Securities Appellate Tribunal
Asit C Mehta Investment Intermediates ... vs Sebi on 6 January, 2023
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 28.11.2022
Date of Decision : 06.01.2023
Misc. Application No. 227 of 2021
And
Appeal No. 317 of 2021
Asit C Mehta Investment Intermediates Ltd.
"Nucleus House", 5th Floor,
Saki Vihar Road,
Andheri (East),
Mumbai- 400 072 ...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. Abishek Venkatratnam, Advocate with Ms. Sabeena
Mahadik, Mr. Sagar Hate, Advocates i/b. Visesha Law Services
for the Appellant.
Mr. Mustafa Doctor, Senior Advocate with Mr. Akash Kolse
Patil, Ms. Nidhi Singh Ms. Deepti Mohan, Ms. Binjal Samani,
Ms. Purvi Jain and Mr. Niket Dalal, Advocates i/b Vidhii
Partners for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Ms. Meera Swarup, Technical Member
Per: Justice Tarun Agarwala, Presiding Officer
2
1.The appellant has filed the present appeal challenging the order dated January 19, 2021 passed by the Adjudicating Officer ("AO" for convenience) of the Securities and Exchange Board of India ("SEBI" for convenience) wherein a penalty of Rs. 27,00,000/- (Rupees Twenty Seven Lakh Only) was imposed under Section 23D of the Securities Contracts (Regulation) Act, 1956 ("SCRA" for convenience) read with Section 15HB of the SEBI Act, 1992.
2. The facts leading to the filing of the present appeal is, that the appellant is a stock broker and a comprehensive joint inspection of the broking and depository participant operations of the appellant was conducted by SEBI, National Stock Exchange ("NSE") and Bombay Stock Exchange ("BSE") and the Central Depository Services (India) Limited ("CDSL") from April 2017 to September 2018. Based on the inspection, the following violation of various Circulars was noticed, namely,:-
(i) Section 23D of the SCRA read with (r/w) clause 1 of Annexure of SEBI Circular SMD/SED/CIR/93/23321 dated November 18, 1993 (hereinafter referred to as SEBI Circular dated November 18, 1993) and clause 3 of Annexure of SEBI Circular SEBI/HO/MIRSD/MIRSD2/CIR/P/2016/95 dated 3 September 26, 2016 (hereinafter referred to as SEBI Circular dated September 26, 2016).
(ii) Clause 3.2 of Annexure of SEBI Circular dated September 26, 2016.
(iii) Clause 2 of Annexure of SEBI Circular dated September 26, 2016.
(iv) SEBI Circular SEBI/MIRSD/SE/CIR-19/2009 dated December 3, 2009 (hereinafter referred to as SEBI Circular dated December 3, 2009) and Clause 8.1 of Annexure of SEBI Circular dated September 26, 2016.
(v) Clause A(5) of Schedule II r/w regulation 9(f) of SEBI (Stock Brokers) Regulations, 1992 (hereinafter referred to as Stock Brokers Regulations) r/w NSE Circular no. NSE/MEMB/3574 dated August 29, 2002 (hereinafter referred to as NSE Circular dated August 29, 2002), NSE Circular no. NSE/MEMB/3635 dated September 25, 2002 (hereinafter referred to as NSE Circular dated September 25, 2002) and NSE/MA/22732 dated February 13, 2013 (hereinafter referred to as NSE Circular dated February 13, 2013).
(vi) Clause 2.4.2 of Annexure of SEBI Circular dated September 26, 2016 and 4
(vii) Clause 12(e) of Annexure A of SEBI Circular dated December 3, 2009.
3. Accordingly, a show cause notice was issued alleging the following violations, namely,:-
i) Failure to segregate securities and monies of clients.
ii) Incorrect reporting of enhanced supervision data.
iii) Non-reporting of enhanced supervision data.
iv) Non-settlement of funds and securities of clients.
v) Discrepancies in terminal related requirements.
vi) Non-maintenance of daily reconciliation statement.
vii) Incorrect retention statement.
4. The AO after considering the reply of the appellant found that the charges levelled in the show cause notice were found to be correct and stood proved. The AO after considering the gravity of the violation and, after taking into the factors contemplated under Section 23J of the SCRA and 15J of the SEBI Act imposed a penalty of Rs. 27 lakhs under Section 23D of the SCRA and 15HB of the SEBI Act.
5. We have heard Shri Abishek Venkatratnam, the learned counsel for the appellant and Shri Mustafa Doctor, the learned senior counsel for the respondent.
5
6. The learned counsel for the appellant admitted that the appellant had committed the violation as depicted in the show cause notice. The learned counsel however contended that the violation is a technical violation or at best a procedural violation and, therefore, a nominal penalty should be imposed instead of arbitrarily imposing a penalty of Rs. 27 lakhs. It was contended that the impugned order fails to indicate as to how a sum of Rs. 27 lakhs has been arrived at for imposing a penalty under Section 23D of the SCRA.
7. Having considered the submissions made by the appellant we find that admittedly the appellant committed various irregularities and violations as depicted in the show cause notice and, consequently, violated various Circulars issued by SEBI from time to time on various subjects. Without going into the details of the violation, what strikes the most is the violation relating to the failure on the part of the appellant to segregate securities and monies of clients. In this regard, we find that out of 39 sample instances taken by the inspection team it was observed that in all these 39 sample instances the appellant had misused credit client funds which were misutilised to meet the obligations of debit balance clients and/ or for its own purposes. The extent of misutilisation ranged from Rs. 7.3 crore to 6 Rs. 28.9 crore. Further, in 31 instances reported to the exchange, funds of credit balance clients were misutilised to meet the obligations of debit balance clients and for its own purposes which ranged from Rs. 1.1 crore to Rs. 14.9 crore.
8. Section 23D of the SCRA provides as under:-
"SCRA Penalty for failure to segregate securities or moneys of client or clients 23D:
If any person, who is registered under Section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) as a stock broker or sub-broker, fails to segregate securities or moneys of the client or clients or uses the securities or moneys of a client or clients for self or for any other client, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees."
9. A perusal of the aforesaid provision indicates that where a stock broker fails to segregate securities or moneys of a client or uses the securities or moneys of a client for any other, he shall be liable to pay a penalty which is not less than one lakh rupees and which may extend to one crore rupees.
7
10. Considering the violation as depicted aforesaid which is serious we are of the opinion that the AO has exercised its discretion in only imposing a penalty of Rs. 27 lakhs instead of imposing a maximum of Rs. 1 crore under Section 23D of the SCRA. In our opinion, the amount of penalty imposed is just and proper in the circumstances of the present case which requires no interference.
11. In view of the aforesaid, the appeal lacks merit and is dismissed with no order as to costs. The misc. application is disposed of accordingly.
12. 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. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Ms. Meera Swarup Technical Member PRERNA Digitally signed 06.01.2023 by PRERNA MANISH MANISH KHARE PK Date: 2023.01.09 KHARE 17:03:32 +05'30'