Adjudication Order in respect of:- (1) Pradeep A Ramnani and (2) Angel Broking Pvt. Ltd.

8/19/2019 Adjudication Order in respect of:- (1) Pradeep A Ramnani and (2) Angel Broking Pvt. Ltd.

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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER NO. RA/DPS/ 48-49/2016]

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA

ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING

INQUIRY AND IMPOSING PENAL TIES BY ADJUDICATING OFFICER) RULES,

1995

In respect of:-

1. Pradeep A Ramnani (PAN No. AACPR0439E)2. Angel Broking Pvt. Ltd. (PAN No. AAACM6094R)

BACKGROUND

1. Securities and Exchange Board of India (hereinafter referred to as „SEBI‟) had

conducted inspection of the books of accounts / records etc. of Pradeep A

Ramnaniregistered as Sub-brokerwith BSE with Registration No.

INS014863117 and with NSE with Registration No. INS236768615,

(hereinafter referred to as 'the Noticee No. 1 / Pradeep) on September 30,

2013 inter-alia relating to verify whether the Noticee No. 1 is dealing on behalf

of clients and handling funds & securities of clients, in any manner which is not

allowed under securities law. The period for inspection was covered from April

2012 to March 2013.

2. The inspection, inter alia, revealed that the Noticee No.1 (Pradeep) without

having necessary NCFM qualifications in derivative market segment had

executed trades in F&O segment, and had transferred the shares through off-

market to client and received an amount in cash in violation of SEBI circular

SEBI/MIRSD/16/2011 dated August 22, 2011. Further it is was revealed during

inspection that Angel Broking Pvt Ltd - Member BSE - SEBI Registration No.

INB010996539, Member NSE - SEBI Registration No. INB230600236


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(hereinafter referred to as 'the Noticee No. 2 / Angel) had allowed Noticee

No. 1 (who was not having necessary qualification to operate F & O trading

terminal) and had wrongly uploaded certificates of a third person into

qualification/ records of Noticee No. 1. For the sake of propriety both the

Noticees No. 1 & 2 are collectively reffered to as “the Noticees”.

3. Therefore, it was alleged that, such acts of Noticee No. 1 (Pradeep) is in

violation of Clauses A(1), A (2), of the Code of conduct for Sub Brokers as

stipulated in Schedule II read with Regulation 15(1)(b)(d) of SEBI (Stock

Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as „Stock

Brokers Regulations’) and SEBI Circular No. SEBI / MIRSD/ DPS-1/ Cir-31/

2004 dated August 26, 2004 which stands modified as SEBI/MIRSD/16/2011

dated August 22, 2011, NSE Circular No. NSEIL/LEGAL/3534 dated August

02, 2002 and NSE Circular no. NSE/MEM/3589 dated September 05, 2002.

4. It was also alleged that Noticee No. 2 is in violation of Regulation 16C(2),

Clauses A(1), A(2), A(5) and C(6) of the Code of conduct for Stock Brokers

as stipulated in schedule II read with erstwhile Regulation 7 of the Stock

Brokers Regulations(after the amendment in 2013 becomes Regulation 9(f) of

Stock Brokers Regulations) and SEBI Circular no. MIRSD/DR-1/Cir-16/09

dated November 06, 2009, SEBI/Cir/MIRSD/AP/8/2010 dated July 23, 2010,

NSE Circular no. NSE/MEM/3445 dated June 19, 2002 and NSE/MA/22732

circular dated February 13, 2013.

APOINTMENT OF ADJUDICATING OFFICER

5. SEBI has, therefore, initiated adjudication proceedings and appointed, Shri D.

Sura Reddy as Adjudicating Officer vide order dated November 13, 2014

under Section 15 HB of the Securities and Exchange Board of India Act, 1992

(hereinafter referred to as 'SEBI Act') read with Regulation 26 (xv), (xvi) and

(xix) of Stock Brokers Regulations, to inquire into the aforesaid alleged

violations against the Noticees. Subsequently, vide order dated December 09,

2014, the undersigned has been appointed as Adjudicating Officer in the

matter.


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SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

6. Show Cause Notice No. EAO/RA/DPS/1407/2015 dated January12, 2015and

Show Cause Notice No. EAO/RA/DPS/1406/2015 dated January 12, 2015

(hereinafter referred to as “SCN/ SCNs”) was served upon the Noticee No. 1 &

2 respectively under rule 4(1) of the Rules to show cause as to why an inquiry

should not be initiated and penalty be not imposed on the Noticeesfor the

alleged violations as specified in the SCN(s). The allegations levelled against

the Noticees in the SCN are briefly mentioned below;

7. During inspection, it was revealed thatNoticee No. 1, sub broker was also

registered as Authorised Person on November 11, 2008 with NSE. Noticee

No. 1 obtained F&O trading terminal (NSE-PDR) from his stock broker

(Noticee No. 2) and executed trades in his own account as well as for his

clients in F&O Segment.

8. It was revealed that Noticee No. 1 was not having NCFM qualification in

derivatives market segment to operate F & O trading terminal and Noticee No.

1 has placed orders from the F&O trading terminal provided to him which are

as under.

9. It was revealed that Noticee No. 2 had provided Noticee No. 1 the F & O

trading terminal by uploading the certificates of the following persons viz,

DilipMithalal, HrishikeshChandrakantBhagat and SandhyaMengi to stock

exchange.

10. SEBI vide Circular No. SEBI/MIRSD/DPS-1/Cir-31/2004 dated August 26,

2004 has mandated that payment shall be made only by account payee

F & O (in crs)

Financial Year Self Clients

01/04/2009 - 31/03/2010 NIL 8671724

01/04/2010-31/03/2011 15695590.08 1068597.5

01/04/2011-31/03/2012 40808462.45 1641225

01/04/2012-31/03/2013 8883274.8 NIL


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cheque in favour of the firm/ company of the trading member. It was revealed

that Noticee No. 1, received an amount of ` 2,24,000/- in his ICICI Bank

account no. 003801502538 from Ms. Priyanka Mittal, one of his client, the

details are as under.

S No Date Name of the client Amount (in ` )

1 31/10/2012 Priyanka Mittal 55,000/-

2 16/11/2012 Priyanka Mittal 63,000/-

3 05/12/2013 Priyanka Mittal 1,06,000/-

11. Further, SEBI vide Circular No. SEBI/MIRSD/DPS-1/Cir-31/2004 dated August

26, 2004 had mandated that delivery / transfer of securities is to be

given/made by the concerned member. However, it was revealed that the

Noticee No.1 has transferred the shares ofFineotex Chemical through off-

market to Ms. Priyanka Mittal, one of his client, the details are as under.

Sr.No

Name Of The Scrip Date of TxnC-Credit/D-Debit

Qty BOIDValue of theshare (

)

1 Fineotex Chemical Limited 27/10/2012 D 1500 27337647 51,075.00

2 Fineotex Chemical Limited 08/11/2012 D 1500 27337647 62,070.00

12. In view of above, it is alleged that the Noticee No.1 without having necessary

NCFM qualifications in derivative market segment and executed trades in F&O

segment, and having off-market dealings and received money from client. Allegedly, such acts of Noticee No. 1 is in violation of Clauses A(1), A (2), of

the Code of conduct for Sub Brokers as stipulated in Schedule II read with

Regulation 15(1)(b)(d) of Stock Brokers Regulations and NSE Circular No.

NSEIL/LEGAL/3534 dated August 02, 2002, NSE Circular no. NSE/MEM/3589

dated September 05, 2002, SEBI Circular No. SEBI / MIRSD/ DPS-1/ Cir-31/

2004 dated August 26, 2004 which stands modified as SEBI/MIRSD/16/2011

dated August 22, 2011 and the provisions of Code of conduct are mentioned

below;

Stock Brokers Regulations

15 (1) (b)The Sub-Broker shall abide by Code of Conduct as specified at Schedule II.

SCHEDULE II CODE OF CONDUCT FOR SUB-BROKERS

A. General

(1) Integrity: A sub-broker, shall maintain high standards of integrity, promptitude

and fairness in the conduct of all investment business..


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(2) Exercise Of Due Skill And Care: A stock-broker, shall act with due skill, care and

diligence in the conduct of all investment business.

15 (1) (d) The Sub-Broker shall comply with the rules, regulations and bye-laws of the

stock exchange.

13. It is alleged that the Noticee No. 2 allowed Noticee No. 1 who was not having

necessary qualification to operate F & O trading terminal and by wrongly

uploading certificates of a third person. Allegedly, such act of Noticee No. 2 is

in violation of Regulation 16C(2), Clauses A(1), A(2), A(5) and C(6) of the

Code of conduct for Stock Brokers as stipulated in schedule II read with

erstwhile Regulation 7 of the Stock Brokers Regulations, after the amendment

becomes Regulation 9(f) and NSE Circular no. NSE/MEM/3445 dated June

19, 2002 and NSE/MA/22732 circular dated February 13, 2013, SEBI Circular

no. MIRSD/DR-1/Cir-16/09 dated November 06, 2009,

SEBI/Cir/MIRSD/AP/8/2010 dated July 23, 2010, and the provisions of Code of

conduct are mentioned below;

Stock Brokers Regulations

16C(2) An applicant who desires to act as a trading member, in addition to complying

with the requirements of sub-regulation (1), shall have a net-worth as may be specifiedby the derivatives exchange or segment from time to time and the approved user and

sales personnel of the trading member have passed a certification programme

approved by the Board.

9(f) Any registration granted by the Board under regulation 6 shall at all times abide

by the Code of Conduct as specified at Schedule II.

SCHEDULE II CODE OF CONDUCT FOR BROKERS

A. General.

(1) Integrity: A stock-broker, shall maintain high standards of integrity, promptitude

and fairness in the conduct of all his business..

(2) Exercise Of Due Skill And Care: A stock-broker, shall act with due skill, care and

diligence in the conduct of all his business.

(5) Compliance With Statutory Requirements: A stock-broker, shall abide by all the

provisions of the Act and the rules, regulations issued by the Government, the Board

and the Stock Exchange from time to time as may be applicable to him.

C. Stock-Brokers vis-a-vis Other Stock-Brokers.


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(6) False or Misleading Returns:A stock-broker shall not neglect or fail or refuse to

submit the required returns and not make any false or misleading statement on any

returns required to be submitted to the Board and the stock exchange.

14. In response to the SCN, the Pradeep/ Noticee No. 1,filed its reply datedJanuary 24, 2015and Angel/ Noticee No. 2vide letter dated January 29, 2015

asked for inspection of documents relied by SEBI while issuing SCN and

requested additional time of three weeks from the date of inspection of

documents to submit its reply. Angel was granted to take up the inspection by

February 27, 2015 vide notice dated February 2, 2015. Inspection was

conducted by Noticee No. 2 on February 27, 2015 and minutes of inspection

was filed by it in this proceedings vide letter dated March 2, 2015.Vide said

letter the Angel also requested time of three weeks to submit reply to the said

SCN. Angel again vide letter dated March 27, 2015 requested to grant time till

April 8, 2015 to file the reply to the said SCN. Finally,Angel filed reply dated

April 7, 2015.

15. In order to conduct an inquiry in terms of rule 4(3) of the Rules, the Noticees

were granted an opportunity of personal hearing as follows:

16. Hearing Notice dated January 29, 2015 was served upon the Noticee No. 1 to

appear for hearing on February 24, 2015.The Hearing on February 24, 2015

was attended by Noticee No. 1 and the submissions made by him was

recorded. During the course of hearing Noticee No. 1 assured to provide

certain details provided by the Noticee No. 2. Accordingly the Noticee No. 1,

provided the details vide its letter dated February 26, 2015.

17. Hearing Notice dated June 9, 2015 was served upon the Noticee No. 2 to

appear for hearing on June 25, 2015. The Hearing on June 25, 2015 was

attended by the authorized representatives (AR) of the Noticee namely – Mr.

SantanuSyam, Mr. ShantanuMitra, Mr. Anoop Goyal and Mr. NayneshSampat

and the submissions made by them were recorded. During the course of

hearing Noticee No. 2 assured to provide certain additional documents as

sought during the hearing along with its additional written submissions within a


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period of two weeks. There after the Noticee No. 2 had provided the additional

submissions vide letter dated July 10, 2015, July 27, 2015 and email dated

August 6, 2015along with the Annexures. Accordingly hearing of both the

Noticees were concluded.

18. The key submissions/ reply of Noticee No. 1dated January 24, 2015 and

Noticee No. 2 dated April 7, 2015 towards the SCN and submissions made

during the course of hearing, are being mentioned below;

REPLY OF NOTICEE NO. 1 / PRADEEP:-

a) Noticee No. 1filed its reply dated January 24, 2015 and also enclosed a

copy of the letter received by him in November 2014, wherein Noticee was

advised to be careful and improve compliance standards to avoid

reoccurrence of the violations due to which adjudication proceedings have

been initiated. Herein I would like to mention, as already declared by me,

during the inspection itself, I immediately surrendered my sub-brokership

when I realized the discrepancy of maintaining the F&O trading terminal

without mandated certification. As I was ill informed and to a certain extent

misguided by my broker, I executed trades without complete knowledge, I

sincerely apologize and would also like you to take note, that a

reoccurrence of the same is impossible as I am much aware now of the

certification required and I have already surrendered my sub brokership as

mentioned during the inspection.

b) Regarding handling funds of a client and securities (off-market dealings

and received money from client),please make note that as a sub-broker,

my clients were friends or relatives and Ms. Priyanka Mittal, had given a

friendly loan to me, against which, I on my own prerogative transferred

some shares into her account, which were of much lesser value than the

amount taken on loan. Herein, I would also like to mention, that as

mentioned, during one of the meetings with the SEBI officials, I have

already returned the amount borrowed and received my shares too. I

apologize for any irregularity, if any, committed by me with regards the

Stock Brokers Regulations. Please make note that the irregularity, if any, is


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unintentional and extremely regretted and I also assure you herein, that I

shall be extremely cautious henceforth.

c) I sincerely hope that I shall be pardoned for the irregularity as they are

totally unintentional and also assure you that I shall be very cautious

henceforth.

d) Exact date of allotment of F&O trading terminal is not known, however I

was registered as Authorised Person on November 11, 2008. I was aware

of the requirement of certification for trading in F&O segment. However, my

Stock Broker had never insisted for any such certificate. The broker

facilitated/ allowed me to place orders and F&O segment was added to my

existing terminal. I have no relation with DilipMithalal,

HrishikeshChandrakantBhagat and SandhyaMengji.

e) I have returned the amount borrowed and received back the shares. I

appologise for overlooking the formalities involved and request you to

pardon me and also assure you that any such laxity shall not be repeated

again. I also wish to inform you that I have already surrendered my sub

broker registration. I have also discontinued as Authorised person.

REPLY OF NOTICEE NO. 2 / ANGEL:-

a) We repeat, reiterate and confirm all that is stated in our various letters,

replies, emails and submissions dated October 7, 2013, October 8, 2013,

October 9, 2013, October 10, 2013, October 23, 2013, October 30, 2013,

January 21, 2014, January 27, 2014, February 3, 2014, June 6, 2014,

August 11, 2014 and December 26, 2014, Joint meeting with Sub broker

on January 23, 2014 and personal meeting on April 25, 2014 at the SEBI

office and deny everything to the contrary and inconsistent

therewith.Without prejudice to anything stated herein, we deny all the

allegations and findings made against us in the said SCN except to the

extent specifically admitted by us. Nothing contained in the SCN may be

deemed to be admitted by us by reason of non-traverse or otherwise, save

and except what is expressly admitted herein. We deny all the statements,

submissions, contentions, allegations and averments contained in the said

SCN that are contrary to and/ or inconsistent with what is stated herein.


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b) Angel is one of the prominent brokers in India and is registered with SEBI

as a stock broker in BSE, NSE and MCX. Angel is also registered as a

Depository Participant (DP) of Central Depository Services Limited (CDSL).

c) Being not only one of the largest broking institutions in India but also one of

the most reputed and responsible one as well, Angel has painstakingly built

up a reputation of a broking institution which made best efforts to be in

compliance with regulatory requirements as prescribed by SEBI under the

SEBI Act, 1992 and the various rules and regulations framed there under.

Angel also adheres stringently to the various bye laws and circulars issued

by the BSE and the NSE. There have been several instances where Angel

has suomoto taken steps to ensure that its very own surveillance

mechanism for monitoring the activities of its clients and sub-brokers/

Authorised Persons are at Par with the best practices of the industry. On

several occasions, where Angel had felt that surveillance mechanisms of

exchanges have to be improved, it has proactively brought the same to the

knowledge of the exchanges, in addition to incorporating various

safeguards and filtration methods in its own surveillance mechanism. We

crave your leave to refer to and rely on supporting documents to

substantiate our claim if so called upon by you.

d) Angel has allotted approximately 6500 terminals to its registered Sub

Brokers/ Authorised Persons as on date. We would like to submit that in

the normal course of our business operations and as a bona fide practice,

Angel has over a period of time implemented various processes for

providing trading terminals to approved users at sub-broker/ Authorised

Persons registered addresses. Before allotment of trading terminals, Angel

requires each applicant to submit various documents like Permanent

Account Number (PAN) Card details, proof of identity and address in

addition to the statutorily mandatory documentation as laid down by various

rules, regulations, circular and other directives issued by SEBI and the

stock exchanges. These documents are to be submitted along with a

formal „CTCL User Application Form‟ wherein a Sub Broker makes an

application for allotment of terminal. We have also introduced an


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undertaking which is to be collected from the proposed approved user and

Sub Broker/ Authorised Person with whom he/she is associated.

e) Kindly note that the aforesaid additional due diligence has been introduced

by us over a period of time in order to mitigate the risks of issues similar to

the one which was observed with regard to a terminal allotted to the

approved user of Pradeep in the year 2011.

f) Pradeep applied for registration as a sub-broker with Angel on February

29, 2008 and January 20, 2009 for the BSE and NSE Cash Segment and

F&O Segment on November 11, 2008. We submit that Pradeep was

registered with Angel as an Authorised Person on and from November 11,

2008 and a CTCL terminal was located at his registered address.However,

the CTCL terminal was not issued to Pradeep but to his approved users,

being DilipMithalal, HrishikeshChandrakantBhagat and SandhyaMengji. As

per the then prevailing practice, the sub brokers/ Authorised Persons used

to provide their user certificates at the nearest service branch of Angel. The

branch in turn used to forward request to our central office for allotment of

terminal. In case of SandhyaMengji also we have received email request

from our Regional Office along with the certificate.

g) For operating in the F&O Segement, as per the governing rules,

regulations and circulars, the NCFM certificates of DilipMithalal,

HrishikeshChandrakantBhagat and SandhyaMengji were provided by

Pradeep to Angel. The said NCFM certificates were scrutinized by the

CTCL department of Angel and only after successful scrutiny the same was

uploaded to the exchange through the online platform.

h) DilipMithalal and HrishikeshChandrakantBhagat were in no point in time

employees or associated with Angel in any capacity whatsoever and Angel

had no records of their antecedents except for their details and NCFM

certificates which were forwarded by Pradeep.The details and NCFM

certificates of DilipMithalal and HrishikeshChandrakantBhagat provided by

Pradeep was duly scrutinized by the CTCL Department of Angel and after

due scrutiny the same were uploaded on the NSE exchange platform.

i) SandhyaMengji was an employee of Angel for the period between

November 19, 2011 to April 2013 when she was posted at various


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branches of Angel in around Mumbai as a sales executive. She

diassociated with Angel in April 2013. Angel was not aware of her location

subsequent to her resignation until it was intimated by SEBI that she was

associated with Pradeep.

j) We note that based on the request received through our branch on

November 19, 2011 the NCFM certificate of SandhyaMengji was uploaded

on the NSE portal on November 20, 2011 by Angel. We would like to

repeat and reiterate our earlier submissions that the NCFM certificate of

SandhyaMengji was filed with Angel even before her joining formalities with

Angel was concluded. Angel was unaware of any association or collusion

between Pradeep and SandhyaMengji and Angel has taken appropriate

action against Pradeep as soon as these discrepancies were brought to the

notice of Angel by SEBI. Accordingly, the registration of Pradeep as a sub-

broker/ Authorised Person of Angel was terminated with effect from

October 13, 2013.

k) We would also draw your attention to the submissions made by Pradeep to

SEBI officials on September 30, 2013 wherein it is specifically stated by

Pradeep that SandhyaMengji was dealer of Pradeep for the period of July

2011 to September 18, 2013. It establishes the fact that SandhyaMengji

was associated with Pradeep prior to joining Angel and continued till close

to the date of inspection. Further, Pradeep had admitted that compensation

in the form of salary was paid to SandhyaMengji by him.

l) However, we draw your attention to the fact that subsequent to his

statement recorded at the time of inspection, in all communications to

SEBI, Pradeep has contradicted his earlier stated position that

SandhyaMengji was a dealer of Pradeep for the period of July 2011 to

September 18, 2013. It seems that subsequent to termination of his

association with Angel as Sub Broker/ Authorised Person, Pradeep had

reversed his stand and with an intention to impeach Angel and

conveniently tried to pass on the blame for his lapses onto Angel. We

would like to state that these statements of Pradeep are perverse and

contrary to his admitted facts recorded during the inspection conducted by

SEBI on September 30, 2013.


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m) We also submit that Angel conducts thorough inspection of the sub-

brokers/authorize persons registered with it as per regulatory requirement

as well as sample selected based on internal criteria. The supervision

exercised by Angel on its registered sub-brokers and Authorised Persons is

in line with the best practices of the industry. In lines with our established

practices, we had conducted several inspections of the premises of our

registered sub-brokers and Authorised Persons to ensure that they are

operating within the confines of the mandates of SEBI and the exchanges.

The internal audit parameters are subject to review and revision

periodically based on our experience and extant regulatory changes.

Accordingly, during the year 2014-15 we have conducted inspection of

more than 700 AP/SB entities out of total 2900 unique AP/SB entities

having trading terminals at their own locations.

n) Further, we would like to submit that till the time Pradeep was registered

with us, we had not received any complaint from the clients registered

through Pradeep.

o) We repeat and reiterate the statements contained in our letter dated

August 11, 2014 where we had drawn the attention of SEBI to the fact that

the turnover details of Pradeep provided by Angel was in „Absolute

Rupees‟ and not in the “Rupees Crores”. In light of the same, we submit

that the table contained in the paragraph 5 of the SCN may be suitably

modified in lines with the table as under:

F & O (in crs)

Financial Year Self Clients

01/04/2009 - 31/03/2010 NIL 0.87

01/04/2010-31/03/2011 1.57 0.11

01/04/2011-31/03/2012 4.08 0.1601/04/2012-31/03/2013 0.89 NIL

p) We submit that Angel has always complied with the provisions of the

Broker Regulations and the Code of Conduct for Stock Brokers contained

in Schedule II therein. Angel has maintained high standards of integrity,

promptitude and fairness in the conduct of all its business. Angel has at all

times acted with due skill, care and diligence in the conduct of its business.

Angel has complied at all times with the provisions of the SEBI Act, 1992

and the rules and regulations issued by the Government, SEBI and the


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stock exchanges from time to time and as applicable to it. Angel has

always submitted the correct details and statements required to be

submitted to SEBI and the stock exchanges. In the instant matter, Angel

has cooperated at all times. We deny and dispute any allegation as has

been alleged that Angel has provided any false or misleading statement on

any returns required to be submitted to SEBI and the stock exchanges.Any

and all information that has been provided to SEBI officials or the stock

exchanges i n this matter has been to the best of Angel’s knowledge and

belief and as such is neither false nor misleading in nature. We deny and

dispute that Angel has not complied with the provisions of the Broker

Regulations and the Code of Conduct for Stock Brokers contained in

Schedule II therein, as alleged or at all. We also deny and dispute the

allegation that Angel has failed to maintain high standards of integrity,

promptitude and fairness in the conduct of all its business and that Angel

has not acted with due skill, care and diligence in the conduct of its

business, as alleged or at all. We also deny and dispute the allegation that

Angel has not complied with at all times with the provisions of the SEBI Act,

1992 and the rules and regulations issued by the Government, SEBI and

the stock exchanges from time to time and as applicable to it, as alleged or

at all.

q) We note that it has been alleged that Angel is in violation of NSE Circular

no. NSE/MEM/3445 dated June 19, 2002 (NSE 2002 Circular). In this

regard, we submit that the NSE 2002 Circular was issued by the NSE

specifying certain additional information that was to be furnished by the

trading member while submitting applications for approval of users in the

F&O Segment. It was, inter alia, specified in the NSE 2002 circular that all

User ID applications were required to be accompanied with a valid

certificate certifying that the person in whose name the trading member

desired to obtain a user id had passed a SEBI approved certification

programme. In light of the requirements of the NSE 2002 Circular we

submit that Angel has complied with this requirement at all times with

respect to the operations of Pradeep.. Angel has issued Approved User IDs

only after verifying the fact that the Approved Users of the Authorised


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Person had valid NCFM certificates of

DilipMithalal,HrishikeshChandrakantBhagat and SandhyaMengji were

provided by Pradeep to Angel.The said NCFM certificates were scrutinized

by the CTCL department of Angel and only after successful scrutiny the

same was uploaded to the exchange through the online platform. Thus, we

submit that Angel has not violated any of the provisions of the NSE 2002

Circular.

r) We observed that it has also been alleged that Angel is in violation of

NSE/MA/22732 circular dated February 13, 2013 (NSE 2013 Circular). In

this regard, we submit that the NSE 2013 Circular was issued by NSE on

matters related to user id request. It states that a trading member desirous

of obtaining user ids is required to meet certification requirement as

specified by SEBI/Exchange from time to time. The certification

requirement applicable for the F&O segment is specified as a Valid

Certificate issued through SEBI approved certification programme for each

User Id. The NSE 2013 Circular also states that no trading member shall

deal through any unregistered intermediary. Further, trading members are

required to entrust CTCL terminals only to Approved person and not to any

unregistered intermediary or clients. It has been clarified by the NSE 2013

Circular that the persons who handle each CTCL terminal of the Trading

Member are known as Approved Persons, who may be an employee of the

Trading Member, a registered Sub-broker, an Approved User or an

Authorised Person who has been approved by the Exchange. In the instant

matter, we would like to state that Angel has not been in violation of the

NSE 2013 Circular as it had ensured that Angel had entrusted CTCL

Terminals only to approved users who had the necessary NCFM

Certification.

s) We also observed that it has been alleged that Angel is in violation of SEBI

Circular no. MIRSD/DR-1/Cir-16/09 dated November 06, 2009 (SEBI 2009

Circular) and SEBI/Cir/MIRSD/AP/8/2010 dated July 23, 2010 (SEBI 2010

Circular). We note the SEBI 2009 Circular was issued by SEBI with a view

to expand the reach of the markets for exchange traded products. It allows

SEBI registered stock brokers (including trading members) of stock


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exchanges to provide access to clients through authorized persons. The

SEBI 2009 Circular prescribed a minimum requirement framework

governing the market access through authorized persons with the stock

exchanges and stock brokers granted the liberty to prescribe additional

requirements. We also note that the SEBI 2009 Circular, inter alia, in

Clause 4.1(f) prescribes that an individual is eligible to be appointed as an

Authorised Person if he has the certification, as applicable to approved

user/ sales personnel of the respective segment, and undertakes to

continue to have valid certification thereafter. However, the SEBI 2010

Circular, which was issued a few months after the SEBI 2009 Circular,

states that pursuant to the issue of the SEBI 2009 Circular, SEBI received

representations from the stock exchanges and market participants seeking

review of the certification requirements for Authorised Persons and

accordingly SEBI had decided to rationalize the certification requirements

for the Authorised Persons in line with those applicable to the stock brokers

and sub-brokers. With this objective in mind, SEBI proceeded to delete the

Clause 4.1(f) of the SEBI 2009 Circular and inserted an additional Clause

4.4 stating that the approved users and/or sales personnel of Authorised

Persons shall have the necessary certification of the respective segments

at all points of time. In light of this, we submit that Angel has not been in

violation of either the SEBI 2009 Circular or the SEBI 2010 Circular.

CONSIDERATION OF ISSUES AND FINDINGS:-

19. I have carefully perused the written submissions of the Noticees and the

documents available on record. The issues that arise for consideration in the

present case are :

a. Whether Noticee No.1 (Pradeep) was having any NCFM certificate

as required under securities law and whether the Noticee No. 2

(Angel) had wrongly uploaded the NCFM certificate of third persons

into records of Noticee No. 1 while authorizing him to operate the

trading terminal on its behalf?


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b. Incase the Noticee No. 1 was not having the required NCFM

certificate and the Noticee No. 2 have wrongly uploaded the NCFM

certificate then whether the such act of the Noticee No. 1 is in

violations of A(1), A (2), of the Code of conduct for Sub Brokers as

stipulated in Schedule II read with Regulation 15(1)(b)(d) of Stock

Brokers Regulations and NSE Circular No. NSEIL/LEGAL/3534

dated August 02, 2002, NSE Circular no. NSE/MEM/3589 dated

September 05, 2002?

c. Incase the Noticee No. 2 had wrongly uploaded the NCFM

certificate then whether the such act of the Noticee No. 2 is in

violations of the provisions of Regulation 16C(2), Clauses A(1),

A(2), A(5) and C(6) of the Code of conduct for Stock Brokers as

stipulated in schedule II read with erstwhile Regulation 7 of the

Stock Brokers Regulations, after the amendment becomes

Regulation 9(f) and SEBI Circular no. MIRSD/DR-1/Cir-16/09 dated

November 06, 2009, SEBI/Cir/MIRSD/AP/8/2010 dated July 23,

2010, NSE Circular no. NSE/MEM/3445 dated June 19, 2002 and

NSE/MA/22732 circular dated February 13, 2013?

d. Whether the Noticee No.1 being the sub broker of the Noticee No. 2

had transferred the shares of Fineotex Chemical through off-market

to Ms. Priyanka Mittal(his client) and received an amount of

` 2,24,000/- from Ms. Priyanka Mittal in violation of SEBI circular

SEBI/MIRSD/16/2011 dated August 22, 2011?

e. If yes, then, does the violation, on the part of the Noticees attract

monetary penalty under section 15HBto the Noticees of SEBI Act?

f. If yes, then, what would be the monetary penalty that can be

imposed upon the Noticees considering the factors stipulated in

section 15J of SEBI Act?


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20. Taking into consideration and allegations and reply of the Noticees the case is

being decided on merit hereunder.

21. I have persused the available records and replies of the Noticees in respect of

the allegations that Noticee No. 1 was not having NCFM certificate and

Noticee No. 2 had wrongly uploaded and used the certificate of third persons

namely DilipMithalal, HrishikeshChandrakantBhagat and SandhyaMengji while

allotting the trading terminal to Noticee No. 1 as its Authorized Person. It is an

admitted fact of the Noticee No. 1 that he was not having the NCFM certificate

during the period when he was allotted the trading terminal by the Noticee No.

2. He had stated that he was aware of such requirement of NCFM certificate

and also his stock broker (Noticee No. 2) did not insist such NCFM certification

at the time of allotment of trading terminal.

22. In respect of the said allegation, the Noticee No. 2 vide its reply dated April 7,

2015stated that Noticee No. 1 was its sub broker and had been allotted trading

terminal since November 11, 2008 (for F&O segment) at his registered

address as an Approved User / Authorized Person. Here, it is relevant to

mention that Noticee No. 1 has placed on record a letter dated September 4,

2013 issued by Noticee No. 2 confirming his appointment from November 11,

2008 as an Authorized Person in (NSEIL-Future & Option) and his registration

no. was granted as APF039729571.

23. In the reply,Noticee No. 2 contended that the three persons namely

DilipMithalal, HrishikeshChandrakantBhagat and SandhyaMengji were

employees of Noticee No. 1 and were also the delears/ approved personofNoticee No. 1 to operate the trading terminal and hence the NCFM certificate

of said three persons as provided by Noticee No. 1 were used / updated in its

records while allotting the trading terminal to him. In support of such contention

the Noticee No. 2 relied upon NSE circular dated February 13, 2013 read with

SEBI circular dated November 6, 2009 and July 23, 2010 wherein according

toNoticee No. 2 (as per modified clause 4.4 of SEBI circular 2009), it was

required that the approved user and / or sales personnel of authorized person


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shall have the necessary certification of the respective segments at all point of

time.

24. The contention of the Noticee No. 2 that since the Noticee No. 1 has some

approved persons / dealers in his employment and the NCFM certificates of

approved users/ dealers of Noticee No. 1 were updated in records, hence no

separate NCFM certificate from Noticee No. 1 was required. The Noticee No. 2

vide his reply dated April 7, 2015 had stated that SandhyaMengji (one of the

person whose certificate was used for Noticee No. 1 while allotting trading

terminal) was a dealer of Noticee No. 1 and in support produced an

undertaking dated October 17, 2013 (Annexure H of the said reply).

25. I do not agree with the aforesaid contention of the Noticee No. 2 on the

following grounds/examination. Firstly, no evidence has been produced by the

Noticee No. 2 to show that the said persons (Ms. SandhyaMengji) was dealer/

approved user of Noticee No. 1. If it has not been so proved by Noticee No. 2

then the aforesaid plea cannot be taken by it just to overcome its responsibility

as it mandated in its aforesaid circulars.

26. Secondly, the Noticee No. 2 in its reply dated April 7, 2015 at para no. 7(i)

categorically admitted that SandhyaMengji was its employee during the period

November 19, 2011 to April 30, 2013. Further, upon perusalof undertaking of

Noticee No. 1 (Annexure H relied by the Noticee No. 2), it is observed that the

Noticee No. 1 have categorically stated that there was no dealer under his

employment for obtaining F&O trading terminal and his stock broker (Noticee

No. 2) had only provided a copy of NCFM derivative certificate.

27. Thirdly, I cannot ignore the fact that Noticee No. 2 in its reply dated April 7,

2015 and in the course of hearing denied his connection with the

saidperson(s). However surprisingly, after the hearing, it had vide its reply

dated July 10, 2015, July 27, 2015, and email dated August 6, 2015 provided

the appointment and relieving details of DilipMithalalPrajapati and

SandhyaMengji. Here I also note that NSE vide email dated February 25, 2014

confirmed the validity of the NCFM certificates of the said person(s). The


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details of appointment, validity of the NCFM certificates of

DilipMithalalPrajapati and SandhyaMengjiare as under:-

User name Period for which

certificate wasused

Period of employment

with Noticee No. 2 /Angel

Date of NCFM exam Validity of NCFM

Certificate

DilipMithalal 26/05/2009 to

01/02/2010

18/12/2007 to

03/12/2009

July 28, 2008 29/07/2008 to

28/07/2011

SandhyaMengi 20/11/2011 to till

date of inspection

i.e. September 30,

2013

19/11/2011 to

24/11/2011

12/12/2011 to

30/04/2013

June 30, 2011 01/07/2011 to

30/06/2014

This itself makes it clear that the said persons were in the employment of the

Noticee No. 2. Further, the details of person whose NCFM certificate wereused /uploaded by the Noticee No.2 in favour of Noticee No.1 has been shown

categorically year wise underAnnexure3 of the SCN (at page 1 of

supplementary findings of inspection), as shown above, which again shows

that these person were in the employment of Noticee No. 2when their NCFM

certificates were used for allotment of trading terminal to Noticee No. 1.Since

they were in its employment, apparently the Noticee No. 2 would have kept all

the details/ bio data, including the qualification certificate of NCFM in itssystem for updating all their details.

28. Further, the Noticee No. 2 also contended that SandhyaMengji was in

employment of Noticee No. 1 during the period from July 2011 to November

18, 2011 before she joined it. I note that the SandhyaMengji, NCFM certificate

was valid from July 1, 2011 till June 30, 2014 as confirmed by NSE vide email

dated February 25, 2014. The said contention of the Noticee No. 2 cannot be

accepted in absence of any proof that she was in employment of Noticee No. 1

and also there was no record to prove that she was under employment of

Noticee No. 1. Further here I want to highlight the fact that the NCFM

certificate was used for allotment of trading terminal to Noticee No. 1 is from

November 20, 2011 i.e. only afterSandhyaMengjijoined Noticee No. 2, while

she was having valid NCFM certificate from July 1, 2011.Therefore, in view of

the aforesaid observations, it is clear that SandhyaMengji was employee of


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Noticee No. 2 and not of Noticee No. 1 and hence, the plea of the Noticee No.

2 that certificates of approved users/ dealers of Noticee No. 1 were updated in

records is not acceptable. It is established that it had uploaded wrong / third

persons certificate in its records while granting F&O terminal to Noticee No.1

despite knowing that he do not have the required NCFM certificates.

29. It is also important to mention that requirement of such certification has been

mandated under SEBI (Certification of AssociatedPersons in the Securities

Markets)Regulations, 2007read with subsequent notifications/ Circulars of the

Stock Exchange (s) and failure to abide the requirements under the said

regulations / notifications / circulars, etc. is apparently a violation of code of

conduct as enshrined in regulation 7 and 15 of the Stock BrokersRegulations.

30. The plea of the Noticee No. 2 regarding absolute rupees in regard to para 5 of

the SCN is not material to be dealt with in respect of allegation of not having

NCFM certification.

31. In view of the above it is well established that the Noticee No. 1 was allotted a

trading terminal in F&O segment without having any NCFM certificate and the

NCFM certificates of a third persons were used by the Noticee No. 2 in favour

of Noticee No. 1 while allotting him the trading terminal as authorized person.

32. Hence, I am of the view that the Noticee No.1 had violated Clauses A(1), A (2),

of the Code of conduct for Sub Brokers as stipulated in Schedule II read with

Regulation 15(1)(b)(d) of Stock Brokers Regulations, NSE Circular No.

NSEIL/LEGAL/3534 dated August 02, 2002 and NSE Circular no.

NSE/MEM/3589 dated September 05, 2002, and the Noticee No. 2 hadviolated Regulation 16C(2), Clauses A(1), A(2), A(5) of the Code of conduct

for Stock Brokers as stipulated in schedule II read with erstwhile Regulation 7

of the Stock Brokers Regulations, after the amendment becomes Regulation

9(f) and SEBI Circular no. MIRSD/DR-1/Cir-16/09 dated November 06, 2009,

SEBI/Cir/MIRSD/AP/8/2010 dated July 23, 2010 read with NSE Circular No.

NSEIL/LEGAL/3534 dated August 02, 2002, NSE Circular no. NSE/MEM/3589


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dated September 05, 2002, NSE Circular no. NSE/MEM/3445 dated June 19,

2002 and NSE/MA/22732 circular dated February 13, 2013.

33. In respect to the another issue as to whether the Noticee No.1 being the sub

broker of the Noticee No. 2 had transferred the shares of Fineotex Chemical

Limited through off-market to Ms. Priyanka Mittal(his client) and received an

amount of ` 2,24,000/- from Ms. Priyanka Mittal in violation of SEBI circular

SEBI/MIRSD/16/2011 dated August 22, 2011, Following observation are

made.

34. It is observed that SEBI circular SEBI/MIRSD/16/2011 dated August 22, 2011

mandates that the delivery / transfer of securities is to be given/made by the

concerned stock broker / trading member only and the payment shall be made

by clients only through the account payee cheque in favour of the trading

member.

35. It was alleged in the SCN that the Noticee No.1 being a sub broker of the

Noticee No. 2, had transferred the shares of Fineotex Chemical Limited

through off-market to Ms. Priyanka Mittal(his client as shown in SCN) and

received an amount of ` 2,24,000/- in his ICICI Bank account no.

003801502538 from Ms. Priyanka Mittal in violation of aforesaid Circular which

requires the pay in / pay out of funds and securities should be routed through

the stock broker only. The details of said off market transactions and the

amount received by the Noticee No. 1 has been shown in table at para 7-8 of

the SCN.

36. In respect of the allegation, the Noticee No. 1 vide his reply dated February 26,

2015 had submitted that Ms. Priyanka Mittal had given him friendly loan

against which he had transferred some shares into her account. He had also

submitted the details of its bank statement showing the repayment of the loan

and also submitted copy of demat statement showing the credit of said 3000

shares in his account from said client (Ms. Priyanka Mittal).


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37. I have carefully examined the available records in respect to the said

allegation. I am of the view that as per requirement under aforesaid circular, it

is necessary that the sub broker is required to deal with the clients only

through the terminal of its stock broker and the amount/securities needs to be

credited into account of stock broker for further paying/ payout by the stock

broker. Upon perusal of available records, it has not been shown that whether

these shares have been received by Noticee No. 1 from any other clients and

later on he had transferred to Ms. Mittal. The important link for determination of

the issue is that as to from whom the Noticee No. 1 has taken these 3000

shares which in turn, he is alleged to have transferred to Ms. Mittal. To

substantiate the allegation, it is necessary to show the link of some client from

whom the Noticee No. 1 had received these 3000 shares and then he

transferred the same to the Ms. Mittal in off market. If the said detail is not

available on records, then, it is difficult to hold that the Noticee No.1 had done

this transaction as sub broker on behalf of its stock broker (angel). In the

absence of such details and as submitted by the Noticee No.1, it appears that

the said off market transaction was a personal transaction of the Noticee No. 1

with Ms. Mittal and was not done in capacity of sub broker for Noticee No. 2.

38. It is also observed from the records that there was only one instance of such

allegation against Noticee No.1.Therefore, considering the case holistically

and in the given facts and circumstances of the case, the benefit of doubts is

being given to the Noticee No.1 in respect of said allegation.

39. In view of the aforesaid observations made at pre paras of this order, I am of

the view that the violation committed by the Noticees are serious in natureespecially taking into account the fact that the Noticees have again and again

changed their stand while replying to SEBIand during the instant adjudication

proceedings.

40. I note that the Hon‟ble Supreme Court of India in the matter of SEBI Vs. Shri

Ram Mutual Fund [2006] 68 SCL 216(SC) has also held that “In our

considered opinion, penalty is attracted as soon as the contravention of the


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statutory obligation as contemplated by the Act and the Regulations is

established and hence the intention of the parties committing such violation

becomes wholly irrelevant…”.

41. In view of the aforesaid observation and established violations against the

Noticees, it is a fit case for imposing monetary penalty upon the Noticeesunder

section 15HBof SEBI Act.The provision of section 15HB is reproduced below:-

SEBI Act:

Penalty for contravent ion w here no separate penalty has been pro vided.

15HB . Whoever fails to comply with any provision of this Act, the rules or

the regulations made or directions issued by the Board thereunder for whichno separate penalty has been provided, shall be liable to a penalty which may

extend to one crore rupees.

42. While determining the quantum of penalty under section15HB, it is important to

consider the factors stipulated in section 15J of SEBI Act,which reads as

under:-

“15J - Factors to be taken into acco unt by the adjud icat ing off icer

While adjudging quantum of penalty under section 15-I, theadjudicating officer

shall have due regard to the following factors,namely:-

(a) the amount of disproportionate gain or unfair advantage,wherever

quantifiable, made as a result of the default;

(b) the amount of loss caused to an investor or group ofinvestors as a result

of the default; (c) the repetitive nature of the default.”

43. From the material available on record, it is not possible to ascertain the exact

monetary loss to the investors on account of non-compliance by the

Noticees.On perusal of the past action database it is observed that no action

has been taken against Noticee No. 1, however from the action taken report it

is observed that several actions have been taken by SEBI against the Noticee

No. 2 in the past for breach of various provisions of securities law.


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44. I find that the risks linked to dealing in the stock market has risen manifold

owing to complex and hybrid products being traded on the stock exchanges.

Hence with a view to enhance the confidence of the investors in the securities

market, SEBI has made it mandatory that a person dealing with securities

products has a minimum standard of knowledge about the market and

regulations, so as to assist the investors in their dealings.Thus, the statutory

requirement under the SEBI (Certification of Associated Persons in the

Securities Markets) Regulations, 2007 that an approved user and sales

personnel of the trading member should have passed a certification

program approved by SEBI, needs to be viewed from this perspective.

45. An effective regulatory system requires that every player in the securities

market complies with the laid down rules, regulations, circulars, directives etc.

issued by the regulator from time to time. The Noticee No. 2 a registered Stock

Broker with SEBI is responsible for ensuring such compliance. Violation of

circulars issued by SEBI to the intermediaries, poses significant risk to the

orderly functioning of the securities market. I note from the above that Noticee

No.2 was well aware of the fact that NCFM certification of third person was

used in allotting trading terminal to Noticee No. 1 who did not possess the

requisite NCFM certification to operate the terminal in the F&O segment.

Further, that the Noticee No. 2 from May 26, 2009 till date of inspection i.e.

September 30, 2013 used the certificates of third person(s) (i.e. his own

employees) in favour of Noticee No. 1 while allotting him the trading terminal

as authorized person.

46. In the extant case, I find that theNoticee No.1 (sub broker/authorised person )

who does not have the requisite NCFM qualification, but, by still agreeing to

become the terminal operator for carrying out the trades of the Noticee No.2

despite aware of such requirement. I find that Noticee No. 1, has committed a

serious offence. But, I cannot ignore the serious foul play of the stock broker

(who is the main intermediary for carrying out the transactions on behalf of the

clients and is responsible for the acts of the sub-broker) and who is primarily


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liable to ensure the requisite NCFM qualifications of the person who is being

given trading terminal as Authorised Person. Undoubtedly, it is the duty of the

stock broker not to allow such practice of wrongly using / wrongly uploading

certificates of third person(s) in favour of the authorised person and allow the

authorised person to operate the trading terminal without having the required

NCFM Certification. Thus, I find that the Noticee No.1 have willfully defaulted

in compliance with NSE Circular No. NSEIL/LEGAL/3534 dated August 02,

2002, NSE Circular no. NSE/MEM/3589 dated September 05, 2002 and

Noticee No.2 have willfully defaulted in compliance with SEBI Circular no.

MIRSD/DR-1/Cir-16/09 dated November 06, 2009,

SEBI/Cir/MIRSD/AP/8/2010 dated July 23, 2010 read with, NSE Circular no.

NSE/MEM/3445 dated June 19, 2002 and NSE/MA/22732 circular dated

February 13, 2013 and thereby failed to act with due skill, care and diligence in

the conduct of its business.

47. Therefore, I am of the view that beside the fault of Noticee No. 1, there was

more serious deliberate lapse/irregularity on the part of stock broker/ Noticee

No. 2 as observed above. Hence, Noticee No. 2 deserves imposition of higher

monetary penalty as compared to Noticee No.1.

ORDER

48. After taking into consideration all the facts and circumstances of the case, I

hereby impose a penalty of ` 5,00,000/-(Rupees Five Lakh only) on

theNoticee No. 1 / Pradeep A Ramnani, under section 15HB of the SEBI Act

andof `20,00,000/-(Rupees Twenty Lakh only) on theNoticee No. 2 / Angel

Broking Pvt. Ltd, under section 15HB of the SEBI Act. I am of the view that the

said penalty would be commensurate with the violations committed by the

Noticees.

49.The penalty shall be paid by way of Demand Draft drawn in favour of “SEBI –

Penalties Remittable to Government of India” payable at Mumbai within 45

days of receipt of this order. The said demand draft should be forwarded to

Chief General Manager, Market Intermediaries Regulation and Supervision


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Department (MIRSD - 5) at the address:- Mittal Court, B & C Wing, 1st Floor,

224 Nariman Point, Mumbai – 400 021.

50. In terms of Rule 6 of the Securities and Exchange Board of India (Procedure

for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules

1995, copies of this order are being sent to the Noticee No. 1 / Pradeep A

Ramnaniand Noticee No. 2 / Angel Broking Pvt. Ltd.and also to the Securities

and Exchange Board of India, Mumbai.

DATE: March 22, 2016

PLACE: MUMBAI

RACHNA ANAND

ADJUDICATING OFFICER

Adjudication Order in respect of:- (1) Pradeep A Ramnani and (2) Angel Broking Pvt. Ltd.

Documents

Transcript of Adjudication Order in respect of:- (1) Pradeep A Ramnani and (2) Angel Broking Pvt. Ltd.