Supersession of the Governing Board of the Pune Stock Exchange - S.O. No.665(E) - SEBI/LE/0111-9/96 - SEBI

SECURITIES AND EXCHANGE BOARD OF INDIA NOTIFICATION Mumbai, the 27th September, 1996 S.O. No.665(E).- Based on market information and media reports, Securities and Exchange Board of India (hereinafter referred to as SEBI) had conducted enquiries into the allegation of unauthorised transactions on stock exchanges and alleged depression of market prices. Information on the prices of the scrips were sought from various exchanges. Details of the transactions carried out by the brokers were analysed. Based on the same, some of the members of the Pune Stock Exchange and their clients were inspected. During the course of the inspection, admissions were received from some of the brokers of the exchange wherein they stated that the members will stop the practice of off the floor transactions and carry forward transactions. In other words it was admitted before the SEBI officials that there was large scale off the floor transactions which were not reported to the stock exchange and that carry forward of transactions were being undertaken by them. It was observed that some of the brokers who had indulged in such activities were the elected directors of the exchange. In fact, all the elected directors of the exchange had as per their own written representation entered into such carry forward transactions and off the floor transactions. Based on the above findings, vide its letter September 2, 1996, SEBI issued a show cause notice to the Governing Board of the Pune Stock Exchange giving an opportunity to show cause as to why the Governing Board should not be superseded. By a letter dated September 18,1996, Pune Stock Exchange replied to the show cause notice issued by SEBI. In the said reply it was stated that the Governing Board was not aware of the written representation dated February 10, 1996 signed by the brokers. They further stated that the entire Governing Board has never aided the violation of the bye-laws and regulations and nor has it become a party to the gross indiscipline and misconduct. They further stated that all elected directors have resigned after taking due responsibility. In the said letter they also annunciated the measures initiated by the Governing Board for improving the functions of the exchange as per the directives issued by SEBI or Government. Thereafter by letter dated September 25, 1996, the Governing Board of the Pune Stock Exchange was given an opportunity of personal hearing on September 27,1996. The Governing Board availed of this opportunity and Major General Jathar, Mr. Parmar, both public representatives and Shri P.L. Kadlaskar, Executive Director remained personally present on September 27, 1996. During the course of the personal hearing, on behalf of the Governing Board they reiterated what was stated by them in their letter dated September 18, 1996. It was further stated that the issue relating to carry forward and off the floor transactions was discussed in the Governing Board in the context of SEBI's earlier inspection report of 1995. These discussions were held in the month of October-November 1995 and thereafter a decision was taken to appoint a panel of Chartered Accountants to inspect the books of the brokers. It was further stated that Chartered Accountants inspection reports confirmed that carry forward and off the floor transactions were being carried on at Pune Stock Exchange, The public representatives further expressed concern about the rampant carry forward transactions and off the floor transactions. I have considered the representations on behalf of the Governing Board. It appears that the elected directors of the exchange have failed to report the transactions of the exchange as required by the bye-laws and regulations of the exchange. Outstanding positions have been built up by the elected directors themselves which adversely affects the safety of the market and the investor's interest. Inspite of a prohibition of entering into carry forward transactions at the Pune Stock Exchange, the broker members including the elected directors of the exchange have entered into such illegal transactions. Thus the elected directors have not only failed in implementing the bye-laws and the required discipline on the stock exchange, but have also themselves been a party to such transactions. Nor have margins been paid by the members of the exchange on the transactions carried out by the members. There has been evasion of margin and the Governing Board has not taken steps to ensure that the adequate margins are paid on timely basis as required by the bye-laws of the exchange. In view of the above, the reply of the Governing Body that they were not aware of such illegal transactions does not appear to be convincing. Even assuming mat the members of the Governing Board of the exchange were not aware of rampant illegal transactions being carried out this speaks volumes of the supervision and the effectiveness of the Governing Board of the exchange. It is the duty of the exchange to ensure that illegal transactions do not take place and in this case the illegal transactions have been carried on also by the elected directors of the exchange themselves. Further around 25 brokers are reported to have entered into such transactions indicating the extent of malaise of such illegal transactions. In view of the above facts, I am convinced that the Governing body of Pune Stock Exchange has failed in ensuring proper governance and implementation of the provisions of the SCR Act as well as its Rules and notifications issued thereunder from time to time. Therefore, it is essential that drastic measures are adopted in order to ensure the safety and integrity of the stock exchange and to ensure that illegal transactions as discussed above are not carried on and that the investors' interests are not adversely affected at any cost. SEBI has to ensure that the systems and the procedures on an exchange are such that transactions are carried on in a lawful manner without adversely affecting the investors' interests. In order to ensure that such systematic improvements take place on the exchange the persons who may have indulged in such transactions either directly or indirectly should not be elected till such systematic changes are carried out. For ensuring these systematic changes and completing cleaning and overhauling the exchange it is necessary that an independent impartial person is appointed. In view of above and in exercise of the powers conferred on me under section 11 of the SCRA in pursuance to the notification no. S.O. 573 dated July 30, 1992, the Governing Board of the Pune Stock Exchange is hereby superseded for a period of 6 months from today and Mr. W.S. Tambe, residing at B/4 Fayali Co-op Scty, Anandibai Shirke Path, ICS Colony, Pune 411 007, is hereby appointed to exercise and perform all the powers and duties of the Governing Body. Mr. W.S. Tambe will act as an administrator of the Pune Stock Exchange for a period of 6 mondis from today. The Executive Director of the exchange will hence forth not perform his duties as a member of the Governing Board and will not exercise the powers of the Executive Director as mentioned in the rules and bye-laws of the Pune Stock Exchange. The Executive Director will however continue to be an employee of the stock exchange and give such assistance to Mr. W.S. Tambe as he deems fit. Mr. Tambe may take further assistance of such persons as he thinks it necessary. I have been informed that the stock exchange is holding an annual general meeting on September 28,1996 for the purposes of electing new directors as the old directors have resigned. The annual general meeting will in view of the above order adjourn the agenda item relating to election of directors till further orders from SEBI. [No. SEBI/LE/0111-9/96] DJL MEHTA, CHAIRMAN Securities and Exchange Board of India