Order U/s 11 of the Securities Contracts (Regulation) Act, 1956 Superseding the Council of Management of the Magadh Stock Exchange. - S.O. No.822(E) - SEBI/LE/2216/97 - SEBI

SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION Mumbai, the 5th December, 1997 S.O. 822(E).- Based on the inspection of the Magadh Stock Exchange Association conducted by SEBI and complaints from Elected Directors, Public Representative Directors, SEBI Nominee Directors etc. irregularities and mismanagement were observed in the functioning of the Stock Exchange. Following are the instances of irregularities and mismanagement observed :-- (i) Ineffective functioning of the Council of Management and factionism among elected members, (ii) Break-down of Internal Administration system, (iii) Non-compliance of SEBI Directives, (iv) Delay in Pay Out, (v) High Pay Out and Closing Out Liability of Members, including liabilities of the Members of the Council of, Management. (vi) Low Capital Base of the Members, (vii) Non-existence of Surveillance Activities, (viii) Huge Unsettled Bad Delivery Liability, (ix) Undue Delay in Disposal of Arbitration Cases, (x) Laxity in Rectifying Deficiencies pointed out by SEBI suspection. 2. The Council of Management of the Magadh Stock Exchange was issued a notice under Section 11 of the Securities Contracts (Regulation) Act, 1956 on October 8, 1997 asking to show cause why the Council of Management (hereinafter referred to as Council) of the Exchange should not be superseded in view of the above instances of mismanagement and irregularities. The Council was given 15 days to reply in writing to the notice and seek personal hearing, if so required. 3. The Council of Management of the Magadh Stock Exchange did not care to reply to the show cause notice or deny any of the charges levelled therein. By a letter dated October 28,1997 opportunity of personal hearing on October 31,1997 was also given. None of the members of the Council appeared on October 31,1997, and though not bound to do so another opportunity of personal hearing was given on November 21, 1997. Even on this date, none of the Council members, except i.e. Ms. S. Kurien, SEBI Nominee Director had appeared for personal hearing. She was in agreement with the charges of irregularities and mismanagement against the Council of Management. 4. SEBI by a letter dated October 20,1997 received from the Executive Director of the Exchange a copy of the circular resolution passed by the seven members of the Council which states that: Resolved that the Council of Management has noted the contents of the letter No. CS/ 4380/97 dated 8-10-97 of Chairman, Securities and Exchange Board of India and has also carefully considered the charges levelled against the Council of Management as per Annexure-1 of the aforesaid letter of Chairman, Securities and Exchange Board of India. The substance of the charges reflects the true and factual position as existing in Magadh Stock Exchange Association today. Therefore, the Council of Management requests SEBI to take immediate appropriate action under section 11 of Securities Contracts (Regulation) [SC(R)] Act, 1956 so that the interest of the investors of the State is being protected. It is also noted that out of the remaining six directors, four (Elected) Directors have voted against the resolution and one Government Nominee and one Elected Director did not return the resolution. Out of the five Elected Directors, who have not voted for the resolution, three have outstanding liabilities on account of capital adequacy, pay out, bad delivery and closing out. 5. Due opportunity has been given to the Council of members to show cause why the Council should not be superseded. The council members have not cared to remain present at the personal hearing to show cause. Nor have the council members thought it fit to deal with the instances of mismanagement levelled against them. On the contrary out of 13 council members, 7 council members have stated that the charges levelled by SEBI reflects the true and factual position as existing in Magadh Stock Exchange . 6. In view of the above facts, I am convinced that the Council of Magadh Stock Exchange has failed in ensuring proper governance and implementation of the provisions of the SC(R) Act, Bye-laws of the Exchange and SEBI directives. As a result of this the interest of the broker members and the investors are adversely affected. Delay in pay out pay out and closing out liability of members including the members of the Council, huge unsettled bad delivery liability, break-down of internal administration, non-compliance of SEBI directives are all instances of mismanagement and non-functioning of the Council. Therefore, it is essential that immediate measures are adopted in order to ensure the safety and integrity of the stock exchange and to ensure that the transactions are carried out as per the regulatory framework and that the investors' interest are not adversely affected at any cost. 7. In view of above and in exercise of the powers conferred on me under Section 11 of the Securities Contracts (Regulation) Act, 1956 to be read with Government of India Notification number S.O. 573 dated July 30, 1993 and Section 4 (3) of the SEBI Act 1992, the Council of the Magadh Stock Exchange is hereby superseded for a period of one year with effect from December 8th 1997 and Shri S. S. Dhanoa, IAS (Retd.) resident of 40, Monararika Enclave, New Delhi-110067 is hereby appointed as an Administrator to exercise and perform all the powers and duties of the Council of Management. Shri S.S. Dhanoa may take further assistance of such persons as he thinks it necessary. [File No. SEBI/LE/2216/97] D.R. MEHTA, Chairman