IN THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

 

Appeal No.26/2006

 

 

Date of Decision	21.03.2006

 

 

In the matter of:

 

B.M.Gandhi Securities Pvt.Ltd.,	Appellant – Represented by Mr. Sunil S. Purohit, Sr. Advocate with Shri A.W.A.H. Mukhri, Advocate.
Versus
Securities and Exchange Board of India.	Respondent – Represented by Mr. Kumar Desai, Sr. Advocate along with Mr. Mihir Modi, Advocate.

Coram:

 

 

          Justice N. K. Sodhi, Presiding Officer

          C. Bhattacharya, Member

          R. N. Bhardwaj, Member

 

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

 

          Challenge in this appeal is to the order dated 25/1/2006 passed by the Securities and Exchange Board of India (for short “the Board”) imposing the  penalty of suspending the certificate of registration of the appellant as a broker for a period of two months under Regulation 13(4) of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (for short “the Regulations”).  It is not necessary for us to state the facts in detail as we are of the view that the impugned order deserves to be set aside on the short ground that it does not contain reasons whatsoever nor does it deal with the objections raised by the appellant against the enquiry report.

2.       Investigations were ordered into the alleged irregularities in the trading of the shares of M/s/ Malvica Engineering Limited (for short “the Company”).  The investigations revealed that during the period under  investigation not only was the price of the share manipulated but even the volumes thereof.  On the basis of these investigations the Board appointed an Enquiry Officer under Regulation 5 of the Regulations to  enquire into the alleged violation of the provisions of the Securities and Exchange Board of India Act, 1992 (for short “the Act”) and the Regulations framed thereunder.  The Enquiry Officer found that the appellant as a broker had violated the Code of Conduct specified in Schedule II of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.  On receipt of the enquiry report the Board sent a copy thereof to the appellant along with a notice to show cause why appropriate action be not taken against it.  The appellant replied to the show cause notice wherein it challenged the enquiry report.  A personal hearing was also granted to the appellant on January 13, 2006.  After considering the enquiry report and the reply filed by the appellant and after affording a personal hearing to it, the Board passed the impugned order the operative part of which reads as under:

          “Having examined the Enquiry Report, the

          Show Cause Notice dated March 24, 2004

          issued to the broker and the reply dated April 22,

          2004 from the broker reiterating the submissions

          already made before the Enquiry Officer, submissions

          made by the broker during the personal hearing and

           the post hearing submissions made by the broker,

          I do    not find any substantial reason to differ

          from the findings and the recommendations

          of the Enquiry Officer.”

A reading of the impugned order leaves us with the impression that the Board while passing the impugned order did not apply its mind

to the contentions raised by the appellant when it  challenged the enquiry report.  All that the Board has done is that it has noted the findings recorded by the enquiry officer and without dealing with any of the submissions made by the appellant, agreed with those findings without recording its reasons.  Admittedly, the proceedings before the Board were quasi judicial in nature and the penalty imposed by it has far reaching  consequences and, therefore, the least that was required was that the Board should have applied its mind by taking note of the submissions made by the appellant and recorded its reasons as to why those were not being accepted.  It was open to the Board to accept the findings of the Enquiry Officer, but it must in the process deal with the objections which the appellant has raised in regard to those findings.  In such proceedings the impugned order should disclose clear application of mind to such issues.  Unfortunately, the impugned order contains no reasons whatsoever and, therefore, we have no hesitation in holding that the order was passed mechanically without application of mind.  In this view of the matter it is not necessary for us to deal with the merits of the other contentions sought to be raised by the learned counsel for the appellant.

3.       Before concluding we may deal with the two judgements of the apex court cited by the learned counsel appearing for the Board.  He placed reliance on State of Madras vs. A. R. Srinivasan AIR 1966 SC 2827 and also on State of Assam and Anr. Vs. Vimal Kumar Pandit AIR 1963 SC 1612 to  contend that even though the proceedings before the Board were quasi judicial in nature, it was not necessary for it to record its reasons while accepting the report of the Enquiry Officer.  We have carefully gone through the aforesaid judgements of the apex court  and are of the view that they are not applicable to the facts of the  present case and, therefore, we are unable to accept the contention of the learned counsel.  These are judgements pertaining to the domestic enquiries conducted against delinquent officials.  Those proceedings in our opinion cannot be equated with the nature of the proceedings which the Board conducts against the delinquent intermediaries of the securities market.  There is a basic difference between the two.  Moreover, much water has flown under the bridge since those judgements were delivered because the concept of principles of natural justice has been further enlarged by the apex court in the subsequent judgements delivered by it.  The aforesaid judgements were delivered at a time when the enquiry report was not required to be submitted to the delinquent official whereas the  law in this regard has undergone a sea change.  Be that as it may, when the enquiry report was sent to the appellant and it raised objections in regard to the correctness of the findings recorded therein, the Board in our opinion, should state in the order as to why those objections are without merit.  It is not enough to say that it agrees with the findings in the enquiry report without dealing with the objections raised by the appellant.

4.       In the result, the appeal is allowed, the impugned order dated 21/1/2006 set aside with no order as to costs.  We however, make it clear that it shall be open to the Board to proceed against the appellant from the stage of the enquiry report, if it so desires.

 

Sd/-

Justice N. K. Sodhi
Presiding Officer

Sd/-

C. Bhattacharya
Member

Sd/- 

R. N. Bhardwaj
Member

 

21/03/2006.

Smn/21/3/