Description

SEBI final order against Gogia Capital Services Limited (Stock Broker, Reg. No. INZ000202733) for violations including net worth shortfall, improper book maintenance, engaging in unauthorized business, and non-settlement of client funds and securities.

Summary

SEBI has issued a final order under Section 12(3) of SEBI Act, 1992 read with Regulation 27 of SEBI (Intermediaries) Regulations, 2008 against Gogia Capital Services Limited (SEBI Registration No. INZ000202733, PAN: AAACG2906L). The order follows a thematic inspection by SEBI along with BSE, NSE, and MCX for the period April 01, 2022 to July 31, 2023. The Noticee was found to have violated multiple provisions of SCRR, Stock Brokers Regulations, and various SEBI circulars. A Designated Authority was appointed on March 06, 2024 to enquire into the violations and issued a show cause notice dated March 28, 2024.

Key Points

  • Gogia Capital Services Limited is a registered stock broker with SEBI
  • Thematic inspection conducted by SEBI, BSE, NSE, and MCX for inspection period April 01, 2022 to July 31, 2023
  • Inspection findings communicated via letter dated November 30, 2023
  • Noticee submitted reply on December 05, 2023
  • Enquiry proceedings initiated under SEBI (Intermediaries) Regulations, 2008
  • Designated Authority appointed on March 06, 2024
  • Show cause notice issued on March 28, 2024 under Regulation 25 of Intermediaries Regulations
  • Four major categories of violations identified

Regulatory Violations

1. Shortfall in Net Worth and Improper Maintenance of Books of Accounts

  • Violation of Section 12(1) of SEBI Act, 1992
  • Violation of SEBI Circular no. FITTC/DC/CIR-1/98 dated June 16, 1998
  • Violation of Regulation 9(g) read with Schedule VI of Stock Brokers Regulations

2. Engagement as Principal or Employee in Unauthorized Business

  • Violation of Rule 8(3)(f) of SCRR
  • Violation of SEBI Master Circular no. SEBI/HO/MIRSD/MIRSD-PoD-1/CIR/2023/71 dated May 17, 2023
  • Violation of SEBI Circular no. SMD/Policy/Cir-6 dated May 07, 1997
  • Engaged in business other than securities involving personal financial liability

3. Non-Settlement of Clients’ Funds and Securities

  • Violation of Clause 47.1.1 and 47.8 of SEBI Master Circular
  • Violation of Clause 12(e) of Annexure A of SEBI Circular no. MIRSD/SE/Cir-19/2009 dated December 03, 2009
  • Violation of Clause 8.1 of Annexure to SEBI Circular no. SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated September 26, 2016
  • Violation of Clause 5.4 of SEBI Circular no. SEBI/HO/MIRSD/DOP/P/CIR/2021/577 dated June 16, 2021
  • Violation of SEBI Circular no. SEBI/HO/MIRSD/DOP/P/CIR/2022/101 dated [date not provided in excerpt]

Compliance Requirements

  • Stock brokers must maintain minimum net worth requirements at all times
  • Proper maintenance of books of accounts as per regulatory standards is mandatory
  • Stock brokers are prohibited from engaging as principal or employee in businesses other than securities that involve personal financial liability
  • Timely settlement of clients’ funds and securities is mandatory
  • Compliance with all applicable SEBI circulars and regulations governing intermediaries

Important Dates

  • Inspection Period: April 01, 2022 to July 31, 2023
  • Inspection Findings Communicated: November 30, 2023
  • Noticee’s Reply: December 05, 2023
  • Designated Authority Appointed: March 06, 2024
  • Show Cause Notice Issued: March 28, 2024

Impact Assessment

Market Impact: This enforcement action against a registered stock broker has significant implications for market integrity and investor protection. The violations related to non-settlement of client funds and securities pose direct risks to clients of the broker.

Operational Impact: The identified violations indicate serious operational and compliance deficiencies at the intermediary level, including:

  • Financial stability concerns due to net worth shortfall
  • Accounting irregularities affecting transparency
  • Unauthorized business activities creating conflict of interest
  • Client fund safety issues due to non-settlement

Investor Protection: Non-settlement of client funds and securities represents a critical breach of fiduciary duty and directly impacts investor protection. Market participants should exercise caution when dealing with this intermediary.

Regulatory Precedent: This order reinforces SEBI’s commitment to strict enforcement of intermediary regulations and serves as a warning to other market intermediaries regarding compliance with net worth requirements, accounting standards, and client fund handling protocols.

Impact Justification

High severity enforcement action against registered stock broker for multiple serious violations including net worth shortfall, improper accounting, unauthorized business activities, and non-settlement of client funds - critical for market participants dealing with this intermediary