IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Appeal No.135/2005

 

Date of Decision

16.02.2006

 

 

In the matter of:

 

Consortium Securities Pvt.Ltd.,	Appellant – Represented by Mr. Somasekhar Sundaresan, Advocate with Mr. Bhushan Shah, Advocate.
Versus
Securities & Exchange Board of India	Respondent – Represented by Mr. Ravi Hegde and Paras Parekh, Advocates for Respondent

Coram:

            Justice N. K. Sodhi, Presiding Officer

            C. Bhattacharya, Member

            R. N. Bhardwaj, Member

 

Per:      Justice N. K. Sodhi, Presiding Officer(Oral)

 

            The appellant before us is a private limited company which is a registered broker with the Securities and Exchange Board of India(for short “the Board”).  It is trading for its clients on the National Stock Exchange (NSE).  The records and books of accounts of the appellant for the period from 1/4/2000 to 31/8/2002 were inspected by the inspection team during the period from 29/9/2002 to 15/11/2002.  During the course of the inspection, the team found a few irregularities and non compliance with some provisions regarding maintenance of records for which the appellant gave its explanation.  The explanation furnished in regard to a few items was accepted but in regard to two items it was found that the appellant failed to produce 25 client agreements during the course of inspection and that it  had also  failed to issue contract notes in the form and manner specified by the NSE.  Since these violations and some others were found by the inspection team, the Board appointed an adjudicating officer who initiated adjudication proceedings with a view to impose a penalty on the appellant.  After complying with the procedural formalities, the adjudicating officer found two irregularities viz. (1) the appellant failed to produce 25 client agreements during the course of inspection and that (2) it failed to issue contract notes in the form and manner specified by NSE.  A penalty of Rs.5,000/- for each missing client agreement was imposed and since 25 of such agreements were missing, a total sum of Rs.1,25,000/- was imposed as penalty under Section 15B of the Act.  Another sum of Rs.10,000/- was imposed as penalty for failure to issue contract notes in the form and manner specified by the NSE.  It is against this order that the present appeal has been filed.

2.         We have heard the learned counsel for the parties and are of the view that the impugned order cannot be sustained.  It is true that the appellant did not produce 25 client agreements during the course of the inspection, but it is admitted that more than 300 such agreements were produced.  The explanation furnished by the appellant was and is that it had shifted its registered office close to the inspection and therefore, it had misplaced a bunch of 25 client agreements which were later found and were produced during the course of adjudication proceedings.  The adjudicating officer refused to look at those agreements on the ground that the plea was an after thought.  We do not think that the adjudicating officer was justified in doing so.  It is possible that the appellant had misplaced the client agreements which could have been found later on.  It is equally possible that the appellant, as a broker had not entered into such agreements and that they were prepared subsequently and produced before the adjudicating officer.  In any case, the adjudicating officer should have looked into the matter and should have seen for herself whether the agreements were genuine or not and whether those had been freshly prepared or whether the appellant was right that it had later found them when they had been misplaced close to the inspection during the shifting of the registered office.  Since the adjudicating officer failed to examine the client agreements we are unable to uphold the impugned order in so far as it levies  penalty on account of non production of the client agreements.  We could have remanded the case back but having regard to the fact that the client agreements are on record and the matter pertains to the year 2000-2002 we do not think it would be appropriate to do so at this late stage.

3.         Now coming to the levy of penalty on the ground of failure of the appellant  to issue contract notes in the prescribed form and manner.  As already observed, the appellant is a registered broker and is trading on the NSE.  Section 15F(a) of the  Act provides that if a registered broker fails to issue contract notes in the form and manner specified by the stock exchange, he shall be liable to a penalty.  The adjudicating officer has found that the contract notes issued by the appellant had not been initialized year-wise though they were in the form and manner prescribed by the NSE.  It is common ground between the parties that the format prescribed by NSE does not provide that the serial numbers in the contract notes have to be initialized year-wise.  In the absence of such a prescription, a broker could issue the contract notes with serial numbers which could be initialized on daily/weekly/monthly basis.   In this view of the matter failure of the appellant to maintain contract notes with  serial numbers running year-wise cannot be said to be a violation of section 15F(a) of the Act.  The adjudicating  officer was, therefore, not justified in levying penalty on this ground.

4.         For the reasons recorded above we are unable to uphold the impugned order passed by the adjudicating officer.  Consequently,  the appeal is allowed, impugned order dated 29/07/2005 passed by the adjudicating officer set aside leaving the parties to bear their own costs.

6.         The appellant will be entitled to withdraw the amount of Rs.50,000/- deposited by it under the interim orders of this Tribunal.

 

Justice N. K. Sodhi

Presiding Officer.

 

C. Bhattacharya

Member.

 

 R. N. Bhardwaj

Member

 

16/02/2006.