MITESH MANUBHAI SHETH Vs. SECRETARY GOVERNMENT OF INDIA

JUDGEMENT

(1.) . The petitioner is a Member of Ahmedabad Stock Exchange and is carrying on his business as Stock Broker in Ahmedabad and is registered with the Securities and Exchange Board of India (hereinafter referred to as "SEBI") authorising the petitioner to carry on business in the name of M/s. Mitesh Manubhai Sheth. The petitioner was served with a notice of inspection by SEBI on February 7, 1994. The inspection was undertaken from 14-2-1994 to 16-2-1994. The substance of the deficiencies observed during the inspection were communicated to the petitioner under memo dated May 30, 1994. The petitioner responded the same by letter dated September 14, 1994. On September 29, 1994, SEBI issued a notice to the petitioner under the Regulation 28(2) for enquiry to be undertaken by one Shri R. V. Nabar, Enquiry Officer. The letter was also accompanied by a memorandum containing the adverse finding of the inspection team. The petitioner was called upon to reply within 30 days of the receipt of the notice and to produce documentary evidence in support of his reply. The petitioner was also informed that if he so desires, he could appear in person or through any other person duly authorised by him before the Enquiry Officer. The petitioner vide letter dated November 30, 1994 replied the notice and refuted the charges levelled against him. He relied on his earlier reply dated September 14, 1994, in response to the finding of inspection, as the charges in the notice under Regulation 28(2) were based on the finding of the inspection. The Enquiry Officer also granted the petitioner an opportunity of personal hearing. The petitioner took the service of one Shri Shreyas Parikh, Chartered Accountant to appear before the Enquiry Officer. The Enquiry Officer submitted the report to SEBI under memo dated January 20, 1995. The recommendation was made for the suspension of the petitioner from its stock broking business for a period of twelve months. This report of the Enquiry Officer was communicated by SEBI to the petitioner on February 8, 1995 alongwith the show-cause notice issued under sub-regulation (1) of Regulation 29. The petitioner was called upon to show cause within 21 days as to why his registration should not be suspended for a period of 12 months. The petitioner submitted a detailed reply and also sought personal hearing which was granted. Mr. C. B. Bhave, Senior Executive Director, SEBI, agreed with the finding of the Enquiry Officer and by order dated April 24, 1995, suspended the registration of the petitioner for a period of six months w.e.f. May 15, 1995.

(2.) . Being aggrieved by the said order, the petitioner preferred an appeal to the Central Government. The appeal was heard by the Special Secretary (Insurance), Department of Economics Affairs, Ministry of Finance, Government of India.

(3.) . The appellate authority noticed that the proceedings under Regulations 28 and 29 commenced with an enumeration of 15 contraventions of law, Rules and Regulations being imputed against the petitioner. However, SEBI held only eight of these charges against the petitioner. The substance of the eight charges is given as follows :- (a) The member (Shri Mitesh M. Sheth) violated Regulation 17 of the SEBI (Brokers and Sub-Brokers) Regulations, 1992 and Rule 15(1) of Securities Contract (Regulations) Rules, 1957 by not maintaining the Stock ledger. (b) The member did not issue contract notes to his clients which has resulted in the violation of Code of Conduct B(2) prescribed for Stock Brokers under Schedule II to Regulation 7 of SEBI (Brokers and Sub-Brokers) Regulations. The member is also liable for penalty under Bye-law 355(b) of the Ahmedabad Stock Exchange Bye-laws. (c) The member has violated Regulation 17(1)(i) of SEBI (Brokers and Sub- Brokers) Regulations, 1992, Sec. 15 of S.C. (Regulation) Act, 1956, Rule 15(2)(c) of S.C. (Regulation) Rules, 1957 and Bye-laws 199 and 221(b) of A.S.E. Bye-laws by not obtaining written consent from his client for the transactions done by him on a principal to principal basis. (d) SEBI had suspended the member from 22-7-1993 to 5-8-1993 for non-payment of fees. The member purchased as well as sold 28,000 shares of Reliance Industries on 3-8-1993 while the member was still under suspension. This has resulted in the violation of Regulation 30(1) of SEBI (Stock Brokers and Sub- Brokers) Regulations, 1992. The member is also liable for penalty under Regulation 26(1) of the said regulations. (e) The member has dealt with a sub-broker Shri Nitin Modi who is neither registered with SEBI nor has applied for registration. He has, therefore, violated Rule 3 of SEBI (Stock Brokers and Sub-Brokers) Rules, 1992. (f) In continuation to his violation at (1) above the member also allowed Shri Nitin Modi to enjoy unrestricted privileges of the membership of the Ahmedabad Stock Exchange. This has resulted in violation of Rule 6 of A.S.E. Rules. (g) The member is guilty of unbusiness-like conduct by purchasing shares on behalf of this client M/s. Modi Consultants at rates which were different from the prevailing market rates. The member purchased 100 shares of Vesnvious @ Rs. 61/- on 11-1-1994 and sold the same on the next day @ Rs. 86.00 on behalf of M/s. Modi Consultants against the prevailing market rate of Rs. 61-61.50. Further, on 12-1-1994, he purchased 4,600 shares of Himachal Telecommunications @ Rs. 83.00 against the market rate of Rs. 110.00 on behalf of the same firm. This has resulted in the violation of Bye-law 357 (ii) of A.S.E. Bye-laws. The member is also liable for penalty under Bye-law 355(b) of A.S.E. Bye-laws. (h) The member has violated Regulation 21(4) of SEBI of (Stock Brokers and Sub- Brokers) Regulations, 1992 by adopting an indifferent attitude with the inspection team and not co-operating with them properly.