Order with respect to India Infoline Limited in the matter of Pyramid Saimira Theatre Ltd.

Under Section 12(3) of SEBI Act and Regulation 28(2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 in respect of India Infoline Limited [SEBI Registration No. for BSE - INB011097535 and for NSE - INB231097537] PAN: AAACI7397D - in the matter of Pyramid Saimira Theatre Limited.

1. Securities and Exchange Board of India (hereinafter referred to as "SEBI") conducted an investigation into the buying, selling and dealing in the shares of Pyramid Saimira Theatre Ltd. (hereinafter referred to as ‘PSTL/company’) and passed an Ad-interim Ex-parte Order dated April 23, 2009 restricting certain persons/ entities from buying, selling or dealing in securities market. Pursuant to said order, it was observed that India Infoline Limited (hereinafter referred to as "Noticee") a Stock Broker registered with SEBI, executed trades on behalf of its clients viz. Mr. Deepak Kumar Agarwal, Mr. Piyush M. Kanungo and Mr. Sunil D. Agarwal who were restrained from buying, selling or dealing in securities market vide the aforesaid Order.

2. Subsequently, SEBI initiated proceedings under SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as 'Intermediaries Regulations') against the Noticee and appointed the Designated Authority ("DA") to enquire into the alleged violations of provisions of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as "Brokers Regulations").

3. The DA conducted the proceedings to enquire into the above mentioned allegations. The DA after completing the proceedings submitted the Enquiry Report dated March 27, 2015 ("the Report") in terms of Regulation 27 of Intermediaries Regulations.

4. In the Report, DA stated that the Noticee had violated Regulations 27 (xv) & 27(xvii) read with Regulations 26(xv) of Brokers Regulations and Clauses A(1), A(2) and A(5) of Code of Conduct for Brokers as specified in Schedule II under Regulation 7 of Brokers Regulations. The DA recommended that the Certificate of Registration of the Noticee may be suspended for a period of seven (7) days.

5. After considering the report, a Show Cause Notice dated July 22, 2015 ("SCN") under Regulation 28 of Intermediaries Regulations was issued to the Noticee calling upon it to show cause as to why the appropriate penalty including the penalty as recommended by the DA should not be imposed upon it. A copy of the Report was also forwarded to the Noticee along with the said SCN. The Noticee vide letter dated August 10, 2015 submitted reply to the SCN.

6. The Noticee was thereafter granted an opportunity of personal hearing and advised to appear before me on September 30, 2015. Mr. Somasekhar Sundaresan Advocate, J. Sagar Associates alongwith Mr. R.Venkataraman, Mr. R. Mohan (Directors of the Noticee) Mr. Ravi Ramachandran (Vice President- Legal) and Mr. Dinesh Tanwar (Associate Vice President) on behalf of the Noticee appeared on the said date made submissions. The Noticee vide e-mail dated October 20, 2015 also submitted written submissions in the matter.

7. The main submissions of the Noticee in their reply/written submissions dated August 10, 2015 and October 20, 2015 inter alia, are as under: i. "Undue delay in the present proceedings: It is noteworthy that the SCN has been issued to us (the “Noticee”) over more than five years after the personal hearing was conducted in the matter. Even more noteworthy is that the recommendation to suspend our registration as a stock broker for a period of seven days for allegations that pertain to 2009, which is technically a “minor violation ” ii. The enquiry notice dated March 3, 2010 issued by the Designated Authority under Regulation 25 of the Intermediaries Regulations (“Enquiry Notice”) was issued about 10 months after the occurrence of the alleged violation. Further, although the personal hearing before the Designated Authority was concluded as far back as June 2010 (we actively cooperated for expeditious disposal of the proceedings and the personal hearing was done within three months), the Enquiry Report has been issued only in March 2015, i.e. after a delay of almost 5 years.

iii. The material on record clearly establishes that on the same day of the publication of the Ex-Parte Order, the Noticee promptly took steps to cross-check the names of its clients against those named in the Ex-Parte Order using the name search facility available in the system at the relevant time. This exercise led to the blocking of the client IDs of three other persons named in the Ex-Parte Order by the Noticee on the very same day – Thursday, April 23, 2009. iv. However, it was solely on account of certain discrepancies between the names of three clients as reflected in the Noticee’s client master and the Ex-Parte Order, that the impugned trades were inadvertently executed. The issue of these discrepancies, and bona fide error on the part of the Noticee in executing the subject trades, lies at the heart of the controversy in the present matter. v. Although the Ex-Parte Order provided the names of the persons sought to be restrained from the market, no Unique Client Codes were mentioned. vi. Out of 253 entities named in the Ex-Parte Order, there were no PAN details provided for 82 persons.

As such, the Noticee had to proceed to cross-check its client database against the names of the entities provided in the Ex-Parte Order; vii. The Noticee’s inability to identify and block the accounts of the other three clients stemmed solely from the discrepancies between their names as appearing in the Ex-Parte Order and the Noticee’s database. These discrepancies will be apparent from a perusal of the below chart: Names of entities restrained as per the Client names as per the Ex-Parte Order Noticee’s Client Master Name Name of Proprietor/Director R.S. Enterprises Ratankumar Agarwal & Sunil SUNIL D. AGARWAL Kumar Agarwal Ridham Enterprises Rajkumar Agrawal AGARWAL RAJKUMAR DEEPAK Valiant Metal Kanungo Piyush PIYUSH M. KANUNGO viii. It is pertinent to note that in addition to being obliged to comply with the directions of the regulator, the Noticee also owes a duty to its clients and had to be cautious to safeguard against the inadvertent but erroneous deactivation of the account of a client who may have merely had a similar name to a person debarred / restrained by SEBI. As such, the accounts of the clients could not have been blocked by the Noticee on the same day as the publication of the Ex-parte Order solely because their names did not correspond with the records in the Noticee’s database. ix.

No effective trade was executed, in any case. In fact, no delivery of shares or pay-outs could have been effected since the demat accounts of the said three clients had been blocked by the depository. The Ex-Parte Order had directed this to be done by the depositories to implement the same (para 12, Ex-Parte Order). x. The accounts of the three clients were blocked by the Noticee on May 4, 2015, promptly upon receipt of information from the NSE that the said three clients had been restrained by the Ex-parte Order. xi. After the occurrence of the impugned trades, the Noticee has taken several steps & process to further improve and strengthen its systems and avoid any future lapse on account of such technical issues and which also ensured no such incident reoccurred in the past six years. xii. The Noticee has already been punished for the occurrence. By an order of June 5, 2009, the NSE imposed a penalty of Rs. 50,000 on the Noticee, taking into account that the impugned trades were inadvertently executed and that the Noticee had since strengthened its software systems..."

Consideration of Issues and findings:

8. I have considered the SCN issued by SEBI and the Enquiry Report dated March 27, 2015, the replies filed by the Noticee and the submissions made by its authorized representative during the course of personal hearing before me. In light of the same, I shall now proceed to deal with the charges alleged against the Noticee. As per the SCN, the Noticee had allegedly violated Clauses A(1), A(2) and A(5) of Code of Conduct for Brokers as specified in Schedule II under Regulation 7 of Brokers Regulations.

9. Before dealing with the aforesaid charges, the relevant legal provisions, the contravention of which have been alleged in this case may be reproduced hereunder for the purpose of reference : Regulation 7 of the Broker Regulations: Stock-Brokers to abide by Code of Conduct. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified at Schedule II.

Relevant Clauses of the Code of Conduct- Schedule II Clause (1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude and fairness in the conduct of all his business.

Clause (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.

Clause (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.

10. It is noted that the Noticee had executed trades for its debarred clients viz. Mr. Deepak Kumar Agarwal, Mr. Piyush M. Kanungo and Mr. Sunil D. Agarwal who were restrained from buying, selling or dealing in the securities market vide an Ad-interim Ex-parte Order dated April 23, 2009 issued by SEBI. The Noticee executed trades for the said debarred clients in cash segment on April 24 and May 04, 2009 after SEBI debarred the said clients from buying, selling or dealing in the securities market. The details are as under: i. On April 24, 2009, the Noticee executed a transaction on behalf of its client Mr. Deepak Rajkumar Agarwal for sale of 325 shares of Housing Development and Infrastructure Limited, for Rs. 49,961; ii. On May 4, 2009, the Noticee executed trades on behalf of other two clients, namely, Mr. Sunil D. Agarwal and Mr. Piyush M. Kanungo for sale of 35 shares of Bajaj Hindustan Sugar Limited and 500 shares of Reliance Petroleum Limited, for Rs. 2,849 and Rs. 57,850, respectively. It is observed from the contentions of the Noticee submitted vide letter dated August 10, 2015 that the Noticee was aware of SEBI's debarment Order dated April 23, 2009 and had deactivated the accounts of its three clients mentioned in the said Order. It is admitted that due to mismatches/ discrepancies between the names of the three debarred clients as mentioned in the Ex-parte Order and in the Noticee’s client master, the client IDs of the three

Clients were not blocked in the Noticee’s system. Upon knowing the facts, the Noticee immediately (on May 04, 2009) took the corrective action and deactivated the clients accounts.

11. It is noted that the Noticee vide its reply dated August 10, 2015 submitted an Order of Adjudicating Officer dated March 03, 2010, in the matter of ICICI Securities Ltd, wherein no penalty was levied on the ground that the default is venial and technical in nature. I find that the said adjudication order differs from the facts of this present case. In the present case, the broker has admittedly executed the trades on behalf of the three debarred clients. It is hence, clearly established that the Noticee failed to exercise due care and diligence to deactivate the clients account and thereby violated Clauses A (1) (2) and (5) of the Code of conduct read with Schedule II of Regulation 7 of the Broker Regulations. I note that being a registered stock broking firm, having diversified client base (8 lacs retail investors spread across the country as well as over 16000 corporate clients and over 240 Institutional clients consisting of FII’s / FPI and domestic institution and banks )and having average daily trading volume and value over Rs. 2,500 Crores per day, the Noticee ought to have put in place adequate systems to avoid such mistakes. The Noticee is bound to abide by the Code of Conduct at all times and to act in a prompt, ethical, and professional manner and exercise at all times, due skill, care and diligence in the conduct of all their business dealings.

12. However, the following facts are also pertinent to mention: a. For the same lapses on the part of the Noticee, a monetary penalty of `50,000/- had already been imposed by the NSE vide Order dated June 05, 2009. b. It is also noted from the submissions of the Noticee that after the occurrence of the impugned trades, they have taken several steps and process to further improve and strengthen its systems and avoid any future lapse on account of such technical issues ("...by installing necessary applications in our computer software systems which display alerts whenever the name of any client/PAN matches with the name/PAN of a person who has been debarred from trading in the securities market by SEBI/Exchanges etc. and blocks the unique client code in our client database. This system ensures immediate detection of such account(s) and, after verification, blocks further trading in the relevant account(s).");

c. No such incident occurred again in the past six years ("...in the 6 years since the occurrence of the Impugned Transactions, SEBI has by its order restrained / debarred approximately 10,193 persons from accessing the securities market, out of which about 360 were clients registered with IIFL. IIFL has promptly and without any delay deactivated / frozen all such 360 client accounts. There has consequently been no recurrence of any trading on behalf of such restrained persons by the Noticee."). d. It is also noted that the Noticee has exercised due care, skill and diligence to avoid any violation of the Broker Regulations in the past six years.

13. Considering all the facts and circumstances as narrated above, I am of the view that the matter may be allowed to rest with a strong warning to the Noticee for executing trades on behalf of the clients who were debarred by the Ad-interim Ex-parte order dated April 23, 2009 passed by SEBI thereby violating Clause A(1), A(2) & A(5) of Code of Conduct for Stock Brokers as specified in Schedule II under Regulation 7 of Brokers Regulations.

Order

14. I, therefore in exercise of the powers conferred upon me by virtue of Section 19 of Securities and Exchange Board of India Act, 1992 read with Regulation 28(2) of the Intermediaries Regulations, hereby warn the Noticee, to be more careful and cautious in the conduct of its business and to adhere to and comply with all the statutory provisions while carrying out its activities in the securities market. Any future lapse on its part in complying with the said provisions shall invite stringent action.

Place: Mumbai S. RAMAN Date: November 10, 2015 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA