BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No.75/2002
Date of Hearing: 22nd April, 2004
Date of decision:29th April, 2004
In the matter of
Yoha Securities. Ltd., Appellant – Represented by
Shri Bharat Merchant, Advocate
Versus
Securities and Exchange Board
of India Respondent – Represented by
Shri Kumar Desai, Advocate
Coram:
Justice Shri Kumar Rajaratnam, Presiding Officer
Dr. B. Samal, Member
Shri N. L. Lakhanpal, Member
Per : Shri N. L. Lakhanpal, Member
This is an appeal against the order dated 16th September, 2002 passed by Securities & Exchange Board of India (SEBI) suspending the registration of Yoha Securities. Ltd., for a period of 7 days for violation of sub regulation 3 of Regulation 29 of the SEBI (Stock Brokers and Sub Brokers) Rules & Regulations, 1992. M/s. Yoha Securities. Ltd.,(YSI) is a member of the National Stock Exchangeand registered with SEBI as a stock broker. The action against the appellant has been taken by the Respondent in respect of the transactions carried out in the scrip of a company called Maruti Organics Ltd., (MOL) on behalf of a client called Madhav.
The facts are that an organized attempt was made by a group of buyers including one Shri Madhav to commit a fraud on the Stock Exchanges in respect of the shares of Maruti Organics Ltd., This group of buyers contacted the brokers who had just set up business in different stock exchange in the country and built up huge positions in the stocks of MOL by offering a higher margin of 20% instead of the normal 10% and then disappearing at the time of settlement. For instance, in the present case, Shri Madhav placed a buy order for 5000 shares on 27/6/96 and for 3000 shares on 28/6/96. On the same day i.e. 28/6/96 he also placed a sell order for 8000 shares thereby achieving a zero net position. On 3//7/96 he placed a buy order for 10000 shares and disappeared at the time of settlement. When the matter was investigated it came to the notice of the regulatory authorities viz. the stock exchanges and the SEBI that if the brokers had taken the usual precautions and followed the prescribed procedures in entering into a broker-client agreement, this kind of disruption of the market could have been avoided. The appellant was one of the brokers involved and a show cause notice was served on him seeking his explanation for not having followed the prescribed procedures. Since the investigations had shown that the appellant was not a willing party to this fraud, only a token punishment of one week’s suspension was awarded to the appellant.
At the time of hearing, the learned Counsel for the appellant argued that his client had set up his business as a broker only in March 1996 and that this incident happened in June/July 96 when he was in the process of setting up proper systems. The learned Counsel further argued that since the client Shri Madhav was totally new, YSL had taken the added precaution of charging a higher margin of 20% instead of the usual 10%. Besides, the trades in question were annulled by the NSE and the trading system of the exchange suffered no injury. It was the argument of the learned Counsel that YSL were in fact a victim of this fraud rather than a collaborator and that the punishment of one week’s suspension was, therefore, excessive and entirely disproportionate. Lastly, he pleaded that since YSL had already undergone 4 days of suspension atleast the remaining period could be waived.
There is no dispute on the facts of the case. Admittedly there has been a lapse – and a serious one –on the part of the appellant in not having verified the antecedents of the client through the prescribed mechanisms of proper introduction, bank account etc. and he did not also enter into the mandated client-broker agreements. On the question of leniency, the learned Counsel for the Respondent brought to our notice that this Tribunal had already upheld one week’s suspension in an exactly similar case of M/s. India Securities Ltd., on 31/1/2003. The learned Counsel for the appellant also could not point out any distinguishing features of his case which could warrant a lower punishment. In the circumstances we have no alternative, except to dismiss the present appeal and to maintain the impugned order.
Appeal disposed off accordingly. The appellant will undergo the remaining period of suspension.
(Pronounced in Court)
Sd/-
Justice Kumar Rajaratnam
Presiding officer
Sd/- Sd/-
Dr. B. Samal, N. L. Lakhanpal,
Member Member
Place: Mumbai
Date: 29th April, 2004.