WTM/MPB/EFD-1-DRA-II/ 35 /2018 SECURITIES AND EXCHANGE BOARD OF INDIA MS. MADHABI PURI BUCH, WHOLE TIME MEMBER Order Under Regulation 28 of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 In respect of Sl. No NAME PAN 1. India Infoline Commodities Limited AABCI2930D In Re Inspection of Documents. __________________________________________________________________________ 1. India Infoline Commodities Limited (hereinafter referred to as “IICL” / “Noticee”) a commodity broker / member of National Spot Exchange Limited (hereinafter referred to as “NSEL”), Multi Commodity Exchange of India Ltd (hereinafter referred to as “MCX”) and National Commodity & Derivatives Exchange Limited (hereinafter referred to as “NCDEX”). 2. Pursuant to the default at NSEL in 2012 and Economic Offences Wing’s (hereinafter referred to as “EOW”) initial investigations / arrests / complaints received from investors against the members / brokers of NSEL (including IICL), NSEL vide complaint letters dated March 17, 2015 and March 24, 2015 and EOW via report dated April 04, 2015 had requested Securities and Exchange Board of India (hereinafter referred to as “SEBI”) to take appropriate/necessary action. 3. It is noted that on September 28, 2015, Forward Market Commission (hereinafter referred to as “FMC”) got merged with SEBI and pursuant to this merger, IICL on December 23, 2015, had made an application to SEBI for registration as a commodity broker. Further, it is noted that as per Finance Act 2015, an intermediary may continue to buy, sell or deal in a commodity derivatives as a commodity broker, if it has made an application for such registration within a period of 3 months till the disposal of such application. ___________________________________________________________________________________ Order in respect of India Infoline Commodities Limited Page 1 of 16 4. Further, pursuant to merger of FMC with SEBI, the regulation and supervision of the commodity derivatives brokers has been entrusted to SEBI. Therefore, in view of the abovementioned NSEL complaint letters and EOW report, SEBI had appointed Kirtane & Pandit LLP, Chartered Accountants (hereinafter referred to as “Auditor”) to carry out performance audit/inspection of IICL. 5. Audit report along with Annexures were submitted by the auditor to SEBI. Based on the findings of the auditor and further analysis of the same by SEBI, it was decided by SEBI to initiate enquiry proceedings against IICL in terms of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as “Intermediaries Regulations”). 6. SEBI vide order dated October 06, 2016 had appointed a Bench of Designated Authorities to enquire into the alleged violations of various provisions of the SEBI (Stock Brokers & Sub Brokers) Regulations, 1992, (hereinafter referred to as the “Brokers Regulations”), SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”), Forward Contracts (Regulation) Act, 1952, (hereinafter referred to as “FCRA”), Prevention of Money Laundering Act, 2002 (hereinafter referred to as “PMLA”), Central Government Notifications and various Circulars / Code of Conduct, Guidelines, Bye Laws, Business Rules etc. of FMC / SEBI / NSEL / NCDEX / MCX. 7. In terms of regulation 27 of the Intermediaries Regulations, the Designated Authorities vide Enquiry Report dated April 11, 2017 in respect of IICL recommended inter alia, that the application of IICL submitted for registration as a commodity broker may not be considered in the interest of securities market and the application of IICL may be rejected. Subsequently, SEBI issued separate Show Cause Notice dated April 24, 2017 enclosing a copy of Enquiry Report dated April 11, 2017 (hereinafter referred to as “SCN” / “Enquiry Report”) to IICL wherein IICL were advised to reply to the SCN within 21 days from the receipt thereof. 8. IICL vide letter dated May 12, 2017 had acknowledgment the receipt of SCN. 9. IICL vide various letters/emails dated May 12, 2017, June 08, 2017, July 10, 2017, September 15, 2017, September 19, 2017, September 22, 2017, October 06, 2017, October 27, 2017, November 21, 2017 and January 09, 2018 etc. had sought inspection of documents ___________________________________________________________________________________ Order in respect of India Infoline Commodities Limited Page 2 of 16 as well as copies of documents and submitted that SEBI has not provided complete inspection of all documents to them. However, SEBI submitted that it had granted inspection to IICL on June 19, 2017 and copies of all relied upon documents were also provided to IICL through various letters dated June 21, 2017, August 29, 2017, November 08, 2017 and January 05, 2018. 10. In the interest of natural justice and as per regulation 28(2) of Intermediaries Regulations, the Noticee was granted an opportunity of personal hearing on January 24, 2018 at SEBI, Head Office, Mumbai vide notice of hearing dated December 26, 2017. 11. The Noticee vide various aforesaid letters stated that the documents sought were required by them to finalize their reply and hence requested to grant an opportunity of hearing only after receipt of their detailed reply in the matter. In this regard, the Noticee had also cited the Order of Hon’ble Supreme Court in the matter of SEBI v. Price Waterhouse (Civil Appeal No. 6001 – 6002 and 6003-6004 of 2012 decided on 10.01.2017) wherein Supreme Court had held that a party before SEBI is entitled to get all the material on SEBI’s record. 12. In view of the stand of SEBI that it has granted inspection of all relied upon documents and the stand of the Noticee that they are entitled to get additional documents and their request that a hearing be fixed only after they file detailed reply based on all the requested documents, in order to overcome the impasse resulting from the conflicting stands, SEBI vide email dated January 23, 2018 informed the Noticee that the hearing scheduled on January 24, 2018 would be in respect of inspection of documents. 13. On January 24, 2018 Ms. Isha Raman and Mr. Supreme Waskar, Advocates from Suvan Law Advisors, along with Ms. Mamta Singh, Mr. Ravi Ramachandran and Mr. Chintan R. Modi from IICL, Authorized Representatives (hereinafter referred to as “ARs”) of IICL appeared for the hearing. Following was noted during the hearing held on January 24, 2018: “…… (a) ARs requested for an adjournment of the hearing on account of the fact that present matter involves issues with respect to Constitutional law, jurisdiction of SEBI in the matter etc. and for that purpose they require various documents listed out in their representations before SEBI dated November 21, 2017 and the fundamental question ___________________________________________________________________________________ Order in respect of India Infoline Commodities Limited Page 3 of 16 of relevance of the said documents in the matter has to be argued by a Senior Counsel and they are in the process of briefing a Senior Counsel in the matter. (b) The undersigned explained the ARs of IICL that they were informed by SEBI that today’s hearing before this forum was to resolve the issues of inspection of documents between SEBI and IICL i.e. IICL claims that the SEBI has not provided the complete inspection of documents to them, whereas SEBI claims that all relied upon documents were provided to IICL. In this regard, the undersigned note that though IICL/ARs were aware of the purpose of today’s hearing, Senior Counsel of IICL was not present in the hearing and IICL/ARs state that the relevance of the said documents in the matter has to be argued by a Senior Counsel and they are in the process of briefing a Senior Counsel in the matter. (c) The undersigned note with great displeasure that IICL/ARs have not taken seriously the value of time of this forum as they have neither submitted any arguments as to why they want the information nor have they even acknowledged whether the long list of documents claimed to have been given by SEBI have been received by them or not, whereas one day before i.e. last minute adjournment has been sought by them. (d) Thereafter, ARs submitted that they have not received approximately 15 documents listed out in their representation dated November 21, 2017 or received illegible documents, etc., the details are as under: Table – 1 Items in Documents sought by the Noticee Submissions during the hearing by representation the Noticee of the Noticee Sl. No 5 Year wise and client wise concentration of UCCs in the SEBI replied that Query is not specific. instances of UCC modifications as mentioned in excel In this regard, the Noticee needs file referred in Document no. 7 (page no. 4 of 6). Senior Counsel to argue the relevance of the documents. Sl No. 6 FMC's vide its letter dated 16th September, 2013 called SEBI provided the copy of the letter for the Agenda notes and Minutes of the meetings of the without annexures. Board of Directors of NSEL as referred in point no. 6.3, page no. 7 of FMC order dated December 17, 2013. ___________________________________________________________________________________ Order in respect of India Infoline Commodities Limited Page 4 of 16 Sl No. 7 The internal audit report of NSEL for the period 1st SEBI provided Copy of internal audit April, 2011 to 30th September 2011 as referred in point without Annexure IX no. 6.4, page no. 7 of FMC order dated December 17, 2013. Sl. No. 8 Forensic Report of M/s. Grant Thornton India LLP as Certain pages are illegible referred in point no.11, page no. 31 of FMC order dated December 17, 2013. Sl. No. 12-19 Names of all the other trading members, List of NSEL SEBI mentioned that data not members who have been granted registration by-SEBI relevant/relied upon in the Enquiry in any capacity, List of NSEL brokers who have been Report denied registration by SEBI pursuant to its application to SEBI in any capacity, Names of all the other In this regard, the Noticee need Senior individuals/listed companies to whom any Show Cause Counsel to argue the relevance of the Notice has been issued by SEBI In this matter (if any), documents.