sebi:SRP/RK/AO-148/2010

SEBI · SEBI · 2009-03-12 · Satya Ranjan Prasad, Adjudicating Officer

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Facts / Headnote

Noticee held liable for certain broking and depository participant violations; exonerated on other counts with benefit of doubt; final penalty not contained in excerpt

Provisions invoked

• s. 15
• s. 19
• s. 15H
• s. 15I
• s. 15J
• s. 19H
• s. 19I

Regulations

• Reg. 7
• Reg. 20A
• Reg. 46
• Reg. 54(4)
• Reg. 41

Parties

• RSL

Holding

The Adjudicating Officer held RSL liable for deficiencies in client agreements, investor complaint records, and DP operations including failure to conduct branch internal audits, while giving benefit of doubt on certain rectified documentary discrepancies.

Full text

Page 2 of 27 its broking activities included (a) dealing in cash with clients, (b) non segregation of clients’ accounts and business account, (c) discrepancies in client registration forms and agreements, (d) failure to deliver contract notes, (e) dealing with sub-brokers and authorized persons without requisite registration/ approval and (f) non-maintenance of proper records of investors’ complaints. The findings of the inspection with regard to depository participant operations included (a) failure to conduct internal audit of branch operations, (b) lack of NCFM qualified personnel at branches, (c) deficiencies in processing account opening forms, (d) delay in opening beneficial owner (BO) accounts, (e) activation of BO accounts before entering into DP- BO agreement, (f) deficiencies in processing modification request and not sending communication to clients, (g) delay in processing dematerialization requests, (h) irregularities in stamping and dates on dematerialization requests, (i) deficiencies in processing dematerialization requests, (j) delay in processing re-materialization requests, (k) discrepancies in processing of delivery instruction slip (DIS) and issuance of DIS booklet and (l) lack of proper inward/outward mail recording system, etc. Therefore, it was alleged that the Noticee has violated the provisions of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as ‘SEBI Act’), Depositories Act, 1996, (hereinafter referred to as ‘Depositories

Page 3 of 27 Depositories (Procedure for Holding Inquiry and Imposing Penalty by Adjudicating Officer) Rules, 2005 (hereinafter referred to as the ‘Rules’) to show cause as to why an inquiry be not initiated against it and penalty be not imposed under sections 15F and 15HB of the SEBI Act and sections 19A, 19D and 19G of the Depositories Act for the aforesaid violations alleged to have been committed by RSL.

Page 4 of 27 designated employee. The concerned branch employee to whom imprest is paid is responsible for submitting the expense statement on periodical basis along with necessary supporting evidence against the amount paid as imprest. Employees are required to return any cash withdrawn, which is more than what is required to meet immediate branch expenses from their designated bank account. Further, with respect to the corresponding payments from RSL in this regard, the same have also been duly made and that most of the payments have been through direct bank transfers to the accounts of designated employees at branches, who withdraw the cash to the extent required. • In order to substantiate its contention, the Noticee has submitted some of the imprest ledger accounts of branches alongwith respective cash receipts vouchers duly accounting the payment and receipt of cash from branches and expenses incurred at branches during the respective period.

Source: SecMarx — sebi:SRP/RK/AO-148/2010. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.