SEBI Vs. WELDEAL SHARES PVT LTD
SECURITIES APPELLATE TRIBUNAL
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(1.) M/s Weldeal Shares Pvt. Ltd. (hereinafter referred to as the said broker) was a member of the Coimbatore Stock Exchange (hereinafter referred to as CoSE) and a stock broker registered with the Securities and Exchange Board of India (hereinafter referred to as SEBI) under certificate of registration No. INB 210926939.
(2.) CoSE, vide its letter dated 27.09.2001, informed SEBI that the Council of CoSE approved the resignation of M/s Weldeal Shares Pvt. Ltd. at its 75th Council meeting held on 12.04.2001. Therefore, the said broker ceased to be a member of CoSE with effect from 12.04.2001.
2.1 In view of the above, SEBI, vide order dated 21.01.2003, appointed an Enquiry Officer under the SEBI (Procedure for holding enquiry by Enquiry Officer and imposing penalty) Regulations, 2002 (hereinafter referred to as Enquiry Regulations) to hold an enquiry under Chapter III of the Enquiry Regulations.
2.2 The Enquiry Officer, acting in accordance with regulation 16 (2) of the Enquiry Regulations issued show cause notice dated 18.08.2003 to the said broker advising it to show cause as to why certificate of registration granted to it as a stock broker should not be cancelled. The said broker 1 did not submit any reply to the show cause notice. Thereafter, on 07.11.2003, the Enquiry Officer submitted his report recommending cancellation of the certificate of registration granted to the said broker, on finding the broker not being a member of the stock exchange.
2.3 I note that adequate opportunity had been given to the said broker in terms of regulation 16 of the Enquiry Regulations and that it has chosen not to avail such opportunity. Therefore, I am satisfied that the requirements of natural justice have been fulfilled and I proceed further in the matter.
I have considered facts of the matter, report of the Enquiry Officer and other material on record. The following issue arises for consideration:
3.1 Whether, the said broker violated the conditions of registration.
(3.) I note that CoSE vide its letter dated 27.09.2001 informed SEBI that the Council of CoSE approved the resignation of M/s Weldeal Shares Pvt. Ltd. at its 75th Council meeting held on 12.04.2001. On perusal of the said details, I note that the said broker ceased to be a member of CoSE with effect from 12.04.2001.
4.1.1 In this regard, I note that Rule 4 of the SEBI (Stock brokers and sub brokers) Rules, 1992 (hereinafter referred to as the brokers regulations) states as under:
Conditions for grant of certificate to stock broker 4. The Board may grant a certificate to a stock broker subject to the following conditions, namely :2
(a) he holds the membership of any stock exchange;
(b) ............... ..
4.1.2 I note that the Enquiry Officer in his report has found that the member ceased to be a member of the CoSE with effect from 12th April, 2001 and hence its certificate of registration is liable to be cancelled.
4.1.3 I agree with the findings of the Enquiry Officer and find that the said broker violated one of the conditions subject to which registration has been granted to it viz. that it shall be a member of a recognized stock exchange.
4.2 I note that Regulation 25 of the brokers regulations provides as under :
Liability for action in case of default 25. A stock broker who
(a) fails to comply with any conditions subject to which registration has been granted;
(b) contravenes any of the provisions of the Act, rules or regulations;
(c) ............ ..
(d) ............ .
(e) ............ ."
3 shall be dealt with in the manner provided under the Securities and Exchange Board of India (Procedure for Holding Enquiry by enquiry Officer and Imposing Penalty) Regulations, 2002.
I therefore find that the said broker has failed to comply with basic requirement of being a member of a stock exchange, basing on which the registration is granted. Therefore, the registration of the broker is liable to be cancelled.
4.3 I further note that Regulation 13(1) (b) provides for major penalties which include cancellation of certificate of registration. In this regard, I note that in terms of Regulation 15(c) of the Enquiry Regulations it is not necessary to hold an enquiry under the provisions of Regulation 13 where a stock broker ceases to be a member of a recognized stock exchange or has been declared defaulter in relation to the transactions at such exchange, rather, summary procedure under Regulation 16 may be followed. However, Regulation 13(6) of the Enquiry Regulations provides that the Board or member shall impose major penalties where the intermediary is guilty of violation of conditions of registration.;
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