Order in the matter of Jagruti Securities

WTM/GM/EFD/59/2019-20 SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under Section 12 (3) of SEBI Act, 1992 read with Regulation 28 (2) of SEBI (Intermediaries) Regulations, 2008 in the matter of Jagruti Securities Limited

NOTICEE PAN SEBI REGISTRATION NO Jagruti Securities Limited AAACJ1217D INB 230930432

Background 1.1 Jagruti Securities Limited (hereinafter referred to as the ‘Noticee’/JSL) is registered with Securities and Exchange Board of India (hereinafter referred to as "SEBI") as a stock broker (SEBI Registration No. INB 230930432) and is a member of the National Stock Exchange Ltd. (NSE) and the Bombay Stock Exchange Ltd.(BSE).

1.2 SEBI received certain complaints against the Noticee regarding non - payment of funds and securities on pay out to the clients and hence it ordered an inspection vide order dated December 12, 2006. During the inspection, certain irregularities/violations of the provisions of regulation 6 (A) (1) (e), 7, 17, 18 and 21 of the SEBI (Stock Brokers and Sub- Brokers) Regulations, 1992 (hereinafter referred to as "Stock Brokers Regulations") and Rule 15 of the Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as "SCRR") were observed which were allegedly committed by the Noticee. The main allegations levelled against the Noticee in the report were, - a. The employees of the Noticee did not cooperate with the SEBI inspection team. Even after the duly authorised notice of inspection was handed over, an employee of the Noticee kept questioning the authority of SEBI to conduct the inspection.

Order in the matter of Jagruti Securities Limited b. When the employees of the Noticee were requested to produce the books of account and other records for inspection, it was stated that the Noticee was not trading on the NSE and BSE since 2004 and therefore no such records were being maintained.

c. The balance sheet was also not furnished to the inspection team stating that they did not have access to it at that point of time.

d. When the employees of the Noticee were told that NSE had informed SEBI that JSL had executed trades up to March 2006, the representatives of the Noticee denied having done trading post 2004.

e. Even though it was claimed that there was no trading activity being carried out by the Noticee, the presence of more than 15 employees at their office gave rise to a suspicion that they were engaged in illegal trading activities.

f. The representatives of the Noticee behaved in a hostile and intimidating manner towards the SEBI inspection team. They refused to cooperate with the inspection team and finally called the police. The police team arrived at the office of the Noticee and escorted the SEBI inspection team and a representative of the Noticee to the nearby police station. The representative of Noticee filed a complaint against the SEBI inspection team members. The inspection team also filed a First Information Report with the police against certain officials of the Noticee.

g. In view of the above, it was alleged that the Noticee did not take adequate steps for redressal of grievances of investors in spite of repeated demands and also failed to make timely payment of funds and delivery of securities within the stipulated time after pay-out. It was also alleged that the Noticee apparently misused client funds and securities for its own purposes and failed to maintain and preserve books of accounts. It was further alleged that Noticee / its employees did not cooperate with the inspecting authority and assaulted the inspection team during the inspection. It was also alleged that while JSL took the position that they were not dealing in securities, the presence of more than 15 employees at their office gave rise to a suspicion that they were engaged in illegal trading activities. In view of the above, it was alleged that Noticee / JSL had violated Regulation 6 (A) (1) (e), 7, 17, 18 and 21 of Stock Brokers Regulations read with rule 15 of SCRR.

1.3 Subsequent to this, an enquiry proceeding under the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as “Enquiry Regulations”) was initiated against the Noticee to enquire into the violations of SEBI Act/Rules/Regulations/Circulars and provisions of SCRA and SCRR. Pursuant to this, a Show Cause Notice (SCN) dated August 16, 2007 was issued to the Noticee to show cause as to why action under Regulation 13 (1) of the Enquiry Regulations should not be taken against the Noticee.

1.4 While these proceedings were pending, the Enquiry Regulations were repealed on May 26, 2008, by the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as "the Intermediaries Regulations"). Accordingly, the Enquiry Officer/Designated Authority (hereinafter referred to as the "DA") continued with the proceedings in terms of Regulation 27 read with 38(2) of the Intermediaries Regulations and Regulation 13(1) of the Enquiry Regulations. On completion of proceedings, the DA submitted the report on August 12, 2015(DA’s Report) recommending that “the certificate of registration of the Noticee be suspended for a period of one year”.

1.5 Pursuant to this, a post enquiry SCN dated March 6, 2017 was issued to the Noticee, under Regulation 28 (1) of SEBI (Intermediaries) Regulations, 2008, to show cause as to why action, as recommended by the DA or any other action as considered appropriate by the Designated Member, should not be taken against the Noticee. A copy of the DA’s Report was also forwarded to the Noticee along with an advice to file reply, if any, within 21 days from the date of receipt of the notice. The Noticee, vide letter dated May 18, 2017 submitted its reply.

1.6 The Noticee was given an opportunity of personal hearing on June 25, 2019, wherein the Noticee was represented by Mr. Anil Shah, Advocate. Further, another opportunity of hearing was granted to the Noticee on July 16, 2019, which was rescheduled at the request of the Noticee to July 25, 2019. Mr. Anil Shah and Ms. Jagruti R. Parikh, Chairperson of the Noticee, appeared for the hearing and made submissions on behalf of the Noticee. Subsequent to this, Noticee vide email dated July 31, 2019 submitted the documents sought from the Noticee during the hearing held on July 25, 2019.

1.7 I have considered the Report submitted by the DA, the Post-Enquiry SCN issued to the Noticee, oral and written submissions of the Noticee along with the documents contained therein and other material available on record.

1.8 It is observed from the DA’s report that the basis of allegations against the Noticee mainly emanate from the complaint filed by Ms. Sanna Saikh (Complainant) and the findings of the inspection conducted by SEBI at the office of the Noticee. It is noted that based on the Inspection Report, the SCN (issued by DA) and the reply of the Noticee, the DA had framed four preliminary issues and three core issues on merit for consideration. I, accordingly, first proceed to consider the preliminary issues framed by the DA and reply of Noticee on the same, -

Preliminary Issues a. Whether the SEBI has the jurisdiction to proceed with the SCN for the alleged violations of the provisions of SEBI Act, SCRR and Stock Brokers Regulations? b. Whether, the pending of criminal case against the Noticee or against the SEBI Officials, stays / debars the continuance of present proceeding in the given facts and circumstances of the case?

c. Whether the Writ Petition No. 874 of 2008 pending before Hon’ble Bombay High Court against the hearing notices dated March 13, 2008 and April 02, 2008, affects in any way in continuance of present proceeding in the matter in the given facts and circumstances of the case? 2.1 I note that preliminary issues (a), (b) and (c) are related to the jurisdiction and maintainability of the present proceedings. It has been contented by the Noticee that the alleged events are personal in nature and therefore outside the jurisdiction of SEBI. It was submitted on behalf of the Noticee that as the cases arising out the complaint filed by the employee of the Noticee against the members of the SEBI inspection team and the FIR filed by the SEBI inspection team members pending before the Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai were quashed by the Bombay High Court vide order dated July 20, 2015, in view of the consent settlement amicably entered into between the parties. It was contented that the Hon’ble High Court had disposed off the matter observing that the alleged events leading to the compliant and the FIR were personal in nature. In view of the above, the Noticee contended that the SCN and DA’s Report have been issued without jurisdiction.

2.2 I have taken note of the quashing of the proceedings before the Metropolitan Magistrate by the Hon’ble Bombay High Court. It is however noted that the cause of action for institution of present proceedings and that of the criminal complaint and the FIR are different. The complaint and FIR were arising out of the alleged altercation between the SEBI inspection team and employees of the Noticee, whereas the present proceedings have been initiated to enquiry into the alleged violations/non-compliance with the provisions of securities laws by the Noticee. I, therefore, note that there is no merit in the contention of the Noticee that the present proceedings are not maintainable in view of the quashing of the criminal proceedings by the Hon’ble Bombay High Court.

2.3 The Noticee has also raised a contention that the matter ought not to have been proceeded with, considering that the Writ Petition No. 874 of 2008 before Hon’ble Bombay High Court, filed by the Noticee challenging the hearing notices dated March 13, 2008 and April 02, 2008 was still pending. In this regard, it is noted that matter is still pending and the Hon’ble High Court has not granted any stay of the present proceedings before me. I, therefore, find no merit in this contention raised by the Noticee.

d. Whether the cross –examination of 3 SEBI Officials and the Complainant is required to be given in the given facts and circumstance of the case? 2.4 The Noticee had sought cross examination of the SEBI officials, who were part of the SEBI inspection team, and also the Complainant. It is noted that the DA had not acceded to the said request noting that the proceeding before her were quasi-judicial in nature, the allegations levelled against the Noticee were based on the documentary evidence available on record and, therefore, no prejudice is being caused to the Noticee by denying the request for cross examination.

2.5 In this regard, I note that no statement of the Complainant was recorded by SEBI. Further, the allegations against the Noticee and the findings in the DA’s Report were based on the documentary evidence – the Inspection Report and the documents submitted by Complainant along with her complaint. In quasi-judicial proceedings where charges are being levelled on the basis of the documentary evidence and other material available on record, cross examination is generally not granted. In view of the same, I find that the submission of the Noticee that the denial of cross examination by SEBI has violated principles of natural justice is untenable.

e. Whether the Summary Suit No. 1477 of 2007 filed before Hon’ble Bombay High Court by the Complainant against the Noticee for recovery of dues, affects in any way the continuance of present proceeding in the given facts and circumstances of the case?

2.6 It is noted from the reply of the Noticee dated May 18, 2017 that the Summary Suit filed by the Complainant was disposed off vide order dated July 18, 2013. It is noted from the copy of the said order, which was submitted by the Noticee vide email dated July 31, 2019, that the suit was dismissed on default due to non-appearance of the plaintiff and was not considered on merit.

2.7 Noticee has also contended that the Complainant had lodged a claim before both BSE and NSE and had lost at both the Exchanges in Arbitration. On a perusal of the said Arbitral awards, I note that her claim was dismissed by the arbitrators as “TIME BARRED” and was not decided on merit.

2.8 I also note in this regard that the proceedings for enforcing personal contractual rights between parties before forums having jurisdiction in such matters are independent of actions taken by sectoral regulators for non-compliance of provisions of law administered by them, even if the nature of the alleged contractual breach emanates from the same set of facts.

2.9 In view of the above, the disposal of the suit filed by the Complainant and the disposal of the arbitral claim by the exchanges, for the reasons stated above, do not affect in any manner the proceeding before SEBI which have been initiated for the violation of the provisions of securities law.

f. Whether the Noticee has received all the relevant documents as part of the SCN in compliance with the principles of natural justice? 2.10 I note that the Noticee in its reply dated May 18, 2017 has stated that SEBI has allowed inspection of the documents relied upon for the present proceeding and hence compliance with PNJ has been ensured.

CONSIDERATION OF THE MAIN ISSUES 3.1 I, now, proceed to discuss the charges alleged against the Noticee on merit, the findings of the DA, the submissions of the Noticee, and my findings thereon: - a. Whether the Noticee did not take adequate steps of redressal of grievances of investors in spite of repeated demand for several months, failed to make timely payment of funds and delivery of securities within the stipulated time after pay-out and misused client funds and securities for its own purposes? 3.2 The DA has given a finding in her report that the Noticee has failed to pay an amount of Rs. 17,89,310.30/- which was due to the Complainant, failed to make timely payment of funds and delivery of securities within the stipulated time after pay-out, and failed to redress investor grievance within the specified time and such conduct was in contravention of regulation 6 A (1) (e) and clause A (1), (2), (4) & (5) and B (1) of code of conduct prescribed under Schedule II of regulation 7 of the Stock Brokers Regulations.

3.3 The provisions alleged to have been violated by the Noticee are reproduced as under;

“Stock Brokers Regulations

6A. (1) Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely – (a) … (b) … (c) … (d) … (e) he shall take adequate steps for redressal of grievances of the investors within one month of the date of receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received from such investors.

Stock-Brokers to abide by Code of Conduct.

7. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified at Schedule II.

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. (3) … (4) MALPRACTICES: A stock-broker shall not create false market either singly or in concert with others or indulge in any act detrimental to the investors interest or which leads to interference with the fair and smooth functioning of the market. A stock-broker shall not involve himself in excessive speculative business in the market beyond reasonable levels not commensurate with his financial soundness. (5) COMPLIANCE WITH STATUTORY REQUIREMENTS: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the stock exchange from time to time as may be applicable to him. B. DUTY TO THE INVESTOR (1) EXECUTION OF ORDERS: A stock-broker, in his dealings with the clients and the general investing public, shall faithfully execute the orders for buying and selling of securities at the best available market price and not refuse to deal with a Small Investor merely on the ground of the volume of business involved. A stock-broker shall promptly inform his client about the execution or non-execution of an order, and make prompt payment in respect of securities sold and arrange for prompt delivery of securities purchased by clients.” 3.4 The Noticee vide its reply dated May 18, 2017 has denied the finding in the DA’s report that it had failed to make timely pay out of funds to the Complainant and failed to redress investor grievances. In support of this, the Noticee submitted that the Summary Suit filed by the Complainant against the Noticee for recovery of the money allegedly owed by the Noticee to the Complainant was dismissed and this reflects beyond doubt that the claim of the Noticee was false, frivolous and baseless.

3.5 It is observed from the material available on record that the Complaint was a client of the Noticee. She had made a complaint dated December 04, 2006 to SEBI regarding non-payment of her dues by the Noticee for more than 2 years. It was alleged in the complaint that proceeds from the sale of 3067 shares of HDFC Ltd.(Rs.19,69,310.30) in February 2004 was not paid to her and was held back by the Noticee, on the basis of a mutual agreement between the parties that the funds would be utilised to buy back the same numbers shares of the HDFC post an expected market correction. It was alleged by the Complainant that the Noticee not only failed to buy the shares as per their agreement, but also did not return the money which was retained by the Noticee for this purpose.

3.6 The Complainant provided (along with the complaint) date wise settlement numbers, numbers of shares sold and the sale amount (Rs 19,69,310.30 /-) which was due from the Noticee. It was also stated that from the amount due, Rs. 3,00,000/- was paid by the Noticee in three instalments (Rs. 1,80,000 towards principal and 1,20,000 as interest) and provided details thereof. Copies of the correspondences between the Complainant and the Noticee, were also enclosed with the complaint, and this included a letter dated September 27, 2004, sent by the Noticee to the Complaint, wherein the Noticee seeks additional time to repay the amount due to the Complainant. It was further stated that the Noticee still owes the Complainant Rs. 17,89,310.30/-. In support of her complaint, she also enclosed copy of the contact notes issued by the Noticee regarding the sale of shares for said amount.

3.7 I note from the correspondences between the Complainant and the Noticee, especially the aforesaid letter dated September 27, 2004 whereby the Noticee sought additional time to repay the amount due to Complainant, that the Noticee owed money to the Complainant. As regards the question of whether the Noticee has paid the said due amount back to the Complainant or not, or it has redressed the grievance, it is observed from the material available on record and reply of the Noticee that it has failed to provide any evidence in support of the same. The defence taken by the Noticee before me was that the claim of the Complainant was false and this is also reflected in the dismissal of the suit filed by her.

3.8 As stated in the preceding paragraphs, the Complainant had filed Summary Suit No. 1477 of 2007 before the Hon’ble Bombay High Court for “recovery of dues” against the Noticee which was dismissed by the Court vide order dated July 18, 2013. It is however noted from the copy of the said order, which was submitted by the Noticee vide email dated July 31, 2019, that the suit was dismissed on default due to non-appearance of the plaintiff and was not considered on merit. I, therefore, find no merit in the contention of the Noticee that the dismissal of the suit filed by the Complainant proves that the complaint was false and frivolous.

3.9 Therefore, in the absence of the Noticee furnishing any evidence regarding the repayment of the dues owed to the Complainant, I agree with the finding of the DA that the Noticee had failed to make payment of funds and delivery of securities within the stipulated time after pay-out and did not redress the investor grievance. Such conduct is in contravention of regulation 6 A (1) (e) and clause A (1), (2), (4) & (5) and B (1) of code of conduct prescribed under Schedule II of regulation 7 of the Stock Brokers Regulations.

b. Whether the Noticee did not preserve or produce the books of account and other records as required under stock brokers Regulations during inspection and assaulted the inspection team during the inspection? 3.10 The DA has recorded a finding in her report that the Noticee did not preserve or produce the books of account and other records as required under law during the inspection; and same is in violation of regulation 17, 18 and 21 of the Stock Brokers Regulations. The Noticee on the other hand in its reply before me has contended that the inspection carried out by SEBI was unauthorised and denied that they had failed to produce the books of account or other documents as required under the Stock Broker Regulations.

3.11 The provisions alleged to have been violated by the Noticee, as it stood then, are reproduced as under;

“To maintain proper books of account, records, etc. 17. (1) Every Stock Broker shall keep and maintain the following books of account, records and documents, namely: — (a) Register of transactions (Sauda Book); (b) Clients ledger; (c) General ledger; (d) Journals; (e) Cash book; (f) Bank pass book; (g) Documents register containing, inter alia, particulars of securities received and delivered in physical form and the statement of account and other records relating to receipt and delivery of securities provided by the depository participants in respect of dematerialized securities; (h) Member’s contract books showing details of all contracts entered into by him with other members of the same exchange or counterfoils or duplicates of memos of confirmation issued to such other members; (i) Counterfoils or duplicates of contract notes issued to clients; (j) Written consent of clients in respect of contracts entered into as principals; (k) Margin deposit book; (l) Registers of accounts of sub-brokers; (m) An agreement with a sub-broker specifying the scope of authority, and responsibilities of the Stock Broker and such Sub-broker; (n) An agreement with the sub-broker and with the client of the sub-broker to establish privity of contract between the stock broker and the client of the sub-broker (2) Every stock broker shall intimate to the Board the place where the books of account, records and documents are maintained.

(3) Without prejudice to sub-regulation (1), every stock broker shall, after the close of each accounting period furnish to the Board if so required as soon as possible but not later than six months from the close of the said period a copy of the audited balance sheet and profit and loss account as at the end of the said accounting period: Provided that, if itis not possible to furnish the above documents within the time specified, the Stock Broker shall keep the Board informed of the same together with the reasons for the delay and the period of time by which such documents would be furnished Maintenance of books of account and records. 18. Every stock broker shall preserve the books of account and other records maintained under regulation 17 for a minimum period of five years. Obligations of stock-broker on inspection by the Board. 21. (1) It shall be the duty of every director, proprietor, partner, officer and employee of the stock-broker, who is being inspected, to produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to the transactions in securities market within such time as the said officer may require.

(2) The stock-broker shall allow the inspecting authority to have reasonable access to the premises occupied by such stock-broker or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the stock-broker or any other person and also provide copies of documents or other materials which, in the opinion of the inspecting authority are relevant. (3) The inspecting authority, in the course of inspection, shall be entitled to examine or record statements of any member, director, partner, proprietor and employee of the stock-broker. (4) It shall be the duty of every director, proprietor, partner, officer and employee of the stock broker to give to the inspecting authority all assistance in connection with the inspection, which the stock broker may reasonably be expected to give.” 3.12 I note that the contention of the Noticee that inspection was carried out without authorisation and without serving prior notice is untenable as regulation 20 (2) of the Stock Brokers Regulations permits SEBI, by an order in writing, to undertake an inspection without giving any notice to the entity.

It is also noted from the records that the waiver of the notice requirement was duly authorised by the competent authority in SEBI while granting approval for the inspection carried out in the instant matter.

3.13 The issue of assault on the inspection team by the employees of Noticee no longer survives in view of disposal of / quashing of criminal cases by the Hon’ble Bombay High Court as discussed at paragraph 2.1 and, therefore, I do not deem it necessary to examine the same.

3.14 It is noted from the Inspection Report that certain documents were asked by the inspection team from the Noticee / its employees. It is relevant to mention that to disprove the fact of said non-compliance by the Noticee, no evidence has provided by the Noticee showing that the documents / information sought by the inspection team (viz latest balance sheet / details pertaining to execution of trades up to March 2006 as informed by NSE) has ever been submitted by it to the SEBI even post inspection. Such non submission of the required documents/information even at a later stage further adds credence to the finding that that the Noticee had failed to produce the required documents during the time of inspection in violation of regulation 17, 18 and 21 of the Stock Brokers Regulations.

c. Whether the Noticee took the position that they were not dealing in securities but the presence of more than 15 employees at their office gave rise a suspicion that they were engaged in illegal trading activities? 3.15 It is noted that the DA has not recorded any adverse findings against the Noticee on this charge and therefore I am not considering this issue.

Consideration – 4.1 In view of the above, I agree with the findings of the DA that the Noticee has violated the above discussed provisions as detailed in the paragraphs 3.9 and 3.15 of this Order. From the abovementioned observations and facts and circumstances of this case, I am convinced that the Noticee had not maintained high standards of integrity and fairness in the conduct of its business and had failed to redress investor grievances within the stipulated time. The Noticee has also failed to co-operate with the inspection team and submit the documents sought during the inspection.

4.2 In view of the foregoing and considering the interests of the investors, I find that the action as recommended by the Designated Authority is commensurate with the defaults, non-compliances, contraventions and violations committed by the Noticee.

Order – 5. I, in exercise of powers conferred under Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 28(2) of the SEBI (Intermediaries) Regulations, 2008, hereby suspend the certificate of registration of the Noticee / Jagruti Securities Ltd. - a Stock Broker (SEBI Registration No. INB 230930432) for a period of one year.

Place: Mumbai G. MAHALINGAM Date: January 13, 2020 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA