sebi:ORDER/GR/RR/2020-21/10031

SEBI · SEBI · 2019-07-24 · G Ramar, Adjudicating Officer

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Facts / Headnote

Violations held established; Noticee held liable for monetary penalty under Section 15HB of SEBI Act, 1992 and Section 23D of SCRA, 1956

Provisions invoked

• s. 15
• s. 12
• s. 15H
• s. 15J
• s. 28A
• s. 23I
• s. 23J
• s. 23
• s. 23D

Regulations

• Reg. 6
• Reg. 9(f)
• Reg. 9

Parties

• Asit C Mehta Investment Intermediaries Ltd.

Holding

The Noticee violated SEBI Circular MIRSD/SE/Cir-19/2009 on running account settlement and SEBI Circular SMD/SED/CIR/93/23321 on segregation of client funds, and Clause A(2) of Code of Conduct read with Regulation 9(f), and is liable for monetary penalty under Section 15HB of SEBI Act and Section 23D of SCRA.

Full text

Adjudication Order w.r.t. Asit C Mehta Investment Intermediaries Ltd. 2 | 28 (hereinafter referred as “AO”) vide Order dated July 24, 2019 under Section 15- I of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”) read with Rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 (hereinafter referred to as “SEBI Adjudication Rules") and under Section 23-I of Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as “SCRA, 1956") and Rule 3 of Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties) Rules, 2005 (hereinafter referred to as “SCR Adjudication Rules"), to inquire into and adjudge under Section 15HB of SEBI Act, 1992 and Section 23D of SCRA, 1956, for the alleged violation of SEBI Circular ref. no. MIRSD/SE/Cir-19/2009 dated December 03, 2009, Clause A (2) of the Code of Conduct specified in Schedule II read with Regulation 9(f) of SEBI (Stock Brokers) Regulations, 1992 and SEBI Circular ref. no. SMD/SED/CIR/ 93/23321 dated November 18, 1993 committed by Asit C Mehta Investment Intermediaries Ltd.,

Adjudication Order w.r.t. Asit C Mehta Investment Intermediaries Ltd. 3 | 28 inspection was also conducted on September 30, 2015, October 13-15, 28, 2015 and December 27, 2016 wherein the focus of inspection was to understand the practices and systems put in place by the Noticee with regard to Stock Broking operations and related compliance aspects. B. Pursuant to the inspection findings and subsequent reply of the Noticee on the said findings, SEBI inspection observed the following violations by the Noticee: i. Non-compliance of SEBI Circular dated December 3, 2009:  SEBI vide Circular ref. no., SEBI/MIRSD/SE/Cir-19/2009 dated December 3, 2009 mandated all the stock brokers to implement the provisions of the circular which inter-alia includes running account settlement (i.e., settlement of funds and securities of its clients, at least once in a calendar quarter or month), by March 31, 2010 which was subsequently extended to June 30, 2010 vide circular dated April 1, 2010. However, it is alleged that the Noticee implemented the provisions of running account settlement with effect from June 2015 i.e., with a delay of 5 years.  SEBI vide the aforesaid circular inter alia specified that the settlement of funds and securities shall be done within 24 hours of the pay out, unless client specifically authorizes the trading member in writing to maintain a running account. It is also specified that client’s funds and securities shall be settled at-least once in a month or quarter, a

Adjudication Order w.r.t. Asit C Mehta Investment Intermediaries Ltd. 4 | 28 balances of inactive clients were not settled, the details of which are tabulated hereunder: Quarter Ended Quarter Ended No. of UCCs whose balances have remained same on last dates of successive quarters Inactive Not Settled Minimum Amount Maximum Amount Average Amount Credit Balance not settled (in Rs.) Jun-12 Sep-12 23203 100 457371.94 1138.20 2,64,09,658 Sep-12 Dec-12 18778 100 527023.66 1306.02 2,45,24,482 Dec-12 Mar-13 8118 100 322894.19 1138.50 92,42,363 Mar-13 Jun-13 18559 100 344220.83 1415.78 2,62,74,681 Jun-13 Sep-13 23646 100 525091.71 1062.60 2,51,26,285 Sep-13 Dec-13 24220 100 278050.98 1040.18 2,51,93,180 Dec-13 Mar-14 4096 100 37661.57 883.07 36,17,092 Mar-14 Jun-14 10863 100 37661.57 612.94 66,58,445 Jun-14 Sep-14 13202 100 1993252.5 2472.92 3,26,47,619 Sep-14 Dec-14 17060 100 631493.27 2290.83 3,90,81,566 Dec-14 Mar-15 2836 100 233850.93 1238.41 35,12,138 Mar-15 Jun-15 11325 100 134088.50 1184.05 1,34,09,381 Jun 12-Jun 15 1311 100 134088.50 761.37 10,30,599  From the above table, it is observed that during the quarter ended September 2012 there were 23,203 credit balance clients who had identical amount of funds at the end of the previous as well as the said quarters. The total amount of funds not settled of these inactive clients during the quarter amounted to Rs.2.64 crores. Similarly, for subsequent quarters, it is also observed that the Noticee was not settling inactive clients’

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