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BEFORE THE ADJUDICATING OFFICER SECURITIES AND EXCHANGE BOARD OF INDIA [ADJUDICATION ORDER NO. RA/DPS/13/2015]

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY ADJUDICATING OFFICER) RULES, 1995

In respect of:

UKS Forex Private Limited.

(Member MCX-SX - SEBI Registration No. INE261008037) (Member NSE - SEBI Registration No. INE231008033) (Member USE - SEBI Registration No. INE271008034)

(PAN No. AAACU4567D)

BACKGROUND

1. Securities and Exchange Board of India (hereinafter referred to as „SEBI‟)

upon reference vide letter dated March 12, 2014 from MCX Stock Exchange

Limited (hereinafter referred to as „MCX-SX‟) an application of M/s UKS

Forex PrivateLimited- Member MCX-SX - SEBI Registration No.

INE261008037, Member NSE - SEBI Registration No. INE231008033,

Member United Stock Exchange Limited - SEBI Registration No.

INE271008034(hereinafter referred to as 'UKS / the Noticee) for post-facto

approval for change in shareholding pattern amounting to change in

control;and by so doing, allegedly the Noticee hadviolated of regulation

6A(1)(c) which has now become 9(c), clause A(5) of the Code of conduct for

Sub Brokers as stipulated in Schedule II read with erstwhile Regulation 7 of

the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 (hereinafter

referred to as „Stock Brokers Regulations’) after the amendment becomes

Regulation 9(f) and SEBI circular CIR/MIRSD/2/2011 dated June 3, 2011.

APOINTMENT OF ADJUDICATING OFFICER

2. Shri D. Sura Reddywas appointed as Adjudicating Officer vide order dated

October 13, 2014under Section 15HB of the Securities and Exchange Board

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of India Act, 1992 (hereinafter referred to as 'SEBI Act') and Regulation 26

(xvii) of Stock Brokers Regulations, to inquire into the aforesaid alleged

violations against the Noticee. Subsequently, vide order dated December

09, 2014, the undersigned has been appointed as Adjudicating Officer in the

matter.

SHOW CAUSE NOTICE, REPLY AND PERSONAL HEARING

3. Show Cause Notice No. EAO/RA/DPS/2259/2015 dated January 20, 2015

(hereinafter referred to as “SCN”) was issued to the Noticee under rule 4(1)

of the Rules to show cause as to why an inquiry should not be initiated and

penalty be not imposed under Section 15HB of the SEBI Act and regulation

26 (xvii) of Stock Brokers Regulationsfor the alleged violation specified in

the SCN.In continuation to SCN dated January 20, 2015 letter dated August

19, 2015 was issued to the Noticee, where the Noticee was informed that

Regulation 9(c) where ever mentioned in the SCN may be read as

Regulation 6A(1)(c) of Stock Brokers Regulations and in conjunction with

SEBI circular No. CIR/MIRSD/14/2011 dated August 02, 2011 in view of the

alleged change in shareholding took place which resulted in change in

control i.e. on October 01, 2011, without taking prior approval from

SEBI.The allegations levelled against the Noticee in the SCN are briefly

mentioned below;

a. Noticee has carried out change in its shareholding, amounting to

change in control, in October 2011 without obtaining approval from

SEBI and without informing to stock exchange-MCX-SX. Application for

prior approval for change in control was made to MCX-SX in October

2012 i.e. after a delay of a year.

b. After being informed by MCX-SX that the change in control had already

been carried out, Noticee made a fresh application for post-facto

approval in December 2013 i.e. after a further delay of more than a year

from the earlier application.

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4. In response to the SCN, the Noticee filed its reply dated February 16, 2015.

In the interest of natural justice and in order to conduct an inquiry in terms of

rule 4(3) of the Rules, the Noticee was granted an opportunity of personal

hearing on March 19, 2015 vide notice dated February 24, 2015. Hearing on

March 19, 2015 was attended by the authorized representatives (AR) of the

Noticee namely - Shri UttamSinghal, Director of UKS and Shri Abhishek

Agarwal, Compliance Officer of UKS and reiterated the submissions made

vide letter dated February 16, 2015. During the course of hearing, Noticee

also submitted additional written submissions and the key submissions of

Noticee are as follows:

We are the member of NSE and MCX-SX. There was change in

constitution that is change in shareholding pattern tant-amounting to

change in control.

As per SEBI stock broker rules / regulations 1992, every stock broker

is required to take prior permission from Exchanges and SEBI before

implementing any such changes.

As per our earlier employee she told that she had already applied for

change in shareholding pattern; however inadvertently we have not

made our application.

This was brought to the notice of management later on by new

compliance officer (as earlier compliance officer was resigned on

04.10.2012), immediately we have applied to MCX-SX for post facto

approval.

Sir, our intention was very clear to comply with the SEBI regulation

but due to negligence / error by our earlier compliance officer, we had

not made application to MCX-SX for prior approval.

Sir, we request you to kindly consider our request and waive the

penalty / adjudication in this matter. We assure you that we will

definitely take care all such things in future.

Further, during the hearing AR on behalf of the Noticeemade the

following submissions:-

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a. On October 01, 2011 change is shareholding took place which

resulted in change in control and confirmed that Noticee had

informed the change in shareholding to the Exchange and not to

SEBI and it will submit the supporting documents i.e.

correspondences with Exchange by March 27, 2015.

b. AR also informed that MCX-SX informed to apply for post facto

approval for change in control on September 30, 2012 and it will

submit the supporting documents by March 27, 2015.

c. AR also informed that Noticee got registered with NSE in currency

derivative segment and were under the impression that it is not

required to take prior approval for the same again.

Noticee vide letter dated March 24, 2015 submitted the following:-

(a) Noticee submitted the application dated January 05, 2012 made

to NSE for registration in currency derivative segment with the

new change in shareholding pattern.

(b) Noticee submitted the intimation letter dated September 30,

2012 sent to MCX-SX regarding approval for change in

shareholding.

(c) Noticee submitted application dated November 19, 2012 along

with new shareholding submitted to MCX-SX Equities and

Equity Derivatives Segments.

(d) Noticee submitted the intimation of name change of the noticee

from UKS Stocks Private Limited to UKS Forex Private limited

vide its email dated August 8, 2013 to MCX-SX and the name

change documents sent to MCX-SX on October 7, 2013.

(e) Noticee submitted the letter dated December 11, 2013 in new

name UKS Forex Private limited to MCX-SX for Post Facto

approval for change in shareholding with change in control.

(f) Noticee also submitted all the emails and correspondences with

MCX-SX from February 27, 2013 regarding change in

shareholding.

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Noticee vide letter dated March 25, 2015 submitted the following:-

(a) We once again would like to plead that the above mentioned

negligence was not done intentionally & since we have received

NSE Membership and SEBI Registration certificate for said

membership we were under impression / assumption that new

shareholding has been approved, accepted updated at

Regulator end also.

(b) We hereby assure, commit and confirm that in future we would

take due care in all the compliance & regulator related subjects

and similar kind of mistake‟s or negligence will not be repeated

in future.

(c) We once again humbly request your good selves to kindly

consider our plea and forgive us for our 1st mistake/ negligence.

CONSIDERATION OF ISSUES

5. I have carefully perused the oral and written submissions of the Noticee and

the documents available on record. It is observed that the allegation against

the Noticee is that it has failed to take prior approval for the change in

control as required under the provisions of regulation 6A(1)(c) which has

now become 9(c) of Stock Brokers Regulations. The issues that arise for

consideration in the present case are :

a. Whether the Noticee is in violation of regulation 6A(1)(c) which

has now become 9(c), clause A(5) of the Code of conduct for Sub

Brokers as stipulated in Schedule II read with erstwhile

Regulation 7 of the Stock Brokers Regulations, after the

amendment becomes Regulation 9(f) and SEBI circular

CIR/MIRSD/2/2011 dated June 3, 2011?

b. If yes, then, does the violation, on the part of the Noticee attract

monetary penalty under section 15HB of SEBI Act?

c. If yes, then, what would be the monetary penalty that can be

imposed upon the Noticeetaking into consideration the factors

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mentioned in section 15-I of SEBI Act read with rule 5(3) of the

Adjudication Rules?

FINDINGS 6. Before moving forward, it is pertinent to refer to the relevant provisions of

Stock Brokers Regulations which reads as under:-

Stock Brokers Regulations

6A. (1) Any registration granted by the Board under regulation 6 shall be

subject to the following conditions, namely, -

(c) where the stock broker proposes change in control, he shall obtain prior

approval of the Board for continuing to act as such after the change;

Stock Brokers Regulations

9. Any registration granted by the Board under regulation 6 shall be subject to

the following conditions, namely, -

(c)where the stock broker proposes change in control, he shall obtain prior

approval of the Board for continuing to act as such after the change;

(f)he shall at all times abide by the Code of Conduct as specified in Schedule II

SCHEDULE II CODE OF CONDUCT FOR BROKERS

A. General

(5) Compliance With Statutory Requirements: A stock-broker, shall abide by

all the provisions of the Act and the rules, regulations issued by the

Government, the Board and the Stock Exchange from time to time as may be

applicable to him.

SEBI circular CIR/MIRSD/2/2011 dated June 3, 2011, which inter-alia states

that “members of the stock exchanges would be required to take prior

approval from SEBI for change in control”

7. The issues for examination in this case and findings thereon are as follows:

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8. As per regulation 6A(1)(c) which has now become 9(c) of Stock Brokers

Regulations where the stock broker proposes change in control, he shall

obtain prior approval of the Board for continuing to act as such after the

change.

9. Now the issue for consideration is whether the Noticee has violated

regulation 6A(1)(c) which has now become 9(c), clause A(5) of the Code of

conduct for Sub Brokers as stipulated in Schedule II read with erstwhile

Regulation 7 of the Stock Brokers Regulations, after the amendment

becomes Regulation 9(f).

10. I find that SCN had alleged thatNoticee has carried out change in its

shareholding, amounting to change in control, in October 2011 without

obtaining approval from SEBI and without informing to stock exchange-

MCX-SX. Application for prior approval for change in control was made to

MCX-SX in October 2012. After being informed by MCX-SX that the change

in control had already been carried out, Noticee made a fresh application for

post-facto approval in December 2013 i.e. there is a delay of more than two

years in obtaining the prior approval for the change in shareholding.

11. I note that on October 01, 2011 the change in shareholding took place. The

details of the shareholding for the quarter ending September 2011 and

December 2011 is given below:-

Sl. No. Name of Shareholder

Quarter ended September 2011

Quarter ended December 2011

No. of Shares

% of holding No. of Shares % of holding

1 Uttam Kumar Singhal 205000 24.12 172500 20.29

2 BanwarilalNarsingPuria 130000 15.29 0 0.00

3 ParmeshwariBai 127500 15.00 0 0.00

4 RamakantSinghal 112500 13.24 112500 13.24

5 Sanjay Kumar Singhal 85000 10.00 85000 10.00

6 Santosh Rani Singhal 80000 9.41 0 0.00

7 BabitaSinghal 55000 6.47 0 0.00

8 NeetuSinghal 55000 6.47 55000 6.47

9 Secunderabad Oils Limited 0 0.00 425000 50.00

Total 850000 100 850000 100

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12. From the above table it is clear that BanwarilalNarsingPuria,

ParmeshwariBai, Santosh Rani Singhal andBabitaSinghal soldtheir entire

shareholdingalong withUttam Kumar Singhaldiluting his stake from 24.12%

to 20.29% in the Noticeeto Secunderabad Oils Limited, the new acquirer is

the single major shareholder holding 50% of the shareholding of the

Noticeethus amounting to change in control.

13. I find that the Noticee has submitted in its reply dated February 16, 2015

to the SCN that Noticee‟s earlier employee told that she had already applied

for change in shareholding pattern; however inadvertently Noticee have not

made application for prior approval for change in shareholding resulting in

change in control. This was brought to the notice of management later on by

new compliance officer, immediately Noticee have applied to MCX-SX for

post facto approval.

14. During hearing, AR on behalf of the Noticee submitted that it had informed

the change in shareholding to the Exchange and not to SEBI. Noticee vide

its letter dated March 24, 2015 submitted the letter dated September 30,

2012 sent to MCX-SX regarding prior approval for change in

shareholding.However, I find that the Noticeedid not submit any documents

to support its claim as submission made by the AR at the time of hearing

that MCX-SX informed the Noticee on September 30, 2012 to apply for post

facto approval for change in shareholding.

15. I find that the SCN further alleges that after being informed by MCX-SX that

the change in control had already been carried out, Noticee made a fresh

application for post-facto approval in December 2013 i.e. after a further

delay of more than a year from the earlier application. TheNoticee vide its

letter dated March 24, 2015 submitted the correspondences with MCX-SX

regarding the procedure, documents to be submitted with regard to its

seeking approval for change in shareholding from the date of its first

intimation i.e. September 30, 2012. It is also observed from the

correspondences exchanged by the Noticeewith MCX-SX, vide email dated

April 11, 2013, June 13, 2013, July 9, 2013 and July 11, 2013, that MCX-SX

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had advised the Noticee to submit all the documents in the name of M/s

UKS Forex Private Limited instead of M/s. UKS Stocks Private Limited

(earlier name).Noticee submitted that it complied with the correspondences

with MCX-SX regarding clarification on name change and finally

Noticeesubmitted theapplication on December 11, 2013 for Post Facto

approval for change in shareholding with change in control in new name

UKS Forex Private limited i.e. after a delay of more than two years in

making application to MCX-SX.

16. As per SEBI circular CIR/MIRSD/2/2011 dated June 3, 2011, the members of

the stock exchanges would be required to take prior approval from SEBI for change

in control and the stock exchanges were directed to bring the provisions of

this circular to the notice of the Stock Brokers and also disseminate the

same on their websites. In the instant case the Noticee only intimated to

MCX-SX and NSE for prior approval and not to SEBI.

17. I also note that after the amendment of regulations for certain intermediaries

viz., Stock Brokers and Sub-brokers, Merchant Bankers, Debenture

Trustees, Registrar to an Issue and Share Transfer Agents, Underwriters,

Depository Participants, Bankers to an Issue and Credit Rating Agencies, by

SEBI, vide Notification No. LAD-NRO/GN/2011-12/03/12650 dated April 19,

2011. This has already been communicated to said intermediaries and a

copy of the notification is also available on SEBI website www.sebi.gov.in.

As per the amendments, the requirement of obtaining prior approval for

change in status or constitution has been dispensed with. However, in case

of change in control of the above intermediaries except for Sub-brokers,

prior approval of SEBI is required. This direction was communicated to the

above mentioned intermediaries vide SEBI Circular No.

CIR/MIRSD/14/2011 dated August 02, 2011 and were advised to ensure

compliance with the provisions of this circular, the stock exchanges and

depositories are advised to bring the provisions of this circular to the notice

of the Stock Brokers/ Depository Participants and also disseminate the

same on their websites.

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18. As per August 02, 2011 circular is the revised procedure for seeking prior

approval for change in control through single window. Further as per the

revised procedure the application shall be addressed to “Chief General

Manager, MIRSD, SEBI”. I note that the revised procedure for seeking prior

approval for change in control through single window was already in place

when the Noticee change in control took place. Hence Noticee was once

again asked to confirm whether they have complied with the SEBI Circular

No. CIR/MIRSD/14/2011 dated August 02, 2011 and Noticee vide its reply

dated August 11, 2015 and August 24, 2015 once again reiterated the

submission as made in its reply dated February 16, 2015 that they had not

made application to SEBI for prior approval for change in control and

pleaded for condoning the proceedings and take a lenient view. The above

non-compliance, was by oversight and not intentional. I note that the

Noticee has, thus, admitted the fact pointed out in the SCN that there was a

delay for making an application for change in control.

19. Further, the Noticees contention that they were under the impression that it

is not required to take prior approval for the same again as they got

registered with NSE in currency derivative segment is not acceptable as the

application was addressed to NSE and not to SEBI as per

regulation6A(1)(c) which has now become 9(c) of Stock Brokers

Regulations /revised procedure for seeking prior approval for change in

control.

20. In view of the aforesaid analysis / observation at Para No. 9 to 19, it is clear

that the Noticeetill dated had not made application for prior approval to SEBI

under regulation 6A(1)(c) which has now become 9(c) of Stock Brokers

Regulations. Further, Noticee had also admitted it. In the matter, I note that

regulation 6A(1)(c) which has now become 9(c) is one of the conditions of

registration granted by the Board under regulation 6 shall be subject to the

condition that where the stock broker proposes change in control, he shall

obtain prior approval of the Board for continuing to act as such after the

change. As the Noticee is a registered stock boker, registration under

regulation 6 has been granted to the Noticee to act as a stock broker and for

continuity to act as a stock broker has been affected as the Noticee has not

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taken prior approval for change in shareholding resulting in change in

control, in October 2011 and Noticee only made an application for change in

shareholding to MCX and not to SEBI. The Noticee should have taken prior

approval from SEBI for change in control in order to continue to act as a

stock broker. I am of the view that when mandatory direction is stipulated for

doing a particular activity, and by not complying with it till date, the intention

of the parties becomes irrelevant. Therefore, I find that there is certainly a

violation by the Noticee of regulation 6A(1)(c) which has now become 9(c),

clause A(5) of the Code of conduct for Sub Brokers as stipulated in

Schedule II read with erstwhile Regulation 7 of the Stock Brokers

Regulations, after the amendment becomes Regulation 9(f) and SEBI

circular CIR/MIRSD/2/2011 dated June 3, 2011.

21. In addition to the aforesaid, I am also inclined to consider the following

mitigating factors while adjudging the quantum of penalty: a)I note that the

stock exchanges were advised videcircular dated June 3, 2011 to

disseminate the information regarding prior approval from SEBI for change

in control to its members. The Noticee made an application for approval of

change in control to MCX-SX and I find the MCX-SX also did not direct the

Noticee to approach SEBI nor forwarded the application of the Noticee for

the change in control approval and continued to ask the Noticee to furnish

information only. During the Adjudication proceedings Noticee has admitted

the fact that it did not make an application to SEBI for prior approval for

change in control, the MCX-SX also failed to guide its member to approach

SEBI as per the directions in the circular.b) TheNoticee is a Private Limited

company having four shareholders having a combined shareholding of 50%

and the new acquirer having holding of 50%of the shareholding of the

Noticee.

22. As a registered intermediary, the Noticee had a responsibility to comply with

the conditions of registration requirements in accordance with their spirit,

intention and purpose. Noncompliance with statutory requirements by a

registered intermediary undermines the regulatory objectives and

jeopardizes the achievement of the underlying policy goals

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23. I note that the Hon‟ble Supreme Court of India in the matter of SEBI Vs. Shri

Ram Mutual Fund [2006] 68 SCL 216(SC) has also 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 intention of the parties committing such violation

becomes wholly irrelevant…”.

24. As the violation of the statutory obligation under regulation 6A(1)(c) which

has now become 9(c) of Stock Brokers Regulations has been established, I

am conviced that it is a fit case for imposing monetary penalty under section

15HB of SEBI Act, 1992 which read as follows:-

Penalty for contravention where no separate penalty has been

provided.

15HB. Whoever fails to comply with any provision of this Act, the rules or

the regulations made or directions issued by the Board thereunder for which

no separate penalty has been provided, shall be liable to a penalty which

shall not be less than one lakh rupees but which may extend to one crore

rupees.

25. While determining the quantum of penalty under section 15HB, it is

important to consider the factors stipulated in section 15J of SEBI Act,which

reads as under:-

“15J - Factors to be taken into account by the adjudicating officer

While adjudging quantum of penalty under section 15-I, theadjudicating

officer shall have due regard to the following factors,namely:-

(a) the amount of disproportionate gain or unfair advantage,wherever

quantifiable, made as a result of the default;

(b) the amount of loss caused to an investor or group ofinvestors as a

result of the default;

(c) the repetitive nature of the default.”

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26. Section 15HB of the SEBI Act provides that Whoever fails to comply with

any provision of this Act, the rules or the regulations made or directions

issued by the Board thereunder for which no separate penalty has been

provided, shall be liable to a penalty which shall not be less than one lakh

rupees but which may extend to one crore rupees. It is noted that no

quantifiable figures are available to assess the disproportionate gain or

unfair advantage made as a result of such non‐ compliance by the Noticee.

No repetitive nature of the default is shown on records to have been

committed by the Noticee. The main objective of the regulation 6A(1)(c)

which has now become 9(c) is one of the conditions of registration granted

by the Board under regulation 6 shall be subject to the condition that where

the stock broker proposes change in control, he shall obtain prior approval

of the Board for continuing to act as such after the change. In the instant

case,as the Noticee is a registered stock boker, registration under regulation

6 has been granted to the Noticee to act as a stock broker and for continuity

to act as a stock broker has been affected as the Noticee has not taken

prior approval for change in shareholding resulting in change in control, in

October 2011 and Noticee only made application for change in shareholding

resulting in change in control, after a delay of more than two years to MCX-

SX and not to SEBI as per regulation 6A(1)(c) which has now become 9(c)

of Stock Brokers Regulations and SEBI circular CIR/MIRSD/2/2011 dated

June 3, 2011for seeking prior approval for change in control. The Noticee

should have taken prior approval from SEBI for change in control in order to

continue to act as a stock broker. Thus, certainly, in the instant case

involved severe gravity and taking into account aforesaid aspects, I am of

the view that a justifiable penalty needs to be imposed upon the Noticee to

meet the ends of justice.

ORDER

27. After taking into consideration all the facts and circumstances of the case, I

hereby impose a penalty of `4,00,000/-(Rupees Four Lakh only) under

section 15HB of SEBI Act upon the Noticee / UKS Forex Private Limited. I

am of the view that the said penalty would be commensurate with the

violations committed by the Noticee.

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28. The Noticee shall pay the said amount of penalty by way of Demand Draft

drawn in favour of “SEBI –Penalties Remittable to Government of India”

payable at Mumbai, within 45 days of receipt of this order. The said demand

draft shall be forwarded to Chief General Manager, Market Intermediaries

Regulation and Supervision Department (MIRSD), at the address:- Mittal

Court, B & C Wing, 1st Floor, 224 Nariman Point, Mumbai – 400 021.

29. In terms of the provisions of Rule 6 of the Securities and Exchange Board of

India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating

Officer) Rules 1995, copies of this order are being sent to UKS Forex

Private Limitedhaving registered office at Flat No. 203, Diamond House,

Behind Topaz Building, Punjagutta, Hyderabad – 500082 and also to the

Securities and Exchange Board of India, Mumbai.

DATE: SEPTEMBER29, 2015

PLACE: MUMBAI

RACHNA ANAND

ADJUDICATING OFFICER