Securities Appellate Tribunal
Shriram Insight Share Brokers Ltd., vs Sebi on 4 January, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 23.12.2021
Date of Decision: 04.01.2022
Misc. Application No. 593 of 2020
And
Appeal No. 559 of 2020
Shriram Insight Share Brokers Ltd.,
Mookambika Complex,
4th Floor, 4 Lady Desikachary Road,
Mylapore,
Chennai- 600 004 ...Appellant
Versus
Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai- 400 051 ...Respondent
Mr. Mohammed Ashraf, Advocate with Mr. Deepakar
Livingston and Mr. R.P Shirole, Advocates for the Appellant.
Mr. Suraj Chaudhary, Advocate with Ms. Nidhi Singh,
Ms. Deepti Mohan, Ms. Binjal Samani, Ms. Aditi Palnitkar and
Ms. Moksha Kothari, Advocates i/b Vidhii Partners for the
Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Justice M. T. Joshi, Judicial Member
Per: Justice Tarun Agarwala, Presiding Officer
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1.The present appeal has been filed against the order dated June 26, 2020 passed by the Adjudicating Officer ("AO" for convenience) of the Securities and Exchange Board of India ("SEBI" for convenience) imposing a penalty of Rs. 10 lakhs for the purported violations mentioned in the show cause notice dated December 12, 2019.
2. The facts leading to the filing of the present appeal is, that the appellant is a registered broker with National Stock Exchange of India Limited ("NSE" for convenience) and Bombay Stock Exchange Limited ("BSE" for convenience). SEBI conducted an inspection of the books of accounts pertaining to stock broking during January / February 2012. An inspection report was served upon the appellant on May 07, 2012. A reply was filed by the appellant on June 14, 2012. It seems that the explanation submitted by the appellant was accepted as no further action was taken by SEBI. After 7 ½ years a show cause notice dated December 12, 2019 was issued to show cause as to why an enquiry should not be held and penalty should not be imposed for the alleged violations, namely, "i. Deficiencies noticed in Know Your Clients (KYC) forms.
3ii. Deficiency in Power of Attorney (PoA) Revocation clause.
iii. Delay in opening accounts of its clients. iv. Allotment of a single e-mail id to multiple clients.
v. Deficiency in Electronic Contract Notes (ECN) Authorization.
vi. Non redressal of Investor complaints. vii. Computer-to-Computer Link (CTCL) / Intermediate Layer (IML) mismatch.
viii. Deficiency in Order Management. ix. Short collection of margin from clients in derivative segment.
x. Funding of clients.
xi. Non-settlement of Running A/c.
xii. Margin Funding - shortage of
maintenance margin.
xiii. Violations with respect to Internet based trading.
xiv. Other Systems Deficiencies."
3. The appellant submitted its reply and took a specific stand that there is an inordinate delay in the issuance of the show cause notice and, in any case, the deficiencies pointed out in the inspection was duly complied with and the deficiencies has been removed. Further, the stock exchange imposed penalty on some of the irregularities found which has been duly paid. 4
4. The AO after considering the matter rejected the contention of the appellant and imposed a penalty of Rs. 10 lakhs under Section 23H of Securities Contracts (Regulation) Act, 1956 ("SCRA" for convenience) and 15HB and 15C of the SEBI Act, 1992.
5. We have heard Shri Mohammed Ashraf, the learned counsel for the appellant and Shri Suraj Chaudhary, the learned counsel for the respondent.
6. Admittedly, the inspection was conducted in January / February 2012. Inspection was submitted on May 07, 2012 and a reply was given on June 14, 2012. Thereafter, nothing was done and the show cause notice was eventually issued on December 12, 2019 after 7 ½ years. There has been an inordinate delay in the issuance of the show cause notice. A specific plea has been raised by the appellant on the issue of delay. We find that without adverting to the contention raised by the appellant and inspite of noting that many of the discrepancies noticed in the inspection has been rectified by the appellant, the AO has skirted the issue on the ground that since the appellant did not act with skill, care and diligence, it 5 proceeded to hold that the appellant cannot be absolved for the lapses incurred by him and accordingly imposed a penalty.
7. In our view, the view taken by the AO is patently erroneous and cannot be allowed to stand. We are of the view, that when a defense is raised by the appellant it is the onerous duty of the AO, as a quasi judicial authority, to deal with the matter instead of skirting the issue and pushing it under the carpet without dealing with it. The ground raised and not dealt with amounts to judicial indiscipline. We are of the view, when a question of delay has been raised, it is imperative for the AO to deal with the issue.
8. In the instant case, we find that there is an inordinate delay in the issuance of the show cause notice. No explanation whatsoever has been given by the respondent as to why the show cause notice could not be issued earlier. In the absence of any justification, we are of the view that the show cause notice was not issued within a reasonable time and, in fact there has been an inordinate delay in the issuance of the show cause notice. We are further of the opinion, that old and stale disputes should not be raised.
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9. In Ashlesh Gunvantbhai Shah vs. SEBI (Appeal No. 169 of 2019) decided on January 31, 2020. The relevant paragraphs are extracted herein below:-
"12. Having considered the matter we are of the view that there has been an inordinate delay on the part of the respondent in initiating proceedings against the appellants for the alleged violations. The controversy in this regard is squarely covered by a decision of this Tribunal in Mr. Rakesh Kathotia & Ors. vs SEBI in Appeal No. 7 of 2016 decided by this Tribunal on May 27, 2019. The relevant paragraph is extracted herein below:-
"23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine Pharmaceuticals, Madras and Others, [AIR (1989) SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend 7 on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v. Palitana Sugar Mill (2004) Vol.12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) Vol. 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 held:
"There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc."
13. Similar view was again relied in Ashok Shivlal Rupani & Ors. vs. SEBI (Appeal No. 417 of 2018 along with other connected appeals decided on August 22, 2019) and again in Sanjay Jethalal Soni & Ors. vs SEBI in Appeal No. 102 of 2019 and other connected appeals decided on November 14 2019.
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14. We also find that in the case of Ashok Shivlal Rupani (supra) the period of investigation was January 4, 2010 to January 10, 2011 in the scrip of M/s. Oregon Commercial Ltd. and the show cause notice issued on November 20, 2017 which this Tribunal held that there was an inordinate delay. In the instant case, the same scrip was investigated for the same period and there is a delay of 7 years in issuing the show cause notice. To this extent, the facts are common. Further, Civil Appeal No. 8444 - 8445 of 2019 Securities and Exchange Board of India vs. Ashok Shivlal Rupani & Anr, etc was dismissed by the Supreme Court on November 15, 2019 thus affirming the decision of this Tribunal.
15. In the light of the aforesaid, we are of the opinion that there has been an inordinate delay in the issuance of the show cause notice. Even though there is no period of limitation prescribed in the Act and Regulations in the issuance of a show cause notice or for completion of the adjudication proceedings the authority is required to exercise its powers within a reasonable period as held recently in Adjudicating Officer, Securities and Exchange Board of India vs. Bhavesh Pabari (2019) SCC OnLine SC 294. In the instant case, we are of the opinion that the power to adjudicate has not been exercised within a reasonable period and therefore no penalty could be imposed."
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10. In Sanjay Jethalal Soni and Ors. vs. SEBI (Appeal No. 102 of 2019 decided on November 14, 2019. The relevant paragraph is extracted herein below:-
"11. Having heard the learned counsel for the parties at some length we find that the respondent had investigated the scrips of Shree Global Tradefin Ltd. for the period March 1, 2009 to January 10, 2011 in September 2011. Pursuant thereto, a show cause notice dated April 20, 2012 was issued for the violation found during the investigated period March 1, 2009 to November 30, 2009. The respondents thereafter waited for another five years to issue a second show cause notice dated July 20, 2017 for the investigated period April 1, 2010 to January 10, 2011 which had been investigated in September 2011. We find that the respondents were aware of the alleged violation and thus there is no justification for waiting for more than five years to issue the second show cause notice dated July 20 2017. In our view there is an inordinate delay in initiating the proceedings."
11. In Ashok Shivlal Rupani vs. SEBI (Appeal No. 417 of 2018 decided on August 22, 2019). The relevant paragraphs are extracted herein below:-
"6. Having considering the matter, we are of the view that there has been an inordinate delay on the part of the respondent in initiating proceedings 10 against the appellants for alleged violations. Much water has flown since the alleged violations and at this belated stage the appellants cannot be penalized. It is alleged that disclosure under PIT Regulations was not made but similar disclosure was made by the appellant under SAST Regulations. Therefore, information was available on the Stock Exchange and therefore it cannot be said that the respondents were unaware of the alleged violations. Further, the purpose of disclosure was to make the market aware of the change of shareholding of the shareholders. When a disclosure was made by the company under SAST Regulations the investors became aware of the change in the shareholding. The non-compliance of Regulation 13 if any becomes technical in nature.
7. In Mr. Rakesh Kathotia & Ors. vs. SEBI (Appeal No. 07 of 2016 decided by this Tribunal on 27.05.2019) proceedings were quashed on account of inordinate delay. The said decision is squarely applicable to the instant case. For facility, the relevant paragraph of the order is extracted hereunder:
"23. It is no doubt true that no period of limitation is prescribed in the Act or the Regulations for issuance of a show cause notice or for completion of the adjudication proceedings. The Supreme Court in Government of India vs, Citedal Fine 11 Pharmaceuticals, Madras and Others, [AIR (1989) SC 1771] held that in the absence of any period of limitation, the authority is required to exercise its powers within a reasonable period. What would be the reasonable period would depend on the facts of each case and that no hard and fast rule can be laid down in this regard as the determination of this question would depend on the facts of each case. This proposition of law has been consistently reiterated by the Supreme Court in Bhavnagar University v.
Palitana Sugar Mill (2004) Vol.12 SCC 670, State of Punjab vs. Bhatinda District Coop. Milk P. Union Ltd (2007) Vol.11 SCC 363 and Joint Collector Ranga Reddy Dist. & Anr. vs. D. Narsing Rao & Ors. (2015) Vol. 3 SCC 695. The Supreme Court recently in the case of Adjudicating Officer, SEBI vs. Bhavesh Pabari (2019) SCC Online SC 294 held:
"There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created etc."12
12. In view of the aforesaid, the impugned order cannot be sustained and is quashed. The appeal is allowed with costs. The Misc. Application is accordingly disposed of.
13. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the Registry. In these circumstances, this order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.
Justice Tarun Agarwala Presiding Officer Justice M. T. Joshi Digitally signed Judicial Member 04.01.2022 by RAJALAKSH RAJALAKSHMI H PK MI H NAIR NAIR Date: 2022.01.06 11:40:16 +05'30'