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BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA


[ADJUDICATION ORDER NO. RA/DPS/05/2015]

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:
Jainam Share Consultants Pvt. Ltd.
(Depository Participant of CDSL - SEBI Registration No. IN-DP-CDSL-322-2005)
(PAN No. AABCJ3918N)

BACKGROUND
1. Securities and Exchange Board of India (hereinafter referred to as SEBI)
had conducted inspection of books of accounts / records etc. of theJainam
Share Consultants Pvt. Ltd. Depository Participant of CDSL - SEBI
Registration No. IN-DP-CDSL-322-2005, (hereinafter referred to as the
Noticee / Jainam) during February 20 to 21 of 2014 at the registered office
of Noticee to examine the account opening process followed by the Noticee
and Power of Attorney (POA) related compliance.

2. It was examined under the inspection that the Noticee had not implemented
the directions of the SEBI Circular No. CIR/MRD/DMS/13/2010 dated April
23, 2010; and by so doing, allegedly the Noticee had violated Clause 11 of
the code of conduct specified under Third Schedule read with Regulation
20AA of SEBI (Depositories and Participants) Regulations, 1996 (hereinafter
referred

to

as

DP

Regulations)

and

SEBI

Circular

No.

CIR/MRD/DMS/13/2010 dated April 23, 2010.


APOINTMENT OF ADJUDICATING OFFICER

3. SEBI initiated adjudication proceedings and appointed the undersigned as


Adjudicating Officer under Section 19 of the Securities and Exchange Board
of India Act, 1992 (hereinafter referred to as 'SEBI Act') read with Section 15I
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of the SEBI Act and Rule 3 of SEBI (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred
to as Rules, 1995) read with Section 19H of the Depositories Act, 1996
read with Rule-3 of the Depositories (Procedure for Holding Inquiry and
Imposing Penalties by Adjudicating Officer) Rules, 2005 (hereinafter referred
to as Rules, 2005) vide order dated December 23, 2014, to inquire into and
adjudge under section 15HB of the SEBI Act and under section 19G of
Depositories Act, 1996 for the aforesaid provisions of the DP Regulations.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

4. Show Cause Notice No. EAO/RA/DPS/19890/2015 dated July 17, 2015


(hereinafter referred to as SCN) was issued to the Noticee under rule 4(1) of
the Rules to show cause as to why an inquiry should not be initiated and
penalty be not imposed under Section 15HB of the SEBI Act and under
section 19G of Depositories Act, 1996for the alleged violation specified in the
SCN. The allegations levelled against the Noticee in the SCN are briefly
mentioned below;

a. Noticee implemented the new format of the POA as prescribed by SEBI


Circular No. CIR/MRD/DMS/13/2010 dated April 23, 2010, only after
August 23, 2011 i.e. with a delay of approximately 15 months.

b. Noticeehad not updated the POA in respect of existing clients as per the
SEBI Circular No. CIR/MRD/DMS/13/2010 dated April 23, 2010.
5. In response to the SCN, the Noticee filed its reply dated July 25, 2015. In the
interest of natural justice and in order to conduct an inquiry in terms of rule
4(3) of the Rules, the Noticee was granted an opportunity of personal hearing
on August 20, 2015 vide notice dated August 6, 2015. Hearing on August 20,
2015 was attended by the authorized representatives (AR) of the Noticee
namely - Shri Nipun Shah, Director of Jainamand Shri Saurabh Shah,
Compliance Officer of Jainamand the submissions made by them were
recorded.

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6. The key submissions in reply of the Noticee dated July 25, 2015 and in
course of hearing towards the SCN, are being mentioned below;

The Noticee is, inter alia, SEBI Registered Depository Participant


located as Surat& is acting as an agent and participant for the
customers and is registered as a DP in CDSL.

The lapse in compliance of the provisions of the Circular and


regulations of the SEBI and Depositories Act and Regulations made
therein is not deliberate but it is a technical omission. The wordings of
the circular were interpreted to mean that the same are voluntary in
nature and only if the POAs taken were inconsistent with the guidelines
in the said circular were to be changed. The Noticee has taken due
care to comply with the regulations of the Circular once it was pointed
out during the CDSL inspection.

The code of conduct and POA formats prescribed were assumed to be


for guidance only and not to be compulsorily implemented. The
Noticee hereby begs and interprets the point No. 6 of the SEBI Circular
No. CIR/MRD/DMS/13/2010 dated April 23, 2010, that in case the
existing POA is inconsistent with the POA prescribed by SEBI i.e. in
case it was wider in scope and powers, only then the same had to be
replaced with the new format.

In the case of the Noticee, the existing format and norms of POA were
exhaustive and more stringent in compliance beyond the standardized
norms prescribed by SEBI. The covenants of existing POA were in
conformity with all the prevailing provisions and regulations applicable
to the Noticee.

Noticee has not used the POA for any margin related transaction or
transfer of any security for any client using the existing POA during the
period in which the old format was in use. The existing POA was only
and strictly used without any exception only for client pay-in.

It may be therefore noted that no monetary loss has been incurred to


any client or anyone else by non-aligning the POA format prescribed in
the Circular. Investor interest has not been compromised in any
manner by the continuance with the old POA format by the notice.

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The intention of the Noticee of not using standardized norms for POA
was not malafide and also it may be noted that there was no financial
loss that has been caused to any investor due to such technical lapse
of not using of standardized norms for POA.

Noticee respectfully prays and pleads that the proceedings initiated in


the above notice be dropped since any action initiated against the
Noticee would be disproportionate to the procedural lapse and shall
irreversibly impact the business of the Noticee.

Further, during the hearing AR on behalf of the Noticeemade the


following submissions:a. AR agreed at the time of hearing that Clauses 8 and 9 of the SEBI
Circular No. CIR/MRD/DMS/13/2010 dated April 23, 2010 was not there
in old POA.

b. AR confirmed that the old POA was accepted till August 23, 2011
and also confirmed that Noticee has implemented from August 23,
2011 the direction of said circular dated April 23, 2010 with regard
to POA for the new clients.
c. Further AR also confirmed that with regard to the existing clients,
Noticee had not completely updated the POA as per the direction of
the said circular dated April 23, 2010 and confirmed that it will
update the existing clients POA immediately.
d. AR also reiterated that the lapse has been operational & due to lack
of proper interpretation of the said circular. However the same shall
be complied immediately. Secondly no investor as on date has
been made to suffer due to this.

CONSIDERATION OF ISSUES

7. I have carefully perused the oral and written submissions of the Noticee and
the documents available on record. It is observed that the allegation against
the Noticee is that it has failed to comply with the direction of the SEBI
Circular No. CIR/MRD/DMS/13/2010 dated April 23, 2010 with regard to POA.
The issues that arise for consideration in the present case are :
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a. Whether the Noticee is in violation ofClause 11 of the code of


conduct specified under Third Schedule read with Regulation 20AA
of DP Regulations and SEBI Circular No. CIR/MRD/DMS/13/2010
dated April 23, 2010?
b. If yes, then, does the violation, on the part of the Noticee attract
monetary penalty under section 15HB of SEBI Act and 19G of the
Depositories Act, 1996?
c. If yes, then, what would be the monetary penalty that can be
imposed upon the Noticeetaking into consideration the factors
mentioned in section 15-I of SEBI Act read with rule 5(3) of the
Adjudication Rules?
FINDINGS
8. Before moving forward, it is pertinent to refer to the relevant provisions of
Stock Brokers Regulations which reads as under:THIRD SCHEDULE
CODE OF CONDUCT FOR PARTICIPANTS
11. A participant shall maintain the required level of knowledge and competency and
abide by the provisions of the Act, Rules, Regulations and circulars and directions
issued by the Board.The participant shall also comply with the award of the
Ombudsman passed under theSecurities and Exchange Board of India (Ombudsman)
Regulations, 2003.

SEBI Circular No. CIR/MRD/DMS/13/2010 dated April 23, 2010:The Stock Brokers shall take necessary steps to implement this circular latest by May
31, 2010 for the new clients and ensure to take necessary steps latest by September
01, 2010 to revoke those authorizations given by the existing clients to the stock
brokers/ stock broker and depository participants through PoA that are inconsistent
with the present guidelines.

Guidelines for execution of Power of Attorney by Clients favouring Stock Brokers /


Stock Broker and Depository Participants:POA favouring Stock Brokers and Depository Participants
PoA executed in favour of a Stock Broker and Depository Participant by the client
should:
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3
4
5..
6..
7..
8.contain a clause by which the Stock Broker would return to the client(s), the
securitiesor fund that may have been received by it erroneously or those securities or
fund thatit was not entitled to receive from the client(s).
9.be revocable at any time, without notice.

9. The issues for examination in this case and findings thereon are as follows:

10. As

per

SEBI

Circular

No.

CIR/MRD/DMS/13/2010

dated

April

23,

2010whether the Noticee has implemented the direction of the said circular
with regard to POA for the new clients.
11. I note that as per the old format the clauses 8 and 9 of the said circular was
not there and the old format was used by the Noticee till August 23, 2011 and
after this I note that the Noticee has implemented the new format of the POA
as prescribed by SEBI Circular No. CIR/MRD/DMS/13/2010 dated April 23,
2010 i.e. after a delay of approximately 15 months.
12. I also note that the Noticee has not completely updated the POA in respect of
existing clients as required by the said SEBI circular which is evident from the
POA executed by the Noticee on August 20, 2011 where the clauses 8 and 9
of the said circular was not there.
13. During hearing, AR on behalf of the Noticeeagreed that Clauses 8 and 9 of
the SEBI Circular No. CIR/MRD/DMS/13/2010 dated April 23, 2010 was not
there in old POA. AR also informed that old POA was accepted till August 23,
2011 and also confirmed that Noticee has implemented from August 23, 2011
the direction of said circular dated April 23, 2010 with regard to POA for the
new clients.Further AR also confirmed that with regard to the existing clients,
Noticee had not completely updated the POA as per the direction of the said
circular dated April 23, 2010 and confirmed that it will update the existing
clients POA immediately.
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14. It is noted that as per SEBI Circular No. CIR/MRD/DMS/13/2010 dated April
23, 2010, The Stock Brokers shall take necessary steps to implement this circular
latest by May 31, 2010 for the new clients and ensure to take necessary steps latest by
September 01, 2010 to revoke those authorizations given by the existing clients to the
stock brokers/ stock broker and depository participants through PoA that are
inconsistent with the present guidelinesand the stock exchanges / Depositories
were directed to bring the provisions of this circular to the notice of the Stock
Brokers/Depository Participants and also disseminate the same on their
websites.
(a) In the instant case the Noticee only implemented the direction of the said
circular with regard to POA for the new clients from August 23, 2011 i.e.
after a delay of approximately 15 months.
(b) With regard to existing clients as per the said circular dated April 23, 2010,
shall implement the direction of the said circular latest by September 01,
2010. However, Noticee till date has not completely updated the POA for
existing clients as per the direction of the said circular as confirmed by the
Noticee during hearing on August 20, 2015.Noticee is now confirming that
it will update the existing clients POA immediately i.e. after a delay of
approximately five years from the due date.
15. Further, the Noticees contention that as per their interpretation of the circular
was that the same are voluntary in nature and only if the POAs taken were
inconsistent with the guidelines in the said circular were to be changed is not
acceptable as the Clauses 8 and 9 of the said circular was not there in the old
POA.
16. In view of the aforesaid analysis / observation at Para No. 10 to 15, it is clear
that the Noticeedelayed in complying with the said circular for new clients and
till date did not completely updated the POA in respect of the existing clients
as per the SEBI Circular No. CIR/MRD/DMS/13/2010 dated April 23, 2010.
Further, Noticee had also admitted it. I am of the view that when mandatory
direction is stipulated for doing a particular activity, and by not complying with
it till date, the intention of the parties becomes irrelevant. Therefore, I find that
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there is certainly a violation by the Noticee of Clause 11 of the code of


conduct specified under Third Schedule read with Regulation 20AA of DP
Regulations and SEBI Circular No. CIR/MRD/DMS/13/2010 dated April 23,
2010.
17. I note that the Honble 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
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.
18. As the violation of the statutory obligation underSEBI Circular No.
CIR/MRD/DMS/13/2010 dated April 23, 2010 and Clause 11 of the code of
conduct specified under Third Schedule read with Regulation 20AA of DP
Regulations has been established, I am conviced that it is a fit case for
imposing monetary penalty under section 15HB of SEBI Act, 1992 and under
19G of Depositories Act, 1996; which read as follows:SEBI Act:
Penalty for contravention where no separate penalty has been provided.
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 which no
separate penalty has been provided, shall be liable to a penalty which may
extend to one crore rupees.
Depositories Act:
Penalty for contravention where no separate penalty has been provided.
19G.Whoever fails to comply with any provision of this Act, the rules or the
regulations or bye- laws or directions issued by the Board thereunder for
which no separate penalty has been provided, shall be liable to a penalty
which may extend to one crore rupees.
19. While determining the quantum of penalty under section 15HB, it is important
to consider the factors stipulated in section 15J of SEBI Act,which reads as
under:15J - Factors to be taken into account by the adjudicating officer

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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.
20. Here, I am also inclined to refer the reason for SEBI to come out with a
circular regarding execution of Power of Attorney (POA) by the client in favour
of the Stock Broker / Stock Broker and Depository Participant. It has come to
SEBIs notice that the clients were compelled to give irrevocable power of
attorney to manage clients demat account and bank account so that the
client is able to pay funds or deliver shares to its broker on time. In some
cases, the POA even allows a broker to open and close accounts on behalf of
the client and to trade on clients account without the consent of the client.In
order to standardize the norms to be followed by stock brokers/ stock broker
and depository participants while obtaining POA from the clients, guidelines
were issued to stock brokers/ stock broker and depository participants
through

SEBICircular

No.

CIR/MRD/DMS/13/2010

dated

April

23,

2010.Hence it is utmost importance that every registered intermediaryshall


maintain the required level of knowledge and competency and abide by the
provisions of the Act, Rules, Regulations and circulars and directions issued
by SEBI. Omission on part of the registered intermediary is detrimental to the
interest of investors in securities market.

21. 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 Noticee.
No repetitive nature of the default is shown on records to have been
committed by the Noticee. Noticee only implemented the direction of the said
circular with regard to POA for the new clients from August 23, 2011 i.e. after
a delay of approximately 15 months and with regard to existing clients
Noticee till date has not completely updated the POA as per the direction of
the said circular. The same is clear from the manner in which the Noticee took
almost 15 months to implement the direction issued by SEBI with regard to
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POA for the new clients and the Noticeetill date has not completelyupdated
the POA for the existing clients even after the inspection team pointed out to
the Noticee by communication of the inspection findings vide letter dated April
11, 2014, during the adjudication proceedings through SCN dated July 17,
2015. The Noticeeduring hearing on August 20, 2015 once again confirmed
that they have not completely updated the POA for the existing clients and
that they will update the POA for existing clients immediately, which was to be
implemented latest by September 01, 2010 as per the direction of the said
circular. Thus there is a delay of 5 years in implementation of the directions.
Such casual display of attitude by a registered intermediary towards
regulatory instructions cannot be ignored and the violations against the
Noticee stands established.
22. In view of above, it would be necessary to impose appropriate penalty to
commensurate the gravity of violation committed by the Noticee to meet the
ends of justice.
ORDER
23. In exercise of the powers conferred under Section 15 I of the Securities and
Exchange Board of India Act, 1992, and Rule 5 of Securities and Exchange
Board of India (Procedure for Holding Inquiry and Imposing Penalties by
Adjudicating Officer) Rules, 1995, I hereby impose a penalty of ` 5,00,000/(Rupees Five Lakh only) on the Noticee / Jainam Share Consultants Pvt. Ltd.
in terms of the provisions of Section 15HB of the SEBI Act, 1992 and 19G of
Depositories Act, 1996, for failure / delayed in complying with the SEBI
Circular No. CIR/MRD/DMS/13/2010 dated April 23, 2010 and Clause 11 of
the code of conduct specified under Third Schedule read with Regulation
20AA of DP Regulations. I am of the view that the said penalty would be
commensurate with the violations committed by the Noticee.
24. 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 shall be forwarded to
Chief General Manager, Western Regional Office, Market Intermediaries
Regulation and Supervision Department (MIRSD), Unit No.002, Ground Floor,
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Sakar 1, Nr. Gandhigram Railway Station, Opp. Nehru Bridge, Ashram


Road, Ahmedabad 380009.

25. In terms of the provisions 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 Jainam Share
Consultants Pvt. Ltd.having registered office at M-5/6, Malhar Complex,
Dumas Road, Ichchanath, Surat 395007 and also to the Securities and
Exchange Board of India, Mumbai.

DATE: September 3, 2015

RACHNA ANAND

PLACE: MUMBAI

ADJUDICATING

OFFICER

GENERAL MANAGER

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