BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 48/03
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Date of Hearing
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21.6.2004
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Date of Decision
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29.6.2004
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In the matter of:
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Jaysukhlal Jagjivan Stock
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Appellant – Represented by
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Broking Pvt. Ltd.
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Somasekhar Sundaresan, Advocate
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Versus
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Securities & Exchange Board
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Respondent – Represented by
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of India
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Kumar Desai, Advocate
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Coram:
Justice Kumar Rajaratnam, Presiding Officer
N.L. Lakhanpal, Member
Per: N.L. Lakhanpal, Member
1. The appellant Jaysukhlal Jagjivan Stock Broking Pvt. Ltd. (JSBL) is a stock broker registered under the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter called the “Broker Regulations”). The impugned order dated April 3, 2003 has been passed against him by the respondent suspending his certificate of registration for a period of one month thereby disabling him from carrying out his functions as a stock broker. The order has been passed under Regulation 13(4) of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter called the “Penalty Regulations”.) The impugned order came to be passed against the appellant after following the due process of investigation, enquiry through the formally appointed enquiry officer and show cause notice by the respondent. Being aggrieved, the appellant has filed the present appeal.
2. The charges against the appellant arise from a transaction carried out by him as broker for purchase of 2,14,000 shares of Videocon International Ltd. on 19.6.1998. It is common ground that on the relevant date there was a payments crisis at the Bombay Stock Exchange when several brokers were having payment difficulties due to large carry forward positions in respect of Videocon International Ltd. It is also common ground that the Bombay Stock Exchange carried out some kind of a bail out operation on that day to meet this crisis and that the purchase of 2,14,000 shares by the appellant on behalf of Sri Ram Mutual Fund was part of this bailout operations.
3. It is also common ground that the transactions in question were put in by the appellant after the closure of the trading hours and that too in the Bombay Stock Exchange office itself and not in the office of the appellant. This could not have been possible without express consent and perhaps even instructions, as alleged by the appellant, of the Bombay Stock Exchange. It is also common ground that there was no direct involvement of the appellant in what the impugned order calls “market manipulation”. Infact the impugned order states that
“Even though there may not be a direct involvement of JSBL in market manipulation and as such there is no charge also in this regard, but becoming party to the transactions which are entered into after the official working hours of the exchange to bailout certain persons was certainly an act which was in violation of the bye-laws of the stock exchange and the code of conduct prescribed for the stock broker by the said Regulations.”
4. The appellant has argued in this regard that the transactions in question were made, to quote again from the impugned order, “on the basis of the instructions received from the office bearers of Bombay Stock Exchange which itself is a statutory body with powers to make Bye-laws and which regulates the business of brokers. Since such instructions came from the self regulatory body, Bombay Stock Exchange, JSBL had no reason to believe that they did not have official sanction for the larger good of the capital market.” In fact in the memorandum of appeal, the appellant has gone on to argue that the stock exchange had been routinely undertaking such actions to bailout brokers in the past in order to save the trading system from the payments crisis and that such bailout packages have always had the sanction of SEBI. In short, the case of the appellant is that the alleged transaction was carried out by them in the public interest on the express instructions of the public authorities themselves and that there was therefore no reason to make them the scapegoats.
5. It is further seen from the impugned order that out of 2,14,000 shares, 1,20,000 shares were purchased by Sri Ram Mutual Fund (SRMF) on 19.6.98 but the contract note issued by the appellant showed that the purchase was made on 24.6.1998. The original purchase order for 2,14,000 shares was in the name of M/s. Springfield Securities Ltd. (SSL). The allegation is that SSL was not a client of the appellant and that the appellant thus put in the purchase order on behalf of an entity which was not his client and which was not even known to him. The appellant’s defence in this regard is that he put in this purchase order on the instruction of SIS Stock Broking Pvt. Ltd. (SIS) who had been dealing with them for the last 2-3 years and that SSL was a sister concern of SIS. It is also alleged that the appellant executed transactions in the nature of cross deal of 1,20,000 shares of VIL between two of its clients namely SSL and SRMF and that these cross deals, being off market transactions, should have been reported to the exchange.
6. We consider these ancillary charges as not particularly germane to the issue before us. The main issue is that of the appellant having put in the transaction for purchase of 2,14,000 shares on behalf of SRMF after the closing hours of the Bombay Stock Exchange. On this main charge, we find that there is overwhelming evidence on record to show that this was done at the instance of the Bombay Stock Exchange itself. However, the fact remains that something very wrong has been done and it is not for us to ignore this wrong doing by the appellant regardless of his defence which is well substantiated. Once the main transaction was carried through certain adjustments had to be made and this adjustment was done on the instructions of the main client SRMF. It is also common ground that SRMF, SIS & SSL are related entities belonging to the same group and operating from the same office. We also find merit in the appellant’s argument that a transaction including the subsequent adjustments carried out in the office of the BSE on its express instructions can under no circumstances be called an off-market transaction.
7. Looking at the totality of circumstance therefore, we are inclined to take a very lenient view of the whole matter. We believe that even though something very wrong has been done we find there is overwhelming evidence to show indeed that the appellant indeed could have been of the view that he was acting in public interest which he could not have done even if there was instruction from BSE. We therefore uphold the impugned order with the modification that the penalty imposed is reduced from suspension for a period of one month to a simple warning as contemplated under Rule 13(1)(a)(i) of the Penalty Regulations.
8. The appeal is disposed of accordingly. There shall be no order as to costs.
N.L. Lakhanpal
Member
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Justice Kumar Rajaratnam
Presiding Officer
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Place: Mumbai
Date:29.06.04
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