Securities Appellate Tribunal
Sebi vs Joglekar Investment Private Limited, ... on 22 January, 2008
ORDER
V.K. Chopra, Member
1. Securities and Exchange Board of India (hereinafter referred to as SEBI) received a letter dated June 15th 2007 from one Mrs. Pratibha B. Lagu, in form of a complaint against M/s. Joglekar Investments Pvt. Ltd. (hereinafter referred to as JIPL) and Mr. Madhav P. Joglekar. In her complaint Mrs. Pratibha B. Lagu mentioned that she had entered into a Memorandum of Understanding (MoU) with JIPL and Mr. Joglekar on April 01, 2002. As per the MoU she would give shares to Mr. Joglekar and he would carry out trading activities using these shares through JIPL. The profit earned from trading of these shares would be shared between Ms. Lagu and Mr. Joglekar in the ratio of 3:1 subject to the condition that no loss would be borne by Ms. Lagu. In case the transactions resulted in loss, the entire loss would be borne by Mr. Joglekar. She further alleged that Mr. Joglekar had stopped paying her share in the profit after February 2006 and that despite repeated requests, JIPL and Mr. Joglekar, neither transferred the shares nor the profit earned therefrom to Ms. Lagu.
2. In view of the above complaint, SEBI conducted inspection of books of accounts of JIPL in the month of September 2007.
3. By an ad interim order dated October 17, 2007 (hereinafter referred to as the interim order) the following directions were passed for the reasons stated therein.
a. JIPL was directed to cease and desist from indulging in any such activity directly or indirectly which amounts to violations of Section 12 (1) of SEBI Act, 1992, Regulation 17(1), 21 (1), 21 (4) of SEBI (Stock Broker and Sub-Broker) Regulations 1992 and SEBI Circular SMD/SED/CIR/93/23321 dated November 18, 1993.
b. Mr. Madhav P. Joglekar and M/s. Prathmesh Securities Private Limited (hereinafter referred to as PSPL) were directed not to buy, sell or deal in securities in their proprietary account till the final orders in the matter.
4. Mr. Joglekar, JIPL and PSPL (hereinafter referred to as the entities) were however allowed to file their objections to the interim order within 15 days from the date of the interim order, treating that order as a show cause notice. All three entities filed their objection to the said interim order through a consolidated letter dated October 30th, 2007.
5. JIPL submitted that they had not committed any breach of its obligations alleged in the interim order. It further submitted the following:
a. That JIPL was taken up for audit by the Bombay Stock Exchange on October 29, 2007 and that the authorities(BSE) were satisfied about the state of affairs of JIPL and did not show any concern on the maintenance of books of account. Even though on some occasions there had been delays in settlement of accounts with BSE, JIPL and its personnel had not defaulted or put the public/investors in any sort of jeopardy. The said delays were beyond the control of JIPL and these stray delays cannot be said to incuse JIPL as a violator of norms warranting the interim order as passed against it.
b. That in the initial period, while registration process was in pipeline, to imbibe confidence in the customers in a couple of cases, it stated in the agreements that it was a registered broker and there was no intention of cheating the customer nor misrepresenting. JIPL had taken process through a broker for submission of our documents for registration earlier and was delayed for unknown reasons.
c. That the complaint by Ms. Lagu had been settled by returning the shares by Mr. Madhav and no dues are outstanding payable to her. The complaint from one Mrs. Shubhada Joglekar for herself and two others in her family is not related to JIPL in any manner and that Mr. Madhav would have settled the matter but for the interim order passed directing him to desist from buying or delivering the shares or to settle in moneys worth.
d. That Mr. Madhav confirms that no other customer of his has any grievance since they have been paid their dues at all points of time. And as the interim order stated that JIPL and Mr. Joglekar have been managing securities of their clients on profit sharing, JIPL clarified that the activities of Mr. Madhav are not admitted to be the activities of JIPL and may be considered separate. JIPL denied that it had any such transaction and had not refused at any time to provide the required details.
e. That it was incorrect to observe that JIPL refused to provide the documents relating to the transactions with Ms. Lagu and Mrs. Shubhada and that they are ready to provide such documents as and when required.
f. That there have been no grievances from any quarters in the context of issuance of contract notes. The allegation made in the interim order that the name of one Mr. Sunil Joshi was printed on one of the contract notes and when inquired, JIPL denied that any person with that name worked there. This statement is untrue and Mr. Sunil Joshi used to be an employee of JIPL but because of a mistake committed by him, he had to make large payments. To avoid this he had left JIPL on February 07, 2007 and has been missing since. JIPL has also lodged a complaint against him in the Swargate police station.
g. That the cash transactions in the accounts of JIPL, as per the interim order, are denied. Mr. Madhav has, whenever required withdrawn from his own bank accounts and deposited in other banking accounts. They are not cash received or paid to the customers and clients.
6. PSPL vide the same letter submitted that there were no grievances of any customer or client against it and it had not indulged in any activity harming the interest of its investors, customers or clients and that it will not involve in buying, selling or dealing in securities. It further submitted that it will in due course of time, settle the accounts of its customers and clients and that for the limited purpose of such settlement, SEBI should withdraw the injunctive interim order and permit it to settle the accounts of the investors and whenever required to buy the shares required to so settle their accounts.
7. Mr. Madhav Joglekar submitted that there are no grievances of any customer or client against him except the two complaints, out of which he has already settled one, namely that of Ms. Pratibha Lagu and as a result of the interim order he is incapable of settling the other. He further submitted that he has not indulged in any activity harming the interest of its investors, customers and clients in his proprietary account and that he will not involve in buying, selling or dealing in securities. He also submits that he will in due course of time, settle the accounts of his customers and clients, without giving room for any grievance and for the limited purpose of such settlement, and SEBI should withdraw the injunctive interim order and permit him to settle the accounts of the investors with him and whenever required, to buy the shares required to so settle their accounts.
8. JIPL has submitted by way of the letter that the Bombay Stock Exchange has put an embargo on it to trade on behalf of Retail Clients and as it doesnt have any other clients other than retail clients, it is losing its livelihood.
9. Subsequently, hearing was granted to the entities on November 16, 2007, which was attended by Mr. Madhav Joglekar of behalf JIPL, PSPL and himself. Afterwards the entities filed affidavits, as advised, along with confirmation from Dr. J.B Joglekar and Mrs. Shubhada Joglekar of receipt of the cheques of the equivalent market value of shares held by them and the dividends thereon and therefore settling her dues.
10. The main charges or grounds on which the interim order was passed, directing JIPL to cease and desist from indulging in any such activity directly or indirectly which amounts to violations of Section 12 (1) of SEBI Act, 1992, Regulation 17(1), 21 (1), 21 (4) of SEBI (Stock Broker and Sub-Broker) Regulations 1992 and SEBI Circular SMD/SED/CIR/93/23321 dated November 18, 1993. and directing Mr. Madhav P. Joglekar and M/s. Prathmesh Securities Private Limited not to buy, sell or deal in securities in their proprietary account till the final orders in the matter, were as follows:
a. JIPL, Mr. Joglekar and PSPL had entered into an MoU with their clients and acted as portfolio managers without being registered with SEBI and therefore were in violation of Regulation 3 of SEBI (Portfolio Managers) Regulations, 1993.
b. JIPL misrepresented to the clients as a stock broker even before getting itself registered with SEBI and thereby violated Section 12 of SEBI Act, 1992.
c. That JIPL had failed to maintain proper books of accounts and had failed to issue contract notes to its clients and thereby violated various SEBI Regulations and Circulars.
11. It has since been stated by JIPL that they are a company focused on broking activity and that it is not in the activity of portfolio management for any of its clients nor has it borrowed shares for the market transactions. JIPL has further submitted an affidavit stating that the company is not carrying activity of portfolio management for any third party. The company confirms that it will not carry on any such activity except conforming to the tenets, rules, regulations, instructions and orders contained in the interim order passed by the Honble Whole Time Member of SEBI in No. WTM/VKC/MIRSD/DPS-I/103/07 dated 17th October, 2007. I find that the interim order has been in effect for almost three months now and since JIPL has submitted an affidavit stating that it has not and shall not indulge in any such activities
12. It has since been submitted by JIPL that there was no malafide intention of cheating the clients and that such an act (saying that it was a registered broker) was done only to imbibe confidence in the clients, in only a couple of cases, while the registration process was in the pipeline. They submit that they had taken the process through a broker for submission of their documents for registration and the same was unduly delayed. JIPL further stated that this mistake was technical, unintended and not a malafide act or misrepresentation to cheat anyone. It has also submitted an affidavit to this effect, adding further that the technical defaults, if any, were purely unintended and its activities have not harmed any person or persons and the unintended inadvertence in occurrence of any default, shall be exonerated. As regards JIPL, the interim order had only directed it to cease and desist from indulging in any activity, directly or indirectly, which amounts to violations of Section 12(1) of the SEBI Act, Regulations 17(1), 21(1) and (4) of the SEBI (Stock Broker and Sub- Broker) Regulations, 1992 and SEBI Circular SMD/SED/CIR/93/23321 dated November 18, 1993. JIPL, as stated earlier, has since submitted by way of an affidavit that it shall not carry on with such activities in future.
13. JIPL has submitted that their company was taken up by the Bombay Stock Exchange for audit on 29th October, 2007 and the authorities conducting the audit were satisfied about the state of affairs of the company and did not show any concern on the maintenance of the Books of Accounts. I find that the inspection conducted by SEBI was before this audit by the BSE and therefore, as was stated by the entities as well, the discrepancies must have been rectified subsequently.
14. Further PSPL has undertaken, by way of an affidavit, that it will cease to and it shall not involve in any activity of transacting in shares for third parties. It has further stated that it had no intention to misappropriate the faith reposed by the parties and at all times have dealt with them very honestly in paying them their revenues as agreed with them and that there are no complaints of any party against them for non performance at all.
15. JIPL has further submitted that the embargo put against it by BSE to trade on behalf of its retails clients has virtually left JIPL unable to trade in the market as it doesnt have any institutional clients and Mr. Joglekar is also banned from trading in his personal account.
16. Having considered the facts and circumstances leading to the inspection, the inspection report, the interim order, the objections filed by the entities and the oral as well as the written submissions made by or on behalf of the entities, I find that though the entities had violated the provisions of the regulations mentioned in the interim order, these violations have since been rectified by them. The complaints have been redressed and affidavits stating that the entities will comply with all the provisions of SEBI Act and rules and regulations made thereunder, have been filed.
17. The interim order against the entities was passed as the allegations against them demanded immediate action and were, prima facie, of a nature that had the potential of jeopardizing the credibility, safety and integrity of the market. However subsequently, the reasons stated under para 11 to 16 make it clear that the sanctions imposed on the entities are no longer required and in view of the same, these sanctions imposed by the interim order should be lifted.
18. Therefore, taking in consideration all the above stated factors, I, in exercise of the powers conferred upon me in terms of Section 19 of the SEBI Act, 1992 read with Section 11 and 11B of the Securities and Exchange Board of India Act, 1992, hereby withdraw the interim order dated October 17, 2007 passed against Mr. Madhav P. Joglekar (PAN No. ABAPJ9208Q), M/s. Joglekar Investment Private Limited (PAN No. AAACJ4215D) and M/s. Prathamesh Securities Private Limited (PAN No. AACCP4072E).
19. This order shall come into force with immediate effect.