TMI BlogOrder under Section 11 of the Securities Contracts (Regulation) Act, 1956 superseding the Council of Management of Bhubaneshwar Stock Exchange.X X X X Extracts X X X X X X X X Extracts X X X X ..... de the order dated September 28, 2001, conducted inquiry as per the provisions of Rule 16 of the Securities Contracts (Regulation) Rules ,1957 (hereinafter referred to as SCRR ) and submitted his report to SEBI on October 22, 2001. The Inquiry Officer in his said report dated October 22, 2001 has inter alia found that:- 1) BhSE did not intimate SEBI regarding setting up the MWT and did not obtain permission from SEBI to set up the same. 2) Out of the total loan amount of Rs,95,83,782/- disbursed to members by BhSE from the MWT, ₹ 94,13,782 i.e. around 98%, are outstanding and payable by members of BhSE who were either office bearers of BhSE or Trustees of the MWT. 95% of the loan amounts were granted to meet the pay-in liabilities of members. The total amount owed by Shri Babulal Sharma constitutes 92.5% of the total loan amount. The following table describes the outstanding position of the loans: Sl. No. Name of member Position in BhSE Position in MWT Principal loan amount Interest Amount Total 1. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contribution from BhSE to MWT. The Council of Management was not informed with regard to the sanctioning of loan from BhSE beyond the ceiling of ₹ 25.00 Lakhs and the Council came to know of the huge outstanding loans only 6n September 1, 2001 after receiving an auditor's observation letter. 5) The MWT has been used by the Office Bearers of BhSE mainly to meet their pay-in liabilities. The Office bearers of the exchange and the trustees of the MWT are the major beneficiaries of the loans granted by the MWT and in some cases the loans were granted without proper security. 3.0 Based on the recommendations of the Inquiry Officer in the said inquiry report, SEBI in exercise of powers conferred on it under Rule 11 of the SCRR, directed the stock exchange vide letter dated January 29, 2002, to take the following actions immediately: 1. To form a committee consisting of the non elected directors to enquire into the veracity of the complaints against the Executive Director of his alleged trading activities and non compliance with procedures in granting loans from the Members Welfare Trust and to submit the findings so as to take action against him. 2. To immedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Shri Anjani Kumar Singh (ii) Shri Babulal Sharma (iii) Shri Arun Kumar Girdhar (iv) Shri S. Kedar Swamy Patra (v) Shri Dharmendra Prasad Singh The council also decided to issue notice of suspension to the above members in accordance with the rules and bye laws of the exchange. (d) The council authorised Shri Thomas Mathew to consult an advocate to examine the feasibility of initiating criminal proceedings against the beneficiaries of loans granted by the Members Welfare Trust. 3.2 SEBI vide its letter dated April 30, 2002 forwarded a copy of the inquiry report dated October 22, 2001 and directed BhSE to take action against the following members as specified hereunder : (i) Shri Anjani Kumar Singh - suspension for 2 years (ii) Shri Babulal Sharma - suspension for 2 years (iii) Shri Manoj Thakar - suspension for 1 year (iv) Shri Dharmendra Prasad Singh - suspension for 1 year They were also directed to issue show cause notices to the said members and also directed that the show cause notices should mention the penalty proposed to be imposed and that the members should be granted a personal hearing. The stock exchange was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year 2000-01 was placed before the Annual General Meeting held on September 29, 2001 but the same was not adopted due to the demand of the members to audit the books of account of the members Welfare Trust for the years 1997-98, 1998-99, 1999-00 and 2000-01. An auditor appointed to audit the books of account of the Welfare Trust submitted their report to the exchange on July 12, 2002. After perusal of the report, the council decided to request the auditors to review the work. (iii) BhSE had an excess of income over expenditure to a tune of only ₹ 29 lacs, whereas, the exchange has ₹ 4.94 crore as cash and bank balance which generates most of its income in the form of interest. Therefore, it appears that the exchange is at present surviving on the interest income earned through the deposits. (iv) There is conflict between various functionaries of the exchange. The Executive Director and the Secretary of the exchange do not have a cordial relationship with the Council of Management and many of the members of the council are seen to be acting against the Executive Director and Secretary. The exchange officials are not devoting sufficient time and efforts towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of these shares and no contract notes were found on scrutiny of the records. (vii) A house building advance of ₹ 10 lacs has been sanctioned to the Secretary and the Executive Director. However, the said loans have not been secured by mortgage of properties. In addition to the above, the entire amount of the loan was disbursed to the Secretary even before construction of the house. Further, the secretary also applied for a housing loan from the Union Bank of India who requested the ED to transfer the housing loan of the Secretary to the Bank. (viii) Several office bearers of the exchange including certain members of the Council of Management have made the allegation that Shri M.N Ray, public representative has exceeded his authority. In this regard, the inspection team observed the following :- (a) Shri M.N Ray had written a letter to the ED of the exchange to release ₹ 70,000 for booking of air tickets for proposed visits to Mumbai and New Delhi. However, the Council of Management did not release the money. (b) The Council of Management had asked Shri M. N Ray to prepare draft charges against the E.D and Secretary of the Stock Exchange but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the Members Welfare Trust. 1. Shri Babulal Sharma - Expelled from the exchange 2. Shri Anjani Kumar Singh - Expelled from the exchange 3. Shri S. Kedar Swamy Patra - Suspended from the membership rights 4. Shri Dharmedra P. Singh - Matter is sub-judice (v) Necessary legal steps for recovery of outstanding loans have been taken and five persons including the erstwhile executive director and secretary of the stock exchange have been arrested by the state police for financial irregularities. (vi) Members having outstanding loans have been barred from conducting trading in any of the segments of the exchange. (vii) The Council of Management in its meeting held on March 1, 2002 had decided not to allow withdrawal of BMC and security deposit and adjustment of the same against outstanding dues. The Council of Management has also decided to stop granting loans to the Members Welfare Trust. (viii) With regard to absence of turnover, the council submitted that the nature of trading has become cyclical nationally and internationally and they do not have any control over the volume of trading and this cannot be construed as a ground for supersessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons responsible for the irregularities in the BhSE. 6.0 I have carefully considered the facts of the matter, the reply submitted by the Council of Management of BhSE and the submissions made by their representatives before me in the course of personal hearing before me. 7.0. I find that BhSE has failed to implement the directives of SEBI issued under Rule 11 of the SCRR and communicated vide letters dated January 29, 2002, April 30, 2002. The report of the Committee constituted by the Council of Management to enquire into the allegations against the Executive Director is yet to be submitted to SEBI although it was stipulated in SEBFs letter dated August 5, 2002 that the same should be submitted within 2 weeks from date of receipt of the said letter. 7.1 I find that conflict between various functionaries of the stock exchange still exists and that the Council of Management has not regained credibility. The Executive Director and Secretary of the Stock Exchange have been arrested by the State Police and consequently suspended by the Stock Exchange. In order to replace them, the Council of Management has appointed one Shri Bhagyadhar Behera as Secretary and entrusted M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Council of Management of Bhubaneshwar Stock Exchange has failed to ensure proper governance and implementation of the provisions of the SCRA and SEBI directives and to ensure proper financial integrity in the functioning of the exchange. As a result of this, confidence of investors in the functioning of the exchange has been impaired. 9.0 Due opportunity was given to the Council of Management of Bhubaneshwar Stock Exchange to show cause as to why it should not be superseded. The reply given by the Council of Management is not found to be satisfactory. Therefore, I am of the opinion that it is essential that immediate measures are taken to ensure safety and integrity of the market and to restore the confidence of investors in the functioning of the Stock Exchange. 10.0 SEBI is mandated to ensure that the effective steps are taken to protect the safety and integrity of the market and to protect the interest of the investors. Therefore, it is necessary that the persons who have failed to take effective action need to be excluded from governance of the exchange and an independent and impartial person is appointed. 11.0 In view of the above and in exercise of the powers c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
