Order in the matter of Royal International Shares Private Limited

UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008.

IN THE MATTER OF ROYAL INTERNATIONAL SHARES PRIVATE LIMITED [PAN AAECR7263H]

Background –

1. Royal International Shares Private Limited (“RISPL” / “Noticee”) is a Registered Stock Broker which held membership of BSE Ltd. (“BSE”) (SEBI Registration Nos. INB/INF 011443836) and National Stock Exchange of India Ltd. (“NSE”) (SEBI Registration Nos. INB/INF/INE 231443830). As per the available records, currently, only one certificate of registration (No. INF011443836) of the Noticee is active.

2. SEBI initiated Enquiry Proceedings against the noticee in respect of alleged violation of the provisions of Regulations 6A(1)(b) and (e) and Clauses A(1),A(2) and A(5) of the Code of Conduct stipulated in Schedule II read with Regulations 9(b),(e) and (f) of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992

Order in the matter of Royal International Shares Private Limited (since renamed as SEBI (Stock Brokers) Regulations, 1992) (“Broker Regulations”).

Enquiry Proceedings

3. The facts in the instant proceedings as noted from the Enquiry Report dated November 26, 2015 (“DA Report”) are provided below:

a. SEBI conducted inspection of books of accounts / records of RISPL in September 2013. The Inspection, inter-alia, revealed that the following:

i. Shortage of interest free deposit on NSE.

ii. Not fulfilling eligibility criteria to be a member of NSE on account of vacant position of one designated director iii. Non-cooperation in the inspection carried out by SEBI and NSE iv. Failure to submit net worth certificates and audited annual accounts to BSE for the period ended March 31, 2013 v. Failure to take adequate steps to redress the grievances of investors within 30 days.

b. The aforesaid non-compliances were allegedly in violation of the provisions of Regulations 6A(1)(b), 6A(1)(e) and Clauses A(1), A(2) and A(5) of Schedule II read with erstwhile Regulation 9(b), 9(e) and 9(f) (erstwhile Regulation 7) of Broker Regulations.

c. Accordingly, Enquiry Proceedings were initiated and an SCN dated July 13, 2015 (“SCN1”) was issued to the Noticee to show cause as to why action should not be taken against it for the alleged violation of the provisions of law. However, no reply was received from the Noticee. Accordingly, the matter was proceeded with under Regulation 26(2) of the Intermediaries Regulations, on the basis of the material facts available before the Designated Authority / Enquiry Officer (“DA”).

d. DA Report, inter-alia, observed that the Noticee has failed to:

i. respond to the Inspection Report sent by SEBI;

ii. cooperate with the officials of NSE in conducting inspection of books of accounts and records;

iii. fulfil the eligibility criteria to be a member of NSE on account of vacant position of designated director;

iv. submit net worth certificates and audited annual accounts to BSE for the period ended March 31, 2013;

v. maintain adequate Interest Free Security Deposit with NSE vi. redress investor grievances within the prescribed period;

e. DA Report also observed that the Noticee has been disabled on cash, F&O and CD segments of NSE for failure to maintain interest Free Security Deposit and failure to cooperate with NSE in resolving investor complaints. DA has also observed that the Noticee’s terminals on BSE have been deactivated with effect from April 01, 2014 for failure to submit net worth certificate and audited annual accounts for the period ended March 31, 2013.

f. DA also observed that the Noticee has failed to exercise due skill, care and diligence in the conduct of his business and has failed to abide by the bye-laws of the stock exchanges in respect of maintaining interest free deposits with NSE, failed to fulfil eligibility criteria for being a member of NSE in respect of having a designated director, failed to submit net worth certificate and annual audited accounts to BSE for the period ended March 31, 2013 and failed to take adequate steps to redress the grievances of investors within 30 days.

g. DA, upon consideration of the facts before him and after granting an opportunity of hearing which was not availed by the Noticee, found that the alleged violation of Regulations 9(b),(e) and (f) and Clause A(1), A(2) and A(5) of Schedule II of Broker Regulations, by the Noticee stood established.

h. In view of the above, DA recommended that the certificate of registration of the Noticee as a stock broker be cancelled.

4. A Show Cause Notice dated June 06, 2016 (“SCN2”) under Regulation 28(1) of the Intermediaries Regulations was issued by SEBI calling upon the noticee to show cause as to why action as recommended in the DA Report or any other penalty should not be imposed on it, by the Competent Authority.

5. Since the SCN2 sent to the available addresses of the Noticee returned undelivered, the same was serviced through affixture at the available addresses of the Noticee. Copy of the SCN was also published on SEBI website and a public notice was given in three newspapers viz. ‘The Statesman’ (English), ‘Janpat Samachar’ (Hindi) and ‘Uttar Banga Sangbad’ (Bengali), inter-alia, advising the Noticee to collect a copy of the SCN2 from SEBI Office. An opportunity for personal hearing was also granted to the Noticee on October 15, 2019. Since the hearing notice sent via post to the Noticee returned undelivered, the hearing notice was also served through affixture and a public notice in this regard was also given in the 3 newspapers stated above. However, no reply or communication was received from the Noticee and the Noticee did not attend the personal hearing.

Regulatory requirements

6. Relevant extracts of the statutory / regulatory provisions referred to or considered in the extant matter are reproduced below:

SEBI (Stock Brokers) Regulations, 1992 Regulation 9 – Conditions of Registration “9. Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely,- (a)…… (b) he shall abide by the rules, regulations and bye-laws of the stock exchange which are applicable to him; (c) ………. (d) ……….. (e) he shall take adequate steps for redressal of grievances, of the investors within one month of the date of receipt of the complaint and inform the Board as and when required by the Board; (f) he shall at all times abide by the Code of Conduct as specified in Schedule II; and..”

SCHEDULE II of Broker Regulations “CODE OF CONDUCT FOR STOCK BROKERS A. General. (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business. (2) Exercise of due skill and care: A stock-broker shall act with due skill, care and diligence in the conduct of all his business. ……. (5) Compliance with statutory requirements: A stock-broker shall abide by all the provisions of the Act and the rules, regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him.” SEBI Act, 1992 Section 12 - Registration of stock brokers, sub-brokers, share transfer agents, etc. “12.(1)……… (2)……….. (3) The Board may, by order, suspend or cancel a certificate of registration in such manner as may be determined by regulations: Provided that no order under this sub-section shall be made unless the person concerned has been given a reasonable opportunity of being heard.”

Reply and Submissions

7. The Noticee did not submit any reply to the SCN2 and did not attend the personal hearing scheduled on October 15, 2019. Further, no request has been received seeking additional time for submission of reply or another opportunity for personal hearing.

Findings

8. I observe that adequate opportunity has been provided to the Noticee to submit his replies. However, the Noticee failed to submit any reply to the SCN2 and did not attend the personal hearing. Since the SCN2 sent to the Noticee via Speed Post returned undelivered, SCN2 was served through affixture at the known addresses of the Noticee. A copy of the SCN2 was also hosted on the SEBI website and notice of the SCN2 was published in three newspapers viz. ‘The Statesman (English)’, ‘Janpat Samachar’ (Hindi) and ‘Uttar Banga Sangbad’ (Bengali), inter-alia, advising the Noticee to collect a copy of the SCN2 from SEBI Office. An opportunity for personal hearing was also granted to the Noticee on October 15, 2019. Since the hearing notice sent via post to the Noticee returned undelivered, the hearing notice was also served through affixture and a public notice in this regard was also given in the 3 newspapers stated above. However, no reply or communication was received from the Noticee and the Noticee did not attend the personal hearing. Having satisfied that adequate opportunity has been provided to the Noticee to submit replies and to make any representation in person, I deem it a fit case to proceed ex-parte.

9. I have carefully considered the observations contained in the DA Report. My observations and findings with respect to each of the allegations dealt with in the DA Report, are given below:

a. Non-cooperation in the inspection: DA observed that the Noticee did not submit replies to the Inspection Report sent by SEBI vide letter dated December 12, 2013 despite repeated reminders and thereby failed to cooperate with SEBI on the inspection. I note that the Regulation 20(3) read with Regulation 21(1) and 21(4) of the Broker Regulations, requires a stock broker to furnish the statements and information sought by the inspecting authority and to give all assistance in connection with the inspection, which a stock broker is reasonably expected to give. I note that the Noticee’s failure to submit replies to the inspection report tantamounts to violations of the aforesaid requirements involving violation of Regulation 9(f) read with Clause A(5) of Schedule II to Broker Regulations.

b. Failure to redress grievances: DA, inter-alia, observed that there were 9 complaints involving Rs.13.89 lakh on BSE and 12 complaints involving Rs.9.09 lakh on NSE, pending for more than 30 days and no steps were taken by the Noticee, as on September 2014, to redress the same. Exchanges have intimated that the complaints have since been settled from the available deposits of the Noticee. Regulation 9(e) of the Broker Regulations casts an obligation on a stock broker to take adequate steps for redressal of grievances, of the investors within one month of the date of receipt of the complaint. In view of the above, I find that the observation of the DA pertaining to failure to redress grievances within the specified time stands established, involving violation of Regulation 9(e) of Broker Regulations, notwithstanding the settlement of the complaints later by the exchanges using the Noticee’s deposits.

c. Failure to abide by the bye-laws of the stock exchanges: DA observed that the Noticee, inter-alia, failed to :- maintain adequate interest free deposit on NSE; appoint a designated director; cooperate with the inspection carried out by NSE; and submit net worth certificate and the annual audited accounts to BSE for the period ended March 31, 2013, thereby failing to comply with the bye-laws of the Exchanges. I note that failure to comply with the rules, regulations and bye-laws of the stock exchange of which the Noticee is a member, amounts to violation of Regulation 9(b) of Broker Regulations.

d. Actions taken by the Stock Exchanges: It is observed that the trading terminals of the Noticee on BSE have been deactivated with effect from April 01, 2014 on account of its failure to submit net worth certificates and annual audited accounts for the period ended March 31, 2013. NSE has also intimated that the Noticee has been disabled in CM segment of the Exchange with effect from December 06, 2013 due to shortage in Interest free Security Deposit and subsequently disabled in F&O and CD segments with effect from February 17, 2014 due to non-resolution of investor complaints. BSE and NSE have also declared the Noticee a defaulter with effect from April 2017. I note that, consequently, the Noticee failed to comply with the requirements of Regulation 9(b) and 9(e) of the Broker Regulations.

Conclusion

10. I note that the observations in the DA Report are serious in nature, from the point of view of integrity of the securities market and investor protection. The Noticee has not cooperated in the inspection carried out by SEBI and did not submit any reply to the Inspection Report. I also note that the Noticee failed to be present at the addresses made available to SEBI and stock exchanges and various correspondences including SCN could not be delivered to any of those addresses including the registered office address as available on the portal of Ministry of Corporate Affairs. I also note that the trading terminals of the Noticee have been disabled on NSE and BSE since 2014. Further, the Noticee has been declared as a defaulter by NSE and BSE with effect from April 2017. I further note that the Noticee failed to redress investor grievances within the stipulated timeframe. The aforesaid actions / failures of the Noticee are prejudicial to the interest of the investors and the overall functioning of the securities market and raises serious questions on its eligibility to continue to hold SEBI registration and the suitability of such non-traceable and non-cooperating intermediaries in the securities market. Accordingly, I note that the Noticee failed to maintain high standards of integrity, promptitude and fairness in conduct of his business, failed to exercise due skill, care and diligence in conduct of his business and also failed to comply with all the provisions of the Act and the rules, regulations issued by SEBI and the Stock Exchanges.

11. I note that the Noticee has violated the rules, regulations and bye-laws of the stock exchanges, failed to take adequate steps for redressal of investor grievances, and failed to abide by the Code of Conduct prescribed under Schedule II of the Broker Regulations. I also note that the Noticee has failed to abide by the provisions of securities laws and thereby failed to meet the conditions of the certificate of registration prescribed under the Intermediaries Regulations. The failure of the Noticee to comply with various requirements discussed at Para 9 above has resulted in violation of Regulations 9(b), (e) and (f) of Broker Regulations and Clauses A(1), A(2) and A(5) of the Code of Conduct prescribed in Schedule II to the Broker Regulations thereby attracting action under Regulation 27 of the Intermediaries Regulations read with Section 12(3) of the SEBI Act.

12. The DA has recommended that the certificate of Registration of the noticee as a stock broker be cancelled. In view of the reasons cited above, and the fact that the Noticee is not traceable, I am inclined to accept the recommendation of the DA for cancellation of the certificate of registration. Accordingly, following directions are passed:

a. In exercise of powers conferred on me under Section 12 (3) of the SEBI Act read with Regulation 27 and Regulation 28 of the SEBI (Intermediaries) Regulations, 2008, upon consideration of the facts and circumstances listed in this Order and applicable legal provisions, I hereby direct that the Certificate of Registration (INF011443836) of the Noticee i.e. Royal International Shares Private Limited, as a stock broker, shall stand cancelled with immediate effect.

b. The cancellation of the certificate of registration shall not affect SEBI’s right to initiate any other action against the Noticee in future.

c. A copy of this order shall be sent to the recognised Stock Exchanges, Depositories and Clearing Corporations.

DATE: February 28, 2020 G. MAHALINGAM PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA