No. 10959175 is as follows:

TABLE VII – TRANSACTIONS IN THE CLIENT BENEFICIARY ACCOUNT DESCRIPTION ORDER NO DATE OPENING DEBIT CREDIT CLOSING BALANCE BALANCE BY INTER DEPOSITORY TRANSFER CDS / 1002448209 26.08.2013 0 0 20000 20000 1100001000012414 (BOISL DIRECT DELIVERY ACCOUNT BOISL) TO CM VISHAL VIJAY SHAH, ROLLING MKT. 10000000454300 26.08.2013 20000 10000 0 10000 LOT / 1314103 TO CDS / 1204130000021607, VIPUL 10000000139498 28.08.2013 10000 10000 0 0 BHAGWANDAS SHAH d. It was further observed the balance 10000 shares received as payout on behalf of the client, Saurabh C. Nagarseth, were transferred to the third party, Vipul Bhagwandas Shah. Vipul Bhagwandas Shah had not traded in this scrip during the Inspection Period as a client of the Noticee.

e. Analysis of trading by the Noticee’s clients in the scrip of Aftek Limited: As per BSE’s record, the following trades were done in the scrip of Aftek Limited –

TABLE VIII – TRADES BY THE NOTICEE’S CLIENTS IN THE SCRIP OF AFTEK LIMITED CLIENT NAME TRADE DATE BUY SELL NET SAURABH C. NAGARSETH 23.09.2013 25,000 25,000 f. As shown in the above table, the client viz. Saurabh C. Nagarseth net purchased 25000 shares on September 23, 2013. These 25000 shares were received in Client beneficiary Account No. 10959175 maintained by the Noticee with DP IndusInd bank on September 25, 2013. The extract of transactions in the shares of Aftek Limited in the Client beneficiary Account No. 10959175 is as follows:

TABLE IX – TRANSACTIONS IN THE CLIENT BENEFICIARY ACCOUNT DESCRIPTION ORDER NO DATE OPENING DEBIT CREDIT CLOSING BALANCE BALANCE BY CM ICCL DIRECT DELIVERY 10000003129746 25.09.2013 0 0 25000 25000 ACCOUNT, ROLLING MKT. LOT/ 1314123 TO CDS/1204130000027818 10000000163113 9.07.2014 25000 25000 0 0 VISHAL VIDYUT GAVANKAR g. From the above table, it is observed these 25000 shares received as payout on behalf of the client, Saurabh C. Nagarseth were transferred to the third party, Vishal Vidyut Gavankar. Vishal Vidyut Gavankar has not traded in this scrip during the Inspection Period as a client of the Noticee.

h. Analysis of trading by the Noticee’s clients in the scrip of Banas Finance Limited (“Banas Finance”): As per BSE’s record, the following trades were done in the scrip of Banas Finance during the period from April 1, 2013 to December 31, 2013 – TABLE X – TRADES BY THE NOTICEE’S CLIENTS IN THE SCRIP OF BANAS FINANCE CLIENT NAME TRADE DATE BUY SELL NET SAURABH C. NAGARSETH 13.09.2013 35,000 35,000 0 16.09.2013 35,000 35000 i. From the above table, it is seen that the client viz. Saurabh C. Nagarseth net purchased 35000 shares on September 16, 2013. These 35000 shares were received in Client beneficiary Account No. 10959175 maintained by the Noticee with DP IndusInd bank on September 18, 2013.

j. The extract of transactions in the shares of Banas Finance in the Client beneficiary Account No. 10959175 is as follows:

TABLE XI – TRANSACTIONS IN THE CLIENT BENEFICIARY ACCOUNT DESCRIPTION ORDER NO DATE OPENING DEBIT CREDIT CLOSING BALANCE BALANCE BY CM ICCL DIRECT DELIVERY 10000003101300 18.09.2013 0 0 35000 35000 ACCOUNT, ROLLING MKT. LOT/ 1314118 TO NIRMAL BANG SEC. PVT. LTD / 10000000485791 28.10.2013 35000 35000 0 0 11216840/ GUNVANTI VASANTLAL SAVLA k. It was observed these 35000 shares received as payout on behalf of the client, Saurabh C. Nagarseth were transferred to the third party, Gunvanti Vasantlal Savla. Gunvanti Vasantlal Savla has not traded in this scrip during the Inspection Period as a client of the Noticee.

l. Analysis of trading by the Noticee’s clients in the scrip of Delta Corp Limited (“Delta Corp Limited”): As per BSE’s record, the following trades were done in the scrip of Delta Corp during the period from October 1, 2013 to November 30, 2013 –

TABLE XII – TRADES BY THE NOTICEE’S CLIENTS IN THE SCRIP OF DELTA CORP LIMITED CLIENT NAME TRADE DATE BUY SELL NET DISHANK VIPUL SHAH 3,625 25 3600 JATIN NANJI CHHEDA 9.10.2013 5,000 5,000 0 DISHANK VIPUL SHAH 10.10.2013 2,850 2,850 0 DISHANK VIPUL SHAH 11.10.2013 1,000 1,600 -600 JATIN NANJI CHHEDA 14.10.2013 3,000 -3000 m. From the above table, it can be seen that the client viz. Dishank Vipul Shah net purchased 3600 shares on October 9, 2013. These 3600 shares were received in Client beneficiary Account No. 10959175 maintained by the Noticee with DP IndusInd Bank on October 11, 2013. The extract of transactions in the shares of Delta Corp Limited in the Client beneficiary Account No. 10959175 is as follows:

TABLE XIII – TRANSACTIONS IN THE CLIENT BENEFICIARY ACCOUNT DESCRIPTION ORDER NO DATE OPENING DEBIT CREDIT CLOSING BALANCE BALANCE BY CM ICCL DIRECT DELIVERY 10000003187438 11.10.2013 0 0 3600 3600 ACCOUNT, ROLLING MKT. LOT/1314134 TO CM VISHAL VIJAY SHAH, ROLLING 10000000478462 14.10.2013 3600 600 0 3000 MKT. LOT/1314136 TO CM VISHAL VIJAY SHAH, ROLLING 10000000479076 15.10.2013 3000 3000 0 0 MKT. LOT/1314137 n. From the earlier table, it is also observed that on October 11 and 14, 2013, the clients, viz. Dishank Vipul Shah and Jatin Nanji Chheda net sold 600 and 3000 shares respectively. The settlement of these shares was done out of aforesaid 3600 shares purchased on behalf the client, Dishank Vipul Shah. This indicates the settlement obligation of the client, Jatin Nanji Chheda, was met out of shares received as payout on behalf of the client, Dishank Vipul Shah.

o. Analysis of trading by the Noticee’s clients in the scrip of Firstsource Solutions Limited (“Firstsource Solutions”): As per BSE’s record, the following trades were done in the scrip of Firstsource Solutions during the period from September 4, 2013 to September 6, 2013 –

TABLE XIV – TRADES BY THE NOTICEE’S CLIENTS IN THE SCRIP OF FIRSTSOURCE SOLUTIONS CLIENT NAME TRADE DATE BUY SELL NET 50000 50000 SAURABH CHANDRAKANT NAGARSETH 50000 50000 0 SAHIL PRAKASHCHAND DHANDHIA 6513 2 6511 DISHANK VIPUL SHAH 4.09.2013 50000 50000 0 SAURABH CHANDRAKANT NAGARSETH 5.09.2013 7000 7000 0 DISHANK VIPUL SHAH 6511 -6511 DISHANK VIPUL SHAH 6.09.2013 p. From the above table, it is observed that the client viz. Saurabh C Nagarseth net purchased 50000 shares on September 4, 2013. These 50000 shares were received in Client beneficiary Account No. 10959175 maintained by the Noticee with DP IndusInd bank on September 06, 2013.

q. The extract of transactions in the shares of Firstsource Solutions Limited in the Client beneficiary Account No. 10959175 is as follows:

TABLE XV – TRANSACTIONS IN THE CLIENT BENEFICIARY ACCOUNT DESCRIPTION ORDER NO DATE OPENING DEBIT CREDIT CLOSING BALANCE BALANCE BY CM ICCL DIRECT DELIVERY 10000003058692 6.09.2013 0 0 37,311 37,311 ACCOUNT, ROLLING MKT. LOT/1314111 BY INTER DEPOSITORY TRANSFER 1002471496 6.09.2013 37,311 0 12,689 50,000 CDS / 1100001000012414 TO CDS / 1204130000021607 VIPUL 10000000140114 6.09.2013 50,000 50,000 0 0 BHAGWANDAS SHAH r. From the above table, it is observed these 50000 shares received as payout on behalf of the client, Saurabh C. Nagarseth were transferred to the third party, Vipul Bhagwandas Shah. Vipul Bhagwandas Shah has not traded in this scrip during the Inspection Period as a client of the Noticee.

3.3 In this regard, the Noticee accepted that “by mistake the trades in the scrip of Sterlite Industries went into Sunil Kothari account. It was an error which was confirmed to BSE also”. However, as regards the other scrips, the Noticee did not refute the charges. Upon a consideration of the preceding paragraphs, it is observed that shares received as pay out on behalf of one client were transferred to another client, who had not traded in the scrip during the inspection period. It is further observed that the settlement obligation of a client was met out of shares received as pay out on behalf of another client.

3.4 Transfer to non–clients: As per the Inspection Report, the following transfer of shares to non– clients were observed in the client beneficiary account of the Noticee with client ID IN3001159 10959175 held with DP IndusInd Bank, which clearly indicated that the clients’ securities have been used by the Noticee for the purposes other than settlement of clients’ obligations –

TABLE XVI – TRANSFER OF SHARES TO NON–CLIENTS SCRIP NAME DATE DESCRIPTION DEBIT NAME OF COUNTER BO AUROBINDO PHARMA LIMITED EQ NEW 6.02.2014 TO CDS/1201060002282297 2,000 F.V. RE. 1/- JAYESH KISHANDAS VORA AUROBINDO PHARMA LIMITED EQ NEW 10.02.2014 TO CDS/1203320000154780 100 F.V. RE. 1/- VIJAY DEVIDAS VED AUROBINDO PHARMA LIMITED EQ NEW 10.02.2014 TO CDS/1203320000172261 100 F.V. RE. 1/- VEENA VIJAY VED AUROBINDO PHARMA LIMITED EQ NEW 13.02.2014 TO CDS/1202940000010321 1,886 F.V. RE. 1/- MUKESH RAMNIKLAL SHAH AUROBINDO PHARMA LIMITED EQ NEW 13.02.2014 TO CDS/1202940000012916 114 F.V. RE. 1/- RUPA MUKESH SHAH NCL RESEARCH AND FINANCIAL 10.04.2013 TO CDS/1203150000213867 600 MAHAVEER CHAND SINGHVI SERVICES LIMITED EQ HUF NCL RESEARCH AND FINANCIAL 30.04.2013 TO CDS/1203300000113990 700 SERVICES LIMITED EQ CHANDRIKA NAVINBHAI PARIKH PFL INFOTECH LIMITED EQ 29.05.2014 TO CDS/1203490000016108 1,000 CHANDRIKA SHANTILAL CHHEDA RISA INTERNATIONAL LIMITED EQ 14.08.2013 TO CDS/1206470000013094 800 SHUSHANT KUMAR JAIN STRIDES ARCOLAB LIMITED EQ 10.04.2013 TO CDS/1204130000010831 500 SURESH KANTILAL LADHANI

3.5 In its submissions, the Noticee has contended that the transfer to non–clients was done at the clients’ request for which specific approval was taken. However, the Noticee has not produced any such evidence of clients’ approval being granted. Further, the Noticee has admitted to the aforementioned transfer of shares to non–clients. The aforementioned therefore shows that the Noticee had used the clients’ securities for purposes other than settlement of the concerned clients’ obligations. The debiting of any client’s account for transactions which are not related to that client defeats the very purpose of maintaining client’s account separately. The objective of opening and maintaining a separate account for the clients’ securities is to segregate and identify them separately and to prevent its use by the Stock Broker for any purpose other than what is permissible under SEBI Circulars, etc. Therefore, it is clear that the Noticee has resorted to co–mingling of clients’ securities which is highly irregular.

3.6 I therefore agree with the DA’s findings that all the aforementioned instances of mis–utilisation of client securities were clearly in violation of the following provisions of the SEBI circular no. MRD/DoP/SE/Cir–11/2008 dated April 17, 2008 with respect Collateral deposited by clients with brokers and SEBI Circular No. SEBI/MRD/SE/Cir–33/2003/27/08 dated August 27, 2003:

“SEBI Circular No. MRD/DoP/SE/Cir–11/2008 dated April 17, 2008 – Brokers should have adequate systems and procedures in place to ensure that client collateral is not used for any purposes other than meeting the respective client’s margin requirements/pay-ins. Brokers should also maintain records to ensure proper audit trail of use of client collateral.

SEBI Circular No. SEBI/MRD/SE/Cir–33/2003/27/08 dated August 27, 2003 – In the case of securities also giving/taking delivery of securities in “demat mode” should be directly to/from the “beneficiary accounts” of the clients except delivery of securities to a recognized entity under the approved scheme of the stock exchange and/or SEBI.”

3.7 In the facts of the instant proceedings, it is observed that the Noticee had received funds in the client and settlement bank accounts from third parties in cash and had made payments to third parties on behalf of clients. It is further observed that the Noticee had also made withdrawal of cash from the client bank accounts. Under the SEBI Circulars, a responsibility has been cast on the Stock Broker to ensure that payments are received directly from the respective clients and not from third parties. Accordingly, the Noticee should have taken expedient steps to ensure that funds received from third parties are exceptionally dealt with and suitable explanations should have been asked from the client when such blatant third party monetary amounts were received. However, there is nothing on record to suggest that such steps were indeed taken. Further, the Noticee in its submissions has itself admitted to having carried out such irregular practices. The aforementioned conduct of the Noticee clearly demonstrates that it failed to maintain fairness in the conduct of its business, exercise due skill and care and comply with the statutory requirements. Thus, I agree with the DA’s findings that in addition to the violation of the aforementioned SEBI Circulars dated November 18, 1993, Circular dated August 27, 2003 and Circular dated April 17, 2008, the Noticee has also violated the provisions of Clauses A(1), (2) & (5) of the Code of Conduct as specified under Schedule II read with Regulation 9(f) of the Stock Brokers Regulations, which are reproduced below:

“Conditions of registration. 9. Any registration granted by the Board under Regulation 6 shall be subject to the following conditions, namely,- … (f) he shall at all times abide by the Code of Conduct as specified in Schedule II; and … Schedule II Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 Code of Conduct for Stock Brokers [Regulation 9] A. General. (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business (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. … (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.”

3.8 As regards the plea for leniency in lieu of the Adjudication Officer’s Order dated February 23, 2018, against the Noticee, I note from the material on record that the BSE had earlier conducted inspection of the Noticee for the period from April 2012 to March 2013 during December 20, 2013 and thereafter, for the period from April 2013 to March 2014 during November 3, 2014 and February 2015. Upon a consideration of the aforementioned BSE Inspection Reports in light of the Inspection Report, it is observed that the violations committed by the Noticee in the instant proceedings are repetitive in nature. Further, it is a well settled position of law that SEBI may initiate multiple proceedings for the same set of violations. Having regard to the aforementioned, I am not inclined to accept the Noticee’s plea for a leniency.

3.9 For the reasons mentioned in the preceding paragraphs, I find myself in agreement with the findings of the DA that the Noticee had violated the aforementioned provisions of the Stock Brokers Regulations and aforementioned SEBI Circulars. Having regard to the facts and circumstances of the instant proceedings, I accept the recommendation of the DA that the Certificate of Registration of the Noticee be suspended for a period of one year.

ORDER –

4.1 I, in exercise of the powers conferred upon me under Section 19 read with Section 12(3) of the SEBI Act, 1992 read with Regulation 28(2) of the Intermediaries Regulations, hereby suspend the certificate of registration of the Noticee, i.e. Vishal Vijay Shah, (Member, BSE having SEBI Registration No. – INB011277614), for a period of one year.

4.2 This Order shall come into force on expiry of twenty one days from the date of this Order. This Order disposes of the enquiry proceedings initiated against the Noticee following the inspection conducted by SEBI for the period April 1, 2013 to March 16, 2015.

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

Place: Mumbai G. MAHALINGAM Date: July 1, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA