In the matter of Hasmukhrai B. Baldev

Feb 23, 2006

Orders : Orders of SAT

IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Appeal No: 17 of 2006

Date of Decision

23/02/2006

Hasmukhrai B. Baldev	*…..Appellant*
*Versus*
Securities & Exchange Board of India		*….Respondent*

Mr. Bharat Merchant, Advocate for the appellant

Mr. Ravi Hegde, Advocate with Mr. Paras Parekh, Advocate for the Respondent.

CORAM

Justice N.K. Sodhi, Presiding Officer

C. Bhattacharya, Member

R.N. Bhardwaj, Member

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

This appeal under Section 15T of the Securities and Exchange Board of India Act, 1992 (for short “the Act”) is directed against the order dated 16/01/2006 passed by the Securities and Exchange Board of India (for short “the Board”) whereby the certificate of registration of the appellant as a sub-broker has been suspended for one month under Regulation 13(4) of the Securities and Exchange Board of India (Procedure for Holding Enquiry by the Enquiry Officer and Imposing Penalty) Regulations, 2002.

2. The appellant before us is a registered sub-broker and is carrying on his business activities in Rajkot in the state of Gujarat. During the course of inspection of his books of accounts and other records, the inspection team found that amongst others he had not entered into agreements with his clients while trading on their behalf and that during the course of his business activities he had also dealt with unregistered sub-brokers. An enquiry officer was appointed to enquire into the allegations. We need not refer to the other allegations made against the appellant as he stood absolved of those allegations and the only two grounds on which action has been taken against him are the ones mentioned herein above. On receipt of the enquiry report the Board issued a notice to the appellant to show cause why action be not taken against him for the suspension of his certificate of registration. He filed a reply in which he did not dispute the two allegations. As regards the non execution of agreements with his clients, he submitted that they had not been executed because the clients out of fear did not sign those agreements but after inspection was over he is now executing the agreements with his clients. In regard to the other allegation he did not deny that he had dealt with unregistered sub-brokers but submitted that they had worked on behalf of their family members. On a consideration of the entire material on record including the reply furnished by the appellant the Board came to the conclusion that the appellant had not executed the agreements with his clients while acting on their behalf and thereby he violated the circular dated May 21, 1997. It may be mentioned that through this circular the Board had informed all concerned including the brokers and sub-brokers operating in different exchanges that it was necessary on their part to enter into agreements with their clients and maintain their data base. The Board also found that the appellant had dealt with unregistered sub-brokers and thereby he violated the circular dated December 27, 1993 issued by the Board. It is pertinent to mention here that Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 do not permit a sub-broker to deal with unregistered sub-brokers. In view of the finding recorded on the charges the Board by the impugned order suspended the certificate of registration of the appellant for a period of one month. Hence this appeal.

3. We have heard the learned counsel for the parties and it is not disputed that the appellant had not entered into agreements with his clients while trading on their behalf. It is also not disputed that he dealt with unregistered sub-brokers. What is urged by the learned counsel for the appellant is that he was an inexperienced person at the time when the inspection was undertaken by the Board and that the main broker to which he is affiliated had been registered only a year back. He further submits that the appellant is carrying on his business as a sub-broker in Rajkot in the State of Gujarat where the trading community is very small and the brokers and the sub-brokers were not knowledgeable at the time when the inspection took place. He has stated before us that the appellant since the inspection is regularly executing the agreements with his clients and has not dealt with any unregistered sub-broker thereafter. We are satisfied that the default was not intentional or malafide and could be because of his ignorance. Having regard to the peculiar facts and circumstances of this case and taking note of the fact that the appellant is carrying on activities on a very small scale we are of the view of that the ends of justice would be adequately met if the period of suspension of the certificate of registration is reduced from one month to one week. We order accordingly. The impugned order stands modified accordingly.

4. The appeal is disposed of as above with no order as to costs.

Justice N.K. Sodhi
Presiding Officer

C.Bhattacharya
Member

R.N.Bhardwaj
Member

Date: 23/02/2006