SEBI Vs. BHUBANESHWAR STOCK EXCHANGE MEMBERS WELFARE TRUST
SECURITIES APPELLATE TRIBUNAL
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(1.) THE Securities and Exchange Board of India (hereinafter referred to as "SEBI"), vide its order dated September 28, 2001, instituted an inquiry under Section 6 (3) of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "SCRA") into the affairs in relation to the Bhubaneshwar Stock Exchange (hereinafter referred to as "BhSE") in relation to the siphoning of the funds out of the exchange to the tune of Rs.1.30 Crores through the Bhubaneshwar Stock Exchange Members Welfare Trust (hereinafter referred to as "MWT") by certain members of the exchange. SEBI initiated the said inquiry based on representations/complaints received by it from Members of Parliament and from the SEBI Nominee on the Council of Management of BhSE and other quarters.
(2.) The Inquiry Officer appointed vide the order dated September 28, 2001, conducted inquiry as per the provisions of Rule 16 of the Securities Contracts (Regulation) Rules ,1957 (hereinafter referred to as "SCRR") and submitted his report to SEBI on October 22, 2001. The Inquiry Officer in his said report dated October 22, 2001 has inter alia found that:-
1. BhSE did not intimate SEBI regarding setting up the MWT and did not obtain permission from SEBI to set up the same.
2. Out of the total loan amount of Rs.95,83,782/- disbursed to members by BhSE from the MWT, Rs.94,13,782 i.e. around 98%, are outstanding and payable by members of BhSE who were either office bearers of BhSE or Trustees of the MWT. 95% of the loan amounts were granted to meet the pay-in liabilities of members. The total amount owed by Shri Babulal Sharma constitutes 92.5% of the total loan amount. The following table describes the outstanding position of the loans:
2. The loans were given purely on the basis of verbal discussions and no specific requisition for issuing such loans were obtained from MWT by BHSE. Further, no procedures were followed for sanctioning the loans from BhSE to MWT and no reference was made by the MWT to BhSE on any occasion indicating that the loans and the interest are not being repaid by any of the members of the exchange.
The Council of Management in its meeting held on July 12, 1997 had imposed a ceiling of Rs.25.00 Lakhs on the total contribution from BhSE to MWT. The Council of Management was not informed with regard to the sanctioning of loan from BhSE beyond the ceiling of Rs.25.00 Lakhs and the Council came to know of the huge outstanding loans only on September 1, 2001 after receiving an auditor's observation letter.
(3.) THE MWT has been used by the Office Bearers of BhSE mainly to meet their pay-in liabilities. THE Office bearers of the exchange and the trustees of the MWT are the major beneficiaries of the loans granted by the MWT and in some cases the loans were granted without proper security.
1. Based on the recommendations of the Inquiry Officer in the said inquiry report, SEBI in exercise of powers conferred on it under Rule 11 of the SCRR, directed the stock exchange vide letter dated January 29, 2002, to take the following actions immediately:
1. To form a committee consisting of the non elected directors to enquire into the veracity of the complaints against the Executive Director of his alleged trading activities and non compliance with procedures in granting loans from the Members Welfare Trust and to submit the findings so as to take action against him.
2. To immediately change the constitution of MWT and to ensure that the majority trustees should be non-elected directors. THE MWT should stop grant of loan till the trust is reconstituted.
3. To ensure that members having outstanding loans from the Member's Welfare Trust Fund including Shri Babulal Sharma, Shri Anjani Kumar Singh and Shri Manoj Thacker) should not act as office bearers of the exchange or in any other segment where Bhubhaneshwar Stock Exchange is acting as a broker or as trustees of the Members Welfare Trust.
4. To take immediate legal steps for recovering the outstanding loan including interest. THE Exchange and the Members Welfare Trust should also consider initiating criminal proceedings against the members having the outstanding loans.;
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