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BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA [ADJUDICATION ORDER NO.

BM/AO- 3/2012] __________________________________________________ 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 PENALTIES BY ADJUDICATING OFFICER) RULES, 1995 In respect of M/s Networth Stock Broking Ltd. (PAN: AAACN1184F) In the matter of RTS Power Corporation Ltd. FACTS OF THE CASE IN BRIEF 1. Securities and Exchange Board of India (hereinafter referred to as SEBI) conducted investigation in trading in the scrip of RTS Power Corporation Ltd. (hereinafter referred to as RTS) at the Bombay Stock Exchange (hereinafter referred to as BSE) for the period September 1, 2008 to February 11, 2009 (hereinafter referred to as investigation period). 2. SEBI received complaints that a set of clients viz: Mr Mukesh G Konde, Mr. Ashok Narayan Waje and Mr. Nitesh Ashok Jadhav bought shares on February 11, 2009 and failed to fulfill their respective pay-in-obligations. SEBI vide interim order dated June 5, 2009 restrained Mr. Mukesh G Konde, Mr. Ashok Narayan Waje, Mr. Nitesh Ashok Jadhav, Ms. Hetal

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Patel, Mr. Rajesh Patel, Mr. Chetan Shah, Om Associates and Bhawani Trading Company from accessing the securities market and further prohibited from buying, selling or dealing in securities market.

Subsequently, the directions issued vide order dated June 05, 2009 were confirmed vide confirmatory orders dated October 26, 2009 against Ms. Hetal Patel, Mr. Rajesh Patel, Mr. Chetan Shah, vide confirmatory order dated November 18, 2009 against Mr. Mukesh G Konde, Mr. Waje, Mr. Nitesh Ashok Jadhav and vide confirmatory order dated November 27, 2009 against Om Associates and Bhawani Trading Company. An investigation was thereafter initiated by SEBI in respect of buying, selling and dealing in the shares of RTS. 3. From the examination of data it was found that the price of the scrip of RTS at the exchange was `146/- on September 1, 2008, touched a high of `307.75 on February 6, 2009 and closed at `292.75 on February 11, 2009.

4.

During September 01, 2008 to February 10, 2009 (over a period of 107 trading days), the total volume in RTS was 71,19,555 shares and the average daily volume was 66,537 shares. On February 11, 2009 the scrip opened at `295, touched a high of `305.50, low of `285.50 and closed at `292.75. On February 11, 2009, the traded volume in the shares of RTS was 15,58,641. Hence, the total traded volume during the investigation period was 86,78,196.

5.

On analyzing the KYCs obtained from various trading members, it was observed that M/s Networth Stock Broking Ltd. (hereinafter referred to as Noticee) trading on behalf of Mukesh G. Konde allowed huge positions within one month of registration with the Noticee even though the annual income was as below as `. 1 lakh. This client was observed to have failed to meet his pay-in-obligation on February 11, 2009. It was alleged that the

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exposure given to the newly registered client considering his financial strength indicated a failure of risk management at the Noticees end. It was therefore alleged that the Noticee failed to exercise due care and abide by Code of Conduct under regulation 7 of SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter referred to as Brokers Regulations). Consequently the Noticee is liable for monetary penalty under section 15HB of the SEBI Act.

APPOINTMENT OF ADJUDICATING OFFICER

6.

The undersigned was appointed as Adjudicating Officer vide order dated July 23, 2010 under section 15 I of SEBI Act read with rule 3 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as Rules) to inquire into and adjudge the alleged violations of Brokers Regulations committed by the Noticee.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

7.

Show Cause Notice (EAD-6/BM/JR/29469/2010) dated December 9, 2010 was issued to the Noticee under rule 4(1) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 to show cause as to why an inquiry should not be initiated against it and penalty be not imposed under section 15HB of SEBI Act for its failure to comply with the provisions of Brokers Regulations.

8.

Vide letter dated January 25, 2011, the Noticee replied to the SCN stating, inter alia, the following:

At the outset, we submit that the entire transaction in respect of RTS Power Corporation Ltd (RTS) and Mukesh Konde, Nitesh Jadhav and others is the subject matter of a suit No. 502/2009 which has been filed in

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the Honble Bombay High Court. It is prayed for that Bombay Stock Exchange (BSE) be ordered to carry inquiry in the entire trade of RTS Scrip and till the inquiry is completed no payment should be made to its members by BSE and Mukesh Konde and others be ordered to pay the plaintiffs the amount mentioned in the particulars of claim with 24% interest as prayed. The entire suit proceeds on the basis of how Mukesh Konde and others gained confidence of ours and how they played fraud. Therefore the issue before the Honble Bombay High court is whether plaintiffs i.e us and other brokers namely Networth Stock Broking Ltd, Geojit BNP Paribas Financial Services Ltd, Destimoney Securities Pvt Ltd being the plaintiffs in the said suit have been taken for a ride by Mukesh Konde and others. Whether the plaintiffs in the said suit who are entitled to annulling the suit transaction and whether the plaintiffs are entitled to money decree as claimed by the plaintiffs in the said suit. In view of the suit pending before the Honble Bombay High Court, Honble Bombay High Court is seized of the matter. The issue raised in the show cause notice whether we have violated the stock brokers code of conduct is directly or indirectly covered in the said suit. To come to the conclusion whether the plaintiffs in the said suit are entitled to the decree as prayed, the Honble High Court of Bombay will have to consider how Mukesh Konde and others were made clients of the plaintiffs in the said suit and whether Mukesh Konde and others had by their conduct gained confidence of ours and the said other brokers. The inquiry which SEBI intends to conduct under SEBI (Procedure of holding inquiry and imposing penalties by adjudicating officer) rules 1995 read with 15 I of SEBI Act, 1992 would in our submissions be amount to prejudging the matter when the Honble Bombay High Court in the said suit is judging the same issue. It is only in the event of the said suit being dismissed and the Honble Bombay High Court coming to the conclusion that no fraud was played and the plaintiffs of the said suit were responsible for their acts in that event only the inquiry could commence. On the other hand if the Honble Bombay High Court decrees the suit, then the plaintiffs in the said suit i.e we and other two brokers would have proved the fraud and how Mukesh Konde and others had gained confidence of the brokers. Fraud vitiates everything. After the finding to that effect if given by Honble Bombay High Court, the question of inquiry under the rules mentioned above for violation of code of conduct would not arise. In our submissions if the inquiry is commenced it would amount to SEBI pre judging the issue before the Honble Bombay High Court, and in our submission might be premature. Without prejudice to the aforesaid contentions, to assist SEBI in investigating the fraud. We herein below give our Risk Management Procedure applied in the case of Mukesh Konde and others. This is strictly

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without prejudice to our contention that inquiry pursuant to this show cause notice is premature. As per policy based on SEBI circular dated 23.02.2005 vide no. MRD/DOP/SE/CIR-07/2005 has given discretion to the stock brokers on exposures to their clients in the cash segment. The entire exposure given to Mukesh Konde was in cash segment only. Accordingly, we had set the system of giving automatic intra day exposure to clients intra day exposure of 8 to 10 times against their margins available and 2 times for delivery. The online system works accordingly and sets the exposure to that extent automatically. Mr. Mukesh Konde being a online client was thus got approx 8 to 10 times intra day exposure of the available credit by the system. On 11.02.2009 Mr. Mukesh Konde was having a combined ledger credit of Rs. 3,28,832/-. on 11.02.2009 at around 10.30am Mr. Mukesh Konde had sold 9424 shares of RTS to the tune of Rs. 28,47,438/which were lying in his demat account with us and accordingly his exposure got increased through online system to approx. Rs. 2.70 crore. Mukesh Konde was able to put intra day order of RTS before the closure of intra day time limit i.e. 3.10pm to the extent of Rs. 2.70 Cr. After 3.10pm all limits are freezed and all intra day trades or positions are squared off for clients who have not squared off their intra day trades / positions from their end before 3.10pm. In case of Mukesh Konde, while trying to square off the trades in cash segment for scrip RTS Power was unable to do so as the scrip triggered lower circuit filter for that day. 9. In the interest of natural justice and in order to conduct an inquiry as per rule 4 (3) of the Rules, the Noticee was granted an opportunity of personal hearing on January 28, 2011 at SEBI, Head Office, Mumbai vide notice dated January 3, 2011. Vide letter dated January 21, 2011, the Noticee made further submissions stating, inter alia, the following:

Clause A(1) This clause talks about maintaining high standards of integrity, promptitude and fairness in the conduct of all brokers business. We fail to understand on what basis an allegation is made that we have violated this clause. The show cause notice does not give any particulars about any violation of clause A(1). Save and except one line that due to failure of pay in obligations entire stock exchange mechanism was put at risk. This allegation also strictly speaking is not against the broker but against the constituents. Any event the issue whether the transaction in RTS Power Corporation Ltd (Said Script) is squarrely any issue with the Honble High Court as stated in our earlier reply dated 27.12.2010.

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Clause A(2) The next allegation is violation of clause A(2), for that purpose in reply to the show cause notice we have stated how and in what circumstances the constituents were introduced, how KYC form was executed and in what circumstances the exposures were given. The information given by us in the said letter dated 27.12.2010 will show that we have taken all due care and diligence in taking the KYC form and not violated the regulations in that behalf. The exposures were given in line with the guidelines / circulars given by SEBI as stated in the said letter. The Pay in obligation qua these constituents in the said script was on 13th of February 2009. When we demanded payment from the constituents on 11.02.2009, 12.02.2009 they avoided making the payment on flimsy grounds. After the closing hours of the exchange on 12.02.2009 we gathered the information from our records and exchange which was required for the purpose lodging the police complaint on same night with MRA Police station. On such complaint the concerned police station by its letter dated 13.02.2009 asked BSE not to make the payment. BSE has passed an order to stop the pay out. We immediately filed a suit in the Honble Bombay High Court being suit no 3022/2009 for annulment of entire transaction of the said scrip taken place on 11.02.2009 and for other prayers mentioned in the suit. We applied for ad interim reliefs where BSE appeared and made a statement which is recorded by the Honble Bombay High Court. BSE had filed an affidavit stating that the investigation is going on by SEBI and they would not allow pay outs unless the directions is issued by SEBI on that behalf after the investigation is over. The said statement has been accepted by the Bombay High Court and continues till date. The notice of Motion and suit are still pending. The above conduct will show that we have taken all precautions at the first available opportunity and brought out to the notice of all concerned parties. We have not violated any provision of A(5) no particulars are given in the show cause notice on how clause A(5) is attracted qua us. In view of lack of particulars in the show cause notice we are unable to reply in detail. Mr. Mukesh Konde was introduced by one of our employees Mr. Zohar Batterywala. He informed us that he had done in person verification on 27.12.2008. In person verification of Mr. Mukesh Konde was also done by another employee of our Mr. Nitesh Jadhav, therefore we had two in person verifications. Mr. Mukesh Konde submitted all the relevant documents for opening of the account and after verification of the said documents by Zohar Batterywala and Nitesh Jadhav account was opened on 06.01.2009. The cheque of Rs. 300000/- was deposited on 09.01.2009. We allowed operation of account on 12.01.2009 for the first time and gave a limit upto 9 times as per the guidelines of SEBI which gives discretion to the brokers. However, he did not utilize the full limit on 12.01.2009. At the end of the day he became liable to pay Rs. 18,07,657/-. On 13.01.2009 he issued cheque of Rs. 1800000/- and Rs. 300000/- as funds transfer ie

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from his HDFC account to our HDFC account. On 13.01.2009 we came to know that his cheque of Rs. 300000/- which he had given for opening of the account had been stopped payment which he himself informed us since Rs. 300000/- plus Rs. 1800000/- were transferred in our HDFC bank account as stated above, we had nothing to complaint about. On 14.01.2009 he bought 9900 shares of said scrip and sold 3300 shares of the said scrip with a net buy of 6600 shares valuing to Rs. 14,75,400/-. Effectively on 14.01.2009 he was liable to pay Rs. 2,91,618.21. He cleared his outstanding on 19.01.2009 by paying Rs. 2,92,000/- by funds transfer. As on 19.01.2009 he was in credit by Rs. 381.79 as well as stocks of the said scrip by 10553 shares valuing to approx. Rs. 25.14 lacs. On 29.01.2009 he sold 1910 shares of the said scrip valuing to approx Rs. 5 lacs. Hence at the end of 29.01.2009 he was in credit by Rs. 4,99,930.04 along with holdings of the said scrip by 8643 shares valuing to Rs. 24.30 lacs. Further, from 02.02.2009 to 10.02.2009 he was playing only intra day as per the margins and exposure available in his account for intra day. His intra day trades were in volume based and most active scrips namely R Power, Rel Petro, Satyam Com, Sesa Goa, RNRL. As on end of 10.02.2009 he was having ledger credit of Rs. 328831.80 and holding of the said scirp by 8643 shares valuing to approx. Rs. 25.49 lacs. In online system the client himself trades from his location through internet. On 11.02.2009 he first sold 9424 shares of the said scrip by marking delivery sale on the online system (marked 8643 shares of RTS power as delivery sale) and as he had 8643 shares as holdings in his account, his exposure increased initially by 9 times. Hence, effectively his ledger credit along with the 8643 shares sold of the said scrip valued to Rs. 28.47 lacs. Effectively his intra day exposure was to the tune of Rs. 2.80 Crores (9 times of 28.47 lacs). Accordingly, we had set the system of giving automatic intra day exposure for online clients. As a systematic online fraud, he created a debit of Rs. 2.36 Cr. As a damage control measure, we along with other two brokers in consultation with legal experts filed necessary complaints with regulatory authorities such as JCP Crime branch & Economic Office Wing, BSE, SEBI, FIU Delhi and filed the above referred suit in the Honble High Court, Mumbai. As far as Mr. Ashok Narayan Waje is concerned, he had given Rs. 10 lacs cheque initially. Though his account was opened but was not allowed to trade as his cheque of Rs. 10 lacs did not satisfy his declared income range between Rs. 100000/- to 200000/-. 10. Mr. Dipan Merchant, Authorised Representative of the Noticee (hereinafter referred to as AR) appeared and reiterated the submissions already

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made. Vide letter dated February 9, 2011, the Noticee made further submissions stating, inter alia, the following:

The client Mr. Mukesh Konde was introduced by Mr. Zohar Batterywala and later Mr. Nitesh Jadhav who were employees of our company. They had carried out In person verification. Upon scrutiny of documents like KYC form and other supporting documents by our KYC team, our KYC team made a verification call to Mr. Mukesh Konde on the telephone number provided by him. As a normal prudent practice, apart from inperson verification carried out by our own employees, we also do a verification call to the client from the Head Office to confirm a few basic details in the KYC form to ensure the correctness of the details provided as well as genuineness of the client. Upon successful verification, the account is opened and a welcome letter is sent to the client at his registered address directly from the Head Office. The account of the client is blocked in case the welcome letter is returned undelivered. In case of Mr. Konde, we had carried out the call verification as well as sent him the welcome letter which was duly delivered to his address as contained in the KYC. There was nothing to doubt about the genuineness of the client. The said client had also opened a demat account with us as a DP of CDSL. He had also executed a Power of Attorney for operating the said Demat account for settling the transactions executed by him through us. After opening the account of Mr. Konde on 06.01.2009, the account was activated for carrying out transactions on 09.01.2009. As per our Risk Management policy, we allow clients to transact only against margin even in Cash Segment of BSE / Capital Market segment of NSE, which as per the guidelines of the Exchanges, is not mandatory. We allow exposure to the clients based on their ledger balance / cheque payment / securities available in his demat account with us. Alongwith the account opening form, he had also given us a cheque of Rs. 3,00,000/= which was deposited by us 09-01-2009, and based on the parameters set by us, he was allowed to execute transactions through us on 12-01-2009. He was an online customer and was placing his orders on the internet based trading platform. He started his transactions on 12-012009, when he placed an order to buy shares of RTS Power Corpn. Ltd..

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Upon execution of his orders on 12-1-2009, he had a net obligation of Rs. 18,07,657.90 to pay us which he had cleared on the next day, i.e. 13-012009 by way of online transfer of Rs. 18,00,000/- and Rs. 3,00,000/-. On 13-01-2009, we came to know that his cheque of Rs. 300000/- had been stopped payment by him which he himself informed us since Rs. 300000/- plus Rs. 1800000/- were transferred tin our HDFC Bank account. He had been transacting in scrips like R Power, Reliance Petro, Satyam Computers, Sesa Goa, RNRL etc. through us mainly in intra-day trading. From the copies of the contract notes cum bills submitted by us with you, you may note that most of the transactions done by him were intra-day transactions. On 10-02-2009, he had a clear credit balance of Rs. 328831.80 in his account with us. Further, he had a balance of 8643 shares of RTS Power Co. Ltd. in his demat account with us valued at Rs. 26.12 Lacs. The said scrip of RTS Power Corpn. Ltd. was frequently traded scrip and not part of the list of illiquid stocks, published by exchanges from time to time. Further, the said scrip was not settled on Trade for Trade basis or was not part of Z category of stocks whose transactions are restricted by us as per our prudent Risk Management Policy adopted by us. From the trading pattern of the client, there was no ground for us to arouse any suspicion about his transactions or actions. On 11-02-2009, when he first sold 9424 shares of RTS Power Corpn. Ltd., marking 8643 shares for delivery (which he had in his demat account with us), our system automatically set up intra-day exposure limits based on credit arising out of such delivery based transaction to the tune of Rs. 2.70 crores. Thereafter, he had bought 90000 shares of RTS Power Co. Ltd. marking the transaction as intra-day which ought to have been squared off by the end of the trading session either by the client himself or by generation by square off trade by our Risk Management system at 3.10 P.M. However, unfortunately, the scrip had hit the lower circuit filter on the said date and we immediately contacted the client to know how he would settle his obligation. He had then started avoiding making payment to us on flimsy grounds making his conduct suspicious leading us to lodge a complaint against him with BSE, SEBI, Police, EOW as well as filing a suit in the Honble High Court.

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It may be noted that we have developed in-house surveillance and monitoring mechanism to identify unusual pattern of trading by clients, placing of orders at unrealistic prices, etc. It may further be noted that SEBI itself in its Inspection Report dated 03.11.2009 had commented that our Risk Management System was comprehensive and prima facie found to be in order. 11. Subsequent to the hearing the Noticee was advised to submit the following information In what mode the margin was collected from its two clients whether in cash or securities and the amount of the margin collected? Whether the margin was collected upfront? What was the risk management system that was in place to address any failure of pay-in-obligations? Was the same practice of giving exposure of 8-10 times of the available margin to the clients was followed in case of other clients including those registered with them during the same period i.e. January February 2009?

The Noticee replied vide email dated December 29, 2011, that the upfront margin money collected was in the form of account payee cheque. Upfront margins were collected from the clients and they were given an exposure of 8-10 times of the available margin. An exposure multiples of 8 to 10 times in case of intraday transactions were allowed to all clients based on their available margin.

CONSIDERATION OF ISSUES AND FINDINGS

12. It was alleged that the Noticee allowed Mukesh G Konde to take huge positions within one month of registration. The client failed to meet the pay-in-obligation with respect of his trades on February 11, 2009 and put

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the entire stock exchange mechanism at risk. Thus, the exposure given by the Noticee to the newly registered client indicated a failure of risk management at the Noticees end.

13. The issues that arise for consideration in the present case are: a. Whether the Noticee had violated the provisions of clause A(1), A(2) and A(5) of schedule II given under regulation 7 of Brokers Regulations? b. Does the violation, if any, attract monetary penalty under section 15HB of SEBI Act? c. If so, what would be the monetary penalty that can be imposed taking into consideration the factors mentioned in section 15J of SEBI Act?

14. Before moving forward, it will be appropriate to refer to the relevant provisions of clause A(1), A(2) and A(5) of schedule II given under regulation 7 of Brokers Regulations, which reads as under:-

Stock-Brokers to abide by Code of Conduct. 7. The stock-broker holding a certificate shall at all times abide by the Code of Conduct as specified at Schedule II. SCHEDULE II Code Of Conduct For Stock 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 stockbroker 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 15. Before moving forward, it is necessary to mention that the suit filed before the Honble Bombay High Court is a separate proceeding from the one before the undersigned. It is also noted that the Honble High Court has

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not stayed the other proceedings in the matter. In view of the foregoing, the adjudication proceeding is proceeded with.

16. During September 01, 2008 to February 10, 2009 (over a period of 107 trading days), the total volume in RTS was 71,19,555 shares and the average daily volume was 66,537 shares. On February 11, 2009 the scrip opened at `295/-, touched a high of `305.50, low of `285.50 and closed at `292.75. On February 11, 2009, the traded volume in the shares of RTS was 15,58,641. Hence, the total traded volume during the period September 01, 2008 to February 11, 2009 was 86,78,196.

17. Major Buyers and sellers on gross basis during the period of investigation were as follows:
Sr. no. 1. 2. ClientName CHETNAPATEL KONDE KONDETotal AMARBOMBLE GANDHIMANISHA NAVNEETLAL PRADESHBANDHU NIMAWAT MANNALALJITENDRA RAMESHBHAIPARMAR HETALPATEL HETALPATELTotal ClientCode BUY P674 609600 1001069 55500 304239 118730 4115 380707 FMM150 58000 MK174 6000 W692011 618937 JL0AB2 395490 BA3603 326839 SELL 609450 20000 29511 365995 6000 Total(B+S) 1219050 1047188 791140 642287 593668 582326 458503 456790 2.63 6.03 4.56 3.70 3.42 3.36 2.64

%to Gross volume 7.02


3. 4. 5. 6. 7. 8.

6745 428251 395650 315448

BG020 296834 IB08A01 291138 BA3601 229213 4119 104111 PGWM0004 88059 RDH02 58550 BY13010 250720

296834 291188 229290 9111 67992 13900 115067 206070

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9. 10

SANJAYSONI SURESHHANSWAL

SHS11 26900469 Total

210674 211879 3441324

237933 211879 3221993

448607 423758 6663317

2.58 2.44 38.39

18. Investigation observed that the following were the major buyers and sellers on the net basis on February 11, 2009 i.e. the day when the clients Mr.Konde, Mr.Jadhav and Mr.Waje failed to meet the pay-in-obligation in the scrip of RTS.
S. No Name of the client No of Shares No of Net Delivery bought shares sold % to Net Volume 52000 --15.16% 197062 18138 52.15% 80000 --18.95% --164474 (47.94%) 115067 42191 30513 9000 (33.54%) (8.34%) (6.11%) ---

1 2 3 4 5 6 7 8

Mr.Waje Mr. Konde Mr. Jadhav M/s. Sophia Growth Ms. Hetal Patel --Mr. Chetan Shah 13594 Mr. Sanjay C Soni 9534 Mr. Yogesh 9000 Pattani

19. The KYCs received from the various trading members for major clients were analyzed and the information is tabulated as follows:
Trading member Name Client Name Networth Stock Broking Mukesh Ltd. (197) Konde Geojit Financial Services Ltd. Mukesh (328) Konde TATA Securiteis LTd. (604) Mukesh Konde Dawnay Day Av Securities Mukesh Pvt. Ltd (3103) Konde Jash Securities Ltd. (335) Mukesh Konde Geojit Financial Services Ltd. Nitesh (328) Jadhav Date of Annual Income as Registration per KYC January 6, Above Rs. 5 Lakh 2009 January Less than Rs. 1 22,2009 Lakh January 21, Rs. 1 - Rs. 5 Lakh 2009 January 23, Rs. 5 - Rs. 10Lakh 2009 April 17, 2008 January 2009 Rs. 10-25 Lakh

27, Less than Rs. 1 Lakh

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Dawnay Day Av Securities Nitesh Pvt. Ltd (3103) Jadhav Geojit Financial Services Ltd. Ashok (328) Waje Anand Rathi Financial Chetan Services Ltd (30) Shah Jash Securities Ltd. (335) Hetal Rajesh Patel Nirmal Bang Securities Pvt. Hetal Ltd (498) Rajesh Patel Jash Securities Ltd. (335) Yogesh Pattani

January 22,2009 January 21,2009 March 09,2008 September 02,2008 December 06,2008 September 12,2008

Rs. 10-25 Lakhs Less than Rs. 1 Lakh Not mentioned Rs 5-10 Lakhs

Rs 1-5 Lakhs

Above 25 Lakhs

20. Investigation observed that the Noticee had allowed the Mr. Konde to take huge positions within a month of their registration. The position taken by the client is as summarized below:

Client Mukesh G Konde

Exposure given `2.8 crore

With respect to the above client who failed to meet their pay-in- obligations with regard to his trades on February 11, 2009 I observe the sequence of events were as follows:

(i)

Mukesh G Konde

6/1/2009 9/1/2009 12/1/2009 13/1/2009

14/1/2009 19/1/2009 10/2/2009

Opened account with the Noticee Issued a cheque of `3,00,000/Traded for the first time and became liable to pay `18,07,657/-. Transferred `18,00,000/- and `3,00,000/- from his HDFC account. Since he had transferred this amount, he had stopped payment of the cheque issued on 12/1/2009 Traded in the scrip of RTS and became liable for an amount of `2,91,618.21. Transferred `2,92,000/- from his account. Ledger credit of `32,8831.80 and holding of shares valuing to approx. `25.49 lac.

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11/2/2009

Exposure given of `2.8 crore

The credit balance in his ledger showed `29,41,178/- (`3,28,832/- and 8643 shares of RTS Power lying with the Noticee worth `25,97,222/-). On 11.01.2009, he first sold 9424 shares by marking delivery sale on the online system and as he had 8643 shares as holding in his account, his exposure increased. Effectively his intra-day exposure was to the tune of `2.8 crore. Between 2.59 p.m. and 3.04 p.m. his net purchases were 80,576 shares. On his not squaring up his intraday position till late afternoon on February 11, 2009 the Noticee tried to square off but could not do so as the shares were hit by lower circuit and therefore Noticee had to take delivery by making payment of `. 2.39 crore, . After deducting the credit, his account was debited to the extent of `2.36 crore.

It is observed that the exposure provided by the Noticee to the client was around 9 times the margin/credit, which was as per the policy for all other clients and thus no exceptions were seen to have been made for this client.

21. From the above I observe that the Noticee allowed the client to trade only after the cheque got cleared and exposure was given after the client had sufficient credit balance. Further, the pay-in obligation which the client failed to meet was met by the Noticee and delivery taken. I also observe from the reply of the Noticee that they gave the same level of exposure to all their other clients who got registered with them during the same period. I am of the view that since the client was new Noticee could have been more careful in allowing such huge exposure to be given to the client. However given the facts and circumstances of the case I do not hold the Noticee guilty of violating provisions of clause A(1), A(2) and A(5) of schedule II given under regulation 7 of Brokers Regulations.

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ORDER

22. Considering the facts and circumstances of the case, I do not find the instant matter fit for imposition of penalty in terms of Section 15HB of SEBI Act and dispose of the proceedings accordingly.

23. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee and also to SEBI.

Date: January 10, 2012 Place: Mumbai

BARNALI MUKHERJEE ADJUDICATING OFFICER

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