Adjudication Order in Respect of Intime Equities LTD (Formerly Known As Fortune Equity Brokers (India) LTD

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AdjudicationOrderinthematterofM/s.IntimeEquitiesLtd.(M/s.FortuneEquityBrokers(India)Ltd)Page1of25
BEFORETHEADJUDICATINGOFFICER
SECURITIESANDEXCHANGEBOARDOFINDIA
[ADJUDICATIONORDERNO.AK/AO202/2014]
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UNDERSECTION15IOFSECURITIESANDEXCHANGEBOARDOFINDIAACT,1992READ
WITHRULE5OFSEBI(PROCEDUREFORHOLDINGINQUIRYANDIMPOSINGPENALTIES
BYADJUDICATINGOFFICER)RULES,1995
Inrespectof
M/s.IntimeEquitiesLimited
(FormerlyknownasM/s.FortuneEquityBrokers(India)Limited)(PAN:AAACG2063L)
Inrespectof
M/s.IntimeEquitiesLimited
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FACTSOFTHECASE
1. Securities and Exchange Board of India (hereinafter referred to as SEBI)
conducted an inspection of books of accounts and other records of Intime
Equities Limited (Formerly known as Fortune Equity Brokers (India) Limited.)
(hereinafter referred to as the Noticee') for the period from April 1, 2011 to
August 30, 2012 (hereinafter referred to as the Inspection Period) to examine
whether the Noticee has complied with the provisions of SEBI Circular no.
MIRSD/SE/Cir/19/2009 dated December 3, 2009 and Circular no.
SEBI/MIRSD/Cir/01/2011 dated May 13, 2011 with respect to the quarterly/
monthlysettlementoffundsandsecuritiesoftheclients.
2. Thefollowingirregularities/deficiencieswereinteraliaobserved:
2.1. Noticee had admitted that no actual settlement of funds and securities,
eithermonthlyorquarterly,wascarriedoutbytheNoticee,therebynot
complying with Point no. 12 of the SEBI Circular No. MIRSD/SE/Cir
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19/2009 dated December 03, 2009 with respect to quarterly/ monthly
settlementoffundsandsecuritiesofclients;
2.2. Those clients who had not opted for running accounts had substantial
creditbalancesformorethan180days,therebynotcomplyingwithPoint
no. 12 of the SEBI Circular No. MIRSD/SE/Cir19/2009 dated December
03, 2009, which states that unless otherwise specifically agreed to by a
Client, the settlement of funds/ securities shall be done within 24 hours
ofthepayout;
2.3. That the Noticee was giving further exposure despite the clients having
debitbalancesbeyond180days,therebynotcomplyingwithPointno.12
oftheSEBICircularNo.MIRSD/SE/Cir19/2009datedDecember03,2009,
which states that the actual settlement of funds and securities shall be
done by the broker at least once in a calendar quarter or month,
depending on the preference of the clients who have consented for
maintainingarunningaccount.
Therefore, it was alleged that by the above acts, the Noticee had repeatedly
violated the provisions of SEBI Circular no. MIRSD/SE/Cir/19/2009 dated
December 3, 2009 and Circular no. SEBI/MIRSD/Cir/01/2011 dated May 13,
2011.
3. It was further observed that National Stock Exchange of India Ltd. (hereinafter
referred toas NSE) had conducted inspection of the Noticee duringDecember
2011 and had pointed out to the Noticee that they had charged delayed
payment charges to the clients and had given further exposure. NSE had
imposed Rs 40,000/ as penalty and other disciplinary actions were taken.
However it was alleged that despite assuring to NSE, the Noticee did not take
corrective steps with regard to the inspection findings of NSE even for the
quarterendedMarch2012andJune2012.Itwas,hence,furtherallegedthatby
the above repeated act, the Noticee failed to adhere to the prescribed code of
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conductinrespectofhighstandardofintegrity,promptitude,fairness,dueskill,
care and diligence, and did not abide by the SEBI Act, 1992 and rules and
regulationsmadethereunder,intermsofRegulation7readwithclausesA(1),(2)
and (5) of code of conduct for stock brokers specified under Schedule II of SEBI
(Stock Brokers & sub Brokers) Regulation, 1992. The alleged violations by the
Noticee,ifestablished,makeitliableforpenaltyundersections15HBoftheSEBI
Act,1992.
APPOINTMENTOFADJUDICATIONOFFICER
4. I was appointed as the Adjudicating Officer vide order dated August 06, 2013
underSection15IoftheSEBIAct,1992readwithrule3oftheSEBI(Procedure
for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995
(hereinafter referred to as Rules) to inquire into and adjudge under Section
15HB of the SEBI Act, 1992. The Proceedings of appointment of Adjudicating
OfficerwascommunicatedtomeonSeptember04,2013.
SHOWCAUSENOTICE,REPLYANDPERSONALHEARING
5. ShowCauseNoticedatedSeptember17,2013(hereinafterreferredtoasSCN)
wasissuedtotheNoticeeunderrule4oftheRulesreadwithSubsection(2)of
Section 15I of SEBI Act to show cause as to why an inquiry should not be held
and penalty be not imposed under section 15HB of the SEBI Act for the alleged
violationsspecifiedinthesaidSCN.
6. TheNoticeevideitsapplicationdatedOctober17,2013hadappliedforconsent
in terms of SEBI Consent Circular: CIR/EFD/1/2012 pursuant to issue of Show
Cause Notice dated September 17, 2013. Subsequent to the same, the Noticee
vide letter dated December 09, 2013 stated that they were not interested in
pursuing the consent application and hence wish to withdraw. Accordingly, the
consentapplicationbearingno:2767/2013wasdisposedofaswithdrawn.

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7. Pursuant to the same, in accordance with the principle of natural justice and in
order to provide a fair chance to the Noticee to put forth its case, vide hearing
notice dated January 20, 2014, the Noticee was granted an opportunity of
hearingonFebruary04,2014andwasadvisedtofiletheirreplyonorbeforethe
said date. In response, the Noticee vide letter dated February 01, 2014
requested for grant of two weeks time for filing of reply as well as for personal
hearing. The same was acceded to. Accordingly another opportunity of hearing
wasgrantedonFebruary28,2014videhearingnoticedatedFebruary03,2014.
8. Mr. Jaikishan Lakhwani (Advocate), Mr. B B Tantri, Chief Operating Officer and
Mr. P Balakrishnan Iyer from Compliance Department, Authorized
Representatives(hereinafterreferredtoastheARs)appearedonbehalfofthe
Noticee. During the course of hearing, the ARs submitted reply dated February
27,2014totheshowcausenoticeandreiteratedthesubmissionsmadetherein.
The ARs submitted that the increase in the outstanding balance of most clients
having debit balance was due to delayed payment charges. The ARs were
advised to provide the breakup of the delayed payment charges in respect of
instancesbroughtoutintheSCNvidepara11.Furtheronaperusalofthereply
submitted by the Noticee, it was noted that the Noticees had stated that they
had a robust risk management system which is based on past performance,
turnover, payment pattern, brokerage earned. On enquiring as to whether the
same was documented, the ARs stated that the said risk management system
has not been documented. ARs were inter alia further advised to provide the
actualstatusofcomplianceofNSEInspectionfindingsaswellasSEBIInspection
findings.
9. Vide reply letter dated February 27, 2014 to the SCN, the Noticee has inter alia
submittedasfollows:
9.1 That the observations in the inspection report are very small in terms of
percentagesofthetotalnumberofclientsthatareregisteredwiththem;
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9.2 Thattherearenocomplaints/grievancependingagainstthem;
9.3 Thattheactualsettlementoffunds&securitieswerenotdoneonlyinthe
cases where they had been specifically instructed by clients to not do so,
or, in the accounts where continuous trading activities were undertaken
bytheclients;
9.4 That they had taken due care and precaution & ensured that the
quarterly/monthly settlement of funds & securities had already been
commencedandcompletedforallclientspossible;
9.5 That those clients who had outstanding settlement of funds & securities
werenotallowedtotakeanyfurtherexposure,excepttoenablethemto
reduce or square off their outstanding funds. That althoughthese clients
did not trade, their outstanding balance had increased because of the
DelayedPaymentChargesbeingleviedbythemonaccountofthedelay;
9.6 That in the overall scenario, during the period of inspection they had a
total turnover of approximately Rs.34,400 crore and the total credit
balance during the same period was approximately Rs.3.5 crore, i.e.
0.01%ofthetotalexposure;
9.7 Thattheyhavearobustriskmanagementsystemwhichisbasedonpast
performance,turnover,paymentpattern,brokerageearnedandbasedon
the analysis of theriskmanagement team, it categorizes clients. It is the
risk management system which has ensured that they did not suffer any
significantlossduetoclientdebitbalance;
9.8 That in the overall scenario, during the period of inspection they had a
totalturnoverofapproximatelyRs.34,400croreandthedebtoutstanding
duringthesameperiodwasapproximatelyRs.11.17crorei.e.0.033%;
9.9 That such clients were not allowed to take fresh positions unless their
previous dues were cleared. The increase in the client debt balance was
duetotheDelayedpaymentChargeschargedtotheirrespectiveaccounts
for non clearance of the outstanding debt and no further exposure was
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provided to such clients, they are only allowed to clear their outstanding
payment;
9.10 Thatinthiscompetitivemarketwheretheclientistheking,ithasbecome
veryimportanttobeabletotakebusinesscall.Aslargenumberofclients
tendtopayafterthepayiniscomplete,hence,howmuchexposureisto
beallowed/grantedtoclientsdependsontheirpastconductlikebusiness
generated by the client i.e. brokerage earned over the period for their
transactions;
9.11 That as regards the observation of NSE with respect to the inspection
conductedbyNSEduringDecember2011,theobservationshighlightedby
theNSEinspectionofficialshavebeencompliedwith.
10. TheNoticeevideletterdatedMarch10,2014madefurthersubmissions/
provideddocumentsasmentionedbelow:
10.1 The list of active client with continuous credit balance of more than
Rs.10,000/ as on December 31, 2011. The Noticee has submitted that
mostoftheclientscreditbalanceshavebeensettled.Ithasbeenpointed
outthatthelistaspertheSCNstated352clients,but,thatactualnumber
ofclientsare347andnot352,astherehasbeenhumanerrorintermsof
numbering and the following nos.2,3,4,334 and 338 were missing in the
list;
10.2 ThatasregardstheallegationsintheSCNthatclientsweregivenfurther
exposures despite having debit balance beyond 180 days and penalty
being charged, for which details in respect of 10 such instances were
provided in the SCN, it has been submitted that looking at the past
performance of the said clients, it was managements decision to give
exposureinspiteofhavingdebits.Furtherithasbeensubmittedthat7out
of 10 clients had not increased their debits after December 2011 and 2
out10clientshadnotincreasedtheirdebitsafterOctober2012.Secondly
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that they had also received cheques from certain clients against their
debits;
10.3 CopyofNoticeesletterdatedAugust02,2013providingpointwisereply
toNSEindicatingthestatusofcompliancetoNSEsInspectionfindingsof
December2012;
10.4 That there is no pending/Non Compliance of SEBI Act Regulation against
the Company, however a Copy of Consent Order No.1993/2010 dated
September 06, 2010 whereby without admitting or denying the charges
theNoticeehadremittedasumofRs.1lactowardssettlementchargesto
dispose of the enquiry proceedings pending against the applicant in the
matterofM/s.MircElectronicsLtd.
CONSIDERATIONOFISSUESANDFINDINGS

11. IhavecarefullyperusedthewrittenandoralsubmissionsoftheNoticee,copyof
documentssubmittedbytheNoticeeandtheothermaterialavailableonrecord.
TheallegationsagainsttheNoticeeisthat:
11.1. TheNoticeehasrepeatedlyviolated/notcompliedwiththeprovisionsof
SEBI Circular no. MIRSD/SE/Cir/19/2009 dated December 03, 2009 and
Circularno.SEBI/MIRSD/Cir/01/2011datedMay13,2011;
11.2. Further that by the above repeated acts of the Noticee, the Noticee has
failed to adhere to the prescribed code of conduct in respect of high
standardofintegrity,promptitude,fairness,dueskill,careanddiligence,
and thereby did not abide by the Act, Rules and Regulations in term of
Regulation 7 read with clauses A (1), (2) and (5) of code of conduct for
stock brokers specified under Schedule II of SEBI (Stock Brokers & sub
Brokers)Regulation,1992.
12. Theissuesthatariseforconsiderationinthepresentcasethereforeare:
12.1. Whether the Noticee has violated/ notcomplied with the provisions of
SEBI Circular no. MIRSD/SE/Cir/19/2009 dated December 03, 2009 and
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Circularno.SEBI/MIRSD/Cir/01/2011datedMay13,2011?Ifso,whether
suchviolation/noncomplianceshaveoccurredrepeatedly?
12.2. In view of the aforesaid, whether the Noticee has failed to adhere the
prescribed code of conduct in respect of high standard of integrity,
promptitude, fairness, due skill, care and diligence, and thereby did not
abidebytheAct,RulesandRegulationsintermofRegulation7readwith
clauses A (1), (2) and (5) of code of conduct for stock brokers specified
underScheduleIIofSEBI(StockBrokers&subBrokers)Regulation,1992?
12.3. Does the violation, if any, on the part of the Noticee attract monetary
penaltyundersections15HBoftheSEBIAct?
12.4. If so, what would be the monetary penalty that can be imposed against
the Noticee taking into consideration the factors mentioned in section
15JoftheSEBIAct?
13. Beforemovingforward,itwillbeappropriatetorefertotherelevantprovisions
ofSEBICircularno.MIRSD/SE/Cir/19/2009datedDecember3,2009andCircular
no.SEBI/MIRSD/Cir/01/2011datedMay13,2011whichreadsasunder:
ProvisionsofSEBICircularno.MIRSD/SE/Cir/19/2009dated03.12.2009
MandatoryDocuments
RunningAccountAuthorization
12. Unless otherwise specifically agreed to by a Client, the settlement of
funds/securities shall be done within 24 hours of the payout. However, a client
mayspecificallyauthorizethestockbrokertomaintainarunningaccountsubject
tothefollowingconditions:
a.Theauthorizationshallberenewedatleastonceayearandshallbedated.
b.Theauthorizationshallbesignedbytheclientonlyandnotbyanyauthorised
persononhisbehalforanyholderofthePowerofAttorney.
c. The authorization shall contain a clause that the Client may revoke the
authorizationatanytime.
d. For the clients having outstanding obligations on the settlement date, the
stock broker may retain the requisite securities/funds towards such obligations
and may also retain the funds expected to be required to meet margin
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obligations for next 5 trading days, calculated in the manner specified by the
exchanges.
e. The actual settlement of funds and securities shall be done by the broker, at
least once in a calendar quarter or month, depending on the preference of the
client.Whilesettlingtheaccount,thebrokershallsendtotheclientastatement
ofaccountscontaininganextractfromtheclientledgerforfundsandanextract
fromtheregisterofsecuritiesdisplayingallreceipts/deliveriesoffunds/securities.
Thestatementshallalsoexplaintheretentionoffunds/securitiesandthedetails
ofthepledge,ifany.
f. The client shall bring any dispute arising from the statement of account or
settlementsomadetothenoticeofthebrokerpreferablywithin7workingdays
fromthedateofreceiptoffunds/securitiesorstatement,asthecasemaybe.
g.Suchperiodicsettlementofrunningaccountmaynotbenecessary:
i.forclientsavailingmargintradingfacilityasperSEBIcircular
ii. for funds received from the clients towards collaterals/margin in the form of
bankguarantee(BG)/FixedDepositreceipts(FDR).
h. The stock broker shall transfer the funds / securities lying in the credit of the
client within one working day of the request if the same are lying with him and
within three working days from the request if the same are lying with the
ClearingMember/ClearingCorporation.
i. There shall be no interclient adjustments for the purposeof settlement of the

runningaccount.
j. These conditions shall not apply to institutional clients settling trades through
custodians.Theexistingpracticemaycontinueforthem.
ProvisionsofSEBICircularno.SEBI/MIRSD/Cir/01/2011dated13.05.2011.
ClarificationoncirculardatedDecember03,2009onDealingsbetweenaClient
andaStockbroker
1. This is with reference to SEBI circular No. MIRSD/SE/Cir19/2009 dated

December 03, 2009 wherein the stock brokers were directed to comply with the
requirementsasannexedtotheaforesaidcircular.
2. Subsequent to the issuance of the aforesaid circular, SEBI has received

representations from market participants expressing difficulties in
implementation of the requirements pertaining to renewal of Running Account
Authorisationonceinayearasprescribedinclause12(a)readwithclause12(c)
oftheAnnexuretotheaforesaidcircular.
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3. Hence, in consultation with the major stock exchanges, the above

requirementshavenowbeenmodifiedasfollows:
i. Clause 12(a) of the aforesaid annexure pertaining to renewal of authorisation
standsdeleted.
ii.Clause12(c)oftheaforesaidannexureisrevisedandshallread,asunder:
Theauthorisationshallbedatedandshallcontainaclausethattheclientsmay
revoketheauthorisationatanytime.Thestockbrokers,whilesendingperiodical
statement of accounts to the clients, shall mention therein that their running
account authorisation would continue until it is revoked by the clients. The
above modifications would simplify and rationalize the requirements while
protectingtheinterestofinvestors.
StockbrokerstoabidebyCodeofConduct
7. The stock broker holding a certificate shall at all times abide by the Code of
ConductasspecifiedinScheduleII.
SCHEDULEII
SecuritiesandExchangeBoardofIndia(StockBrokersandSubbrokers)
Regulations,1992
CODEOFCONDUCTFORSTOCKBROKERS
[Regulation7]
A.General.
(1) Integrity: A stockbroker, shall maintain high standards of integrity,
promptitudeandfairnessintheconductofallhisbusiness.
(2)Exerciseofdueskillandcare:Astockbrokershallactwithdueskill,careand
diligenceintheconductofallhisbusiness.
(3).
(4).
(5)Compliancewithstatutoryrequirements:Astockbrokershallabidebyallthe
provisions of the Act and the rules, regulations issued by the Government, the
BoardandtheStockExchangefromtimetotimeasmaybeapplicabletohim.
14. Now the first issue for consideration is whether the Noticee has violated/ not
complied with the provisions of SEBI Circular no. MIRSD/SE/Cir/19/2009 dated
December 03, 2009 and Circular no. SEBI/MIRSD/Cir/01/2011 dated May 13,
2011.

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15. IfindthattheSCNallegedthatforthequarterendedonDecember2011,outof
13,612 active clients, 2,508 clients had debit balances and 10,216 clients had
creditbalances,whichwerenotsettledformorethan180 days.Thetotaldebit
balance as on December 31, 2011 was Rs 11,17,26,057/ and the total credit
balance as on December 31, 2011 was Rs 3,48,04,976/. Further, clients having
continuous debit/ credit balance of more than Rs. 1,000/ for more than 180
dayswithrespecttototalactiveclientswereobservedasgivenbelow:
Sl.
No.
Quarter
ending
Number
ofActive
Clients
Debit
Balance
Clients
Credit
Balance
Clients
TotalDr.&Cr.
Balance
Clients
Percentage
1 Sep11 13,612 104 1,798 1,902 13.97
2 Dec11 13,612 108 1,977 2,085 15.32
3 Mar12 13,612 85 2,199 2,284 16.78
From the above table, it was observed that 13.97%, 15.32% & 16.78% of the
clientsforthequarterendedasonSeptember2011,December2011andMarch
2012 respectively had continuous debit or credit balances of more than Rs.
1,000/formorethan180days.
16. Ifurtherfindthatalistof352activeclients(whichstandscorrectedto347active
clientsintermsofNoticeesreplydatedMarch10,2014)withcontinuouscredit
balance of more than Rs 10,000/ as on December 31, 2011 aggregating to Rs.
2,79,24,052.27wasalsoprovidedwiththeSCN.Someofsuchinstancesofclients
who had substantial credit balances for more than 180 days, despite the said
clientshavingnotoptedforrunningaccountauthorizationaregivenasbelow:

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Sr.
No.
Client
Code
Name
ContinuousCredit
balance>180days
(inRs.)ason
December31,
2011
CommentsoftheNoticeevide
emaildated
October10,2012
1 1320141 Mr.GovindModi 10,000.00
Creditamountrepaidon
September26,2012
2 4050393
Mr.PremParkash
Gupta
75,828.18
September26,2012
3 3710096
Mr.NandKishore
Nambiar
100,375.00
September26,2012
4 2510029
M/s.Rampur
InternationalLtd.
1,381,922.67
Creditamountkeptformargin
purpose
5 2050051
Mr.VijayaKumar
Svurna
5,000.00
Creditamountalreadyrepaidand
nownilbalance
17. InwasobservedthattheNoticeevideletterdatedMay13,2013,inresponseto
SEBI letter No. MIRSD1/IR/ASM/9880/2013 dated April 25, 2013, had inter alia
submitted to inspection that the primary reason for noncompliance on their
part was due to continuous trading activities being undertaken/ executed by
theirclients,thereforesettlingoffundsandsecuritiesforsuchclientswouldget
really cumbersome for the Noticee. Thus, it was observed that the Noticee had
admitted that no actual settlement of funds and securities, either monthly or
quarterlywasbeingcarriedout,therebynotcomplyingwithPointno.12ofthe
SEBICircularNo.MIRSD/SE/Cir19/2009,datedDecember03,2009withrespect
to quarterly/ monthly settlement of funds and securities of clients. The reply
inter alia also stated that quarterly settlement of funds and securities had
commencedanddoneforthequarterendingSeptember2012.
18. IfindthattheNoticeehasinteraliafurthersubmittedinitsreplydatedFebruary
27, 2014 to the SCN that during the period of inspection, the total turnover of
the Noticee was approximately Rs.34,400 crore and the total credit balance
during the same period was approximately Rs.3.5 crore i.e. 0.01% of the total
exposure. I note here that the Noticee has tried to compare Noticees total
turnover across all clients during the period of inspection with the total credit
balanceoftheclientsduringtheinspectionto portraythatthecreditbalanceis
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negligibleascomparedtotheturnover.This,Ifind,islikecomparingappleswith
oranges to completely distort the facts. Before comparing the two, it was
importantfortheNoticeetoatleastconsiderwhetheritwaspossibletocompare
thecreditbalanceslyingtothecreditoftheclientsaccounts,withtheNoticees
overall turnover in the first place. The Noticees overall turnover for the period
would include turnover of all clients irrespective of whether their accounts
showed credit balances, debit balances or Nil balance and would also include
trades of the Noticee on his proprietary account, if any. However, from the
same, I note that the Noticee has, thus, admitted the fact pointed out by
inspection that the total credit balance of clients with the Noticee which were
not settled for more than 180 days as on quarter ended December 2011 was
approx.Rs.3.5crore.
19. TheNoticeevidethesaidreplyhasfurthersubmittedthattheactualsettlement
offunds&securitieshadnotbeendoneonlyinthecaseswheretheyhavebeen
specifically instructed by clients to not do so, or, in the accounts where
continuoustradingactivitieswereundertakenbytheclients.However,Ifindthat
the Noticee has neither submitted any written instructions/ authorization
obtained from its clients to the effect, nor, settled the funds in the time frame
prescribed as per clause 12 of SEBI Circular No. MIRSD/SE/Cir19/2009 dated
December03,2009,whichstatesthatunlessotherwisespecificallyagreedtoby
theclients,thesettlementoffunds/securitiesshallbedonewithinoneworking
dayofthepayout.
20. The Noticee vide its reply dated March 10, 2014, pursuant to hearing, has
pointed out that though the list of active clients with continuous credit balance
of more than Rs 10,000/ as on December 31, 2011 annexed with the SCN
indicated atotal of 352 such clients, the actualnumber of clients were347 and
not352,astheserialnumbers2,3,4,334and338weremissinginthelist.The
same has been taken note of. Further, vide the said reply, the Noticee has
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annexed an updated status of the said clients. The said updated statement, I
find,hasnotbeensupportedbyanysupportingdocumentation.Evenpresuming
the same to be true, on perusal of the said updated status, it is noted that the
accounts of most of the clients were settled as late as in September, 2012 or
eventhereafter.
21. Even in cases where clients would have specifically authorized the Noticee to
maintainarunningaccount,Ifindthataspersubclause(e)ofclause12ofSEBI
Circular no. MIRSD/SE/Cir/19/2009 dated December 3, 2009, actual settlement
of funds and securities was required to be done by the stock broker, at least
once in a calendar quarter or a month, depending on the preference of the
client. From all of the above, I find that out of the 347 clients with continuous
creditbalanceofmorethanRs10,000/asonDecember31,2011aggregatingto
Rs.2,79,24,052.27,theNoticeehadsettledveryfewclientsduringthemonthsof
January to August 2012 and most of the clients accounts were settled from
September,2012onwards.
22. I find that the SCN further alleges that some of the clients of the Noticee who
had substantial debit balances for more than 180 days were given further
exposure.ThedetailsofsuchinstancesbroughtoutintheSCNareasfollows:
Sr.
No.
ClientCode Name DebitBalance
91days180days
(quarterending
Dec2011)(Rs.)
DebitBalance
morethan180days
(quarterending
Dec2011)(Rs.)
1 1170467 Ms.BhavnaBhatnagar 1,54,612.70 40,97,347.84
2 1040034 Mr.ShaileshShantilal
Shah
15,229.72 1,98,053.37
3 1110290 Mr.Gorrepati
RamakrishnaReddy
13,693.54 98,174.55
4 2760294 Mr.TousifBashirDar 15,444.26 28,763.96
5 2760300 Mr.WasimRajaBalla 12,976.91 2,15,344.30
6 1070077 M/s.StreconFinancial
ServicesPvt.Ltd.
40,000 3,15,555.99

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Sr.
No.
ClientCode Name DebitBalance
91days180days
(quarterending
Dec2011)(Rs.)
DebitBalance
morethan180days
(quarterending
Dec2011)(Rs.)
7 G014 M/s.GeeBeeInvestments 28,669.33 1,58,881.38
8 HYR336 Ms.RajshriKarwa 39,415.94 3,05,245.60
9 3010570 Ms.HarshadaHKulaye 17,03,679.75 1,74,79,487.86
10 3010585 M/s.AnuvaSecuritiesPvt.
Ltd.
7,02,968.08 67,61,628.57
InotefromtheSCNthattheNoticeehadsubmittedtoinspectionthattheremay
perhaps have been situations where trading activities may have been
undertaken/ executed by the client in order to regularize the account, and due
to low volume and to recover their debit, additional exposures may have been
provided to the clients. Vide letter dated February 27, 2014, the Noticee has
reiterated that those clients who had outstanding settlement of funds &
securitieswerenotallowedtotakeanyfurtherexposure,excepttoenablethem
to reduce or square off their outstanding funds. I further find that the Noticee
hasinteraliaadmittedthatactualsettlementoffunds&Securitieshadnotbeen
done only in the cases where the Noticee had been specifically instructed by
clientstonotdoso,or,intheaccountswheretherehadbeencontinuoustrading
activities undertaken by such clients. However, as mentioned earlier, I find that
the Noticee has neither submitted any written instructions/ authorization
obtained from its clients to the effect, nor, settled the funds in the time frame
prescribed as per clause 12 of SEBI Circular No. MIRSD/SE/Cir19/2009 dated
December 03, 2009, which required that even if a client had given running
accountauthorization,theactualsettlementoffundsandsecuritiesbedoneby
the broker at least once in a calendar quarter or month, depending on the
preferenceoftheclient.
23. I further find that the SCN alleged that the clients of the Noticee were given
further exposure despite having debit balance beyond 180 days and penalty
beingcharged,thedetailsofsuchfewinstancesaregivenbelow:
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Sr Code Name Closing
balanceason
June30,2011
(Rs.)
Closing
balanceason
Sept30,2011
(Rs.)
Increasein
debitbalance
(Rs.)
Noticees
comments*on
increasein
debitbalance
1 2510105 M/s.
Passion
System
Solutions
Pvt.Ltd.
9,60,33,119.72 106,132,060.17 10,098,940.45 Delayed
payment
charges&
further
exposuregiven
2 V154 M/s.
Vector
Financial&
Manageme
nt
Consultant
1,81,56,141.38 36,207,059.05 18,050,917.67 Delayed
payment
charges&
further
exposuregiven
3 1179631 Mr.Vishal
Harishchan
draTrehan
HUF
2,54,69,771.26 34,825,060.80 9,355,289.54 Delayed
payment
charges&
further
exposuregiven
4 1170363 Mr.JigarP
Ghoghari
4,57,483.17 6,099,898.52 5,642,415.35 Delayed
payment
charges&
further
exposuregiven
balanceason
Sept30,2011
(Rs.)
Closing
balanceason
Dec30,2011
(Rs.)
Increasein
debitbalance
(Rs.)
Noticees
comments*on
increasein
debitbalance
1 1C023 M/s.
Cartier
LeafinPvt.
Ltd.
2,41,73,417.93 34,581,837.12 10,408,419.19 Further
exposuregiven
2 1100166 M/s.Kay
PeeShares
&Stocks
Pvt.Ltd.
2,51,48,064.53 113,513,703.25 88,365,638.72 Further
exposuregiven
3 1100167 M/s.Pee
KayShares
&Stocks
3,25,09,915.59 91,838,117.41 59,328,201.82 Further
exposuregiven
balanceason
Dec31,2011
(Rs.)
Closing
balanceason
March31,2012
(Rs.)
Increasein
debitbalance
(Rs.)
Noticees
comments*on
increasein
debitbalance
1 N122 Mr.NanjiV
Shah
379,515.59 802,603.27 423,087.68 Further
exposuregiven
2 1560043 Mr.Arikatla
Srinivasa
Reddy
12,46,813.83 2,032,359.27 785,545.44 Further
exposuregiven
_____________________________________________________________________________________
balanceason
June30,2012
(Rs.)
Closing
balanceason
Sept29,2012
(Rs.)
Increasein
debitbalance
(Rs.)
Noticees
comments*on
increasein
debitbalance
1 N122 Mr.NanjiV
Shah
527,526.93 720,859.15 193,332.22 Further
exposuregiven
24. I find that the Noticee vide email dated September 13, 2012 had informed to
inspectionthataspertheirpolicytheywerechargingupto3%permonthonthe
dailyoutstandingvalueoratsuchratesasmaybedeterminedfromtimetotime
by them. The Noticee had further submitted to inspection that the Delayed
Payment Charges (DPC) were levied to the clients Trading Accounts as agreed
uponbythematthetimeofsigning/executingKnowYourClient(KYC)Formand
MemberClientAgreement.Further,ontheremarkofadditionalexposurebeing
provided to their clients, the Noticee had stated that owing to their stringent
Risk Management Policy, such instances are generally avoided as their Risk
Management Team shall at no cost allow any further trading activities to be
undertaken by that particular client in case of debit balance existing in his
account. It was also stated that till funds or collateral in the form of shares/
securities were not received, clients were not allowed to create/ take any fresh
positions.TheNoticee,Ifind,however,hadfurtherstatedthatsinceithadbeen
highlighted by the Inspecting Officials, it shall help them bridge the gap in their
systemsandduecareshallbeexercisedbythemhenceforth.
25. Thus, I find from all of the above that the inspection had revealed that the
Noticee was giving further exposure despite having debit balance beyond 180
days and thereby not complying with Point no. 12 of the SEBI Circular No.
MIRSD/SE/Cir19/2009datedDecember03,2009whichstatesthatevenincases
of clients who have consented for maintaining a running account, the actual
settlementoffundsandsecuritieshavetobedonebythebrokeratleastoncein
a calendar quarter or month, depending on the preference of the client. I find
that the Noticee has inter alia admitted that actual settlement of funds &
_____________________________________________________________________________________
securities was not done only in the cases where they had been specifically
instructed by clients to not do so, or, in the accounts where there had been
continuous trading activities undertaken by such clients. The Noticee, however,
could not produce any written instructions/ authorization obtained from its
clientstothateffect.
26. TheNoticeehasinteraliafurtherstatedthatthoseclientswhohadoutstanding
settlementoffunds&securitieswerenotallowedtotakeanyfurtherexposure,
except to enable them to reduce or square off their outstanding funds. The
Noticee has further also stated that although these clients did not trade, their
outstanding balance had increased because of the Delayed Payment Charges
being levied by them on account of the delay. The ARs reiterated the said
submissionatthetimeofhearing.TheARswereadvisedtoprovidethebreakup
of the delayed payment charges in respect of instances brought out in the SCN
for10clients.Thestatementofdelayedpaymentchargesleviedonthe10clients
visvis their closing balances provided by the Noticee vide letter dated March
10, 2014 indicate that further exposure was allowed in all the said 10 accounts
despite the clients having large debit balances, and it was not as if their
outstanding balances had increased only because of delayed payment charges
charged,asclaimedbytheNoticee.Furtheronaperusalofthereplysubmitted
bytheNoticee,itwasnotedthattheNoticeeshadstatedthattheyhadarobust
risk management system which is based on past performance, turnover,
payment pattern, brokerage earned. On enquiring as to whether the same was
documented, the ARs submitted that the said risk management system had not
beendocumented.Thus,itappearsfromthesamethattheNoticeedidnothave
any laid down risk management policy in place with respect to settlement of
fundsandsecuritiesofitsclients.
27. TheNoticeevideitreplydatedMarch10,2014hasinteraliasubmittedthatwith
respecttoinstancesof10clientsbroughtoutintheSCN,7outof10clientshad
not increased their debits after December 2011 and 2 out 10 clients had not
_____________________________________________________________________________________
increased their debits after October 2012. Also that they had received cheques
fromcertainclientsagainsttheirdebits.Ithasinteraliafurtherbeensubmitted
that it was managements decision to give exposure inspite of having debits.
Thus, I find that the Noticee has inter alia admitted to willfully giving further
exposuretoitsclientsdespitehavingdebitbalancesinviolationwithclause12of
SEBI Circular No. MIRSD/SE/Cir19/2009 dated December 03, 2009, which
requiredthatevenifaclienthadgivenrunningaccountauthorization,theactual
settlement of funds and securities be done by the broker at least once in a
calendarquarterormonth,dependingonthepreferenceoftheclient.Infact,it
is observed from a perusal of statement provided by the Noticee vide letter
dated March 10, 2014 that in case of 3 out of the 10 clients brought out in the
SCN, the collateral available with the Noticee on behalf of the client was not
even enough to cover the debit balance in the clients account. For example, in
caseofM/s.VectorFinancialandManagementConsultant,thedebitbalanceas
on June 30, 2011 and September 30, 2011 was Rs. 1,81,56,141.38 and Rs.
3,62,07,059.05,whereascollateralofthesaidclientavailablewiththeNoticeeas
on June 30, 2011 and September 30, 2011 was only Rs. 11,07,320/ and Rs.
1,44,34,280/ respectively, despite the same, fresh debit was allowed in the
clientaccounttillSeptember30,2011.
28. IfurtherfindthatNSEhadconductedInspectionduringDecember2011andhad
pointed out to the Noticee that they had charged delayed payment charges to
clients and had also given further exposure. In response to the inspection
findingsofNSE,itwasobservedthattheNoticeehadsubmittedtoNSEthatthe
reasons for delayed payment charges were in line with the guidelines and with
consent of the clients. The Noticee had also assured that various steps were
being initiated by them including educating majority of their clients about their
payin obligations in line with the regulatory compliances. The Noticee had
further stated that no trades were allowed in such clientele accounts where
debit is more than T+7 trading days. Inspection had observed that despite
_____________________________________________________________________________________
assuring to NSE, the Noticee had not taken corrective steps with regard to the
inspection findings of NSE. The SCN, therefore, alleged that though it was
observed that NSE had imposed Rs 40,000/ as penalty and other disciplinary
actionsweretaken,however,theNoticeehadnottaketheinspectionreportof
NSEseriously.
29. IfindthatSEBICircularNo.MIRSD/SE/Cir19/2009datedDecember03,2009inter
alia stipulates that where a client specifically authorizes the stock broker to
maintain a running account, then too, the actual settlement of funds and
securities shall be done by the broker, at least once in a calendar quarter or
month,dependingonthepreferenceoftheclient.Further,aspertheaforesaid
circular, stock brokers were required to ensure its full compliance in respect of
allclients(existingaswellasnew),latestby31
st
March2010(laterextendedto
June30,2010).
30. However, from all of the aforesaid, it is observed that the Noticee had not
compliedwithSEBICirculardatedDecember03,2009andcirculardatedMay13,
2011withrespecttosettlementoffundsandsecuritiesoftheclientsevenasat
the time of SEBI inspection, i.e. even after two years from the date when the
provisions regarding the settlement of running accounts came into effect.
Besides, I note that this was despite NSE bringing the said irregularities to the
noticeoftheNoticee.Thus,Ifindthattherewasagenerallackadaisicalattitude
onthepartoftheNoticeeincomplyingwiththeaforesaidcircularswithrespect
tosettlementoffundsandsecuritiesoftheclients.Hence,Ifurthernotethatthe
Noticee did not adhere to the prescribed code of conduct in respect of high
standardofintegrity,promptitude,fairness,dueskill,careanddiligence,anddid
not abide by the SEBI Act, 1992 and rules and regulations made thereunder, in
term of Regulation 7 read with clauses A (1), (2) and (5) of code of conduct for
stock brokers specified under Schedule II of SEBI (Stock Brokers & sub Brokers)
Regulation,1992.

_____________________________________________________________________________________
31. Inlightoftheabove,followingallegationsoftheviolationsstandsestablished:
31.1. By failing to settle the running accounts of its clients either in calendar
quarter or monthly, the Noticee has violated the provisions of SEBI
Circular no. MIRSD/SE/Cir/19/2009 dated December 03, 2009 and
Circularno.SEBI/MIRSD/Cir/01/2011datedMay13,2011;
31.2. Further, the Noticee by repeatedly violating/ not complying with the
provisions SEBI Circular no. MIRSD/SE/Cir/19/2009 dated December 03,
2009 and Circular no. SEBI/MIRSD/Cir/01/2011 dated May 13, 2011 has
failed to adhere to the prescribed code of conduct in respect of high
standardofintegrity,promptitude,fairness,dueskill,careanddiligence,
and did not abide by the SEBI Act, 1992 and rules and regulations made
thereunder,intermofRegulation7readwithclausesA(1),(2)and(5)of
code of conduct for stock brokers specified under Schedule II of SEBI
(StockBrokers&subBrokers)Regulation,1992.
32. The Honble Supreme Court of India in the matter of SEBI Vs. Shri Ram Mutual
Fund [2006] 68 SCL 216(SC) 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
intentionofthepartiescommittingsuchviolationbecomeswhollyirrelevant..
33. Inviewoftheforegoing,Iamconvincedthatitisafitcasetoimposemonetary
penaltyundersection15HBoftheSEBIAct,1992,whichreadsasunder:
15HB: Penalty for contravention where no separate penalty has been

provided.
Whoever fails to comply with any provision of this Act, the rules or the
regulations made or directions issued by the Board there under for which no
separate penalty has been provided, shall be liable to a penalty which may
extendtoonecrorerupees.
_____________________________________________________________________________________
34. Whiledeterminingthequantumofmonetarypenaltyundersection15HB,Ihave
considered the factors stipulated in section 15J of SEBI Act, which reads as
under:
15JFactorstobetakenintoaccountbytheadjudicatingofficer
While adjudging quantum of penalty under section 15I, the adjudicating officer
shallhavedueregardtothefollowingfactors,namely:
(a)The amount of disproportionate gain or unfair advantage, wherever
quantifiable,madeasaresultofthedefault;
(b)Theamountoflosscausedtoaninvestororgroupofinvestorsasaresultof
thedefault;
(c)Therepetitivenatureofthedefault.
35. Intheinstantcase,itisfoundthatnoquantifiablefiguresareavailabletoassess
thedisproportionategainorunfairadvantagemadeasaresultofsuchdefaultby
the Noticee. Further from the material available on record, it may not be
possible to ascertain the exact monetary loss to the investors on account of
defaultbytheNoticee.
36. I, however, note the total debit balance as on December 31, 2011 of the 2,508
activeclientswhohaddebitbalanceswhichwerenotsettledformorethan180
days was Rs 11,17,26,057/. I further note that the total credit balance as on
December31,2011of10,216activeclientswhohadcreditbalances,but,which
were not settled for more than 180 days was Rs 3,48,04,976/. Further, I note
that even as on quarter ended March 2012, there were 2,284 active clients
comprising 16.78% of total number of active clients of the Noticee, who had
continuous debit/credit balance of more than Rs. 1,000/ for more than 180
days. This was despite the fact that NSE had conducted an inspection during
December 2011 and pointed out to the Noticee that the Noticee had charged
delayedpaymentchargestotheclientsandhadgivenfurtherexposure.Thus,it
is noted that the Noticee had not taken corrective steps despite the Inspection
_____________________________________________________________________________________
findings of NSE. Besides, I note that the Noticee did not have any documented
riskmanagementpolicyinplace.
37. I further find that the Noticee by not settling the credit balances lying in the
clients account as per the SEBI directive dated December 03, 2009, has caused
loss to the concerned investors, visvis the other investors whose accounts
were settled by their respective stock brokers in compliance with the SEBI
directive. I find that the accounts of 10,216 active clients who had opted for
running account settlement were not settled for more than 180 days as on
December31,2011andsuchcorrespondingcreditbalancethatwerenotsettled
was approx. Rs. 3.5 crore. Out of the same, I note that 347 active clients had
continuous credit balance of more than Rs. 10,000/ as on December 31, 2011
for more than 180 days and such corresponding credit balance that were not
settledwasapprox.Rs.2.79crore.
38. IfurtherfindthatNoticeevideemaildatedSeptember13,2012hadinformedto
inspection that in terms of agreement entered between the Noticee and the
clients, the Noticee was authorized to charge maximum upto 3% per month on
theoutstandingobligationfromtheclientoratsuchrateasmaybedetermined
bytheNoticeefromtimetotime.Evenattheminimum,ifinterestattherateof
10% p.a. on approx. Rs. 2.79 crore unsettled amount in respect of 347 active
clients having continuous credit balance of more than Rs. 10,000/ as on
December 31, 2011 is considered by taking into consideration the settlement
date as provided by the Noticee, I find, the interest amount lost by the
concerned investors whose credit balances were not settled due to the Noticee
notadheringtothedirectiveoftheregulator,worksouttoapprox.Rs.23lacsat
theminimumasperdetailsgivenbelow:

_____________________________________________________________________________________
UnsettledAmount>180
daysasonDecember31,
2011
(Rs.)(Approx.)
Settledinthe
QuarterEnded
Minimum
numberof
months
unsettled
Interest
@10%p.a.
1,16,00,000 31Mar12
6 5,80,000
19,35,000 30Jun12
9 1,45,125
91,99,000 30Sep12
12 9,19,900
23,23,000 31Dec12
15 2,90,375
15,26,000 31Mar13
18 2,28,900
51,000 30Jun13
21 8,925
2,63,000 30Sep13
24 52,600
53,000 31Mar14
33 14,575
2,17,000* 31Mar14 33 59,675
2,69,50,000* 23,00,075
*(Of Rs. 2.79 crore unsettled amount in respect of 347 active clients having continuous credit balance of
morethanRs.10,000/asonDecember31,2011,Noticeehasinformedthatanamountofapprox.Rs.7lacs
was towards advance subscription and an amount of Rs. 2.17 lacs remained unsettled even as on date of
reply)
39. Further, taking into consideration the degree of noncompliance, that not even
an attempt was made to explore the feasibility of compliance to circular dated
December03,2009withrespecttorunningaccountsettlementaslateasMarch
and June 2012 as brought out in the preceding paras, I am of the opinion that
the matter needs to be viewed seriously. Besides, it is noted from records that
SEBIhadearlyissuedanAdministrativeWarningtotheNoticeeonNovember01,
2013 in view of certain discrepancies noted at the time of inspection of books
andrecordsconductedonAugust05,2013.
ORDER
40. After taking into consideration all the facts and circumstances of the case, I
imposeapenaltyofRs.35,00,000/(RupeesThirtyfivelacsonly)ontheNoticee
M/s. Intime Equities Limited (Formerly known as M/s. Fortune Equity Brokers
(India)Limited)undersection15HBoftheSEBIAct,whichwillbecommensurate
withtheviolationscommittedbyit.
_____________________________________________________________________________________
41. The Noticee shall pay the said amount of penalty by way of demand draft in
favour of SEBI Penalties Remittable to Government of India, payable at
Mumbai,within45daysofreceiptofthisorder.Thesaiddemanddraftshouldbe
forwardedtoShriSujitPrasad,ChiefGeneralManager,MIRSD,SEBIBhavan,Plot
No.C4A,GBlock,BandraKurlaComplex,Bandra(E),Mumbai400051
42. In terms of rule 6 of the Rules, copies of this order are sent to the Noticee and
alsototheSecuritiesandExchangeBoardofIndia.
Date:September25,2014 AnitaKenkare
Place:Mumbai AdjudicatingOfficer

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i. There shall be no interclient adjustments for the purposeof settlement of the

1. This is with reference to SEBI circular No. MIRSD/SE/Cir19/2009 dated

2. Subsequent to the issuance of the aforesaid circular, SEBI has received

3. Hence, in consultation with the major stock exchanges, the above

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15HB: Penalty for contravention where no separate penalty has been

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