Order in the matter of Jaipur Stock Exchange Limited

WTM/PS/34/MRD/DSA/SEPT/2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Section 11(2)(j) of the Securities and Exchange Board of India Act, 1992 read with Section 12A of the Securities Contracts (Regulations) Act, 1956 In the matter of Jaipur Stock Exchange Limited In respect of the Jaipur Stock Exchange Limited, the Governing Board of Jaipur Stock Exchange, Mr. Rajender Prashad Gupta, Ms. Veena Gupta, Mr. Amit Gupta, Mr. Rajeev Gupta, Mr. Puneet Jain, Mr. C. P. Mittal, Mr. Anil Gadodia, Mr. Manish Gadodia and Ms. Manjula Jain 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) conducted an inspection of the Jaipur Stock Exchange Limited (hereinafter referred to as 'JSE'), for the period of December 01, 2008 to October 31, 2011, for the purpose of renewal of recognition. A further 'special purpose inspection' of JSE was held during July 26, 2012 to July 27, 2012, on receipt of various complaints/ representations from JSE Broker's Forum, alleging unlawful activities and irregularities in the administration of the JSE. The inspections inter alia revealed various lapses and irregularities in the functioning of the exchange, governing board of directors, etc.

2. On the basis of the inspection report, SEBI issued two show cause notices (hereinafter referred to as ‘SCN’) both dated September 06, 2012. The first of these SCNs was addressed to JSE and the Governing Board of JSE, the second was addressed to its directors namely Mr. Rajender Prashad Gupta, Ms. Veena Gupta, Mr. Amit Gupta, Mr. Rajeev Gupta, Mr. Puneet Jain, C. P. Mittal, Mr. Anil Gadodia, Mr. Manish Gadodia and Ms. Manjula Jain (hereinafter all collectively referred to as ‘noticees' and individually by their respective names). The SCN were issued under Section 12A of the Securities Contracts (Regulation) Act, 1956 read with Section 11 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act'). The SCN inter alia alleged that the shareholder directors of JSE had held the shares in excess of the limit stipulated under Regulation 8(1) of the then applicable Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in recognised Stock Exchanges) Regulations, 2006 (hereinafter referred to as 'MIMPS Regulations'). By submitting incorrect undertaking confirming the compliance of provisions of Regulation 11(1), JSE has alleged to have violated the provisions of Regulation 11(3) of MIMPS Regulations. The SCNs further alleged that JSE has failed to appoint an Executive Director since September 2007 and Mr. Puneet Jain, Chairman of JSE is acting as chief executive for all practical purposes and interfering in the day to day affairs of JSE. It has also been alleged that JSE amended the 'memorandum of association' and adopted new 'articles of association' without approval from SEBI, negligently handled the board meeting minutes, failed to maintain the Base Minimum Capital, etc.

The SCN also alleged that the acts of the noticees were in violation of the provisions of SEBI Circular bearing no. SMD/SED/6919/93 dated April 20, 1993, SEBI Circular bearing no. CIR/MRD/DSA/SE/43/2010 dated December 31, 2010, SEBI Circular bearing no. SEBI/SMD/SEAD/Cir-29/2003 dated July 03, 2003, SEBI letter no. MRD/DSA/C&D/50049/05 dated September 21, 2005, SEBI Circular bearing no. 52/2001 dated December 20, 2001, SEBI Circular bearing no. SMD/Policy/Cir-20/2002 dated September 03, 2002, SEBI Circular bearing no. SEBI/SMD/POLICY/CIR-4/2003 dated February 11, 2003, SEBI Circular bearing no. MRD/DoP/SE/Cir-07/2005 dated February 23, 2005, SEBI Circular bearing no. SMD/Policy/Cir-32/97 dated December 03, 1997, Section 7A(2) of the Securities Contract (Regulation) Act, 1956. The noticees were advised to reply to the SCN, within a period of fifteen (15) days from the date of receipt thereof. It was also informed that in case of failure to reply, it would be presumed that the noticees have no explanation to offer and that SEBI shall proceed in the matter as deemed fit.

3. The noticees vide separate letters requested for all the documents/ materials relied upon by SEBI which have not been provided to them. SEBI vide its letters dated October 12, 2012, replied to the noticees enclosing the document s that were not provided earlier and advising them to reply within a period of fifteen (15) days from the date of receipt thereof. The noticees vide separate letters requested for extension of time for filing of the reply. Thereafter, the noticees vide their respective letters submitted the reply to the SCN and requested for an opportunity of personal hearing. Accordingly, an opportunity of personal hearing was granted to the noticees on February 26, 2013. The same was rescheduled to February 28, 2013 due to the change of Competent Authority and the same was communicated to the noticees vide letter dated February 18, 2013. The noticees namely JSE, and its directors namely Mr. Puneet Jain, Mr. Amit Gupta, Mr. Ms. Veena Gupta, Mr. Rajendra Prashad Gupta, Mr. Anil Gadodia, Ms. Manjula Jain, Mr. Manish Gadodia, Mr. C.P. Mittal vide respective letters expressed their inability to attend the personal hearing on the date fixed. The request of the noticees were considered and the hearing was postponed to March 08, 2013. The noticees namely JSE, Mr. C.P. Mittal, Mr. Manish Gadodia, Mr. Anil Gadodia and Ms. Manjula Jain again requested for adjournment. Accordingly, the hearing was rescheduled to April 05, 2013. On the date fixed Mr. Neeraj Matta, Advocate and Mr. Joel, Advocate appeared for JSE and the Governing Board of JSE and made oral submissions. Certain details were asked from JSE during the personal hearing, for which three weeks' time was granted to it.

The noticees Mr. Amit Gupta, Mr. Rajeev Gupta, Mr. Puneet Jain, Mr. C.P. Mittal, Mr. Anil Gadodia, Mr. Manish Gadodia, Ms. Manjula Jain appeared through advocates namely Mr. Attin Shankar Rastogi, Mr. Joel, Mr. Neeraj Matta and made submissions. Three weeks time was also granted to these noticees for submitting the written submissions.

The noticee namely Mr. Rajendra Prashad Gupta appeared for himself and Ms. Veena Gupta and made oral submissions. These noticees were granted a period of fifteen (15) days to submit the details as asked during the personal hearing.

All noticees, except Mr. Rajender Prashad Gupta and Ms. Veena Gupta, filed the written submissions, which were taken on record.

4. The submissions of the noticees, in brief are as under:

a. JSE vide its letter dated November 29, 2012 and June 18, 2013 submitted as under: - They had complied with the provisions of Regulation 8 and 9 of the MIMPS Regulations. There is not a single shareholder who held more than 5% shares as per MIMPS Regulation in JSE without seeking prior approval of SEBI. They had no means to discover that the individual shareholders were acting in concert except the self certified disclosures made by the individual shareholders. The agency with investigative powers like SEBI can only find out such facts. - JSE has provided a sequence of events demonstrating that they had taken steps for the appointment of Executive Director. - In the past, Mr. Puneet Jain was the Chairman of JSE only for a limited period from March 12, 2010 to October 28, 2010 (8 months) and from December 06, 2011 to March 10, 2012 (3 months). During the tenure of Mr. Puneet Jain, the affairs of the exchange have been carried out transparently and in the best interests of the exchange and its shareholders.

- The appointment of Mr. C.P. Mittal as Whole Time Director was done as a need was felt to strengthen the management. The introduction of Mr. Mittal came from a reliable source and his qualifications/ experience also met with the requirements of the Exchange, hence, his name was considered by the Board. Prior to his appointment, a legal opinion was also sought on the issue of appointment and remuneration of Whole Time Director. - On this bonafide understanding of the SEBI circular, the Board felt that there is no bar on the appointment of Whole Time Director and appointed Mr. C.P. Mittal as Whole Time Director from the quota of shareholder directors for which there was no procedure laid down by SEBI. However, later, on becoming aware that the appointment of Mr. C.P. Mittal required prior approval from SEBI, Mr. C.P. Mittal resigned from the post of Whole Time Director of the exchange. During his tenure he had exercised only administrative powers. He had no powers to sign the cheques above an amount of `25,000 that too jointly with the General Manager of JSE. He had no powers to sanction any financials, the only power he had was of approving the proposals received from the General Manager.

The acquisition of shares of JSE by Mr. C.P. Mittal, was his individual decision. - The approval from SEBI and publishing in official gazette is mandatory only in the cases where amendments in Memorandum of Association and Articles of Association by stock exchanges pertains to any of the items as set out in clauses (a) to (d) of sub-section (1). It has also been said that the amendments were forwarded to SEBI vide letter dated November 07, 2008 for approval. - The minutes for board meeting held from February 2008 to January 2010 had remained unsigned by the then Chairmen, Mr. Purshoottam Bhaggeria and Mr. Vijay Mehta. SEBI also had noted this in its inspection in the year 2009 and asked Mr. Vijay Mehta for signing the minutes in the minutes book, however, the minutes remained unsigned. After the annual general meeting in November 2011, the issue of minutes not being signed from the past period was raised and in order to ensure the compliance it was decided that Mr. Puneet Jain in the capacity of Chairman would sign the minutes for the past period. Before doing this, the Board decided to seek independent opinion.

Post the opinion from the practicing Company Secretary and second opinion from Advocate High Court, Delhi, the Board comprising all the Public Interest Directors authorised Mr. Puneet Jain to sign the minutes to complete the legal requirement. The minutes of the Board meetings were certified as true and correct by the two general managers of JSE, who were present in all those meetings whose minutes remained unsigned. The minutes were signed in the presence of Justice (Retd.) Mr. N.L. Tibrewal, Public Interest Director and with his full participation. - All the Board meetings were held regularly and were attended by the Public Interest Directors. The agenda of all 23 board meetings were regularly sent to Mr. Kumar prior to the Board meetings along with the minutes of the previous board meetings for confirmation. He had never objected to any of the decisions taken in the Board meetings or express his disagreement. It has also been said that since November 2011, when the new board was constituted not even a single meeting was held outside Jaipur. The exchange officers regularly consults Public Interest Directors before fixing the time and venue of the Board meetings and all the meetings have been attended by all the Public Interest Directors.

Mr. S.P. Kumar's representation was put up before the governing board's meeting and the matter was discussed, resolved and communicated to SEBI. - In the past, composition of statutory committees were higher than 20% since the committees comprised of three members each, out of which one was a trading member director. However, as there is no trading activity in JSE since the year 1998, there was no meeting held of Arbitration/ Disciplinary/ Defaults committees during the period of 2008 to 2011 except that of Investor Service Committee. The irregularities have been rectified with the re-constitution of committees on June 13, 2012, composing 5 members each in all the committees. - The membership selection committee could not be constituted earlier as there was no trading activity in JSE. The membership strength has reduced as members were surrendering their trading rights. Further, JSE had no plan for new membership and therefore, membership selection committees was not constituted. It has re-constituted these committees on June 13, 2012. - It was of the bonafide view that the inspection is to be conducted of 20% of active sub-brokers.

However, it has initiated steps and is in the process of conducting inspection as per the SEBI norms. - It is maintaining a small investors' service cell with required facilities. As advised by SEBI, it is in the process of establishing a full fledged investor service cell. - They have taken various steps for appointing CEO of the subsidiary of JSE. - The SCN is vague. It has not been provided with the inspection report which forms basis for the allegations. It has not been specified as to how and under which provision of law, the noticees are persons acting in concert. It has been wrongly alleged that he was jointly controlling the affairs of JSE as no instances have been shown.

b. Mr. Rajender Prashad Gupta and Ms. Veena Gupta vide their respective letters both dated November 27, 2012, submitted as under - The clubbing of their shareholding with Mr. Amit Gupta, Mr. Rajeev Gupta and Mr. Puneet Jain is erroneous and is without any basis. - They both had acquired 97,350 shares each of JSE (who were acting in concert with each other) in September 2007 after seeking approval from SEBI. The shares so purchased were independent and were out of their own funds and their combined shareholding in JSE constituted only 3% of the total shareholding. Subsequently, the shares held by these two were sold to Mr. C.P. Mittal in the ordinary course. - Mr. Rajender Prashad Gupta was one of the directors on the board of JSE for a short period of 8 months i.e. from March 2010 to October 2010 along with 10 other directors of the board. Ms. Veena Gupta was only a shareholder of JSE. - They had no common objective/ purpose with other persons to acquire shares/ voting rights/ control in JSE. There was no meeting of minds. The fact such as Amit Gupta, Rajeev Gupta and Puneet Jain were also directors on the board of International Securities Limited (hereinafter referred to as 'ISL') cannot automatically result in finding of their being 'persons acting in concert' with him. Mr. Rajender Prashad Gupta was a director of ISL along with Mr. Amit Gupta and M. Rajeev Gupta for a very brief period of just 15 days. He had ceased to be a director of ISL since September 08, 2008. - Ms. Veena Gupta was not a director of ISL since November 01, 1997. - Mr. Puneet Jain was not a shareholder of JSE during the time he was a director of ISL together with Mr. Rajender Prashad Gupta. - Mr. Rajender Prashad Gupta had no relation with Mr. Puneet Jain, Mr. Amit Gupta and Mr. Rajeev Gupta save and except being directors on the board of ISL.

c. Mr. Amit Gupta (vide letters dated November 29, 2012 and April 30, 2013) and Rajeev Gupta (vide letters dated November 29, 2012 and April 30, 2013), submitted as under: - Amit Gupta and Rajeev Gupta, both had acquired 97,350 shares of JSE, each in September 2007, constituting about 1.5% of the total shareholding of JSE from their own funds after seeking approval from SEBI. - In addition to the above, Rajeev Gupta further acquired 63,000 shares of JSE in May 2011, which increased his total shareholding in JSE to 1,60,350 shares (constituting 2.47% of the total shareholding of JSE). These 1,60,350 shares were sold by him on January 09, 2012 to one Mr. Anil Gadodia, after this he does not hold any shares in JSE.

- Amit Gupta also sold the shares acquired in February 2012, after this he does not hold any shares in JSE. - Such acquisition of shares by these two were not guided by any common objective or meeting of minds with others, for the purpose of acquiring substantial shares or control over JSE. Mr. Rajender Parshad Gupta, Ms. Veena Gupta and Mr. Puneet Jain had no role to play in such acquisition. - At the time of acquisition of 63,000 shares by Rajeev Gupta, only Rajeev Gupta, Amit Gupta and Puneet Jain were the directors of ISL. All these persons had never occupied the post of director in ISL together at any point of time. Amit Gupta and Rajeev Gupta became the director of ISL on August 22, 2008 and were directors together with Rajender Parshad Gupta only for a period of 15 days. For the purposes of Regulation 2(e)(2)(iii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as 'SAST Regulations'), they had to be directors of ISL at the same point of time along with the others. Becoming directors of a company much after the acquisition of shares cannot be a ground for retrospectively invoking the deeming provision of the definition of 'persons acting in concert'. - Further, ISL was never a shareholder of JSE.

The common objective has not been highlighted anywhere in the SCN. At the time of acquisition of shares he was neither a director of ISL nor was he connected to other noticees under any deeming category of Section 2(e)(2) of the SAST Regulations. The acquisition of shares by him has preceded the date on which the Regulation 2(e)(2)(iii) of the SAST Regulations became applicable. - The common directorship in 'any' company is not the pre-requisite for attracting the deeming provision. The common directorship has to be of a company which fulfills the requirements of Regulation 2(e)(1) of the SAST Regulations and is thereby covered by Regulation 2(e)(2)(i) of the SAST Regulations. - Mr. Amit Gupta was a director on the Board of JSE during the period of October 2010 to September 18, 2012. - There was no 'meeting of minds' at the time of acquisition of shares in JSE, as only Mr. Rajender Parshad Gupta was the director of ISL in September, 2007 when the shares were acquired by Mr. Amit Gupta. Even if it is assumed that there was indeed a 'meeting of minds' by the reason of common directorship as has been alleged in the SCN, there has not been any acquisition of shares by Amit Gupta after such 'meeting of minds'.

d. Mr. Anil Gadodia (vide letters dated November 30, 2012 and May 13, 2013) and Mr. Manish Gadodia (vide letters dated November 29, 2012 and May 13, 2013), submitted as under: - It has been said that Anil Gadodia and Manish Gadodia are brothers and resides at the same address. Anil Gadodia had purchased 2,00,350 shares of JSE constituting about 3.08% of the total shareholding during October 2011 to May 2012 from various unconnected persons namely Ms. Manjula Jain, Mr. Rajeev Gupta, Mr. Mohan Kumar Dhanuka, Mr. R.C. Goenka, Mr. Satya Narain Beriwal in the ordinary course at different times and rates. The SCN has not mentioned his entire purchases. On the other hand, Manish Gadodia had purchased 10,000 shares of JSE constituting about 0.15% of the total shareholding on October 16, 2011 in the ordinary course from Ms. Manjula Jain. The shares were purchased in individual/ independent capacity on the basis of their own opinion and funds. Anil Gadodia and Manish Gadodia were never on the board of ISL. - They were not acting in concert with each other or the unrelated entities namely Mr. C.P.

Mittal, Mr. Puneet Jain, Ms. Manjula Jain and Mr. Rajeev Gupta. One of their acquaintance, Mr. Ajay Jain had introduced them to Ms. Manjula Jain. - Anil Gadodia was elected as a director of JSE on November 29, 2011, in the Annual General Meeting. Subsequently, he was elected as Chairman of the board of JSE on and from March 01, 2012. The period prior to November 29, 2011, cannot be attributed to him in any manner. It has been submitted by him that as a member of the board of directors, he always acted bonafidely and in the best interest of JSE and as per the discussions and consent of other Board Members (including public interest directors) and its shareholders in accordance with the applicable rules and regulations. - It has been submitted by Anil Gadodia that he was not present during the meeting of board of directors of JSE, in which, Mr. C.P. Mittal was appointed as a Whole Time Director. The decision to appoint Mr. C.P. Mittal as a Whole Time Director was taken unanimously by the board of JSE including PIDs on the reference of one Mr. D.D. Nagpal, the auditor of JSE. The said decision was taken in good faith de hors sinister/ oblique motives and in the overall interest of JSE.

Mr. C.P. Mittal had no powers to sign any cheque individually on behalf of JSE. He was authorised to act as joint signatory only to the extent of `25,000. During his tenure of eight months, Mr. C.P. Mittal had signed only one cheque for an amount below `25,000. Mr. C.P. Mittal has resigned from the post of Whole Time Director of the exchange after the Board of JSE had realized that prior approval from SEBI should have taken for such appointment.

- Sale and purchase of shares does not imply a relationship of persons acting in concert. Meeting of minds prior to the acquisition is a sine qua non for the persons said to be acting in concert.

e. Mr. Puneet Jain vide letters dated November 19, 2012 and May 13, 2013, submitted as under: - He was the Chairman of JSE during March 2010 to October 2010 and further during November 29, 2011 to February 29, 2012. He had acquired 2,500 shares of JSE on October 16, 2011, constituting 0.03% shares of JSE out of his own funds. The same were later sold. - He was not acting in concert with Mr. Rajender Prashad Gupta, Ms. Veena Gupta, Mr. Amit Gupta and Mr. Rajeev Gupta. He is also not person acting in concert with Mr. C.P. Mittal, Anil Gadodia, Manish Gadodia and Ms. Manjula Jain. He had no commercial/ business transaction/ common economic interest/ family relations with the persons named. It has also been said that the association between persons is one thing but their acting in concert with a common objective to acquire substantial number of shares in a company in pursuance of an understanding or an agreement between them is altogether different. - Even if it is assumed that he and Ms. Manjula Jain are 'persons acting in concert' then also, the combined shareholding of these two persons never crossed the threshold of 5% as stipulated under MIMPS Regulations. - He was a director on the board of ISL from May 01, 2008 to November 01, 2011. The SCN wrongly labels him as the Whole Time Director of ISL during the period of December 20- 22, 2011. He had proposed to resign from the directorship of ISL vide his letter dated October 03, 2011. NSE vide its letter dated October 28, 2011, had communicated the acceptance of the proposed resignation and the same was recorded by ISL on November 01, 2011. - It has not been explained as to how he interfered in the day to day affairs of JSE. During his tenure at JSE he never visited JSE or even Jaipur except on occasions where there was Board meeting or General Body meeting. - The SCN is vague. He has not been provided with the inspection report which forms basis for the allegations. It has not been specified as to how and under which provision of law, the noticee is a person acting in concert. - He was not connected with Anil Gadodia in any manner.

- He had never met Mr. C.P. Mittal before his appointment to the Board of JSE. Mr. D.D. Nagpal had brought the resume of Mr. C.P. Mittal to the Board of JSE for considering his name for the post of the Whole Time Director. The proposal to appoint him was unanimously approved by the Board of JSE. During his tenure he had exercised only administrative powers. He had no powers to sign the cheque on behalf of JSE individually. He had no powers to sanction any financials, only power he had was of approving the proposals received from the General Manager. The prior approval from SEBI was inadvertently and unintentionally missed due to official oversight. Immediately on becoming aware, C.P. Mittal had resigned from the post of Whole Time Director of JSE. - The decision of C.P. Mittal to acquire shares of JSE was his own. - There was no negligence in handling the board meeting minutes. The minutes were signed in the presence of Justice (Retd.) Mr. N.L. Tibrewal, PID and with his full participation. The act of signing of the minutes of board meeting of JSE only ensured compliance with the provision of Section 193 of the Companies Act, 1956. - As regards the date of legal opinion it has been said that it is nothing but further corroboration of opinion obtained from the practicing Company Secretary. Therefore, there was no negligence in handling the board minutes. - The Board meetings were held regularly and were attended by the PIDs and they participated in the Board meeting of JSE. Admittedly the agenda for the Board meetings was regularly sent to Mr. S.P. Kumar prior to the board meetings along with the minutes of the previous board meetings for confirmation. Therefore, all along, he was aware of the events transpiring in the Board meetings and had never objected to any of the decisions taken in the board meeting or express his disapproval. - The shares were acquired by him on October 16, 2011, when he had already proposed to resign from ISL pending approval from NSE. - The resolution to appoint Mr. C.P. Mittal was passed unanimously by the members of the Board which consisted of people from various walks of life.

f. The following are inter alia the submissions of Ms. Manjula Jain vide reply dated November 15, 2012 and May 13, 2013: - She with the prior approval of SEBI had acquired the shares of JSE on September 12, 2007 out of her own funds. The manner of grouping her with others (i.e. Mr. Puneet Jain, Mr.

C.P. Mittal, Mr. Anil Gadodia, Mr. Manish Gadodia) and drawing adverse inference is erroneous. - She was not a person acting in concert with the persons as alleged. The inference that she had acted in concert with Mr. Puneet Jain, Mr. C.P. Mittal, Mr. Anil Gadodia and Mr. Manish Gadodia is based on the fact that she had sold the shares to them. No common objective/purpose behind acting in concert to acquire the shares or voting rights in JSE or control over it has been provided in the SCN. It has been said that when she had acquired the shares of JSE, Mr. Puneet Jain, Mr. C.P. Mittal, Mr. Anil Gadodia and Mr. Manish Gadodia were not the shareholders of JSE. - The impugned transactions of sale of shares by her to certain persons only resulted in dilution of her shareholding in JSE from 3,12,300 to 2,89,800 shares. The act of her, selling the shares to different individuals cannot be termed as a concerted action to acquire control. - Even if, it is presumed that she was acting in concert with the buyers of her shares, the transaction of sale of shares from her to those buyers did not result in any increase in the number of shares collectively held by her and the subsequent buyers.

g. Mr. C.P. Mittal vide letters dated November 30, 2012 and June 18, 2013, submitted as under: - Before joining JSE, he was working as Senior Manager with a nationalised bank, till March 31, 2010, the day when he retired. Sometime during November 2011, Mr. D.D. Nagpal, partner, D.D. Nagpal & Co., statutory auditors of JSE informed him that JSE is looking for a person to be appointed for general administration. Then, he was introduced to JSE in its Board meeting. During his tenure at JSE, the powers exercised by him were in ordinary course. He had not signed any cheques individually on behalf of JSE. He had powers to issue cheques upto an amount of `25,000 jointly with the General Manager of JSE. He had no powers to sanction any financials and was only approving the proposals received from the General Manager. - During August 2012, he was informed by JSE that his appointment was not in conformity with the applicable provision of law and he submitted his resignation on August 11, 2012. Being a rank outsider, he was not aware whether JSE has appointed him in consonance with the applicable provisions of law. Therefore, for his appointment as a director, he cannot be faulted in any manner. The salary paid by JSE is comparable to the last salary he drew in the bank.

- Prior to his appointment, he was not aware of other persons/ relationship with them as alleged in the SCN. During his tenure, he had acted bonafide, within the confines of power without being under influence or control of anybody including Mr. Puneet Jain and Mr. Anil Gadodia. - He was the director on the Board of JSE only from December 15, 2011 to August 10, 2012. Prior to being appointed as a director, he was not involved in its management/ affairs in any manner. - He had acquired 1,94,700 shares of JSE (i.e. 97,350 shares from Mr. Rajendra Prashad Gupta and 97,350 shares from Ms. Veena Gupta) on May 04, 2012, constituting about 2.99% of the total shareholding in the normal course without acting in concert with any other person. He was not acting in concert with Mr. Anil Gadodia, Mr. Puneet Jain, Ms. Manjula Jain and Mr. Manish Gadodia. He had no common objective/ purpose with other persons. - He has not been provided with the inspection report which forms basis for the allegations. It has not been specified as to how and under which provision of law, he is a person acting in concert.

5. I have carefully considered the SCN issued to JSE and the other noticees and the respective replies/submissions including those made during the personal hearing. The noticees have taken a common argument that they have not been provided with the copies of the various documents including the copies of the inspection reports. In this regard, I note that the relevant extract of the inspection reports were part of the SCN. Further, the document which have not been provided to the noticees, are not being relied upon in the present proceedings.

6. While proceeding further with the matter, I note that certain charges are common in both the SCNs issued to the JSE, Governing Board of JSE and that issued to its directors Mr. Rajender Prashad Gupta, Ms. Veena Gupta, Mr. Amit Gupta, Mr. Rajeev Gupta, Mr. Puneet Jain, Mr. C. P. Mittal, Mr. Anil Gadodia, Mr. Manish Gadodia and Ms. Manjula Jain. Considering the above, firstly the common charges raised in both the SCNs are being dealt below in seriatim:

A. Shareholding in excess of 5% in violation of MIMPS Regulations

The SCN has alleged that the shareholder directors of JSE had held the shares in excess of the limit stipulated under Regulation 8(1) of the then applicable Securities Contracts (Regulation) (Manner of Increasing and Maintaining Public Shareholding in recognised Stock Exchanges) Regulations, 2006 (hereinafter referred to as 'MIMPS Regulations'). The Regulation 8(1) of the MIMPS Regulations read as under: "8.(1) No person resident in India shall at anytime, directly or indirectly, either individually or together with persons acting in concert, hold more than five percent of the equity share capital in a recognised stock exchange: ..." Mr. Rajender Prashad Gupta, Ms. Veena Gupta, Mr. Amit Gupta, Mr. Rajeev Gupta and Mr. Puneet Jain (hereinafter collectively referred to as 'group 1') are the shareholder directors who are alleged 'to be persons acting in concert and jointly held more than 5% shares' in violation of the Regulation 8(1) of the MIMPS Regulations. Certain connection has been alleged among Mr. Rajender Prashad Gupta, Ms. Veena Gupta, Mr. Amit Gupta, Mr. Rajeev Gupta and Mr. Puneet Jain, by virtue of their directorship in ISL (International Securities Limited). ISL is one of the broking entity registered with NSE.

A further charge in the SCN is against Mr. Anil Gadodia, Mr. Manish Gadodia, Mr. Puneet Jain, Ms. Manjula Jain and Mr. C.P. Mittal (hereinafter collectively referred to as 'group 2') that they were also persons acting in concert. The basis of the charge as explained in the SCN was that a few of the persons belonging to group 1, namely, Mr. Rajendra Prasad Gupta, Ms. Veena Gupta and Mr. Rajeev Gupta had transferred their entire holdings in JSE to Mr. Anil Gadodia and Mr. C.P. Mittal belonging to group 2. The additional facts shown as crucial for this allegation are that: - Mr. Anil Gadodia and Mr. Manish Gododia are brothers; - Mr. Anil Gadodia had purchased not only from Mr. Rajeev Gupta but also from four other persons including Mr. Manjula Jain; - Mr. C.P. Mittal was inducted in JSE by Puneet Jain and Anil Gododia.

In this regard, the charge is also leveled against JSE, stating that JSE and its Governing Board have failed to monitor the transfer of equity shares of JSE and ensure compliance with Regulation 8 of the MIMPS Regulations in respect of the transfer/ issue of shares and submit incorrect undertaking to SEBI confirming the compliance of provision of Regulation 11(1) of the MIMPS Regulations.

Group 1 entities vide their respective replies have argued that they are not 'persons acting in concert' and the shares of JSE were acquired by them independently, out of their own funds. The noticees namely Rajender Prashad Gupta, Ms. Veena Gupta, Amit Gupta and Rajeev

Gupta and Puneet Jain have argued that clubbing of their shareholding is erroneous and is without any basis. The acquisition of shares by them was not guided by any common objective or meeting of minds with others for the purpose of acquiring of substantial shares or control over JSE. They had no common objective/ purpose to acquire the shares/ voting rights/ control in JSE.

Group 1 entities have their common directorship in ISL, whereas the charge is that by virtue of their being directors in ISL, they become persons acting in concert for the acquisition of the shares of JSE. In order to decide upon the issue whether group 1 persons were 'persons acting in concert', I refer to the Regulation 2(e)(2)(i) of the SAST Regulations. It is quite clear that the common directorship has to be of the company covered under such provision, in order to consider them as persons acting in concert. Under this provision of SAST Regulations, 'person acting in concert' is defined as under: "(1) persons who, for a common objective or purpose of substantial acquisition of shares or voting rights or gaining control over the target company, pursuant to an agreement or understanding (formal or informal), directly or indirectly co-operate by acquiring or agreeing to acquire shares or voting rights in the target company or control over the target company. (2) without prejudice to the generality of this definition, the following persons will be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established: (i) a company, its holding company, or subsidiary of such company or company under the same management either individually or together with each other; (ii) a company with any of its directors, or any person entrusted with the management of the funds of the company; (iii) directors of companies referred to in sub-clause(i) of clause (2) and their associates; (iv) ... ... ... ..." However, it is nobody's case that ISL is either a holding company of JSE or its subsidiary. It is also not shown that ISL and JSE are under the same management either individually or together with each other. Therefore, I am inclined to give a finding that group 1 entities/ persons are not PACs, as alleged in the SCN.

As regards the charge against group 2 entities is concerned, the explanations given by these noticees belonging to group 2 are that the shares were purchased by these in their individual/ independent capacity on the basis of their own opinion and funds. Mr. Anil Gadodia in addition has submitted that he was not present during the meeting of the board of directors when the appointment of Mr. C.P. Mittal as Whole Time Director of JSE, was discussed and was unanimously decided by the board of JSE. In this regard, I have seen the minutes of the meeting dated December 14, 2011, and from the same, I note that the decision to appoint

Mr. C.P. Mittal was taken on this day and that Mr. Anil Gadodia was granted leave of absence for this meeting.

No other purpose/ objective has been alleged in the SCN to show that the group 2 entities were acting in concert. The group 2 persons have argued that they were not acting in concert and they did not have any common objective/ purpose with others in the group to acquire the shares or voting rights in JSE. I note that mere sale and purchase does not imply a relationship of 'persons acting in concert'. There should be other supporting facts. Therefore, the charge of being persons acting in concert against Group 2 also does not survive.

In view of the above, the charge of violation of Regulation 8(1) of MIMPS Regulations also is not made out as against the noticees namely Mr. Rajender Prashad Gupta, Ms. Veena Gupta, Mr. Amit Gupta, Mr. Rajeev Gupta, Mr. Anil Gadodia, Mr. Manish Gadodia, Mr. Puneet Jain, Ms. Manjula Jain and Mr. C.P. Mittal.

JSE and its Governing Board in their reply has submitted that they had complied with the provisions of Regulation 8 and 9 of the MIMPS Regulations and there is not a single shareholder who held more than 5% shares as per the MIMPS Regulation in JSE. It has also been said that beyond the self certified disclosures made by the individual shareholders they had no means to discover that the individual shareholders were acting in concert. Further, they had no occasion to suspect that the shareholders were acting in concert with each other. Therefore, JSE had confirmed the compliance of the provisions of MIMPS Regulations to SEBI from time to time. The persons who are alleged to be on the board of ISL are actually not on the Board of JSE. In view of the discussion above and in the absence of material to prove, the allegation as leveled in the SCN is not established as against the JSE and its Governing Board.

B. Irregularities in the composition of the governing board of the exchange

Regarding the composition of the governing board of the exchange, the SCN has alleged the following:- a. that JSE has failed to appoint an Executive Director for the day to day administration of the exchange since September 2007 in terms of the SEBI Circular no. SMD/SED/6919/93 dated April 20, 1993. Such appointment of Executive Director has been alleged to be deliberately delayed despite SEBI advise and follow up.

b. that in the absence of the Executive Director, Mr. Puneet Jain, the then Chairman of JSE is alleged to be acting as the chief executive and interfering in the day to day affairs of JSE. It has been alleged that the governing board is violating the Code of Conduct and Code of Ethics of directors as provided in SEBI Circular bearing no. CIR/MRD/DSA/SE/43/2010 dated December 31, 2010. c. that Mr. C.P. Mittal was appointed as Whole Time Director of JSE by Mr. Puneet Jain and Mr. Anil Gadodia without following the appropriate procedure i.e. appointment of search committee, issue of advertisement, documenting terms and conditions of appointment, consideration of experience, qualifications and technical/ legal knowledge required for the post, etc. It has been alleged that the terms and conditions of the said appointment including the salary and perks were decided by Mr. Puneet Jain. It has also been alleged that the entire exercise of appointing Mr. C.P. Mittal as Whole Time Director was undertaken by Mr. Amit Gupta, Mr. Rajeev Gupta and Mr. Puneet Jain in order to ensure the day to day control over the affairs of JSE. Therefore, it has been alleged that the JSE and the Governing Board has failed to prevent procedural irregularities in the appointment of Mr. C.P. Mittal as Whole Time Director in violation of the Code of Conduct and Code of Ethics of Directors as provided in SEBI Circular bearing no. CIR/MRD/DSA/SE/43/2010 dated December 31, 2010.

- In response to the charge at sub paragraph 'a' above, JSE has denied that the appointment of Executive Director was deliberately delayed as it had taken all the reasonable efforts to appoint the Executive Director. JSE has provided the sequence of events to show that they had taken the initiative to appoint the Executive Director. They had issued the newspaper advertisement on April 01, 2008 and conducted the interviews on July 13, 2008. Before forwarding the short listed names of the candidates by the committee constituted by the Governing Board of JSE to SEBI, the short listed candidates had expressed their unwillingness for the appointment to the post. Therefore, the names were withheld and the process was started afresh starting from the newspaper advertisement on December 12, 2009. The applications received in response to the advertisement were scrutinized and shortlisted. In the meantime, the date of Annual General Meeting (hereinafter referred to as 'AGM') was fixed for October 28, 2010 and as 50% of the directors on the Board of JSE were about to retire, it was decided to conduct the interview for the post of Executive Director after the AGM.

Pursuant to the AGM, the new Governing Board in its meeting held on December 25, 2010, preferred to constitute the new committee for appointment of the Executive Director and also authorized the committee to take services of outside agency, if required. The meeting of committee for appointment of Executive Director was held on April 21, 2011, in which the NoC received from SEBI for the 'NSE Trading Platform' to the members of JSE, was also taken up for the discussion. The committee members discussed the matter of appointment and the letter of SEBI granting NoC for 'NSE Trading Platform' and viewed that due to the NoC of SEBI, the objective for appointment of Executive Director had changed from the date when the applications were invited. Earlier the requirement was mainly the administration of stock exchange, however, after the NoC, the person who is appointed as Executive Director must also have in-depth knowledge of stock market trading operations. Accordingly, it was decided to invite fresh application for the said post. The minutes of the Committee were put up before the Governing Board on June 30, 2011 and it was decided to start the process afresh for the person who have in depth knowledge of stock market trading operations.

In such circumstances, JSE decided to invite fresh applications. Thereafter, another advertisement was given on January 09, 2012, for the appointment to the post of Executive Director by JSE, the applications received were scrutinized and interviews were conducted for shortlisted candidates on March 17, 2012, however, the committee did not find any candidate suitable for the post. It has been said that during the deliberations of the committee, the name of Mr. Puneet Jain, Director, Governing Board cropped up and it was given to understand that he was available for the post of Executive Director. The committee then considered his name and found him suitable for the post of Executive Director. Subsequently, the Governing Board approved the name of Mr. Puneet Jain on March 22, 2012 for the post of Executive Director. The Governing Board's recommendation was then forwarded to SEBI for approval and same is pending. It has also been submitted by JSE that the delay in the appointment of Executive Director cannot be branded as failure on its part.

I have considered the chronology of the attempts spread over a long period of four-five years, said to be made by JSE for the appointment at the post of the Executive Director. The Governing Board of JSE and the selection committee, inspite of such attempts is stated to have been unable to find an appropriate person for the appointment as Executive Director. Although they have stated that the proposed name of Puneet Jain as an Executive Director is pending with SEBI since March 22, 2012, I note that Puneet Jain was a Shareholder Director of the Governing Board of JSE from March 12, 2010. Puneet Jain was also a director of ISL, a broking entity from March 2008 till November 2011.

These facts show that Puneet Jain was already on the board of JSE and was acting as the Chairman of JSE when his name was considered by the Exchange for Executive Director. The same suggests probability of his influence on the process of appointment of Executive Director. In view of the above facts, JSE is found to have delayed the proceedings of appointment of Executive Director without any sufficient justification and has failed to act diligently thereby violating the SEBI circular bearing no. SMD/SED/6919/93 dated April 20, 1993.

- In so far as the charge at sub paragraph 'b' above is concerned, JSE has replied that Mr. Puneet Jain was the Chairman of JSE only for a limited period from March 12, 2010 to October 28, 2010 (8 months) and from December 06, 2011 to March 10, 2012 (3 months). It has been said that during his tenure, he rarely visited the stock exchange premises and had never interacted with any employee or member of JSE except the General Manager for coordinating and communicating the Board's decisions. The affairs of the exchange have been carried out bonafidely, transparently and in the best interests of the exchange and its shareholders. No specific instance or nature and manner of interference in the day to day affairs has been spelt out in the SCN.

Mr. Puneet Jain also in his reply has submitted that the SCN wrongly labels him as Whole Time Director of ISL during the period of December 20- 22, 2011. Further, the SCN has not explained as to how he interfered with the day to day affairs of JSE. During his tenure at JSE, he had never visited JSE or even Jaipur except on the occasions when there was a Board meeting or General Body meeting. It has also been said that he had never spoken or met any employee of the stock exchange directly, except the General Manager for communicating and implementing the decisions of the Board. Only once, a group of employees (nearly 20) representing the demands of employees' union had met him in the capacity as Chairman. Further, in the audit reports of JSE also, there is no indication of any kind of financial irregularities on his part.

Having seen the SCN, I note that there is no specific instance pointed out therein, showing signs of interference by Puneet Jain in the day to day affairs of JSE. In the absence of such details, I am inclined to give benefit of doubt.

- With regard to the charge at sub paragraph 'c' above, the SCN has alleged that the Articles of Association of JSE does not provide for the appointment of Whole Time Director. It has also been alleged that the functional and financial powers of the Chief Executive such as cheque signing authority, etc. were granted to the Whole Time Director and no approval from SEBI and shareholders were sought, as required for the appointment of Chief Executive, as per the SEBI Circular. JSE, Mr. Puneet Jain, Mr. C.P. Mittal, and Mr. Anil Gadodia have replied separately to the allegations.

JSE in its reply has submitted that the appointment of Mr. C.P. Mittal as Whole Time Director was not done at the behest of Mr. Puneet Jain or Mr. Anil Gadodia. It has been said that as JSE was considering tie up with NSE and had received the in-principle approval of SEBI, it was felt that by the exchange that Ms. Usha Sharma, the General Manager of JSE should devote more time for setting up of systems/ infrastructure and other facilities for the trading platform of NSE. Therefore, a need was felt by the Exchange for strengthening the management. In the meantime, Mr. D.D. Nagpal, partner of D.D. Nagpal & Co. (the auditors of JSE) had suggested the name of Mr. C.P. Mittal to the Board for the post of Whole Time Director. As the introduction of Mr. Mittal was coming from a reliable source and also his qualifications and experience satisfied with the requirements of the Exchange, his name was considered by the Board. It has been said that prior to his appointment for the post of Whole Time Director, a legal opinion was also sought on the issue of appointment and remuneration of Whole Time Director.

Thereafter, the appointment was unanimously approved by the Governing Board in its meeting held on December 14, 2011, which was attended by Mr. Puneet Jain (Shareholder Director), Mr. Rajendra Kumar Dhall (Shareholder Director), Justice (Retd.) Mr. N.L. Tibrewal (Public Interest Director), Mr. B.L. Jaiman (Public Interest Director) and Mr. S.P. Kumar (Public Interest Director). It has been also been said that the SEBI Circular bearing no. MRD/DSA/C&D/50049/05 dated September 21, 2005, mentions about the appointment of MD/CEO/ED only but does not mention about the appointment of Whole Time Director. On this bonafide understanding, the Governing Board were of the opinion that there is no bar on the appointment of Whole Time Director and appointed Mr. C.P. Mittal as Whole Time Director from the quota of Shareholder Directors. However, later on, it was learnt that the appointment of Mr. C.P. Mittal required prior approval from SEBI. On becoming aware of the inadvertent and unintentional lapse due to official oversight and in order to comply with the SEBI Regulations, Mr. C.P. Mittal has resigned from the post of Whole Time Director of JSE.

During his tenure he had exercised only administrative powers and had not made any appointments. He did not have financial powers as he had no powers to sign the cheques above an amount of `25,000. He had no powers to sanction any financials, only power he had was of approving the proposals received from the General Manager.

With regard to the allegation in the SCN pertaining to the appointment of Mr. Mittal, Mr. Puneet Jain in his reply has also submitted that he had never met Mr. C.P. Mittal before his appointment to the Board of JSE. He reiterated that Mr. D.D. Nagpal had brought the resume of Mr. C.P. Mittal to the Board of JSE for considering his name for the post of the Whole Time Director and the Board of JSE had unanimously approved the appointment of Mr. C.P. Mittal. Puneet Jain also said that the amount of `7.25 lacs referred in the SCN was the salary and perks paid to Mr. Mittal by JSE. He replied in the lines of reply from JSE.

Mr. C.P. Mittal, replied to the SCN by saying that before joining JSE, he was working as Senior Manager with a nationalised bank. During November 2011, Mr. D.D. Nagpal, partner, D.D. Nagpal & Co. (statutory auditors of JSE), who was residing near his home informed him that JSE is looking for a person to be appointed for the general administration. Then he was introduced to JSE in its Board meeting. Pursuant to the interview and completion of other formalities, he was appointed as director by the Board of JSE. As a director, he was assigned with the duties of General Administration, HR functions, etc. However, during August 2012, he was informed by JSE that his appointment was not in conformity with the applicable provision of law and accordingly, he submitted his resignation on August 11, 2012. It has been submitted by him that being a rank outsider, he was not aware whether JSE has appointed him in consonance with the applicable provisions of law and for the same he cannot be faulted in any manner. As regards the salary paid by JSE, it has been said that the same is comparable to the last salary he drew in the bank. During his tenure as Whole Time Director, he had acted with bonafide, within the confines of power, without being under the influence or control of anybody including Mr. Puneet Jain and Mr. Anil Gadodia. The powers exercised by him were in the ordinary course. He had no powers to sign cheques individually on behalf of JSE and only issued cheques upto an amount of `25,000 jointly with the General Manager of JSE. He had no powers to sanction any financials and was only approving the proposals received from the General Manager.

The noticee namely Mr. Anil Gadodia also in his submissions has said that he was not present during the meeting of board of directors of JSE, in which, Mr. C.P. Mittal was appointed as Whole Time Director. However, on the decision to appoint Mr. C.P. Mittal as Whole Time Director, his financial powers etc, he also replied in the lines of the stand taken by JSE.

From the submissions of the noticees, it is clear that JSE has not taken any prior approval from SEBI for the appointment of Mr. C.P. Mittal as a Whole Time Director and thus was not in consonance with the procedure laid down under SEBI Circular bearing number CIR/MRD/DSA/SE/43/2010 dated December 31, 2010. I note that by asking Mr. C.P. Mittal for resigning from the post of Whole Time Director, JSE has taken corrective steps, however, the fact remains that he was appointed without prior approval. It is also seen that Mr. C.P. Mittal was subsequently appointed as a Chief General Manager by JSE.

C. Mismanagement and poor corporate governance by Governing Board of the JSE a. The SCN has also alleged that the Governing Board of JSE has amended Memorandum of Association and adopted new Articles of Association without getting approval from SEBI and without publishing the same in the official Gazette of Central Government, as required by the Securities Contract (Regulation) Act, 1956.

JSE in its reply has submitted that as per Section 7A of the Securities Contracts (Regulation) Act, 1956, the approval from Central Government/ SEBI and publishing in official gazette is mandatory only in cases where amendments by the stock exchanges pertain to any of the items as set out in clauses (a) to (d) of the sub-section (1). It has been said that the amendments made in the 'Memorandum of Association' did not pertain to any of the items as set out in the said clauses, therefore, the issue of approval and gazette notification does not arise. It has also been said that the amendments were forwarded to SEBI vide letter dated November 07, 2008, for approval. Thereafter, SEBI has sought clarifications from time to time. JSE also followed up the matter with SEBI.

From the above, I note that JSE had forwarded the amendments to SEBI, for approval. Such forwarding of amendments by JSE is contrary to its earlier submission that the approval from SEBI is mandatory only in cases where the amendments by the stock exchanges pertains to the items as set out in Section 7A(1)(a), (b), (c) and (d) of the Securities Contracts (Regulation) Act, 1956.

b. Another allegation in the SCN that JSE has kept the Board minutes from February 28, 2008 to January 06, 2010, unsigned till SEBI brought it to the notice of the management of the exchange.

JSE in its reply has submitted that the minutes for board meeting held from February 2008 to January 2010 had remained unsigned by the then Chairmen, Mr. Purshoottam Bhaggeria and Mr. Vijay Mehta. SEBI has also noted this in its inspection in the year 2009 and asked Mr. Vijay Mehta for signing the minutes in the minutes Book. However, the minutes remained unsigned due to the failure on the part of Mr. Vijay Mehta. After the annual general meeting in November 2011, the matter of minutes not being signed from the past period was raised and in order to cure the lapse and to ensure the compliance it was decided that Mr. Puneet Jain in the capacity of Chairman, would sign the minutes for the past period, since earlier one had left without signing. Before doing this, the Board decided to seek independent opinion. Post the opinion from the practicing Company Secretary and second opinion from Advocate High Court, Delhi, the Board comprising all the Public Interest Directors authorised him to sign the minutes to complete the legal requirement. It has been said that the legal opinion dated January 02, 2012 was obtained as a matter of abundant caution and corroboration of opinion obtained from the practicing company Secretary. JSE has also said that the minutes of the Board meetings were certified as true and correct by the two general managers of JSE, who were present in all those meetings and whose minutes remained unsigned. The minutes were signed in presence of Justice (Retd.) Mr. N.L. Tibrewal, Public Interest Director and with his full participation. Mr. Puneet Jain in his reply also has reiterated the submission of JSE and submitted that the act of signing of the minutes of board meeting of JSE only ensured compliance with the provision of Section 193 of the Companies Act, 1956.

I note that the JSE and Mr. Puneet Jain while relying on a legal opinion said to have been taken on January 02, 2012, had signed the minutes of the meeting by Mr. Puneet Jain on December 14, 2011. The argument taken by JSE that the legal opinion was obtained as a matter of abundant caution finds no merit. JSE has stated that the legal opinion was in furtherance of the opinion obtained from one Mr. Deepak Bansal, the Practicing Company

Secretary by email December 14, 2011 (followed by detailed written opinion dated December 14, 2011). I note that JSE has neither submitted the copy of this email nor a copy of the written opinion given by the said Mr. Deepak Bansal. Therefore, the fact remains that the minutes of the board meeting were kept unsigned by JSE till SEBI brought it to the notice of the Exchange during the inspection.

c. The SCN has further alleged that the percentage of attendance of Mr. S.P. Kumar (RoC, Rajasthan), Public Interest Director is below the regulatory requirement of 75% which is in violation of SEBI Circular bearing number SEBI/SMD/SEAD/Cir-29/2003 dated July 03, 2003. I note that Mr. Kumar had attended only six meetings out of a total of 23 meetings of the governing board during the first investigation period. I note that Mr. Kumar vide his letter dated September 29, 2010, has informed that JSE has been conducting its Board Meeting at New Delhi during working days which makes it impossible for him to attend the Board Meetings. Inspite of his specific request to hold the meeting at Jaipur on any working day or at Delhi on any other place on Saturday / Sunday, JSE has continued to hold its Board Meeting in Delhi. It has been alleged that the Board Meetings of JSE are intentionally conducted at Delhi on working days in order to ensure that Public Interest Director would not be able to participate in the board meeting and decisions would be taken by shareholder directors freely.

JSE in its reply has submitted that all the board meetings were held regularly and were attended by the Public Interest Directors. JSE has provided the details of all the 23 board meetings. It has been said that the two other Public Interest Directors had regularly attended and participated in the board meetings of JSE and the agenda of all 23 board meetings were regularly sent to Mr. S.P. Kumar prior to the board meetings along with the minutes of the previous board meetings for confirmation. Mr. Kumar had never objected to any of the decisions taken in the board meetings or expressed his disagreement. It has also been said that the board meetings are being held in the board room of JSE at Jaipur and in the past one year not even a single meeting was held outside Jaipur since the last AGM held in November, 2011, when the new board was constituted, further, the exchange officers regularly consult Public Interest Directors before fixing the time and venue of the board meetings and all the meetings have been attended by all the Public Interest Directors. It has also been said that Mr. S.P. Kumar's representations was put up before the governing board's meeting and the matter was discussed, resolved and communicated to SEBI.

I have considered the reply of JSE and Mr. Puneet Jain (in his capacity as Chairman of JSE during the period of March 2010 - October 2010) vis-a-vis the allegations leveled and note that the representation of Mr. Kumar was put up before the governing board's meeting and the matter has been discussed, resolved and communicated to SEBI. I note that JSE has not denied the allegation, however it has been said that the agenda for the board meetings along with the minutes of the previous board meetings were sent to Mr. S.P. Kumar for confirmation. I note that JSE has taken certain corrective steps by holding meetings at Jaipur and consult the Public Interest Directors before fixing the time and venue of the board meetings.

In addition to the above discussed common charges in both the SCNs, there are certain other charges which are exclusive to JSE, which are discussed hereunder:

D. The SCN has alleged that the composition of certain statutory committees namely Disciplinary Action Committee, the Defaults Committee, the Arbitration Committee and Investors Services Committee are not in compliance as the trading member representation in these committees constitute 33% against the SEBI prescribed limit of maximum 20% in violation of the SEBI Circular bearing number MRD/DSA/C&D/50049/05 dated September 21, 2005. Further, JSE does not have audit committee and membership selection committee which is in violation of SEBI Circular number 52/2001 dated December 20, 2001. JSE in its reply has submitted that in the past, composition of statutory committees are higher than 20% as the committees comprised of three members each, out of which one was trading member director. Therefore, the percentage of trading member directors was more than the prescribed norms. However, as there is no trading activity in JSE since the year 1998, there was no meeting held of Arbitration/ Disciplinary/ Defaults committees during the period of 2008 to 2011 except that of Investor Service Committee. The irregularities have been rectified with the re-constitution of committees on June 13, 2012 composing 5 members each in all the committees.

As regards the membership selection committee, JSE has submitted that it could not be constituted earlier as there was no trading activity in JSE. The membership strength has been reduced as members were surrendering their trading rights. Further, JSE had no plan for new membership and therefore, membership selection committees was not constituted. It has also been said that JSE has re-constituted the committee on June 13, 2012.

It is clear that the percentage of the trading member directors was more than the prescribed norms as stated in the SEBI Circular bearing number MRD/DSA/C&D/50049/05 dated September 21, 2005. However, it has now constituted the membership selection committee in compliance with the SEBI Circular number 52/2001 dated December 20, 2001. I note that JSE has already taken corrective action in this regard.

E. The SCN has alleged that the composition of SEBI inspection and compliance committee is not in accordance with the SEBI Circular bearing no. SMD/Policy/Cir-20/2002 dated September 03, 2002. JSE in its reply has submitted that the allegation has not been spelled out and that the committee is in compliance with the SEBI Circular. I have considered the submission of JSE and note that in the absence of any further details in the SCN about the composition of said committees, one cannot decide on this specific charge.

F. The SCN has also alleged that the percentage of inspection of sub-brokers conducted by the exchange from 2007-2011 is below the regulatory requirement of 20% as stipulated vide SEBI Circular bearing no. SEBI/SMD/POICY/CIR-4/2003 dated February 11, 2003. JSE in its reply has submitted that it was of the bonafide view that the inspection is to be conducted of 20% of the active sub-brokers.

I have perused the circular and note that the circular does not provide that inspection is to be conducted only on 'active' sub-brokers. As per the details submitted by JSE, it has 130 sub brokers, out of which 83 were active and it has inspected only 17 sub-brokers. From the same, it is clear that the percentage of inspection of sub-broker conducted by JSE i.e. 13%, is below the regulatory requirement of 20% as stipulated vide the above said circular. At this stage, I also note the submission of JSE that it has initiated steps and is in the process of conducting inspection as per SEBI norms.

G. It has also been alleged that 11 members of the exchange have not maintained the Base Minimum Capital of `1 Lakh in violation of the SEBI Circular MRD/DOP/SE/Cir-07/2005 dated February 23, 2005 dated February 23, 2005. JSE in its reply has submitted that out of eleven (11), two (2) members have deposited the Base Minimum Capital and the remaining nine (9) members have been suspended and will be reinstated only after receiving the requisite amount/ capital. This shows that JSE has already taken certain corrective action in this regard.

H. The SCN has also alleged that JSE has not maintained a proper Investor Service Centre in compliance with the SEBI Circular bearing no. SMD/POLICY/CIR-32/97 dated December 03, 1997. JSE in its reply has submitted that it maintains small investor service cell with required facilities. However, on the advice of SEBI for big Investor Service Centre having sitting capacity of 300 investors with all the necessary infrastructure, it is in the process of establishing a full-fledged investors' service cell. Having considered the above, I am of the view that the Investors' Service Centre of JSE was not having the adequate infrastructure in accordance with the SEBI Circular bearing no. SMD/POLICY/CIR-32/97 dated December 03, 1997 and it is in process of taking corrective steps to comply with the SEBI Circular.

I. As regards the allegation that JSE has failed to appoint a Chief Executive Officer of the subsidiary of JSE in violation of the SEBI circular dated February 11, 2003. JSE in its reply has submitted that it had advertised for the post in the newspaper on March 18, 2008. In response to which it had received 121 applications out of which thirteen (13) were shortlisted and interviewed. Out of these, three (3) candidates were selected but as the terms of appointment were not acceptable to them, they had refused the same. Thereafter, a common advertisement was given on December 22, 2009 for the post of Chief Executive Officer and Executive Director and a total of 23 applications were received inclusive of Executive Director's application. As per JSE, this time preference was given for the appointment of Executive Director and therefore Chief Executive Officer was not selected. JSE has also submitted that it is in the process of appointing Chief Executive Officer in the subsidiary. I have considered the submission of JSE and find that it has still not complied with the SEBI circular bearing no. SMD/POLICY/CIR-4/2003 dated February 11, 2003.

7. Having considered the facts and circumstances described in the above paragraphs, although I note that JSE has taken certain corrective steps, the same are only pursuant to the intervention of SEBI. In my opinion, a Stock Exchange is in charge of the trading platform for all the market participants, has to function in an objective and just manner setting an example for the intermediaries related to its business and also promote healthy development of the securities market. Though the exchange may attribute its inability to ensure timely compliance with SEBI circulars/ directives, to its limited resources, it only shows the lack of its commitment to function as a stock exchange. Having considered the above, I am convinced that JSE was negligent in the discharge of its functions and duties.

As regards, the noticees namely Mr. Rajender Prashad Gupta, Ms. Veena Gupta, Mr. Amit Gupta, Mr. Rajeev Gupta, Mr. Puneet Jain, Mr. C. P. Mittal, Mr. Anil Gadodia, Mr. Manish Gadodia and Ms. Manjula Jain, I note that no independent violation of the circular has been proved against them.

8. Having regard to the above, I, in exercise of the powers conferred upon me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 and Sections 11(2)(j) thereof read with Section 12A of Securities Contracts (Regulation) Act, 1956, hereby warn the Jaipur Stock Exchange Limited and advise them to comply with the applicable securities laws that govern their functions, in letter and spirit in a timely manner.

DATE : September 11th, 2014 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA