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CHAPTER VI PROCEDURE FOR ACTION IN CASE OF DEFAULT Liability for action in case of default 25. (1) A stock-broker who (a) fails to comply with any conditions subject to which registration has been granted; (b) contravenes any of the provisions of the Act, rules or regulations; (c) contravenes the provisions of the Securities Contracts (Regulation) Act or the rules made thereunder; (d) contravenes the rules, regulations or bye-laws of the stock exchange; shall be liable to any of the penalties specified in sub- regulation (2). (2) The penalties referred to in sub-regulation (1) may be either - (a) suspension of registration, after the inquiry, for a specified period; or (b) cancellation of registration. Suspension, cancellation of registration, etc. 26. (1) A penalty of suspension of registration of a stock- broker may be imposed if:- (i) the stock-broker violates the provisions of the Act, rules and regulations; (ii) the stock-broker does not follow the code of conduct annexed at Schedule II; (iii) the stock-broker - (a) fails to furnish any information related to his transactions in securities as required by the Board; (b) furnishes wrong or false information, (c) does not submit periodical returns as required by the Board; (d) does not co-operate in any enquiry conducted by the Board; (iv) the stock-broker fails to resolve the complaints of the investors or fails to give a satisfactory reply to the Board in this behalf; (v) the stock-broker indulges in manipulating or price rigging or cornering activities in the market; (vi) the stock-broker is guilty of misconduct or improper or unbusinesslike or unprofessional conduct; (vii) the financial position of the stock broker deteriorates to such an extent that the Board is of the opinion that his continuance in securities business is not in the interest of investors and other stock- brokers; (viii) the stock-broker fails to pay the fees; (ix) the stock-broker violates the conditions of registration; (x) the membership of the stock- broker is suspended by the stock exchange: Provided that the Board for reasons to be recorded in writing may in case of repeated defaults of the type mentioned above impose a penalty of cancellation of registration of the stock-broker. (2) A penalty of cancellation of registration of a stock-broker may be imposed if:- (i) the stock-broker violates any provisions of insider trading regulations or take-over regulations; (ii) The stock-broker is guilty of fraud, or is convicted of a criminal offence; and (iii) cancellation of membership of the stock-broker by the stock exchange. 27. Manner of order of suspension or cancellation No order of penalty of suspension and cancellation shall be imposed except after holding an enquiry in accordance with the procedure specified in regulation 28. ["Provided that the holding of such an enquiry shall not be necessary in cases where the stock broker : ceases to be a member of a recognised stock exchange; or is declared defaulter by the stock exchange and is not readmitted to the membership of the exchange within a period of six months from such declaration ;or surrenders the membership of the stock exchange; or is declared insolvent by a Court; or fails to pay the registration or annual fees to the Board in the manner specified in the regulations; or voluntarily surrenders certificate to the Board; or is wound up by an order passed by the Court. Provided further that no action shall be taken against the stock broker without giving an opportunity of hearing to the stock broker"]⁷. Manner of holding enquiry 28. (1) For the purpose of holding an enquiry under regulation 27, the Board may appoint an enquiry officer. (2) The enquiry officer shall issue to the stock-broker a notice at the registered office or the principal place of business of the stock-broker. (3) The stock-broker may, within thirty days from the date of receipt of such notice, furnish to the enquiry officer a reply together with copies of documentary or other evidence relied on by him or sought by the Board from him. (4) The enquiry officer shall, give a reasonable opportunity of hearing to the stock-broker to enable him to make submissions in support of his reply made under sub-regulation (3). (5) Before the enquiry officer, the stock-broker may either appear in person or through any person duly authorised on his behalf: Provided that no lawyer or advocate shall be permitted to represent the stock-broker at the enquiry: Provided further that where a lawyer or an advocate has been appointed by the Board as a presenting officer under sub- regulation (6), it shall be lawful for the stock-broker to present his case through a lawyer or advocate. (6) If it is considered necessary, the enquiry officer may request the Board to appoint a presenting officer to present its case. (7) The enquiry officer shall, after taking into account all relevant facts and submissions made by the stock-broker, submit a report to the Board and recommend the penalty to be awarded as also on the justification of the penalty proposed in the notice. Show-cause notice and order 29. (1) On receipt of the report from the enquiry officer, the Board shall consider the same and issue a show-cause notice as to why the penalty as it considers appropriate should not be imposed. (2) The stock-broker shall within twenty-one days of the date of the receipt of the show- cause send a reply to the Board. (3) The Board after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than thirty days from the receipt of the reply, if any, pass such order as it deems fit. (4) Every order passed under sub- regulation (3) shall be self- contained and give reasons for the conclusions stated therein including justification of the penalty imposed by that order. (5) The Board shall send a copy of the order under sub- regulation (3) to the stock- broker, stock exchange of which the stock-broker is the member, [***]⁸ . Effect of suspension and cancellation of registration of stock-the stock-broker 30. (1) On and from the date of the suspension of broker he shall cease to buy, sell or deal in securities as a stock-broker during the period of suspension. (2) On and from the date of cancellation, the stock-broker shall with immediate effect cease to buy sell or deal in securities as a stock-broker. Publication of order of suspension 31. The order of suspension or cancellation of certificate passed in sub- regulation (3) of regulation 29 shall be published in atleast two daily newspapers by the Board.be published in atleast two daily newspapers by the Board. Appeal to the Securities Appellate Tribunal 32. [Any person aggrieved by an order of the Board made, on and after the commencement of the Securities Laws (Second Amendment) Act, 1999, (ie., after 16th December 1999), under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter]⁹ ⁷ Inserted by the Securities and Exchange Board of India (Stock Brokers and Sub Brokers) (Amendment)Regulations, 1999 vide Notification No. 541 (E), dated 6.7.1999 ⁸The words "and to the Central Government" omitted by the Securities and Exchange Board of India (Stock Brokers and Sub brokers) Amendment Regulations, 1999 vide Notification No. 541 (E) dated 6.7.1999 ⁹Substituted for the earlier provision vide SEBI ( Appeal to the Securities Appellate Tribunal) (Amendments) Regulations,2000

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