Order in the matter of Rajkumar C Basantani

BACKGROUND – 1. Rajkumar C. Basantani (“Noticee”) is a SEBI registered stock broker, having membership of National Stock Exchange (NSE). Shri Rajkumar C. Basantani is the proprietor of the Noticee.

2. Pursuant to proceedings under the SEBI Intermediaries Regulations, 2008 (“Intermediaries Regulations”), SEBI vide order dated August 29, 2012 in the matter of Soundcraft Industries Limited, had found the Noticee guilty of violation of the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (“PFUTP Regulations” in short) and SEBI (Stock Brokers and Sub-brokers Regulations), 1992 (“Stock Brokers Regulations” in short) and Order in respect of Rajkumar C. Basantani had suspended the certificate of registration of the Noticee for a period of 1 year from the date of coming into effect of the said order.

3. Subsequent to the abovementioned order, the Noticee’s regulatory record was looked into. It was observed that vide SEBI order dated February 03, 2010, the Noticee’s certificate of registration had been suspended on account of non-payment of outstanding SEBI registration fees and the same was to continue till the time the outstanding registration fees were fully paid. It was further noted that the Noticee owed a total of Rs.13,98,122/- to SEBI as registration fees as on June 02, 2015.

4. It was further noted that vide order dated December 15, 2010 passed in the matter of Kolar Biotech Limited, SEBI had debarred Shri Rajkumar C. Basantani (a director of Kolar Biotech Limited) from accessing the securities market and prohibit him from buying, selling or otherwise dealing in securities, directly or indirectly, till all the pending investor grievances against the said company were resolved and the same was reported and confirmed by SEBI. The said debarment continued to be in force.

5. It was also noted that SEBI had initiated prosecution proceedings against the Noticee for non-payment of penalty of Rs.53 Lakh imposed vide Adjudication Order dated October 28, 2005.

6. Apart from the above, it was noted that various other regulatory / enforcement actions had been taken by SEBI against the Noticee in the past, which included suspension of certificate of registration as trading member, debarment as an individual, imposition of monetary penalty in the capacity of proprietor and individual, prosecution proceedings for failure to pay the monetary penalty and recovery proceedings for recovering the amount of penalty due to be paid. A summary of the said regulatory actions, as per SEBI’s Action Taken Report (ATR), is as under: SEBI ATR (as on Dec 24, 2014) Sr. No. Date Nature of Action Details of Action Individual/Proprietor 1 Nov 07, 2001 Enquiry Suspension for Proprietor 6 months 2 Aug 22, Enquiry Suspension for Proprietor 2002 6 months 3 Sep 16, 2002 Section 11B of Debarment for 3 Individual the SEBI Act, years 1992 4 Oct 28, 2005 Adjudication Penalty of Rs. Proprietor 53 lacs 5 Apr 28, 2006 Adjudication Penalty of Rs. 5 Individual lacs 6 Nov 28, Adjudication Penalty of Rs. Individual 2008 15 crores 7 Dec 12, 2008 Enquiry Suspension for Proprietor 2 years 8 Dec 12, 2008 Section 11B of Suspension for Individual the SEBI Act 5 years 9 Oct 16, 2009 Section 11B of Debarment for 1 Individual the SEBI Act, year and 1992 Proprietor 10 Feb 03, 2010 Enquiry Suspension till Proprietor registration fees are paid 11 Apr 29, 2010 Adjudication Penalty of Rs. Individual 1.35 crores 12 Aug 29, Enquiry Suspension for Proprietor 2012 1 year

Prosecution Proceedings

Prosecution Database (as on Sep 30, 2014) Sr. Name of Defaulter Amount of Date of AO No. Penalty Order 1 Rajkumar Basantani (Proprietor) Rs. 53 lacs Oct 28, 2005 2 Soundcraft Industries Ltd. (Director Rs. 10 lacs Mar 31, 2006 Rajkumar Basantani and others) 3 Rajkumar Basantani (Individual) Rs. 5 lacs Apr 28, 2006 4 Rajkumar Basantani (Individual) Rs. 1.35 Apr 29, 2010 Crore 5 Kolar Sharex Pvt Ltd. (Director Rs. 5 lacs May 15, 2006 Rajkumar Basantani) 6 Soundcraft Industries Ltd. (Director Rs. 5 lacs Mar 30, 2007 Shri. Rajkumar Chainrai Basantani) 7 Rajkumar Basantani (Individual) Rs 15 crores Nov 28, 2008

8 Rajkumar Basantani, (Director of Rs. 1 lac Nov 29, 2008 Kalbadevi Finance Ltd.

Recovery Proceedings

Recovery Proceedings (as on Jan 08, 2014) Sr. Name of Defaulter Amount of Penalty Date of Recovery Ho. Certificate 1 Rajkumar Basantani (Individual) 15 crores Jan 13, 2014 2 Rajkumar Basantani (Director of M/s. 1 lac Jul 16, 2014 Kalbadevi Finance Ltd.)

7. Further, vide emails dated December 24, 2014 and March 11, 2015, NSE inter alia had informed SEBI that in spite of multiple follow-ups by the exchange, the Noticee had not submitted the net worth certificate.

8. In view of the above observations, it was alleged that the Noticee had failed to comply with the fit and proper person criteria and had violated the conditions of grant of registration by failing to pay SEBI registration fees and not complying with the provisions of Code of Conduct prescribed for the stock brokers, thereby violating the provisions of Regulations 5(e), 9(d) and 9(f) of the Stock Brokers Regulations. Considering the same, SEBI initiated proceedings under the Intermediaries Regulations against the Noticee and appointed a Designated Authority (DA) to enquire into the aforesaid violations under Section 12(3) of the SEBI Act, 1992, read with Regulation 27(iv), (xv) and (xvii) of the Stock Brokers Regulations and Regulation 24(1) of the Intermediaries Regulations. The DA issued a show cause notice to the Noticee and upon a consideration of the facts before him, found the Noticee to be in violation of the abovementioned provisions of the Stock Brokers Regulations. Accordingly, the DA, vide his report dated February 28, 2019 (DA Report), submitted under Regulation 27 of the Intermediaries Regulations, recommended that the Noticee’s certificate of registration as a stock broker be cancelled.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING –

9. Thereafter, a show cause notice dated March 12, 2019 (“post-enquiry SCN”) was issued to the Noticee, enclosing therewith a copy of the DA Report, calling upon the Noticee to show cause as to why action as recommended by the DA or any other penalty should not be imposed on it in terms of Regulation 28(1) and (2) of the Intermediaries Regulations, as deemed fit by the Competent Authority.

10. The SCN sent to the Noticee returned undelivered. Thereafter, a copy of the SCN was uploaded on the SEBI website under the section – “Unserved Summons / Notices that could not be served”. Further, a notice regarding the SCN was also published in newspapers on August 10, 2020. The said notice in the newspapers also contained an intimation about a personal hearing in the matter which was scheduled on September 23, 2020. However, even after the publication of the notice in newspapers, no response was received from the Noticee. Considering these facts and circumstances, I am constrained to proceed in the matter ex-parte, entirely on the basis of material available on record.

CONSIDERATION AND FINDINGS – 11. I have examined the facts of the case and the charges against the Noticee. I note that that since the Noticee is alleged to have violated Regulations 5(e), 9 (d) and 9(f) of the Stock Brokers Regulations, it is imperative to have a look at those provisions. The same are quoted below: “Consideration of application for grant of registration. 5. The Board shall take into account for considering the grant of a certificate, all matters relating to trading, settling or dealing in securities and in particular the following, namely, whether the applicant,- …… (e ) is a fit and proper person based on the criteria specified in Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008; …… Conditions of registration. 9. Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely,- (a) … … (b) … … (c) … … (d) he shall pay fees charged by the Board in the manner provided in these regulations; (e) … … … (f) he shall at all times abide by the Code of Conduct as specified in Schedule II; and (g) … … ….”

12. I note that Regulation 5(e) of the Stock Brokers Regulations provides that SEBI shall take into account for considering the grant of a certificate, all matters relating to trading, settling or dealing in securities and in particular whether the applicant is a fit and proper person based on the criteria specified in Schedule II of the Intermediaries Regulations. In this regard, I note that the fit and proper person requirements have to be met on a continuous basis, since compliance with the same is mentioned as one of the conditions for grant of registration under sub-regulation (e) of Regulation 5 of the Stock Brokers Regulations.

13. The provisions of Schedule II of the Intermediaries Regulations provide the criteria for determining a ‘fit and proper person’. The same are quoted as under: “Schedule II of the Intermediaries Regulations

Criteria for determining a ‘fit and proper person’

For the purpose of determining as to whether an applicant or the intermediary is a ‘fit and proper person’ the Board may take account of any consideration as it deems fit, including but not limited to the following criteria in relation to the applicant or the intermediary, the principal officer, the director, the promoter and the key management persons by whatever name called – (a) integrity, reputation and character;

(b) absence of convictions and restraint orders;

(c) competence including financial solvency and networth;

(d) absence of categorization as a wilful defaulter.”

14. From the above, I note that integrity, reputation and character, absence of convictions and restraint orders and competence including financial solvency and networth are some of the factors which are specifically mentioned to be taken into account while determining whether an entity qualifies to be fit and proper person or not. In this regard, I note from the DA Report that the following regulatory / enforcement actions have been taken against the Noticee by SEBI in the past:

Adjudication, Enquiry and 11B proceedings S. Date of Action Nature of action Details of action NO. 1. November 07, Enquiry Suspension for 6 months 2001 2. August 22, 2002 Enquiry Suspension for 6 months 3. December 12, Enquiry Suspension for 2 years 2008 4. February 03, Enquiry Suspension till payment of 2010 outstanding registration fees 5. August 29, 2012 Enquiry Suspension for 1 year 6. October 28, 2005 Adjudication Penalty of Rs. 53 Lakhs 7. April 28, 2006 Adjudication Penalty of Rs. 5 Lakhs 8. November 28, Adjudication Penalty of Rs. 15 Crores 2008 9. April 29, 2010 Adjudication Penalty of Rs. 1.35 Crores 10. September 16, Section 11B of the Debarment for 3 years (period of 2002 SEBI Act, 1992 debarment revised to 6 months by the Hon’ble SAT vide order dated 21.05.2004

11. December 12, Section 11B of the Suspension for 5 years 2008 SEBI Act, 1992 12. October 16, 2009 Section 11B of the Debarment for 1 year SEBI Act, 1992

Prosecution proceedings Sr Nature of Name of the Action Amount of Date of AO No Violation case under penalty order Section 1. PFUTP, SAST Adam Comsof Sec 24(1) of …… NA Ltd & 19 SEBI Act others (SEBI Spl case- 259/2015) 2. Sec 24(1) of M/s Kolar Sec 24(1) of …… NA SEBI Act Biotech Ltd. & SEBI Act 34 Others (SEBI Spl Case- 61/2016) 3. Non Payment Kolar Sharex 24(2) of Rs. 5,00,000/- May 16, 2006 of Pvt. Ltd. & SEBI Act Penalty_24(2) Rajkumar of SEBI Act Basantani (SEBI Spl Case- 317/2014) 4. PFUTP, Rajkumar Sec 24(1) of …… NA SAST, Insider Basantani SEBI Act Trading (SEBI Spl Case- 266/2014)

5. 24(2) of SEBI Sound Craft 24(2) of Rs. 5,00,000/- March 30, 2007 Act Industries Ltd. SEBI Act And 1 another (SEBI Spl case- 190/2015) 6. 24(2) of SEBI Soundcraft 24(2) of Rs. 1,00,00,000/- March 31, 2006 Act Industries Ltd. SEBI Act And 4 others (SEBI Spl Case- 313/2014) 7. 24(2) of SEBI Rajkumar 24(2) of Rs. 5,00,000/- April 28, 2006 Act Basantani and SEBI Act 1 another (SEBI Spl case- 316/2014)

Recovery proceedings Name of the Defaulter In the Date of AO order No. Penalty / Date of matter of Issue Fee order Rajkumar C Basantani Kolar November Biotech 28, 2008 Limited 13/01/2014 DSR/AO-32/2008 150000000 Mr. Rajkumar C IVD-ID- April 29, Basantani Adam 3/ACL/RB/AO/D 2010 Comsof RK/AS/EAD- Ltd. 11/07/2014 3/139/09-42/2010 13500000 Rajkumar Basantani November (Director of M/s 28, 2008 Kalbadevi Finance Kolar Ltd.) Biotech Limited 16/07/2014 DSR/AO-33/2008 100000 Rajkumar C Basantani Soundcraft April 28, Industried 2006 Ltd 24/02/2015 NIL 500000 Rajkumar C Basantani April 1, Fees 2015 payable to SEBI 26/06/2015 Not applicable 4,00,496

15. The abovementioned enforcement actions spanning over many years, taken against the Noticee in his capacity as a stock broker, as an individual and as a director of various companies, include suspension of certificate of registration, imposition of monetary penalty and initiation of prosecution and recovery proceedings for unpaid dues. I note that these adverse actions pertain to various violations committed by the Noticee which include serious violations involving fraud, manipulation and unfair trade practices. These enforcement actions indicate that the Noticee’s integrity, reputation and character is severely compromised and hence the Noticee lacks credibility which a registered intermediary is expected to possess. Further, the numerous restraint / debarment orders passed against the Noticee have clearly undermined the Noticee’s eligibility to be considered a fit and proper person and continue as a registered intermediary. In this regard, I also note that vide SEBI order dated February 03, 2010, the Noticee’s certificate of registration was suspended for non-payment of registration fees to SEBI and the same was to continue till payment of outstanding registration fees was fully paid. Further, vide SEBI order dated

December 15, 2010, the Noticee, a director of Kolar Biotech Limited, was debarred from the securities market till all the pending investor grievances against the said company were resolved and the same was reported and confirmed by SEBI. I note that the debarment directions issued against the Noticee vide the abovementioned two orders continue to remain in force. It is further noted from records that the Noticee owed a total of Rs.13,88,081/- to SEBI as registration fees as on 01/04/2015 and recovery proceedings in respect of the same have already been initiated against the Noticee. Further, the non-payment of monetary penalties imposed by the Adjudicating Officer and non-submission of networth certificate to NSE by the Noticee clearly call into question the competence and financial insolvency of the Noticee. Considering all the above observations, I find that the Noticee grossly fails to meet the criteria for being a fit and proper person and thus is non-compliant with the provisions of Regulation 5(e) of the Stock Brokers Regulations. Further, by not paying the SEBI registration fees and the monetary penalties imposed by the Adjudicating Officer, as mentioned above, the Noticee has violated the provisions of Regulation 9(d) and 9(f) of the Stock Brokers Regulations read with Clauses A(1) and (5) of the Code of Conduct specified for the stock brokers in Schedule II of the Stock Brokers Regulations. I note that the abovementioned violations are covered under Regulations 27 (iv), (xv) & (xvii) of the Stock Brokers Regulations which make the Noticee liable for action as specified under Chapter V of the Intermediaries Regulations. Considering all these above, I find that the Noticee is not fit to continue as a registered intermediary of SEBI and its continuation as such is detrimental to the securities market and the interest of the investors at large. Having concluded as above, I am in total agreement with the recommendation of the DA that the certificate of registration of the Noticee be cancelled.

16. I note that Regulation 28 of the Intermediaries Regulations has been omitted by the SEBI (Intermediaries) (Amendment) Regulations, 2021 with effect from January 21, 2021. Simultaneously, the provisions of Regulation 27 of the Intermediaries Regulations have been amended and passing of an appropriate order by the Designated Member is now provided under the provisions of Regulation 27(5) of the Intermediaries Regulations.

ORDER – 17. In view of the above, I, in exercise of powers conferred on me under Section 12 (3) read with Section 19 of the SEBI Act, 1992 and Regulation 27 (5) of the Intermediaries Regulations, and upon consideration of the facts and circumstances as above, hereby cancel the certificate of registration of Rajkumar C. Basantani, bearing no. INB230649415, as a stock broker.

Place: MUMBAI G. MAHALINGAM Date: FEBRUARY 18, 2021 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA