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Order in the matter of Click2Trade Capital Ltd

SEBI
Jan 13, 2020
Judgment
Subsequent
References
CaseIQ
Case Information
CITATION CODES
citation codes
CASE NO.

WTM/GM/EFD1-DRA2/63/2019-20

JUDGES

G. Mahalingam, Whole Time Member

ACTS

Regulations 9(a),(b),(e) and (f) of Broker Regulations, Regulation 9(1)(c), (d) and (e) of the Intermediaries Regulations and Section 12(3) of the Securities and Exchange Board of India Act, 1992 (SEBI Act)

Section 12 (3) of the SEBI Act read with Regulation 27 and Regulation 28 of the SEBI (Intermediaries) Regulations, 2008,

Regulation 27 of the Intermediaries Regulations read with Section 12(3) of the SEBI Act.

SEBI Act, 1992 Section 12

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Summary of Legal Opinion: SEBI Order in the matter of Click2Trade Capital Limited

Factual and Procedural Background

Click2Trade Capital Limited (CTCL / Noticee) is a registered stock broker and depository participant, incorporated on January 20, 1995 (earlier known as Rajive Stock Brokers Limited), holding registrations/membership with BSE, NSE and MSE (registration numbers and identifiers appear in the order). SEBI initiated enquiry proceedings into alleged violations of Broker Regulations (Regulation 9(a),(b),(e),(f) of SEBI (Stock Brokers) Regulations, 1992), Intermediaries Regulations (Regulation 9(1)(c),(d),(e) of SEBI (Intermediaries) Regulations, 2008) and Section 12(3) of the SEBI Act, 1992.

An inspection on September 30, 2015, and related enquiries revealed that the Noticee was not available at known addresses, had failed to redress investor grievances, failed to honour arbitration awards, did not make directors or KMPs available at known addresses, failed to maintain an office at known addresses, and failed to maintain margins with exchanges. The Noticee had been declared a defaulter and expelled from membership of NSE (expelled July 10, 2015), BSE (ceased to be a member w.e.f. July 08, 2015) and MSE (expulsion order dated September 19, 2015).

A Designated Authority / Enquiry Officer (DA) prepared an Enquiry Report dated September 26, 2018 (DA Report) finding the alleged violations established and recommending cancellation of the Noticee's certificate of registration as a stock broker. A Show Cause Notice dated April 03, 2018 (SCN1) was earlier issued and no reply was received. A subsequent Show Cause Notice dated October 17, 2018 (SCN2) under Regulation 28(1) of the Intermediaries Regulations called upon the Noticee to show cause why action recommended in the DA Report or a higher penalty should not be taken. SCN2 could not be delivered via Speed Post and was serviced through affixture, publication on SEBI website and public notice in two newspapers; email notices were also sent. The Noticee did not reply or appear for a personal hearing scheduled July 10, 2019.

The Whole Time Member considered the DA Report and related material and proceeded ex-parte, issuing an order dated January 13, 2020 directing cancellation of the Noticee's certificates of registration with immediate effect and issuing ancillary directions (copies to stock exchanges, depositories and clearing corporations; and preserving SEBI's right to initiate further action).

Legal Issues Presented

  1. Whether the Noticee committed violations of Regulations 9(a), 9(b), 9(e) and 9(f) of the SEBI (Stock Brokers) Regulations, 1992 (Broker Regulations), and Regulations 9(1)(c), 9(1)(d) and 9(1)(e) of the SEBI (Intermediaries) Regulations, 2008, as well as contravened obligations under Section 12(3) of the SEBI Act, 1992 (as framed in the DA Report and SCNs).
  2. Whether, in light of the DA Report findings and the Noticee's failure to respond or appear for hearing, the proceeding should be carried forward ex-parte and whether the Noticee's certificate(s) of registration should be cancelled under Section 12(3) of the SEBI Act read with Regulation 27 and Regulation 28 of the Intermediaries Regulations.
  3. Whether the factual findings (including failure to redress investor grievances, non-compliance with arbitration awards, non-availability at known addresses, non-maintenance of margins, and expulsion by stock exchanges) justify cancellation of the Noticee's certificate(s) of registration.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The adjudicatory reasoning proceeded in the following steps, based explicitly on the materials and findings recorded in the DA Report and the procedural history:

  1. Procedural fairness and service: The adjudicating officer reviewed the service attempts for SCN2 — Speed Post returned undelivered; service was effected by affixture at known addresses, publication on SEBI's website, notices in two newspapers (Hindustan Times and Amar Ujala) and emails to two known email addresses. The Noticee did not submit any reply or attend the scheduled personal hearing on July 10, 2019. Having satisfied himself that adequate opportunity had been provided, the officer proceeded ex-parte.
  2. Reliance on the DA Report: The order carefully considered the DA Report (Enquiry Report dated September 26, 2018), which recorded inspection findings and exchange records. The DA Report identified multiple categories of failures by the Noticee: (a) failure to redress investor grievances and to comply with arbitration awards; (b) serious lapses in client dealings and basic infrastructure (including incorrect margin reporting, non-segregation of client and own accounts, use of client accounts for non-specified purposes, failure of periodic settlements, non-maintenance of logs and complaints register); (c) closure/non-availability of broker's office at known addresses without intimation; and (d) actions by stock exchanges resulting in the Noticee being declared a defaulter and expelled from membership of NSE, BSE and MSE.
  3. Specific factual findings: The DA Report recorded quantitative particulars (as reproduced in the order): 73 complaints with cumulative value of Rs.6.70 crore in respect of NSE trades; 49 IGRP orders amounting to Rs.57.39 lakhs; 15 arbitration awards amounting to Rs.59.62 lakhs (payments from the Noticee's deposits were made in only some cases); additional claims and awards post-expulsion; and a BSE arbitration award of Rs.52.50 lakh of which only partial amounts were paid (partly from deposits and partly from the Investor Protection Fund). These factual findings supported the conclusion of failure to redress and to comply with awards.
  4. Legal linkage: The adjudicator identified the textual bases in the statutory/regulatory framework: Regulation 9 of the Broker Regulations (setting conditions of registration including membership of a stock exchange, abiding by exchange rules and redressal of investor grievances and adherence to Code of Conduct), Regulation 9(1) of the Intermediaries Regulations (conditions of certificate, including compliance with securities laws and ongoing requirements), and Section 12(3) of the SEBI Act (authority to suspend or cancel a certificate of registration subject to regulations and opportunity of being heard). The order concluded that the Noticee's failures constituted breaches of Regulations 9(a),(b),(e),(f) of the Broker Regulations and Regulations 9(1)(c),(d),(e) of the Intermediaries Regulations, thereby attracting action under Regulation 27 of the Intermediaries Regulations read with Section 12(3) of the SEBI Act.
  5. Conclusion on sanction: Given the established violations, the Noticee's expulsion from exchanges (so it no longer satisfied the condition of holding membership required by Regulation 9(a) of the Broker Regulations), the Noticee's non-availability at registered/known addresses, its failure to respond to SCNs or to participate in the proceedings, and the integrity and investor-protection concerns arising from the DA Report, the adjudicator accepted the DA's recommendation that the Noticee's certificate(s) of registration be cancelled. The lack of traceability and the fact that the certificate served no practical purpose were cited as further reasons supporting cancellation.

Holding and Implications

Holding: The adjudicating authority directed the cancellation of the Noticee's certificates of registration. The core ruling is:

CERTIFICATE(S) OF REGISTRATION OF CLICK2TRADE CAPITAL LIMITED ARE CANCELLED WITH IMMEDIATE EFFECT.

The order was passed under Section 12(3) of the SEBI Act read with Regulation 27 and Regulation 28 of the SEBI (Intermediaries) Regulations, 2008, and the certificates cancelled included the listed registration numbers (INB/INF 010771237; INB/INF 230771235; INE 260771235; INB260771234; INF260771234) as specified in the order.

Direct consequences and directions set forth in the order:

  • The cancellation is effective immediately.
  • The cancellation does not affect SEBI's right to initiate any other action against the Noticee in future.
  • A copy of the order is to be sent to all Recognised Stock Exchanges, Depositories and Clearing Corporations.

Broader implications: The order focuses on enforcement against the Noticee and the protection of investor interests; it does not purport to establish a new legal precedent beyond the application of the cited statutory and regulatory provisions to the facts of this case. The order is an enforcement measure in response to established regulatory breaches by the Noticee and to the practical reality that the Noticee no longer satisfied the conditions of registration.

Order dated: January 13, 2020. Signed by: G. Mahalingam, Whole Time Member, Securities and Exchange Board of India. Place: Mumbai.

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UNDER SECTION 12(3) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 28(2) OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (INTERMEDIARIES) REGULATIONS, 2008. IN THE MATTER OF CLICK2TRADE CAPITAL LIMITED. _______________________________________________________________________ Background

1. Click2Trade Capital Limited. (CTCL / Noticee) is a Registered Stock Broker having membership of BSE Ltd (BSE) (SEBI Registration Nos. INB/INF 010771237), National Stock Exchange of India Ltd. (NSE) (SEBI Registration Nos. INB/INF 230771235) and Metropolitan Stock Exchange of India Ltd. (MSE) (SEBI Registration Nos. INE 260771235 / INB260771234 / INF260771234). The noticee is also a Depository Participant of Central Depository Services Limited. The Noticee was incorporated on January 20, 1995 and was earlier known as Rajive Stock Brokers Limited.

2. SEBI initiated Enquiry Proceedings against the noticee in respect of alleged violation of the provisions of Regulations 9(a),(b),(e) and (f) of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 (since renamed as SEBI (Stock Brokers) Regulations, 1992) (Broker Regulations) and Regulations ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 2 of 11 9(1)(c),(d) and (e) of SEBI (Intermediaries) Regulations, 2008 ( Intermediaries Regulations). Enquiry Proceedings

3. The facts in the instant proceedings as noted from the Enquiry Report dated September 26, 2018 (DA Report) are provided below: a. SEBI, in view of the non-redressal of large number of investor complaints and complaint of reporting of false margin, conducted inspection of the books and accounts of CTCL on September 30, 2015. However, the Noticee was not available at any of the available addresses. b. An Inspection conducted by NSE revealed that the Noticee failed to redress investor grievance, failed to honour arbitration awards, failed to make available directors at any addresses available with SEBI, failed to show the existence of stock brokers office and also failed to maintain margins with the exchange. c. An SCN dated April 03, 2018 (SCN1) was issued to the Noticee to show cause as to why action in terms of Regulation 27 of the Intermediaries Regulations should not be taken against it for the alleged violation of the provisions of law. However, no reply was received from the Noticee. Accordingly, the matter was proceeded with under Regulation 26(2) of the Intermediaries Regulations, on the basis of the material facts available before the DA. ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 3 of 11 d. DA Report, inter-alia, observed that the Noticee has grossly failed to:

i. Redress investor grievances despite reminders;

ii. Honour arbitration awards;

iii. Make the directors and Key Managerial Personnel (KMPs) available at any of the addresses available with SEBI;

iv. Show the existence of Brokers Office at the addresses known to SEBI;

v. Maintain the margins / deposits with the Exchanges. e. DA Report also observed that the Noticee has been expelled from the membership of NSE on July 10, 2015. Further, the Noticee has been declared as a defaulter and ceased to be a member of BSE with effect from July 08, 2015. MSE also expelled the Noticee from its membership vide expulsion order dated September 19, 2015. f. The Designated Authority / Enquiry Officer (DA), in his report, has also observed that the Noticee has grossly failed in performing i ts duties as a registered stock broker and also failed to adhere to high standards of service and therefore failed to comply with the conditions of certificate of registration as stock broker. It was also observed that by committing serious lapses in maintaining the basic infrastructure as registered stock broker and by failing to redress investors grievances, the Noticee has acted against the integrity of the securities market. ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 4 of 11 g. DA, upon consideration of the facts before him and after granting an opportunity of hearing which was not availed by the Noticee, found that the alleged violation of Regulations 9(a),(b),(e) and (f) of Broker Regulations, Regulation 9(1)(c), (d) and (e) of the Intermediaries Regulations and Section 12(3) of the Securities and Exchange Board of India Act, 1992 (SEBI Act) by the Noticee stood established. h. In view of the above, DA recommended that the certificate of registration of the Noticee as a stock broker be cancelled.

4. A Show Cause Notice dated October 17, 2018 (SCN2) under Regulation 28(1) of the Intermediaries Regulations was issued by SEBI calling upon the noticee to show cause as to why action as recommended in the DA Report or any other higher penalty should not be taken against it, by the Competent Authority.

5. Since the SCN2 sent to the available addresses of the Noticee returned undelivered, the same was serviced through affixture at the available addresses of the Noticee. Copy of the SCN was also published on SEBI website and a public notice was given in two newspapers viz. The Hindustan Times and Amar Ujala inter-alia, advising the Noticee to collect a copy of the SCN and appear for a personal hearing in the matter on July 10, 2019. Copies of the hearing notices were also sent to the two available email addresses of the Noticee, viz. compliance@click2tradecapital.com and infor@click2tradecapital.com. However, no reply or communication was received from the Noticee. ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 5 of 11 Regulatory requirements

6. Relevant extracts of the statutory / regulatory provisions referred to or considered in the extant matter are reproduced below: SEBI (Stock Brokers) Regulations, 1992 Regulation 9 Conditions of Registration

9. Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely,- (a) the stock broker holds the membership of any stock exchange; (b) he shall abide by the rules, regulations and bye-laws of the stock exchange which are applicable to him; (c) . (d) .. (e) he shall take adequate steps for redressal of grievances, of the investors within one month of the date of receipt of the complaint and inform the Board as and when required by the Board; (f) he shall at all times abide by the Code of Conduct as specified in Schedule II; and.. SEBI (Intermediaries) Regulations, 2008 Regulation 9 Conditions of certificate

9. (1) Any certificate granted by the Board to an intermediary shall be subject to the following conditions, namely: (a). (b). (c)it shall abide by the provisions of the securities laws and the directions, guidelines and circulars as may be issued thereunder; (d) it shall continuously comply with the requirements of regulation 4; (e) it shall meet the eligibility criteria and other requirements specified in these regulations and the relevant regulations: SEBI Act, 1992 Section 12 - Registration of stock brokers, sub-brokers, share transfer agents, etc. 12.(1) (2).. ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 6 of 11 (3) The Board may, by order, suspend or cancel a certificate of registration in such manner as may be determined by regulations: Provided that no order under this sub-section shall be made unless the person concerned has been given a reasonable opportunity of being heard. Reply and Submissions

7. The Noticee did not submit any reply to the SCN2 and also failed to attend the personal hearing scheduled on July 10, 2019. Further, no request has been received seeking additional time for submission of reply or another opportunity for personal hearing. Findings

8. I observe that adequate opportunity has been provided to the Noticee to submit his replies. However, the Noticee failed to submit any replies to the SCN2 and did not attend the personal hearing. Since the SCN2 sent to the Noticee via Speed Post returned undelivered, serving of the SCN2 was attempted through stock exchanges and the SCN2 was served through affixture at the known addresses of the Noticee. A copy of the SCN2 was also hosted on the SEBI website. Further, the notice for personal hearing was given in one English Language Newspaper (Hindustan Times) and one Hindi Newspaper (Amar Ujala), duly intimating the Noticee regarding availability of the SCN2 on SEBI website and to appear for personal hearing on July 10, 2019. Copies of the hearing notices were also sent to the two available email addresses of the Noticee. Having satisfied that adequate opportunity has been provided to the Noticee to submit replies and to make any representation in person, I deem it a fit case to proceed ex-parte. ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 7 of 11

9. I have carefully considered the observations contained in the DA Report. My observations and findings with respect to each of the allegations dealt with in the DA Report, are given below: a. Failure to redress grievances and failure to comply with arbitration award : DA, inter-alia, observed that there were 73 complaints having a cumulative value of Rs.6.70 crore against the Noticee in respect of trades executed on NSE. There were 49 IGRP orders amounting to Rs.57.39 lakhs and 15 arbitration awards amounting to Rs.59.62 lakhs of which payment could be made to investors from the deposits of the Noticee, only in respect of 19 IGRP cases and 6 arbitration awards. Further, 18 claims amounting to Rs.48.81 lakhs against the Noticee have been received in NSE against the Noticee after his expulsion from NSE. Further, there is an arbitration award on BSE against the Noticee for Rs.52.50 lakh of which only Rs.4.79 lakh was paid out of the deposits of the Noticee and Rs.15 lakh was paid out of the Investor Protection Fund. In view of the above, the allegation pertaining to failure to redress grievances and to comply with arbitration awards stand established, involving violation of Regulations 9(b), 9(e) and 9(f) of Broker Regulations and 9(1)(c) of the Intermediaries Regulations, attract ing liability for action under Regulation 27(viii) and (xvi) of Intermediaries Regulations. b. Serious lapses in dealing with clients and basic infrastructure: DA, inter- alia, observed that there were serious lapses on the part of the Noticee, indicating that the Noticee failed to comply with various mandatory requirements prescribed by SEBI. It was also observed that serious lapses such as incorrect margin reporting, non-segregation of own and clients bank accounts, use of client bank accounts for other than specified purposes, ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 8 of 11 non-receipt / payment of funds from / to respective clients, failure to do monthly / quarterly settlements, non-maintenance of log reports of undelivered contracts notes, non-maintenance of complaints register etc. indicated casual and negligent approach of the Noticee towards regulatory requirements, which ultimately led to the Noticee being declared as a defaulter and expelled from the membership of Stock Exchanges. I note that many of the aforestated observations such as non-segregation of own and clients accounts, failure to periodic settlement with clients, incorrect margin reporting etc. are serious violations of SEBI Act, Regulations and circulars issued thereunder. c. Closure of Stock Brokers office without intimation to clients and stock exchange: DA, inter-alia, observed that the Noticee was not present during SEBI inspection at its all 5 known addresses viz. 404, 4 th Floor, Arunachal Building, Barakhamba Road, Connaught Place, New Delhi, C-98, Second Floor, Birbal Road, Near Lajpat Nagar Metro Station, Lajpat Nagar-1, East Delhi-24, C-220, Ground Floor, Sector 63, Noida-201301, C-9, Sector-19, Noida-201301, C-223, Sector-10, Noida-201301, the last being its Registered Office address available on Ministry of Corporate Affairs portal. I note that failure of the Noticee to update and disclose the current address tantamounts to violation of Regulation 4(1) and 4(2) read with Regulation 9(1)(d) of the Intermediaries Regulations. d. Actions taken by the Stock Exchanges: DA observed that the Noticee has been declared as a defaulter and has been expelled from the memberships of NSE, BSE and MSE. Thus, the Noticee failed to comply with the requirements of Regulation 9(a) of the Broker Regulations and 9(1)(c) and ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 9 of 11 9(1)(e) of the Intermediaries Regulations, thereby attracting action under Regulation 27(i) and (ii) of Intermediaries Regulations. Conclusion

10. DA Report, inter-alia, observed that the Noticee grossly failed in performing its duties as a registered stock broker and failed to comply with the conditions of certificate of registration. It was also observed that by making serious lapses in maintaining infrastructure and by failing to redress the investor grievances, the Noticee has acted against the integrity of the securities market.

11. I note that the observations in the DA Report are serious in nature, from the point of view of integrity of the securities market and investor protection. The Noticee has defaulted in meeting obligations, IGRP orders and arbitration awards and despite making payments from the available deposits of the Noticee and from the IPF, significant amounts still remain payable to investors. I also note that the Noticee has been declared a defaulter and has been expelled from the memberships of NSE, BSE and MSE and hence, does not satisfy the condition of registration provided in Regulation 9(a) of the Broker Regulations. I also note that the Noticee has not been available on the Registered Office address and other addresses as available and has also not replied to the SCN. Further, the failure of the Noticee to segregate own transactions from that of its clients, incorrect margin reporting, use of client bank accounts for other than specified purposes etc. are prejudicial to the interest of the investors and the overall functioning of the securities market. ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 10 of 11

12. I note that the Noticee does not hold the membership of any stock exchange, has violated the rules, regulations and bye-laws of the stock exchanges, failed to take adequate steps for redressal of investor grievances, and failed to abide by the Code of Conduct prescribed under Schedule II of the Broker Regulations. I also note that the Noticee has failed to abide by the provisions of securities laws and thereby failed to meet the conditions of the certificate of regis tration prescribed under the Intermediaries Regulations. The failure of the Noticee to comply with various requirements discussed at Para 9 above has resulted in violation of Regulations 9(a), (b), (e) and (f) of Broker Regulations and Regulation 9(1)(c), (d) and (e) of Intermediaries Regulations thereby attracting action under Regulation 27 of the Intermediaries Regulations read with Section 12(3) of the SEBI Act.

13. The DA, in his report, has recommended that the certificate of Registration of the noticee as a stock broker be cancelled. In view of the reasons cited above, and the fact that the Noticee is not traceable, I am of the view that Noticees certificate of Registration need not be kept valid as it serves no purpose. Thus, I am inclined to accept the recommendation of the DA for cancellation of the certificate of registration. Accordingly, following directions are passed: a. In exercise of powers conferred on me under Section 12 (3) of the SEBI Act read with Regulation 27 and Regulation 28 of the SEBI (Intermediaries) Regulations, 2008, upon consideration of the facts and circumstances listed in this Order and applicable legal provisions, I hereby direct that the Certificates of Registration (Nos. INB / INF 010771237, INB / INF 230771235, INE 260771235, INB260771234, ______________________________________________________________________________________________ Order in the matter of Click2Trade Capital Ltd. Page 11 of 11 INF260771234) of the Noticee i.e. Click2Trade Capital Limited, as a stock broker, shall be cancelled with immediate effect. b. The cancellation of the certificate of registration shall not affect SEBIs right to initiate any other action against the Noticee in future. c. A copy of this order shall be sent to all the Recognised Stock Exchanges, Depositories and Clearing Corporations. DATE: January 13, 2020 G. MAHALINGAM PLACE: Mumbai WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

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