IN
THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 273/04
In the matter of:
Coram: ����������� Justice
Kumar Rajaratnam, Presiding Officer ����������� � Per:� Justice
Kumar Rajaratnam, Presiding Officer 1.
The appeal is taken
up with consent of parties.� 2.
The appellant who
was a broker of the stock exchange, Mumbai and registered with SEBI challenges
the order passed by the respondent wherein the appellant�s registration of
certificate was suspended for a period of three months by an order dated
6.10.2004. 3.
The impugned order
was to come into force after a period of 3 weeks to enable the appellant to
file the statutory appeal.� 4.
The facts briefly are that the shares of Sawaca
Business Machines Ltd. (hereinafter referred to as �the Company�) were listed
in the BSE and in the Ahmedabad Stock Exchange.�
The respondent conducted an enquiry with respect to alleged price
manipulation in the scrip of the company during the period between October and
December 1999.� It is seen that the scrip
of the company took an unusual upward price movement from Rs. 8/- to Rs.
38/-.� The volume of the trade also
increased.� �One Mahendra Shah, who later became managing
director of the company, was the largest seller during that period.� He had offloaded large quantity of shares in
the market.� The said Shah also placed
large buy orders perhaps with the object of creating a misleading appearance of
demand in the shares of the company.� The
allegation against the appellant was that it dealt with the shares of the
company through a sub-broker known as Sai Investment Corporation Pvt. Ltd.� The sub-broker in turn, it appears, dealt
with Mr. Shah and their entities.� The
details of the transaction of the sub-brokers are as follows:
5.
The only allegation against the appellant was
that he allowed the sub-broker to exploit him and his conduct was in violation
of the code of conduct prescribed under Schedule II read with Regulation 7 of
Securities and Exchange Board of India (Stock Brokers and Sub-Brokers)
Regulations, 1992.� The investigation was
conducted and on the basis of the investigation an enquiry was held and a show
cause notice was issued to the appellant and ultimately the appellant was found
guilty of violating the code of conduct and in violation of the provisions of
Regulations 4(b) of FUTP Regulations.�
This order which is passed by the respondent is under challenge before
us. 6.
The matter is simple.� The appellant admits that he had all the
trades done through the said sub-broker and it was done on the bolt screen and
that these transactions were bona fide transactions.� It was further submitted by the appellant
that whatever trade was done by the sub-broker is a matter between the
sub-broker and the said Mr. Shah.� There
cannot be any vicarious liability for the transactions done by the sub-broker with
Mr. Shah.� It was further submitted with
considerable force that the impugned order is based on a strict liability and
no nexus has been established between the sub-broker and the appellant on the
one hand, or between the appellant and Mr. Shah.� In the absence of any such material, it was
submitted that the transactions having been done in a transparent way and on
the bolt screen cannot be faulted and in the absence of material, a serious
charge of violation of FUTP Regulations cannot be sustained as there was no
proof that appellant acted in concert with the sub-broker.� 7.
I have carefully considered the submission for
the learned counsel for the appellant and the respondent. 8.
The turnover of the appellant during the year
1999 has been over Rs. 637 crore.� The
turnover in the scrip of the company in question was a mere Rs. 20 lakh during
the period of investigation.� This is
rather insignificant and on the basis of such material it cannot be said that
the appellant acted in concert with the sub-broker or with Mr. Shah for the
purpose of price manipulation unless there is proof.� 9.
The appellant did not receive any remuneration
except his brokerage amount.� For a
charge to be proved, it must be established that there was a nexus between a
sub-broker and the broker.� No such
material is before us.� The transactions
were screen-based transactions and were at the prevailing price in the market
at the relevant time.� The turnover of
the appellants transactions are a miniscule part of the total business done by
the appellant in the year 1999.� 10.
The learned counsel for the appellant relied on
many instances where SEBI and the Tribunal have taken a practical and lenient
view in such circumstances to rehabilitate and give the broker an opportunity
to mend his ways.� 11.
Reference was made to Chona Financial
Services Pvt. Ltd. in appeal 95/03 dated 23.8.04 and to the cases referred
to in the judgement.� �The relevant portion of the order is extracted
below. �The appellant submitted a few cases namely M/s. Bakliwala
Investment, J.M. Morgan Stanley Retail Services Pvt. Ltd., Bama Securities as
under, which have been found to contain by and large similar irregularities and
have been only served with a letter of warning by SEBI.�� ●
M/s. Bakliwala
Investment Irregularities
i.
Provision for Tax
for the interim period from April 1 to
ii.
Confirmations have
not been obtained from Banks, Creditors and debtors by the broker.
iii.
Broker had not time
stamped the order slip/records
iv.
Contract notes not
serially numbered except for computer generated numbers on day-to-day basis
which have no control.
v.
Contract notes not
issued within the specified time.
vi.
Consolidated stamp
duty not paid.
vii.
Client Registration
forms were not completed
viii.
Order book was not
maintained.
ix.
Delay in payment of
funds
x.
Delay in delivery of
securities
xi.
One client account
being adjusted against another client without any authorization
xii.
Transactions with
associate firms/companies separate set of ledger accounts as clients and others
not maintained.
xiii.
Compliant register
not maintained.
xiv.
Client account were
used for other purposes
xv.
Margin money not
collected
xvi.
In 10 cases, deals
were done outside the NEAT System Order 1.
Irregularities are
basically technical lapses and do not deserve a substantive punishment. 2.
Minor Penalty �
Warning ●
M/s. J.M. Morgan
Stanley Retail Services Pvt. Ltd. Irregularities
i.
Failure to obtain
client registration forms and agreement
ii.
Failed to maintain
separate client account. Order Warning ●
M/s. Bama Securities Irregularities
i.
Contract notes were
missing
ii.
Acknowledgement from
the clients not obtained
iii.
Not maintaining
client registration forms Order Warning Reliance has been placed on a few other
judgments as under in which similar irregularities were found and were served
with a letter of warning. ●
M/s. Ratanbali
Capital Markets Ltd. Irregularities � Non-maintenance
of books of accounts � Contract
notes � Non-collection
of margins from clients � Misuse
of client�s funds � Share
lending/borrowing � Non-segregation
of clients accounts with own account and for not reporting off-the-floor
transactions to Stock Exchange Order Warning ●
M/s. Twenty First
Century Shares & Securities Ltd. Irregularities � Non-maintenance
of books of accounts � Delay
in payment to clients � Misuse
of client�s funds � Non-segregation
of clients accounts with own account and for not reporting off-the floor
transactions to Stock Exchange � Booking
payment in different clients account. � Loan
against shares of holding company and loan transaction in clients account. Order Warning ●
M/s. Sanjay� C. Bakshi Irregularities � Not
maintaining margin registers � Dealing
with unregistered sub-brokers � Not
entering into agreement with few clients � Non-segregation
of clients funds with own funds � Dealing
with broker of other Stock exchange without getting registered as a sub-broker � Irregularities
in respect of contract notes � Delay
in payment/delivery of funds/shares to clients Order Warning ●
M/s. Mahesh Kothari
Share & Stock Brokers Pvt. Ltd. Irregularities � Non-maintenance
of books of accounts � Dealing
with unregistered sub-brokers � Irregularities
in issuance of contract notes � Non-segregation
of clients account with own account, misuse of client�s fund � Delay
on delivery of securities and not reporting off the floor transactions Order Warning ●
M/s.� Mukesh Sawhany Irregularities � Non-maintenance
of document registers � Irregularities
in issuance of contract notes � Non-maintenance
of separate client account � Non-segregation
of separate client account with own account � Not
reporting off the floor transactions � Non
redressal of investor complaints Order Warning� 12.
It was further submitted that the allegations
and indeed and the investigation was for the period between October to December
1999 and the show cause notice was issued in 17.3.2004. It is submitted that
there is an inordinate delay in issuing the show cause notice. 13.
It was submitted that by Mr. Dipan Merchant,
the learned senior counsel for the respondent that the investigation took some
time and the enquiry also took some time and there has been no delay.� It was further submitted that the law
requires that there should be an enquiry under the Securities and Exchange
Board of India (Procedure for holding Enquiry by Enquiry Officer and imposing
penalty) Regulations, 2002 and the Regulation requires issue of show cause
notice and then the matter is placed before the respondent for further action
on the basis of the enquiry report.� 14.
Therefore I agree with the submission of the
learned senior counsel of the respondent that there has been no delay in the
facts and circumstances of this case. 15.
It is submitted by the appellant that the
appellant has a huge turnover running into crores of rupees and any period of
ban from the securities market will ruin the business and render the workers
unemployed.� The appellant also assures
the Court that all care will be taken hereafter in dealing with sub-brokers
with respect to any alleged price manipulation or any other violation.� It is also stated that BSE has had made
subsequent inspection in usual course and have not found fault with the
appellant in any way with regard to any allegation.� 16.
I therefore hold that no case has been made out
against the appellant under the FUTP Regulations since no nexus has been
brought out between the broker and the sub-broker.� However, there appears to be some lack of due
skill, care and diligence on the part of the appellants in the facts of the present
case.� In these circumstances, the
penalty imposed on the appellant by the respondent is modified from three
months to a warning.� 17.
The appeal is disposed of accordingly.� No order as to costs.
Place: Mumbai Date: 11.04.2005 //SR4058 |
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