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Adjudication order in the matter of SKSE Securities Limited Page 1 of 9

September 29,2014.

BEFORE THE ADJUDICATING OFFICER
SECURITIES AND EXCHANGE BOARD OF INDIA
[ADJUDICATION ORDER NO. ASK/AO/SPV/89/2014 - 15]
UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA
ACT, 1992 READ WITH RULE 5 OF SECURITIES AND EXCHANGE BOARD OF
INDIA (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES BY
ADJUDICATING (OFFICER) RULES, 1995
In respect of
SKSE Securities Limited

[PAN: AAFCS1539J]


Background


1. Securities and Exchange Board of India (SEBI) conducted inspection into
the books of accounts and other records of the SKSE Securities Limited
(Noticee) to examine its Anti Money Laundering (AML) mechanism and
compliance level. On the basis of the findings of the said inspection, it was
observed that the Noticee has violated the provisions of SEBI Circular No.
ISD/CIR/RR/AML/1/06 dated January 18, 2006 (SEBI Circular) and
Clause - 11 of Code of Conduct specified under Third Schedule read with
Regulation 20A of SEBI (Depositories and Participants) Regulations, 1996
(DP Regulations).

2. SEBI has, therefore, initiated adjudicating proceedings to inquire into and
adjudge under section 15HB of the SEBI Act, 1992 (SEBI Act) the
aforesaid alleged violations committed by the Noticee.

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Adjudication order in the matter of SKSE Securities Limited Page 2 of 9

September 29,2014.


Appointment of Adjudication Officer

3. The undersigned was appointed as Adjudicating Officer vide order dated
May 09, 2014 under section 15-I of SEBI Act read with rule 3 of SEBI
(Procedure for Holding Inquiry and Imposing Penalty by Adjudicating
Officer) Rules, 1995 (Adjudication Rules) to inquire into and adjudge
under section 15HB of the SEBI Act the alleged violations of the provisions
of the SEBI Circular and Clause -11 of Code of Conduct specified under
Third Schedule read with Regulation 20A of DP Regulations.

Show Cause Notice, Reply and Personal Hearing

4. Show Cause Notice dated July 11, 2014 (SCN) was issued to the Noticee
under rule 4(1) of the Adjudication Rules to show cause as to why an
inquiry should not be initiated and penalty be not imposed against it under
section 15HB of the SEBI Act for the alleged violations specified in the
SCN.

5. The Noticee vide letter dated July 31, 2014 sought 3 weeks time to file
reply to the SCN and subsequently vide letter dated August 21, 2014 filed
reply to the SCN. An opportunity of hearing was granted to the Noticee on
September 09, 2014 when Shri Chirag B Dedakia, Chief Executive Officer
of the Noticee appeared as Authorized Representatives (AR) of the
Noticee and re-iterated the submissions made vide letter dated August 21,
2014. During the personal hearing, the AR was advised to file the following
documents by September 15, 2014:

Regarding the allegation of non-implementation of AML policy, the
relevant documents showing such implementation if any, including
the board resolutions and circulars issued to the brokers and their
responses.
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Adjudication order in the matter of SKSE Securities Limited Page 3 of 9

September 29,2014.


Regarding the allegation of non-categorization of clients , the AR
submitted that upon receipt of the new format from CDSL in 2010,
all the new clients have been categorized into high, medium and
low category. Regarding old clients, It was submitted that the
Noticee had sent letters to all the clients seeking details like net
worth for the purpose of updating and re-categorization and it had
done the updation changes manually in the system on the basis of
the information received. The AR is advised to submit relevant
documents in this regard.

Vide e-mail/letter dated September 15, 2014, Noticee submitted additional
submissions pursuant to the personal hearing held on September 09,
2014.

Consideration of Issues, Evidence and Findings

6 I have carefully perused the material available on record, written and oral
submissions made by the Noticee.

7 The issues that arise for consideration in the instant case are:
a. Whether the Noticee has violated the provisions of the SEBI
Circular and Clause -11 of Code of Conduct specified under Third
Schedule read with Regulation 20A of DP Regulations ?.
b. Do the violations if any, on the part of the Noticee attract penalty
under section 15 HB of SEBI Act?
c. If so, how much penalty should be imposed on the Noticee taking
into consideration the factors mentioned in section 15J of the SEBI
Act?
8 The relevant provisions of DP Regulations are as under:

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Adjudication order in the matter of SKSE Securities Limited Page 4 of 9

September 29,2014.

DP Regulations.

Participants to abide by Code of Conduct.


20A. The participants holding a certificate shall, at all times, abide by the Code of Conduct as
specified in the Third Schedule.

Clause 11 of Code of Code Conduct - A participant shall maintain the required level of
knowledge and competency and abide by the provisions of the Act, rules, Regulations and
Circulars and regulations issued by the Board. The participant shall also comply with the
award of ombudsman passed under the Securities and Exchange Board of India
(Ombudsman) Regulations, 2003.

FINDINGS

9 The issues for examination in this case and the findings thereon are as follows:

a) Whether the Noticee has violated the provisions of the SEBI Circular
and Clause -11 of Code of Conduct specified under Third Schedule
read with Regulation 20A of DP Regulations?

10 I note that SEBI conducted inspection into the books of account and other
records of the Noticee to examine its AML mechanism and compliance level. On
the basis of findings of the inspection, it was alleged in the SCN that the Noticee
had not implemented AML mechanism. It was also alleged in the SCN that the
Noticee had not categorised the clients into high, medium and low category and
hence was not exercising additional due diligence for monitoring the transactions
of high and medium risk clients as compared to low risk clients. It was further
alleged in the SCN that the Noticee had not appointed the 'Principal Officer' as
required under the SEBI circular in time and even after appointment of the
'Principal Officer', the details of the 'Principal Officer' was intimated to FIU with a
delay. It was thus alleged that the Noticee has violated the provisions of the SEBI
Circular and the provisions of DP Regulations.
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Adjudication order in the matter of SKSE Securities Limited Page 5 of 9

September 29,2014.


11 Regarding the allegation of non- implementation of the AML policy, the Noticee,
vide letter dated September 15, 2014 has submitted that it could not implement
the AML policy on time as per the provisions of SEBI Circular. The Noticee has
also submitted that the non-implementation of AML policy was due to lack of
knowledge and that it has got the AML policy implemented now and the same is
functioning well. In this regard, the Noticee has submitted a copy of "the
resolution passed at the meeting of the Board of Directors of SKSE Securities
Limited scheduled to be held on 29th July 2013 at 05:00 P. M at registered office
of the company" and a copy of the list of employees who attended the
"awareness meeting on AML policy" which was held on April 02, 2011. From the
material produced by the Noticee, I find that the AML policy was reviewed at the
Board level in July 2013. Though the Noticee submitted vide its letter dated
August 21, 2014 that the AML policy was made earlier with the consent of its
board and followed, it did not produce any evidence in support thereof. The only
other document produced by the Noticee vide its letter dated September 15, 2014
in this context is merely a copy of the list of members who attended the AML
training programmes stated to have conducted by the Noticee in April 2011 and
thereafter. This again is not a conclusive proof that the noticee had earlier
implemented the AML policy in time. SEBI vide the aforementioned Circular
issued guidelines on AML standards and advised all intermediaries to ensure that
a proper policy framework as per the guidelines on anti-money laundering
measure is put into place within one month from the date of the circular. In the
instant case, the Noticee has failed to implement the said policy in time. I,
therefore, hold that the Noticee has violated the provisions of the above
mentioned SEBI Circular.

12 Regarding the allegation of non-categorization of clients, the Noticee has
contended that upon receipt of the new format from CDSL in 2010, all the new
clients have been categorized into high, medium and low category. Regarding old
clients, it is submitted that the Noticee has approximately 24,100 clients, out of
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September 29,2014.

which 21,100 clients have been categorized and the remaining clients will be
shortly categorized. In support of its contention, the Noticee has, vide e-mail
dated September 15, 2014, submitted the list of clients showing categorization. In
this context, it is pertinent to state that guidelines on AML standards were issued
by SEBI vide its Circular dated January 18, 2006 to all SEBI registered
intermediaries which inter alia required the intermediaries to develop customer
acceptance policies and procedures aimed at identifying the types of customers
that are likely to pose a higher than the average risk of money laundering or
terrorist financing. In terms of the said SEBI Circular, the Noticee being SEBI
registered intermediary, was clearly under obligation to implement the same.
This, in turn would enable them to apply customer due diligence on a risk
sensitive basis depending upon the type customer business relationship. Certain
safeguards were also prescribed to be followed while accepting the clients which
inter alia required classification into low, medium and high risk. This ought to
have been implemented by the Noticee within one month from January 18, 2006
being the date of issuance of the Circular. It is evident from the reply of the
Noticee that it had not taken any steps towards implementation till 2010. It is also
noted that the categorization of old clients is still being carried on by the Noticee
even now. Thus, I hold that the Noticee has violated the provisions of SEBI
Circular in this regard.

13 With regard to the allegation of delay in appointment of 'Principal Officer' in terms
of SEBI Circular, it was submitted that the Noticee had appointed 'Principal
Officer' on December 14, 2007 but due to oversight there was some delay in
intimating the same to FIU. In this regard, I note that the aforementioned SEBI
Circular dated January 18, 2006 inter alia mandates the intermediaries designate
an officer as ''Principal Officer'' who would be responsible for ensuring the
compliance of the provisions of The Prevention of Money Laundering Act, 2002
(PMLA). The name, designation and addresses (including e-mail address) of the
'Principal Officer' had to be intimated to the Office of the Director, FIU on an
urgent basis. In the instant case, the appointment of ''Principal Officer'' was made
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Adjudication order in the matter of SKSE Securities Limited Page 7 of 9

September 29,2014.

by the Noticee on December 14, 2007, i.e, with a delay of almost two years from
the date of the SEBI Circular. Further, the appointment was also not intimated to
the Director- FIU on an urgent basis. It was intimated only on January 10, 2008.
Hence, I find that the Noticee has not complied with the provisions of SEBI
Circular in time.

14 The Noticee being a registered depository participant (DP) is required to abide by
Code of Conduct specified under the Third Schedule read with regulation 20A of
DP Regulations. The Code specifically provides that all DPs shall abide inter alia
by the provisions of Circulars issued by the Board. As found above, the Noticee,
by its failure to implement the provisions of SEBI Circular in time, has also
violated the provisions of Clause -11 of the Code of Conduct specified in DP
Regulations.

b). Do the violation, if any, on the part of the Noticee attract penalty under
section 15HB of SEBI Act?

15 At this juncture, it is relevant to quote the judgment of Supreme Court in the
matter of SEBI vs. Shri Ram Mutual Fund wherein it was inter alia held that
once the violation of statutory regulations is established, imposition of penalty
becomes sine qua non of violation and the intention of parties committing such
violation becomes totally irrelevant. Once the contravention is established, then
the penalty is to follow.

16 Thus, the aforesaid violations by the Noticee make him liable for penalty under
section 15HB of the SEBI Act which reads thus:
SEBI Act
15HB - Whoever fails to comply with any provisions of this Act, the rules or
regulations made or directions issued by the Board thereunder for which no separate
penalty has been provided, shall be liable penalty which may extend to one crore
rupees.
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Adjudication order in the matter of SKSE Securities Limited Page 8 of 9

September 29,2014.


c). If so, how much penalty should be imposed on the Noticee taking
into consideration the factors mentioned in section 15J of the SEBI Act?

17 While determining the quantum of penalty, it is important to consider the factors
stipulated in section 15J of SEBI Act, which reads as under:-

Factors to be taken into account by the adjudicating officer.
While adjudging quantum of penalty under S.15-I, the adjudicating 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 of investors as a result of the
default;
(c) the repetitive nature of the default.

18 It is difficult, in cases of this nature, to quantify exactly the disproportionate gains
or unfair advantage enjoyed by an entity and the consequent losses suffered by
the investors. There is no material on record which dwells on the extent of
specific gains made by the Noticee by not adhering to the provisions of the SEBI
Circular and DP Regulations. It is, however, needless to mention here that the
guidelines issued by SEBI through the SEBI Circular are very crucial in the sense
that the said guidelines are meant to discourage and identify any money
laundering and terrorist financing activities. Therefore, the Noticee ought to
ensured that they are effectively and promptly implemented. As found above, the
Noticee has failed to implement the provisions of the Circular in time thereby
defeated the very purpose of the Circular and also failed to abide by the Code of
Conduct specified in the DP Regulations.




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Adjudication order in the matter of SKSE Securities Limited Page 9 of 9

September 29,2014.



Order

19 After taking into consideration all the facts and circumstances of the case, I am
convinced that this is a fit case for imposing monetary penalty on the aforesaid
Noticee, SKSE Securities Limited. I, in exercise of the powers conferred upon me
under section 15- I (2) of the SEBI Act, impose a penalty of `. 2,00,000/-
(Rupees Two Lakhs only) on the Noticee in terms of section 15HB of the SEBI
Act. The above mentioned penalty will be commensurate with the violation
committed by the Noticee.

20 The penalty shall be paid by way of a duly crossed 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 the
Regional Director, Western Regional Office, Securities and Exchange Board of
India, Unit No.002, Ground Floor, SAKAR I, Near Gandhigram Railway Station,
Opp. Nehru Bridge, Ashram Road, Ahmadabad - 380 009.

21 In terms of the Rule 6 of the Adjudication Rules, copies of this order are sent to
the Noticee and also to the Securities and Exchange Board of India.





DATE: September 29, 2014 A SUNIL KUMAR
PLACE: Mumbai ADJUDICATING OFFICER

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