IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Appeal No.24/2006

 

Date of Decision

23.02.2006

 

 

In the matter of:

 

Mithani Securities Pvt.Ltd.,	Appellant – Represented by Mr. Mahesh P. Sarda, Chartered Accountant.
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:      C. Bhattacharya, Member

 

 

            The Securities and Exchange Board of India (SEBI) had conducted an inspection of  the books of accounts and other documents of M/s. Mithani Securities Pvt. Ltd., which is  a registered sub broker (hereinafter referred to as “sub broker”).  During the course of inspection a number of irregularities alleged to have been observed by the inspection team.  SEBI, therefore, appointed on 1^st March, 2004 an enquiry officer under regulation 5 of the SEBI (Procedure for Holding Enquiry by Enquiry Officer & Imposing Penalty) Regulations, 2002 to enquire into the violations, if any, of SEBI (Stock-Brokers & Sub-Brokers) Regulations, 1992 (hereinafter referred to as “Broker Regulations”).

2.         The enquiry officer after conducting the enquiry in terms of the enquiry regulations found that the sub broker had violated regulation 15 read with Code of Conduct specified in Schedule II of the SEBI (Stock Broker and Sub-Broker) Regulations, 1992 and various other SEBI circulars.

3.         The report of the enquiry officer was forwarded to the sub broker along with show cause notice dated August 24, 2004 asking him to show cause  why appropriate penalty including the penalty of suspension of  certificate of registration for a period of 3 months should not be imposed on it.  The sub broker replied vide its letter dated September 27, 2004.

4.         The replies of the sub broker along with the show cause notice and the enquiry report were considered by the whole time member  of SEBI.  In the impugned order the whole time member observed that the sub broker was found to be not maintaining the confirmation memos in violation of SEBI circular dated May 21, 1997.  It  was also found to have not entered into agreement with some of its clients.    The sub broker in its reply had not rebutted the same but stated that henceforth he shall enter into agreement with the clients.  By not entering into such agreements the sub broker was alleged to have violated SEBI circular dated May 21, 1997.  The enquiry officer had concluded which was also accepted by the whole time member in his order that the sub broker had paid brokerage to some of his clients in violation of the Code of Conduct.  The sub broker was also found to be not maintaining separate bank accounts for his clients and his own dealings.  In view of all these alleged lapses, the whole time member by his order dated 25/1/2006 imposed a penalty of suspension of certificate of registration of the sub broker for a period of three months in terms of regulation 13(4) of the SEBI (Procedure for Holding Enquiry by Enquiry Officer & Imposing Penalty) Regulations, 2002.  It is against this impugned order that the present appeal has been filed before this tribunal.

5.         We have heard the learned representative for the appellant and the learned counsel on behalf of the respondent.  In regard to the allegation that he had paid brokerage to his clients in violation of the Code of Conduct,  the appellant submitted that he had never paid any brokerage to any of his clients.  In his books of accounts, in regard to certain failed contracts,  he was to receive payment from a client which  never came.  The  bad debt,  instead of being written off from the surplus of income over expenses, was adjusted by debiting it to the brokerage account.  This, he submitted, was merely an accounting entry and no pay out was involved.  This was wrongly construed by the inspecting official as payment of brokerage to client.  This submission is not controverted by the respondent.   In regard to non maintenance of confirmation memos etc. the appellant submitted that while he has been furnishing the confirmation memos to his clients, the clients have, in some cases while placing signatures on those memos did not put the date and time of receiving such memos.  The appellant also stated that after the inspection team had pointed out, he has started maintaining separate bank accounts for the clients and his own dealings.  At the end,  the learned representative of the appellant submitted that the appellant is a sub broker located  in a far away small place.  He has a small client base of about 100 clients only  and most of the alleged lapses are procedural in nature and the punishment imposed is disproportionate.

6.         Having gone through the facts of the case, it is apparent that there were irregularities committed by the sub broker.  However, those irregularities are  of rather  minor nature.  Considering  the lighter nature of  gravity of the alleged lapses, we are of the view that suspension of certificate of registration for a period of three months in this case is rather harsh.  In  our view, the  ends of justice will be met squarely if the certificate of registration is suspended for a period of two weeks only. 

7.         While we thus uphold the orders of the respondent, the order is modified as above.    No order as to costs.

 

Justice N. K. Sodhi

Presiding Officer.

 

C. Bhattacharya

Member.

 

R. N. Bhardwaj

Member

 

23/02/2006.