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TMI Blog2018 (5) TMI 2151X X X X Extracts X X X X X X X X Extracts X X X X ..... as a securities market intermediary is expected to protect the interest of investors in the securities market in which he operates. Such a person is required to maintain high standards of integrity, promptitude and fairness in the conduct of his business dealings, and not be motivated purely by prospects of financial gain. As a regulator of the capital markets, SEBI has the duty to safeguard the interest of investors and protect the integrity of the securities market. Since the conduct of F6, FCPL and their directors is not in the interest of investors in the securities market, necessary action has to be taken against them immediately, else it may lead to loss of investors trust in the securities market. We are convinced that this is a case where effective and expeditious action is required to be taken to prevent any further harm to investors. Pending detailed inquiry, in view of the liabilities of F6 and FCPL and transfer of clients funds / securities between F6 and FCPL it is essential to take urgent steps to prevent F6, FCPL and its present / past directors not to alienate any assets, whether movable or immovable, or any interest or investment or charge in any of such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock broker in equity segment of Bombay Stock Exchange Ltd. (BSE) (Registration number: INB011467330). e) As a stock broker in equity derivative segment of BSE (Registration number: INF011467330). f) As a stock broker in Currency Derivative Segment of BSE (Registration number: INB011467330). i) As a Depository Participant of Central Depository Services Ltd. (CDSL) (Registration number: IN-DP-CDSL-699-2013). 2. F6 Commodities Pvt. Ltd.( FCPL ) having its registered office at Unit no. 206, 2nd Floor, Sewa Corporate Park, M. G. Road, Gurgaon -122002 is registered with SEBI as a commodity derivatives broker of Multi Commodity Exchange of India Ltd (MCX), National Multi Commodity Exchange Ltd. (NMCE) and National Commodity erivatives Exchange Limited (NCDEX) (Unique Registration number: INZ000037335). 3. The summary of directorship of F6 and FCPL and the respective tenure of the directors is as under: S. No Entity Name Tenure of the Directors A F6 Finserve Private Limited 1 Present Directors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of client K. K. Advisor Pvt. Ltd (client code - HOKL2) on 100 instances amounting to Rs. 5.86 Cr. during the period 01-Oct-16 to 10-Jul-17. Further, it was observed that F6 had met proprietary ( PRO ) pay-in obligations from the client s securities amounting to Rs.1,77,057.35 on the following instances: SCRIP Date of Sale Balance available in Register of Securities ( ROS ) before sale Sold Qty Misused Qty Rate (Rs.) Misused Amount (Rs.) Settlement No. BLISS GVSPHARMA LTD. 12-Sep-16 0 1285 1285 137.6 1,76,816.00 2016170 ITC LTD. 14-Sep16 2 3 1 241.4 241.35 2016171 Total 1,77,057.35 b. Non-availability of clients securities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worth Rs.6.53 crores were found to be pledged with ICICI, ILFS Financial Services Limited, JM Financial, ECL Finance Limited and Canara Bank. The Broker failed to provide the details of the clients whose securities were pledged. b. Non-availability of client funds On verification of the trial balance of the broker as on January 22, 2018, it was observed that as against creditors amounting to Rs.19.58 crores, available balance in bank/clearing member/Exchange/Clearing Corporation was Rs.14.36 crores. Hence, a shortfall of Rs. 5.22 crores was observed. It was further observed that despite non-availability of funds, trading member had extended loans of Rs.15.71 crores to Mr. Pankaj Goel, director and promoter as detailed below: (Figures in Rs.) A/c Code Account Head Name Closing Balance (Dr.) ZPG02 Pankaj Goel 11,00,56,508 ZPL05 Pankaj Goel Loan A/C 4,70,48,971 Total 15,71,05,478 c. Improper use of client securities As per RO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016) and the cash collateral lying with exchanges (fixed deposits, Bank Guarantee, etc. as mentioned in SEBI s circular - SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016) were less than the gross creditors (clients). The same is depicted in the table below: (Figures in Rs.) Date A (Fund balance available in Client BankAccounts) B (collateral deposited with clearing corporation and/or clearing broker) A+B C (credit balance ofall clients) G=(A+B)-C (shortfall) % of Credit Funds Misused to Total Credit Balance 03/06/2015 1,51,71,641 3,35,25,000 4,86,96,641 9,88,93,569 5,01,96,928 50.76% 16/06/2015 1,88,45,174 3,35,25,000 5,23,70,174 10,01,87,745 4,78,17,571 47.73% Date A (Fund balance available in Client Bank Accounts) B (collateral deposited with clearing corporati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ledger as submitted by F6 and the sum of balances lying in the Client Bank accounts and the cash collateral lying with exchanges as on the sample dates (random selection) is tabulated below: (Figures in Rs.) Date Client fund misused (G) (Absolute value of G in the table above) Debit balance client Funds Misused for Debit Balance of Clients / own purpose 03/06/2015 5,01,96,928 20,77,53,541 5,01,96,928 16/06/2015 4,78,17,571 19,74,76,616 4,78,17,571 30/09/2015 5,60,97,905 16,33,80,029 5,60,97,905 20/05/2015 6,64,80,513 19,57,24,081 6,64,80,513 04/05/2015 5,58,83,602 19,61,39,372 5,58,83,602 08/09/2016 4,47,81,677 18,05,72,558 4,47,81,677 Date Client fund mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsure segregation of clients securities and to prevent their mis-utilization. In view of the above, it prima facie appears that the broker had failed to exercise due diligence which led to mis-utilization of client securities. SCRIP Date of Sale Balance available in Demat Ledger before sale Sold Qty Shares sold in excess of availability SBI Bank 03-06-15 0 8750 8750 ICICI Bank 03-06-15 0 10,000 10,000 HDFC Bank 03-06-15 0 4,000 4,000 Nectar Lifesciences 16-06-15 0 1,142 1,142 Raj TV 16-06-15 0 18,117 18,117 Unitech Ltd. 05-04-17 10,205 1,27,042 1,16,837 ITC 14-09-16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld with the broker on September 26, 2017 wherein it was advised to submit the pending data/information. Vide emails dated October 25, 2017; October 27, 2017 and November 28, 2017, F6 was advised again to submit the pending information. Thereafter a meeting was again held with the broker on January 18, 2017. Subsequently, email dated January 19, 2018 and letters dated Jan 25, 2018 and January 29, 2018 were also sent to the broker seeking the pending information. However, no response was received. On the basis of data available, the observations made during the inspection were communicated to F6 vide letter dated February 02, 2018. Vide email dated February 09, 2018, the broker sought extension of time for submitting the reply. Vide email dated Feb 09, 2018 and reminder email dated Feb 15, 2018, F6 was advised to submit the reply to the inspection observations. However, no reply was received. 10. In the meantime, NSE also informed that despite regular follow-ups and reminder mails/ letters to F6, it did not submit any reply. In view of the same, F6 was called for a meeting at NSE s office on Sep 20, 2017 to discuss status of observations. Based on the meeting held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also availed Loan against Securities/Overdraft facility from Canara Bank, ICICI Bank and Edelweiss Finance. The details of the loan/overdraft availed from these institutions as on January 22, 2018 is as follows: (Rs. in Crores) Loan outstanding with ECL 6.22 ICICI overdraft 14.64 Canara Overdraft 0.84 Total 21.70 iii) The broker has failed to resolve the complaints of its clients. The number of the complaints and the value of the claim pending against the member as on April 17, 2018 is as under: No. of complaints Value of Claim 288 Rs. 41.92 Cr. 14.In view of the observations of SEBI and NSE noted above, it prima facie appears that F6 committed the following violations: - a. By not settling the accounts of inactive clients, the broker has violated the SEBI Circular No. MIRSD/SE/Cir-19/2009 dated December 03, 2009. b. F6 is in violation of SEBI circular No. SMD/SED/CIR/93/23321 dated November 18, 1993 on account of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y have the same registered office as per the MCA records. b. As noted from the MCA website, Mr. Pankaj Goel is the present director of both F6 and FCPL. Meenu Goel is a present director of FCPL and was a director of F6 from December 24, 2013- January 01, 2018 c. Mr. Pankaj Goel and Ms. Meenu Goel are the promoters of F6 and FCPL and together hold 100% shareholding thereof. d. There were huge fund transfers between F6 and FCPL. During the period April 01, 2016- March 31, 2018, the net transfer from FCPL to F6 was approximately Rs. 5.51 cr. 16.As already mentioned, FCPL is registered as a commodity derivatives broker of MCX, NMCE and NCDEX. I note from the material on record that NMCE had suspended FCPL on 16.03.2018 due to non-submission of Half Yearly Internal Audit Report. MCX had disabled the trading terminal of FCPL w.e.f 16.03.2018 and it also issued a showcause notice dated April 18, 2018 to FCPL for non-cooperation in inspection. Further, on NCDEX, the trading terminal of FCPL was disabled w.e.f 15.03.2018 due to nonsubmission of half yearly net-worth certificate for Sep 30, 2017 and Internal Audit report for Sep 30, 2017. NCDEX has also issued a show c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idator v. P.A. Tendolkar (1973) 1 SCC 602 that A Director may be shown to be so placed and to have been so closely and so long associated personally with the management of the Company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of a Company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to everyone who examines the affairs of the Company even superficially . Further, in cases of fraud, it is a settled position of law that the corporate veil can be lifted and the directors can be held liable for the fraud of the Company. 22.A person acting as a securities market intermediary is expected to protect the interest of investors in the securities market in which he operates. Such a person is required to maintain high standards of integrity, promptitude and fairness in the conduct of his business dealings, and not be motivated purely by prospects of financial gain. 23.As a regulator of the capital markets, SEBI has the duty to safeguard the interest of investors and protect the integrity of the securities market. Since the conduct of F6, FCPL and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulations, 2008, by way of this ex parte - ad- interim order, hereby issue the following directions: a. F6 Finserve Private Limited, F6 Commodities Private Limited, Mr. Pankaj Goel, Mr. Parveen Sharma, Mr. Meenu Goel, Mr. Sanjay Anand, Ms. Kavita Anand, Ms. Asha Sharma, Mr. Deepak Goel and Ms. Ruchika Goel are restrained from accessing the securities market and are further prohibited from buying, selling or otherwise dealing in securities, either directly or indirectly, or being associated with the securities market in any manner whatsoever, till further directions; b. The aforesaid entities and persons shall cease and desist from undertaking any activity in the securities market, directly or indirectly, in any manner whatsoever till further directions; c. The aforesaid entities and persons are directed to provide a full inventory of all their assets, whether movable or immovable, or any interest or investment or charge in any of such assets, including details of all their bank accounts, demat accounts and mutual fund investments immediately but not later than 5 working days from the date of receipt of these directions. d. The aforesaid entities and persons are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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