IN THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 22/2005
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Date of Hearing
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21.3.2005
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Date of Decision
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21.3.2005
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In the matter of:
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Chintamani Shares & Broking
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Appellant – Represented by
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Ltd.
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Mr. Vinay Chauhan, Advocate
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Versus
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Respondent –Represented by
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1. Securities & Exchange Board of India
2. OTC Exchange of India
3. National Stock Exchange of India Ltd.
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1. Mr. V.N. Shingnapurkar, Advocate
2. Mr. Sagar Divekar, Advocate
3. Mr. V.K. Ramabhadran, Advocate
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Coram:
Justice Kumar Rajaratnam, Presiding Officer
Per: Justice Kumar Rajaratnam, Presiding Officer
1. The appeal is taken up for final disposal with consent of parties.
2. The appellant who is a broker registered with SEBI and was operating on OTC Exchange of India and with the NSE challenges the order passed by the respondent whereby the appellant’s certificate of registration had been cancelled by impugned order dated 22.6.2004.
3. The facts very briefly are the appellant owed a sum of Rs. 4,47,500/- as fees to the OTC and this amount was not paid in spite of notice sent to the appellant pursuant to which a show cause notice was issued and the appellant was expelled as a Member of the OTC by an order dated 22.12.2003. This order was in effect confirmed by the first respondent by the impugned order dated 22.6.2004.
4. Para 3.2 & 3.3 of the impugned order reads as follows:
“3.2 I note that Regulations 25 of the broker regulations provides that:
“Liability for contravention of the Act, rules or the regulations.
25. A stock broker or sub-broker who contravenes any of the provisions of the Act, rules or regulations framed thereunder shall be liable for any one or more of the following actions:-
(i) Monetary penalty under Chapter VIA of the Act.
(ii) Penalties as specified under Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 including suspension or cancellation of certificate of registration as a stock broker or a sub-broker.
(iii) Prosecution under Section 24 of the Act.”
Further Regulation 27 of the broker regulations provides that:
“Liability for action under the Enquiry Proceeding Regulations.
27. A stock broker or sub-broker shall be liable for any action as specified in the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 including suspension or cancellation of his certificate of registration as a stock broker or a sub-broker, as the case may, if he –
(i) ceases to be a member of a stock exchange.”
I therefore find that the said broker has ceased to qualify itself to hold the registration as a stock broker since the basic requirement of being a member of a stock exchange, based on which the registration was granted to it is no more complied with. Therefore, the registration of the broker is liable to be cancelled.
3.3. I further note that Regulation 13(1)(b) provides for major penalties which include cancellation of certificate of registration. In this regard, I note that in terms of Regulations 15(c) of the Enquiry Regulations it is not necessary to hold an enquiry under the provisions of Regulation 13 where a stock broker ceases to be a member of a recognised stock exchange or has been declared defaulter, in relation to the transactions at such exchange, rather, summary procedure under Regulation 16 may be followed. However, Regulation 13(6) of the Enquiry Regulations provides that the Board or member shall impose major penalties where the intermediary is guilty of violation of conditions of registration.”
5. In fact it was submitted by the learned counsel for SEBI that once a person is expelled from a stock exchange, either as a defaulter or for some good reason, the respondent has no authority except to cancel the certificate of registration as required under Rule 4(a) of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992.
6. It was submitted by the learned counsel for the appellant that the show cause notice by the respondent under the provisions of the SEBI (Procedure for Holding Enquiry by an Enquiry Officer) Regulations, 2002 was not in fact served on the appellant. The learned counsel for the appellant also submitted that specific instructions were given to OTC for the purpose of service of notice and the notice was not in fact served on the appellant and the OTC proceeded with the matter ex parte.
7. The learned counsel for OTC submitted that they have no knowledge of any specific instructions and that the notice was served on the registered office at 12, Naresh Park Society, Shantinagar, Ahmedabad. It is further submitted that even in the appeal memorandum the registered office has been mentioned as 12, Naresh Park Society, Shantinagar, Ahmedabad. Therefore, it was submitted by the learned counsel for OTC that there has been notice that has been served at the registered office and it is the fault of the appellant for not answering the show cause notice and participating in the enquiry by OTC.
8. The same submission was made by the learned counsel for SEBI that whatever address was given by OTC was taken as the correct address and the notice was served by the first respondent. The learned counsel for the appellant submitted that as far as notice by SEBI is concerned, it was not sent directly but was sent through OTC.
9. It was submitted by the learned counsel for the appellant that notice in a matter of cancellation of registration of licence is a serious matter and notice ought to have been sent directly to the appellant and not through OTC. It is not necessary to dwell deep into the fact whether notice was served on the appellant or not in this appeal, since broadly speaking there is consensus that the reason for expelling the appellant from the membership of OTC was because of the default in payment of fees owing to OTC and some other minor defects. The total amount owing to OTC is about Rs. 4.5 lakh.
10. It would be appropriate in view of the serious consequence of cancellation of certificate of registration to direct the first respondent to hold fresh enquiry and take such steps in accordance with law to resolve the crisis. However, this cannot be done except on terms that to direct the appellant to deposit Rs. 5 lakh within one week from the receipt of this order. The appellant is directed to be present before the respondent in the first week of April 2005 with a copy of this order and also showing the proof that the amount has been paid to SEBI. This payment is made without prejudice to the contention of the appellant and the OTC. On such payment and on the appellant appearing before the respondent, SEBI shall give an opportunity to the appellant to present his case before the first respondent herein and if the respondent is satisfied that a case is made out and in the interest of equity and justice pass appropriate orders requesting OTC to reconsider the matter in view of the payment of the arrears of the fees and transmit the money paid as fees to OTC. This order is passed in view of the fact that the principles of natural justice should be complied with more so in matters which result in serious consequences such as expulsion or cancellation of licence.
11. It was also brought to the notice of the Tribunal that consequent to the order passed by SEBI, NSE, the third respondent, had no alternative except to pass orders expelling the appellant. The appellant is extremely worried about his expulsion from NSE since it is stated that its turnover of business with NSE as a broker ran into several crores and his business has now come to a stand still merely because of non-payment of certain fees to OTC. It is common ground that there are no allegations against the appellant in so far as the appellant is concerned and they acted simply on the basis of the impugned order.
12. However, these are matters which are not within the domain of the Tribunal. It is entirely for the NSE to reconsider the matter in accordance with law after SEBI passes the order.
13. In that view of the matter, the order of the respondent no. 1 is set aside with the following directions.
(a) Directing the appellant to pay a sum of Rs. 5 lakhs to be deposited with SEBI within one week from the receipt of this order.
(b) Appellant to be present before the first respondent, SEBI with a copy of this order in the first week of April, 2005.
(c) All contentions are left open.
(d) The first respondent shall pass orders as expeditiously as possible and the appellant shall cooperate with the first respondent.
(e) The respondent may give such direction to the second and third respondent to pass orders in accordance with law and revoke the expulsion on payment of the arrears of fees owing to the second respondent.
14. No order as to costs.
15. It is made clear that any notice or correspondence by SEBI, NSE and OTC shall be only to the registered office of the appellant hereinafter to avoid any further controversy.
(Pronounced in Court)
Justice Kumar Rajaratnam
Presiding Officer
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Place: Mumbai
Date: 21.3.2005
//SR30522