IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.13/2005
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Date of Hearing
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21.07.2005
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Date of Decision
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03.08.2005
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In the matter of:
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Kasthurirangan & Co.,
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Appellant – Represented by Mr. N. V. Balaji, Advocate.
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Versus
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Adjudicating Officer, Securities & Exchange Board of India
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Respondent – Represented by Mr. V.N. Shingnapurkar, Advocate.
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Coram:
Justice Kumar Rajaratnam, Presiding Officer
C. Bhattacharya, Member
R. N. Bhardwaj, Member
Per: C. Bhattacharya, Member
1. Appeal is taken up for final disposal with consent of both parties.
2. Heard the counsels from both the sides. The fact of the case is that that M/s. Kasturirangan & Co., the appellant is a member of Madras Stock Exchange and is also a sub broker of MSE Financial Services Ltd., who are the member of BSE. The Respondent, Securities & Exchange Board of India (SEBI), carried out an inspection of the Books of Accounts, documents and other records of the appellant for the period 1/4/2001 to 8/5/2003. The inspection conducted by SEBI alleged to have detected a number of irregularities and violations of various provisions of SEBI Act, and the rules and regulations made thereunder. Adjudication proceedings were initiated and a show cause notice dated April 16, 2004 was issued to the appellant. The appellant responded to the said show cause notice vide their letter dated May 3, 2004. A personal hearing was also granted on September 27, 2004. Thereafter the Adjudicating Officer has passed the impugned order imposing a penalty of Rs.1,00,000/- upon the appellant. Being aggrieved, the appellant filed this appeal.
3. Admittedly, all the irregularities and violations which were alleged to have been contravened relate to regulation 26 of the SEBI (Stock Brokers and sub brokers) Regulations, 1992. This regulation 26 was incorporated in the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 on 26/11/2003 which was effective from November 20, 2003 whereas the inspection was carried out in June 2003 for the period covering April 2001 to May, 2003. Obviously, the Regulation 26 which was brought into being on 26/11/2003 with prospective effect cannot cover the period for which books were inspected. It is also observed that in a number of other cases the Adjudicating Officers of SEBI have taken a similar view. (Ref. in Case of M/s. M. P. Vora Shares & Securities Pvt. Ltd., the Adjudication order dated December 2, 2004, in the case of M/s. United Share Brokers Ltd.,, the Adjudication Order dated December 31, 2004, in the case of M/s. Thakkar Stock Broker Pvt. Ltd., sub broker V.S.E. Stock Broker Ltd., the Adjudication Order dated 11/11/2004.)
4. Similarly the penalty imposed by the Adjudicating Officer in this case is under 15HB which itself came into existence from 29/10/2002. Thus it covers only a small part of the period for which the inspection was carried out.
5. The violations alleged to have been committed in this case were of procedural nature. The appellants did admit however, that they did act as unregistered sub broker for some other brokers and had dealt with clients who in turn acted as sub broker without registration. Such undesirable practices were however, stopped after the SEBI inspection. In view of these lapses the penalty imposed by SEBI needs to be viewed as a deterrent. However, while deciding the quantum of penalty regard must be had to the factors mentioned in section 15J of SEBI Act. There is no allegation that the appellant had disproportionate gain or unfair advantage. Nor was there any complaint from any investor that any loss was caused to them. Steps have been taken to rectify the deficiencies and comply with the regulatory requirements subsequent to the inspection.
6. Having regard to the above factors, a penalty of Rs.25,000/- only will meet the ends of justice. The impugned order stands modified accordingly.
7. No order as to costs.
Justice Kumar Rajaratnam
Presiding Officer
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R. N. Bhardwaj
Member
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C. Bhattacharya
Member
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Mumbai,
3rd August, 2005.
Smn/22/7