Order in the matter of M/S Vidhyut B. Shah, Member, Ahmedabad Stock Exchange Limited

1. Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted an inspection of the books of accounts, documents and other records of the stock broker, namely M/s. Vidhyut B. Shah {Member, Ahmedabad Stock Exchange Limited (ASE)}, through M/s. R.S. Patel & Co., Chartered Accountants in the month of December, 2002 for the period April 2000 to November 2002. M/s. Vidhyut B. Shah is hereinafter referred to as the Broker for the sake of brevity. The aforesaid inspection observed certain irregularities committed by the Broker and thereafter, SEBI, vide order dated January 7, 2004 appointed an Enquiry Officer under the provisions of Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (since repealed) to enquire into the alleged violations committed by the Broker, as stated therein. The Enquiry Officer inter alia observed that the Broker violated the provisions of Section 12 of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the Act) and the provisions of SEBI Circular dated April 11, 1997. On the basis of the above findings, the Enquiry Officer, vide report dated December 29, 2004 recommended the imposition of penalty of suspension of the certificate of registration of the Broker for a period of one month.

In respect of other alleged violations, the Enquiry Officer observed that the Broker needed to be cautious in future. Pursuant to the submission of the Enquiry Report, a show cause notice dated January 18, 2005 was issued by SEBI to the Broker along with a copy of the Enquiry Report. Though, the said notice was delivered to the Broker, he failed to file any reply. The Broker was also granted an opportunity of hearing, by SEBI, on November 29, 2006. The said hearing could not take place, as the Broker, vide letter dated November 25, 2006 had requested SEBI for the postponement of the matter. As SEBI had not received any reply from the Broker to the above mentioned show cause notice, another opportunity was granted to the Broker, to submit its reply by September 16, 2008. The Broker chose not to respond to the said letter. Thereafter, another opportunity of hearing was given to the Broker, by SEBI on December 17, 2008. In the meanwhile, the Broker, vide letter dated December 8, 2008 inter alia stated on the basis of the aforesaid inspection report, SEBI had also initiated adjudication proceedings under Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the said Rules) and the present enquiry proceedings under Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as the said Regulations).

He contended that the charges leveled against him are same under both the proceedings and that the said proceedings were conducted by the same officer. He further stated that though, he had raised preliminary objection in respect of the conduct of simultaneous proceedings in respect of the same set of charges, the same was set aside by the said officer without giving any cogent reasons. He also stated he had not challenged the order of the Adjudication Officer and that he had paid the penalty levied by the Adjudicating Officer. In short, he submitted that any penalty, if any, to be imposed in the present enquiry proceedings would hit by the principle of double jeopardy. He also drew my attention to provisions of Regulation 5A of the said Regulations. He also relied upon the decision of the Hon’ble Securities Appellate Tribunal, Mumbai in the matter of Karvy Stock Broking Ltd. Vs SEBI. He further claimed that his ASE membership is inoperative since last few years. The Broker failed to appear before me on the date of hearing. In the facts and circumstances, I do not consider it necessary to give another opportunity to the Broker.

2. I have considered the Enquiry Report, show cause notice issued to the Broker, the written submissions of the Broker dated December 8, 2008 and other materials available on record. Though, the said Regulations was repealed with effect from the notification of Securities and Exchange Board of India (Intermediaries) Regulations, 2008, anything done and any action taken under the said Regulations shall be deemed to have been done or taken or commenced under the corresponding provisions of Securities and Exchange Board of India (Intermediaries) Regulations, 2008. Though sufficient opportunities of hearing were given to the Broker, he chose not to appear before me to explain his stand in the matter. However, vide letter dated December 8, 2008, the Broker filed his submissions, contents of which are already stated above. Accordingly, this matter is dealt with in terms of the provisions of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 on the basis of the available materials on record, as stated above. I note that the Enquiry Officer took serious note of certain violations committed by the Broker. Some of the main violations observed by Enquiry are as follows:

i. Non execution of Member Client Agreement and ii. Dealing as an un-registered sub broker.

3. Though the Broker filed his submissions vide letter dated December 8, 2008, he chose not to controvert the findings of the Enquiry Officer in respect of the charges mentioned above. His main contention is that SEBI cannot initiate simultaneous proceedings in respect of the same set of charges, as stated above. But before examining the merit of his argument, I note that, SEBI, vide circular dated February 11, 1997 inter alia advised the stock brokers to maintain a database of their clients. Thereafter, vide circular dated April 11, 1997, SEBI had once again advised the stock brokers to follow its earlier circular dated

February 11, 1997. In its circular dated April 11, 1997, SEBI had further advised that the stock brokers might seek additional information, if any, so as to satisfy themselves about the antecedents of clients and that it would be the responsibility of the stock brokers to provide for client details as and when need arises. The said requirements had been made in compliance of the Know Your Clients (KYC) norms. It is one of the mandatory duties of a stock broker to ensure that he fulfils the primary requirement of obtaining documents such as client registration forms, member client agreements etc. as required under the aforesaid circular. The Enquiry Officer in his report categorically observed that the Broker violated the provisions of SEBI Circular dated April 11, 1997. The Broker did not dispute the said findings. Even, the established violation observed by the Enquiry Officer in respect of the charge of dealing as unregistered sub broker, was not disputed by the Broker. The Enquiry Officer elaborately explained the basis of his findings in respect of the said charge. Further, the Broker in his wisdom chose not to dispute the said findings. Therefore, I do not consider it necessary to reiterate the instances of violation with regard to the charge of dealing as unregistered sub broker. In the facts and circumstances, I do not have any hesitation to hold that the Broker violated the provisions of Section 12 of the Act read with Rule 3 of Securities and Exchange Board of India (Stock Brokers and Sub- Brokers) Rules,1992 (since rescinded) and SEBI Circular dated April 11, 1997.

4. Having found so, I note that on the same set of charges, SEBI had also initiated adjudication proceedings against the Broker under the provisions of the said Rules. The Adjudicating Officer, vide order dated December 29, 2004 imposed a penalty of Rs.1,00,000/- on the Broker. The very same officer who conducted the enquiry had passed the aforesaid order dated December 29, 2004. Even, in the adjudication proceedings, the Broker was found to have violated the same provisions as observed in the Enquiry Report, while imposing the monetary penalty. It is an admitted case that the Broker had not challenged the aforesaid order of the Adjudicating Officer. The Broker had already paid the penalty, vide demand draft dated March 3, 2005 drawn on Central Bank of India. Thus, there is no dispute in respect of the violations committed by the Broker. Considering the nature of the violations, I am of the view that the penalty of Rs. 1,00,000/- imposed by the Adjudicating Officer is sufficient to meet the ends of justice. Considering the totality of the facts and circumstances as stated above, I do not consider the present case as a fit case to impose any further penalty as recommended by the Enquiry Officer. In view of my aforesaid findings, I do not consider it necessary to examine the other contentions raised by the Broker including the plea of double of jeopardy.

5. In view of the foregoing, I, in exercise of the powers conferred on me in terms of Section 19 of the Securities and Exchange Board of India Act, 1992 read with Regulation 28(2) of Securities and Exchange Board of India (Intermediaries) Regulations, 2008, dispose of the present enquiry proceedings against the stock broker namely M/s Vidhyut B. Shah (Registration No.INB020125315), Member, Ahmedabad Stock Exchange Limited, without any penalty.

K. M. ABRAHAM WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA Place: Mumbai Date: December 18, 2008