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Order under Section 11 of the Securities Contracts (Regulation) Act, 1956 superseding the Council of Management of Bhubaneshwar Stock Exchange.
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...., 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. Aran Kumar Girdhar President Sep. 1994 to Sep 1995 1,12,843 3,43,639 4,56,482 2. Anjani Kumar Singh Treasurer Sep 1999 to Sep 2001 Trustee Sep 1996 to Sep 2001 2,74,620 1,98,810 4,73,430 ....
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....ing loans from the Member's Welfare Trust Fund including Shri Babulal Sharma, Shri Anjani Kumar Singh and Shri Manoj Thacker) should not act as office bearers of the exchange or in any other segment where Bhubhaneshwar Stock Exchange is acting as a broker or as trustees of the Members Welfare . Trust. 4. To take immediate legal steps for recovering the outstanding loan including interest. The Exchange and the Members Welfare Trust should also consider initiating criminal proceedings against the members having the outstanding loans. 5. To ensure that no member having outstanding loans is allowed to trade in Bhubhaneshwar Stock Exchange and in other segments where the subsidiary of Bhubhaneshwar Stock Exchange is acting as a broker. 6. To get back outstanding loans from members and to ensure that no member having outstanding loans should be allowed to withdraw any BMC, Cash/security from the exchange. 7. Henceforth, to grant all loans by Bhubhaneshwar Stock Exchange to Members Welfare Trust only after approval has been obtained from the council of management. 3.1 It was further directed that the letter dated January 29, 2002 be placed before the council of management of the ....
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....002 addressed to the Executive Director and Council of Management, SEBI directed them to comply with the directions mentioned in the said letters and submit their report within 2 weeks from date of receipt of the letter. They were also directed to submit the report of the committee constituted to enquire into complaints against the Executive Director within 2 weeks from date of receipt of the letter. The stock exchange vide its letter dated August 22, 2002 informed that a meeting of the council of management will be held on August 28, 2002 to take up matters relating to compliance of directions given in the letters dated January 29, 2002 and April 30, 2002. 4.0 While the above matter was pending, SEBI received complaints from Shri Kedar Swamy Patra, member of BhSE and Shri M. N Ray, public representative alleging financial fraud and irregularities in the exchange. Further, SEBI came to know through newspaper reports that certain members of the exchange had been arrested and imprisoned for murder and that there were several irregularities taking place in the stock exchange. In the light of the said complaint and media reports, SEBI undertook an inspection of the BhSE during the per....
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....oor performance, professional misconduct, dereliction of duties and misappropriation of funds of the stock exchange. However, Shri Ray instead of submitting the draft charges to the council of management issued a show cause notice to the Executive Director and Secretary wherein, he described himself as Chairman of the exchange. (v) The Committee constituted to enquire into the charges against the Executive Director was constituted on March 26, 2002 and later 2 more members were added on July 17, 2002. Although, the committee has met 3 times, they have failed to submit their report within 6 months as directed by SEBI. Till date, the committee has not submitted their report to SEBI. (vi) With regard ,to irregularities in the disbursal of loans from the MWT, it was observed that the MWT had delivered 16,200 shares of Reliance Industries Ltd to one broker on NSE M/s Indian Finance Guarantee Ltd (IFGL). These shares were sold @ ₹ 367/- per share. The details of proceeds of tile said transactions are as under :- Sr. No Name of the loanees Number of shares Rate Amount (Rs. ) 1 Pradeep Investment 5350 367 1963450 2 Kumar & co 1900 367 697300 3 A.K Financial & Co 4....
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....rest earnings on which the exchange now survives. 5.0 In view of the failure of BhSE to carry out the directives of SEBI and in the light of the observations made by the inspecting team, it appeared that the Council of Management of the exchange has failed to effectively discharge its duties and therefore, SEBI issued a show cause notice dated September 24, 2002 advising them to show cause why appropriate action including supersession should not be taken against them. 5.1 The Council of Management of BhSE submitted their reply vide letter dated October 8, 2002. In their reply they have stated as follows :- (i) The committee formed to enquire into complaints against the Executive Director has submitted its report and the same will be forwarded to SEBI after the council of management gives approval to the same. (ii) The constitution of the members welfare trust has been amended suitably and at present there are five trustees out of which three are non elected directors. The trust has also stopped granting loans to members of the exchange since December 2001. (iii) Members having outstanding loans from the Members Welfare Trust including Shri Babulal Sharma, Shri Anjani Kumar Sin....
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....pect to the sale of securities in favour of IFGL, the council is initiating both civil and criminal action. (xii) With regard to the housing loan, Shri Sanjay Mahapatra, Secretary (under suspension) has repaid his housing loan and the exchange is considering legal steps for recovery of housing loan availed by Shri Jay Sadany, Executive Director (under suspension). 5.2 In view of the above, the Council of Management requested SEBI not to take any action including supersession of the council of management. As per the request of the Council of Management of the Stock Exchange, an opportunity to be heard before the Chairman was granted to them on November 20, 2002. During the hearing, the Council of Management of BhSE was represented by M/s L N Patnaik, S K Jhingan and M N Ray, all directors of BhSE. Shri M N Ray is also the public representative on the Council. In the course of the hearing, the directors of the exchange submitted that they have taken effective steps to exclude the persons responsible for the irregularities at the stock exchange from responsible positions and a few of them have even been arrested by the State Police. They requested that they may be given another chan....
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....General Meeting to be held on November 9, 2002 has not been substantiated by action since no statements in this regard has been forwarded to SEBI. Further, accounts for the year 2001-02 are yet to be adopted. 7.3 I find that no effective steps have been taken by the Council of Management with regard to the irregularities in payments made to M/s Indian Finance Guarantee Ltd. The explanation of the council that the matter has been taken up with IFGL for making good the shortfall and that the council is initiating both civil and criminal action, is not satisfactory. The irregularities were noticed in the year 1999 and were also mentioned in the report of the inquiry officer submitted on October 22, 2001. However, BhSE is yet to take any effective action in this regard. 7.4 I find that during the course of hearing, the submissions made by the representatives indicated that they only wished to take action against their predecessors and that they were not inclined to follow the directives of SEBI. Moreover, two of the representatives who appeared before me were found to be lacking in credibility. As mentioned hereinbefore, strictures have been passed by the High Court of Orissa as per ....