IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No: 86 of 2005
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Date of Hearing
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17/06/2005
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Date of Decision
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07/07/2005
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Appellant – Represented by:
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K. Seetharam
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None
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Versus
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Securities & Exchange Board of India
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Respondent- Represented by
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Ms. Anjali, Manager
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CORAM
Justice Kumar Rajaratnam, Presiding Officer
C. Bhattacharya, Member
R.N. Bhardwaj, Member
Per: R.N. Bhardwaj, Member
1. The appeal is taken up with the consent of the appellant who has in his letter of 1st June, 2005 requested the Tribunal to dispose of his appeal on merits based on the available material. The appeal is taken up in the presence of the representative of SEBI, Ms. Anjali.
2. The appellant is a broker registered with Bangalore Stock Exchange. The appeal is against the order of the Adjudicating Officer, SEBI dated 24/11/2004, the operative portion of which reads as under:
“5.01. The submissions of the member have been considered and dealt in detail as above and in view of the findings arrived at, I consider it to be a fit case for imposition of penalty under sections 15 B and 15F(b) of the SEBI Act, 1992. In view of the same and in exercise of the powers conferred under section 15-I(2) of the SEBI Act, 1992, read with, Rule 5 of the said Rules, I hereby impose a penalty of Rs. 50,000/- (Rupees Fifty Thousand only) on the member. The member shall pay this amount of penalty of Rs. 50,000/- by way of demand draft in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai within 45 days of receipt of this order.”
3. The facts of the case are as under.
4. The appellant’s office was inspected on 22/06/2002 in terms of the orders of the respondent. Pursuant to this inspection an Adjudicating Officer was appointed on 05/11/2003 under Rule 3 of SEBI (Procedure for holding Enquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter the ‘said Rules’) to enquire into and adjudge under Section 15B and Section 15F(b) of the SEBI Act, 1992.
5. A show cause notice dated 14/07/2004 under Rule 4(1) of the said Rules was issued to the appellant indicating the alleged violations found in the inspection report. The appellant submitted a detailed reply on 27th July, 2004 and he was also given a personal hearing on 22/11/2004. The appellant has been charged basically for two mis-conducts:
(i) Non-maintenance of client data base
(ii) Non-delivery of shares to clients.
6. The inspection team viz made the observations regarding missing particulars about the introducer’s details and identity proof. At the time of submitting of the appellant’s reply he collected the necessary details and completed the information which was submitted to SEBI along with its reply. The appellant also admitted that he had not entered into agreement with any of its clients but promised that henceforth he would trade with clients only after entering into agreement with them. The appellant in his reply to the show cause notice stated that clients’ data base was being maintained but it was only that some information was not filled up. He further submitted that subsequent to the inspection the columns which were not filled up were also filled up properly and produced before the Adjudicating Officer at the time of personal hearing which the Adjudicating Officer himself has recorded in his order. The appellant in his submission had mentioned that irregularities were purely technical in nature and the same could be condoned. In his reply dated 27th July, 2004, which the appellant submitted to SEBI in response to the show cause notice, promised that henceforth he would trade with clients only after entering into an agreement.
7. The second charge of non-delivery of shares was mentioned by the inspection team in its report and they had mentioned six examples where there was delay in transfer of shares by the appellant. The client codes in which such delay has occurred were:
i. J008
ii. D003
iii. S001
iv. G007
v. N002
vi. P003
8. The impugned order records that in respect of client No. 3, 4, 5 and 6 the submissions made by the appellant had been accepted, but in respect of client bearing client code No. J008 and D003, the appellant had detained the delivery of the scrip beyond the time limit i.e., 48 hours as mentioned in the circulars of the respondent. The appellant admits that the non delivery of shares beyond the specific time limit has happened because the clients did not have a de-mat account in their names and they were in the process of opening a de-mat account. The appellant submitted that shares in many cases were left with the appellant to be used as margins for future trading by the clients with the express authorization.
9. The appellant has requested to cancel the penalty considering the facts and circumstances of the case. He has further stated in the appeal that where similar violations along with other violations had occurred, this Tribunal has reduced the penalty to a mere warning. He has cited the following judgments of the Tribunal:
i. Intech Shares and Stock Brokers Vs. SEBI
ii. Sumedha Fiscal Services Ltd. Vs. SEBI
iii. Prakash K. Shah Shares and Securities Pvt. Ltd. Vs. SEBI
iv. Bakliwala Investment
v. J.M. Morgan Stanley Retail Services Pvt. Ltd.
vi. Bama Securities
vii. Shyama Sundar Dalmia Vs. SEBI
viii. Sanjay C. Bakshi
ix. Mahesh Kothari Shares and Stock Brokers Pvt. Ltd.
x. Kumesh Sawney
xi. Chona Financial Services Pvt. Ltd.
10. We have gone through the documents submitted by the appellant and the facts of the case. We have also gone through some of the judgments cited in the appeal. While it is a fact that in all these cases the Tribunal has modified the order of the respondent but we must admit that each case is a different case and decision is taken on the facts and circumstances of each case. Each order sets out detailed finding and reasons for taking action or imposing the penalty. In this particular case we have to examine basically two issues. Firstly, is it a fact that at the time of inspection of the appellant’s office on 22/06/2002 whether certain irregularities were noticed in the maintenance of record and consequently there was a violation of Section 15B and Section 15F(b) of SEBI Act, 1992, which are quoted herein below:
“15B. If any person, who is registered as an intermediary and is required under this Act or any rules or regulations made thereunder to enter into an agreement with his client, fails to enter into such agreement, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.”
“15F. If any person, who is registered as a stock broker under this Act,—
“(a) ………
“(b) fails to deliver any security or fails to make payment of the amount due to the investor in the manner within the period specified in the regulations, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less”;
11. The second question is whether he himself admits that these violations had taken place. From the perusal of documents and submissions made out we find that he himself has admitted both the points: (i) that he failed to enter into agreement with clients before trading with the clients which he promised to do so in future; and (ii) he has also admitted that there were delay in the delivery of shares to the clients. In fact he admits that all the violations as mentioned in the inspection report had taken place but he could rectify some of them and even showed to the Adjudicating Officer in his reply of 22/07/2004.
12. In this view of the matter we agree with the order of the Adjudicating Officer that there were violations of Section 15B and Section 15F(b) of the SEBI Act, 1992. We, however, do not agree with the quantum of penalty of Rs. 50,000/- which is too high and accordingly we modify the order by reducing the amount of penalty to Rs. 25,000/-. The appeal is disposed of accordingly.
13. No order as to costs.
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(Justice Kumar Rajaratnam)
Presiding Officer
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(R.N.Bhardwaj)
Member
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(C. Bhattacharya)
Member
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Place: Mumbai
Date: 07/07/2005
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