BEFORE THE SECURITIES APPELLATE TRIBUNAL, MUMBAI
Appeal No.6/2005
Date of Hearing : 13.4.05
Date of Decision : 18th April 2005
In the matter of:
Appellant : M/s. Porecha Global Securities Pvt. Ltd., Mumbai
Respondent : Adjudicating Officer, Securities and Exchange Board
of India, Mumbai
Appellant by : Shri J.J. Bhatt, Advocate
Respondent by : Shri Shaunak Satpute, Advocate
Coram:
Justice Kumar Rajaratnam, Presiding Officer
Per: Justice Kumar Rajaratnam, Presiding Officer
Appeal is taken up with consent of parties.
2. The appellant in this appeal challenges the order passed by the Adjudicating Officer of SEBI dated 29th of October 2004. By the impugned order, SEBI has imposed a penalty of Rs.20,000/- for violation of section 15B of the SEBI Act.
3. Section 15B deals with penalty for failure of any intermediary to enter into an agreement with the client.
4. The appellant is a registered stock broker having registered with SEBI. The allegation against the appellant is set out at paragraph 2.2 of the impugned order, which reads as follows:
“It was alleged that PGSL traded on behalf of the clients without obtaining the client introduction forms and the client agreements were obtained after executing the transactions. The details are given below
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S.No.
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Name of the entity/client
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Date on which Client-member agreement was entered
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Date on which first transaction in SRMTL took place on behalf of the client
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1
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East West Polyart
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03.08.2000
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17.07.2000
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2
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Satellite Management Ser.
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18.08.2000
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04.08.2000
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3
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Shree Rama Poly Pvt. Ltd.
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03.08.2000
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28.07.2000”
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5. The learned counsel for the appellant, Mr. Bhatt, submitted that his client had given client-broker agreement to three clients before execution of the transaction. They were continuously following up the matter. The clients had assured the appellant that they were doing the needful and completing the agreement in which various details were required to be furnished. However, it was submitted that pending receipt of the client-broker agreement, they executed the transactions on behalf of the clients in good faith as clients were in a hurry.
6. It is not in dispute that the clients subsequently forwarded the agreements. The appellant has also filed an affidavit pleading that the impugned order be set aside; otherwise, great hardship will be caused. The relevant portion of the affidavit dated 14th of January 2005 reads as follows:
“(1) That I am the director of M/s Porecha Global Securities Pvt. Ltd. since 1997. I say that M/s Porecha Global Securities Pvt. Ltd. is the corporate member of the BSE since last about seven years.
(2) That prior to corporatisation, the membership of BSE stood in the name of M/s Porecha Brothers, which was a partnership firm, in which I was one of the partners.
(3) That since last about 32 years, first M/s Porecha Brothers and later M/s Porecha Global Securities Pvt. Ltd. are empanelled on most of the Financial Institutes such as UTI, LIC, GIC etc. M/s. Porecha Global Securities Pvt. Ltd. also serve public sector banks. Out of total business of M/s Porecha Global Securities Pvt. Ltd., about 50% of business is institutional.”
7. The learned counsel for the appellant, Mr. Bhatt, submitted that in similar circumstances where the error was technical in nature, SEBI and the Tribunal had taken a compassionate view and had merely issued a warning to the brokers to enable the brokers to rehabilitate themselves. Reference was made to the order of this Tribunal in the case of Chona Financial Services Pvt. Ltd. dated 23.8.2004. This Tribunal at paragraph 7 has extracted instances where SEBI or the Tribunal has given a mere warning to enable the broker to set his house in order. It is appropriate to extract paragraph 7 of the order, which reads as under:
“The appellant submitted a few cases namely M/s. Bakliwala Investment, J.M. Morgan Stanley Retail Services Pvt. Ltd., Bama Securities as under, which have been found to contain by and large similar irregularities and have been only served with a letter of warning by SEBI.
(a) M/s. Bakliwala Investment
Irregularities
Ø Provision for Tax for the interim period from April 1 to September 30, 2000 not made
Ø Confirmations have not been obtained from Banks, Creditors and debtors by the broker.
Ø Broker had not time stamped the order slip/records
Ø Contract notes not serially numbered except for computer generated numbers on day-to-day basis which have no control.
Ø Contract notes not issued within the specified time.
Ø Consolidated stamp duty not paid.
Ø Client Registration forms were not completed
Ø Order book was not maintained.
Ø Delay in payment of funds
Ø Delay in delivery of securities
Ø One client account being adjusted against another client without any authorization
Ø Transactions with associate firms/companies separate set of ledger accounts as clients and others not maintained.
Ø Compliant register not maintained.
Ø Client account were used for other purposes
Ø Margin money not collected
Ø In 10 cases, deals were done outside the NEAT System
Order
Ö Irregularities are basically technical lapses and do not deserve a substantive punishment.
Ö Minor Penalty – Warning
(b) M/s. J.M. Morgan Stanley Retail Services Pvt. Ltd.
Irregularities
· Failure to obtain client registration forms and agreement
· Failed to maintain separate client account.
Order
Warning
c) M/s. Bama Securities
Irregularities
· Contract notes were missing,
· Acknowledgement from the clients not obtained
· Not maintaining client registration forms
Order
Warning”
8. We feel it appropriate that the same opportunity should be given to the appellant. The incident relates to the year 2000 and it is submitted that the appellant has had a clean record subsequently. It is also submitted that subsequent inspection by Stock Exchange has not found any defect in the functioning of the appellant-broker.
9. Consistency is the hallmark of a good Regulator. Taking into account the facts and circumstances of the case and taking into account the precedents cited by the appellant, it would be appropriate to convert the penalty into one of warning. Accordingly, the appeal is disposed of with the modification of the order.
10. No order as to costs.
Justice Kumar Rajaratnam
Presiding Officer
Place: Mumbai
Date: 18th April 2005
Avm