SEBI Vs. S P RAKHECHA AND CO
SECURITIES APPELLATE TRIBUNAL
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A.K. Batra, Whole Time Member -
(1.) M/s S. P. Rakhecha & Co. is registered with SEBI as a stock broker (hereinafter referred to as 'member') bearing SEBI registration no. INB 031032718 and is a member of Calcutta Stock Exchange (CSE). An inspection of books of accounts, documents and other records of the member was conducted on 4th June, 2002. During the inspection, it was found that the member had indulged in off market trades outside the price and order matching mechanism of CSE. The data collected by the inspection team indicated that the broker had indulged in off the floor transactions with the brokers Shri Sanjay Khemani and A K Poddar, members CSE. Further, it was observed that the member indulged in fund transfers with Khemani & Sons and other brokers like Shri Sanjay Khemani and A K Poddar, members CSE. It was found that the fund transfers were not backed by any transactions.
(2.) The findings of the inspection report were forwarded to the member vide letter dated 21.06.2002 advising the member to file its comments if any, on the findings of the inspection. The member vide letter dated 17.07.2002 replied to the said findings of the inspection report. On not being satisfied with the reply filed by the member an Enquiry officer was appointed vide SEBI's order dated 08.08.2002. The allegations as per the show cause notice dated April 30, 2003 issued by Enquiry Officer are as under:
a) That the member carried out transactions with Sanjay Khemani and A.K. Poddar, members, CSE, outside the price and order matching mechanism of CSE. By not executing the aforesaid transactions on the trading system 1 of CSE, the member violated SEBI Circular SMDRP/POLICY/CIR-32/99 dated 14th September, 1999 which was notified by CSE to its members vide its notice dated 16th September 1999. Further, it was alleged that such transactions are irregular and are prohibited under Regulation 4 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to securities market) Regulations, 1995 and are also in violation of Clause A(1) (4)&(5) of the Code of Conduct as specified in Schedule II read with Regulation 7 of SEBI (Stock Brokers and Sub Brokers) Regulations 1992 and Rule 4(b) of SEBI (S tock Brokers and Sub Brokers) Rules 1992.
b) That the member made payments/received funds from other members of CSE, without corresponding transactions in securities. It was therefore alleged that the member carried out business other than that of securities, which is prohibited under Rule 8(1)(f) of SC(R) Rules, 1957.
The Enquiry Officer submitted his report on 29.08.2003. In his report the EO found that the member indulged in off market deals and lending of funds and recommended suspension of certificate of registration of the member for a period of 6 months.
(3.) CONSEQUENT upon above, in terms of regulation 13(2) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as 'the said regulations') a show cause notice dated 08.09.2003 was issued to the member to show cause as to why the penalty as recommended by the enquiry officer should not be imposed on it. The member was advised to submit its reply, if any, within 15 days of the receipt of the show cause notice failing which it would be presumed that the member has no explanation to offer. The member was also asked to intimate along with the reply whether it desired a personal hearing. The member vide letter dated 23.09.2003 replied to the said show cause notice stating that he will not repeat the lapses in future. 2;
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