Securities Appellate Tribunal
Dalmia Securities (P) Ltd. vs G.S. Reddy, Dy. General Manager, ... on 29 January, 2003
ORDER
C. Achuthan, Presiding Officer
1. The Appellant is a Depository Participant (DP) registered with the Securities and Exchange Board of India ( Respondent No. 1 SEBI) under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 (the DP Regulations). The Appellant has been granted separate registrations to act as DP in National Securities Depository Ltd., (Respondent No. 2 - NSDL) and Central Depository Services Ltd., (CDSL). The Appellant is also a registered member of the National Stock Exchange of India Ltd. (NSE), the Calcutta Stock Exchange (CSE) and the Stock Exchange at Mumbai (BSE). The certificates of registration to act as DP in NSDL and CDSL were granted on 17.3.1997 and 27.12.1999 respectively. The registration is valid for a period of five years. But it is renewable. Since the currency of the Appellant's registration as DP in NSDL was to be over by 18.3.2002, it applied for renewal. Respondent No. 1 renewed the registration subject to certain conditions and communicated the same to the Appellant vide letter dated 2.9.2002. The signatory of the letter who is a functionary under SEBI, has been arrayed as Respondent No. 1 in the appeal. The text of the said letter is extracted below. The condition stipulated at item No. 3 therein is under challenge in the present appeal.
" September 2, 2002.
DALMIA SECURITIES PRIVATE LIMITED Ideal Plaza, No. N315, 3rd Floor 11,1, Sarat Bose road, Kolkata - 700 020.
Dear Sir, Sub: Renewal of Certificate of Registration as Participant under the Securities and Exchange Board of India (Depositors and Participants) Regulations, 1996.
Please refer to your application for renewal of registration as participant in the National Securities Depository Ltd. in terms of Form E of the SEBI (Depositories and Participants) Regulations, 1996.
1. We are pleased to renew the certificate of registration granted to you as participant in the National Securities Depository Ltd. in terms of Regulation 23. The certificate has been renewed subject to the conditions and provisions mentioned in:
a) Securities and Exchange Board of India Act, 1992.
b) The Depositories Act, 1996.
c) Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.
d) The Bye-Laws of the National Securities Depository Limited
e) The agreements entered into by yourselves with the National Securities Depository Limited and the beneficial owners.
2. You will also ensure compliance with the Guidelines/Directives/Instructions etc. issued by the Securities and Exchange Board of India or the Government of India from time to time relating to the activities carried on by you.
3. Your renewal is subject to the condition that no new accounts shall be opened by you.
4. Please return a copy of this letter to SEBI, duly signed by an official authorised in this regard, in acceptance of the above terms and conditions.
(emphasis supplied) A copy of the said letter was marked to the Managing Director of Respondent No. 2, advising "to ensure the implementation of condition specified at point No. 3."
2. The Appellant claiming to be aggrieved by the condition stipulated in para 3 of the said letter has preferred the present appeal.
3. Shri Somasekhar Sundaresan, learned Counsel, appearing for the Appellant referred to the communication dated 2.9.2002 issued by Respondent No. 1 to the Appellant, conveying renewal of registration as DP in NSDL, subject to the condition that no new accounts shall be opened by the Appellant. Learned Counsel submitted that the said condition is a prohibition on the Appellant undertaking any business for new clients and that the prohibition is to continue during the currency of the renewal period of 5 years. He submitted that in terms of regulation 22 of the DP Regulations, application for renewal of registration is required to be made three months in advance of the expiry date of the registration, that the Appellant in compliance thereof submitted duly filled in application on 31.12.2001 with Respondent No. 2 and the said Respondent in turn forwarded the same to Respondent No. 1, apparently without any adverse observations, that had there been any omission or commission or misconduct on the part of the Appellant, Respondent No. 2 would have reported the same to Respondent No. 1 as it would have been aware of the same from the periodical inspection of the activities of the Appellant carried out by it. He submitted that on 16.4.2002 the Appellant received a letter from Respondent No. 1, advising the Appellant to call on Respondent No. 1. The meeting was scheduled on 23.4.2002. The Appellant responded to the same and that Respondent No. 1 put only one question at that time to the appellant's representative that as to whether the Appellant was connected with one Mr. Dinesh Dalmia of a company called DSQ Software Ltd., to which the Appellant's reply was in the negative. Learned Counsel submitted that thereafter on 6.5.2002, the Respondent No. 1 referring to the Applicant's application for renewal, required the Appellant to give a written undertaking stating that the Appellant and its directors were not connected with Shri Dinesh Dalmia of DSQ Software Ltd., or any of its group companies in any manner that within 2 days, vide letter dated 8.5.2002 the Appellant wrote back confirming that neither the Appellant nor its directors were connected in any manner with Shri Dinesh Dalmia, that there was no further queries from the Respondent with regard to the pending application, that after nearly 4 months Respondent No. 1 vide letter dated 2..9.2002, conveyed the decision to renew the DP registration with the stipulation that the renewal was subject to the condition that the Appellant will not open new accounts. In this context Shri Somasekhar Sundaresan also referred to the letter dated 9.9.2002 from Respondent No. 2 to the Appellant referring to the decision of Respondent No. 1 advising the Appellant to ensure compliance of the same. On the same day i.e. 9.9.2002, the Appellant wrote to Respondent No. 1 requesting it to delete the said condition. In this context he referred to the copy of the said letter filed at Annexure F to the appeal and particularly to portion stating that "the said prohibitory order has been made without any grounds or reasons", that "no condition can be imposed by SEBI while granting the certificate of registration to a participant under regulation 20 of the aforementioned Regulations. In fact also no condition was imposed while the initial registration was given to us. The application for renewal also is to be treated in the same manner as if it is a fresh application for grant of registration. In any case no condition can be imposed at the time of renewal unless there was any basis for the same, say adverse finding in the inspection by NSDL in the absence of which such action is blatantly arbitrary and unfair." He referred further to the submission made in the letter that "Without prejudice to the aforesaid and assuming but not admitting that the renewal can be conditional , it is submitted that the said condition imposed by you has no nexus to the objects sought to be achieved by the SEBI Act and Depositories Act and the said Regulations. We also state that there could be no reason or material on the basis of which the said condition could be imposed. We have never violated the provisions of the aforementioned Acts and the Regulations and have fully protected the interest or our account holders. No complaint has ever been made against us.
4. We, therefore, humbly submit that the said condition should be deleted. Without prejudice to the aforesaid, we also call upon you to inform us the reasons and material, if any, on the basis of which the said condition has been imposed to enable us to make representation for its withdrawal."
5. Learned Counsel submitted that despite the Appellant's request to provide the reasons and material based on which such a restraint affecting the Appellant's business activities was put, Respondent No. 1 did not bother to respond and in that context on 17.9.2002 the Appellant met the concerned Executive Director in SEBI and explained to him the grossly unjust and unfair nature of the decision and requested him to amend the same, but stony silence was the response, that since there was no response from the Executive Director a representation was made to the Chairman, SEBI vide letter dated 28.9.2002 explaining the details and requesting him to intervene in the matter and remedy the situation that even the Chairman also did not respond. According to the learned Counsel, the Respondent did not respond, as it was not in a position for want of proper reason to justify its decision imposing such an unreasonable condition.
6. Learned Counsel submitted that the Appellant made its best efforts to seek justice from Respondent No. 1 but it was denied and left with no alternative remedy, filed the present appeal on 17.10.2002, that the Appellant is aggrieved by the blatantly unjust and arbitrary condition put in the renewal order by Respondent No. 1 without assigning any reasons or providing any opportunity to be heard.
7. Countering the stand taken by Respondent No. 1 in the reply filed in the appeal proceedings, learned Counsel submitted that reasoning given in the reply does not make good the deficiency of not giving reasons in the order, that the order should speak for itself is the rule, that in any case even those reasons stated in the reply are not satisfactory, that the reply is full of denials without giving any material in support thereof. He submitted that Respondent No. 1 has claimed that it is investigating market manipulation in the scrips of certain companies, but the Respondent has not sent any show cause notice to the Appellant, that it had only requested the Appellant to furnish its trading details in certain securities and there is not even a suggestion in the reply filed by the Respondent that it has come to any prima facie conclusion against the Appellant during the course of the so called investigations which is stated to have commenced for over a year ago. Learned Counsel submitted that it is rather strange that all those entities to whom the Respondent writes for information/particulars are to be punished like this without following the prescribed procedure and that the reason for such a penal decision is not required to be disclosed. In this context Shri Somasekhar Sundaresan produced compilation (in two sets) of the correspondence entered into between Respondent No. 1 and the Appellant relating to the ongoing investigations and submitted that there is nothing therein indicating that the Appellant was under investigation. He submitted that the Respondent wanted to know whether the Appellant was in any manner connected to Shri Dinesh Dalmia of DSQ Securities and the Appellant stated the factual position that it was not in any way connected or associated with the said Dalmia and there was no further queries from the Respondent's side. He submitted that the routine queries and replies thereto has been relied on by the Respondent to justify its arbitrary decision. Learned Counsel submitted that the information which the Respondent asked for was made available to it even before the application for renewal was submitted and that the Respondent rightly did not proceed against the Appellant, as the Appellant had not done anything illegal and improper warranting any adverse action. He submitted that neither the signatory of the letter, nor the Executive Director of the Chairman told the Appellant that impugned condition was put in view of any such ongoing investigation, that if there was any such investigation, they could have stated so, that now to save its arbitrary action, the Respondent has come out with the alibi that the Appellant is under investigation.
8. Learned Counsel referred to the Respondent's submission with reference to regulation 22 and submitted that the said regulation requires the DPs desirous of seeking renewal to make an application in the prescribed format with the prescribed fee to the Respondent No. 1 through the depository in which it is a participant, three months before the expiry date of the registration, and the renewal application so submitted is required to be dealt with in the same manner as if it were a fresh application for grant of certificate of registration. Learned Counsel submitted that the requirement of submitting proper application with fee has been met with by the Appellant as the renewal application duly filled in along with the requisite fee was forwarded to Respondent No. 1 through Respondent No. 2 on 31.12.2001, that in terms of regulation 23, Respondent No. 1 was required to renew the certificate of registration subject to the conditions of certificate of registration specified in regulation 22,. He submitted that the condition stipulated in regulation 23 is subject to regulation 22.
9. Shri Somasekhar Sundaresan submitted that in its reply filed in the appeal proceeding Respondent No. 1 has relied on regulation 19, according to which for the purpose of grant of certificate of registration, the Respondent is required to take into consideration all matters which are relevant to or relating to the efficient and orderly functioning of a participant and in particular, that the applicant complies with certain requirements, stated therein, that the Respondent has relied on the requirement that "the applicant is a fit and proper person" and the grant of registration is in the interest of investors' and has stated that the impugned condition was put "in the interest of the investors in the securities market and that the securities market in view of the ongoing investigations against M/s. Dalmia Securities Ltd., "which may affect the Appellant being fit and proper person." He submitted that from the Respondent's own statement that the investigation is "ongoing " and "it may affect the Appellant being fit and proper person" establishes that as on date it has not come to a decision, even a prima facie one, as to the "fit and proper" status of the Appellant. Learned Counsel submitted that the Respondent's contention that if it comes across with material to prove that the Appellant is not a fit and proper person it has the power to issue such a restraint, and therefore it can issue such an order even before reaching at such a conclusion is untenable. He submitted that if the order exonerates the Appellant, the Respondent won't be in a position to compensate the damage suffered by it, as a result of the punitive action taken pending investigation, that is not a matter of 'ifs and buts' and that it is not a matter of no consequence to put off a person from business without adequate reasons. Learned Counsel submitted that the Respondent, but for routinely denying the Appellant's averments in its appeal has not bothered to give any reason justifying its action, in its reply.
10. Learned Counsel submitted that obviously there is no material before the Respondent to consider the appellant not fit and proper, that if it had anything in its possession it would not have renewed the registration and further that it would not have also allowed it to operate as a DP in CDSL or as a member in NSE, BSE and CSE.
11. Referring to the Respondent's contention that opportunity of hearing is required to be given only in case rejection of the application for renewal, that in the instant case the Respondent has renewed the registration and, therefore, the Appellant was not required to be heard, learned Counsel submitted that the said submission has to be viewed in the light of the consequences of the condition restraining the Appellant from opening new accounts, which is penal in effect that the first registration was granted without any such restriction, and therefore, the renewal with such a restriction tantamounts to rejection of the application for renewal. He submitted that therefore, it was incumbent on the part of the Respondent to give an opportunity to the Appellant to explain its case before imposing such a condition. He submitted that the Appellant is a member of BSE, NSE and CSE and a DP in CDSL and it is allowed to operate in those exchanges/Depository even today, and as such, it was necessary for the Respondent to clearly justify its decision with reasons and also state as to how the impugned condition was considered in the interest of investors in the securities market. He submitted that if there was an emergency situation warranting such a decision and if the Respondent was not in a position to give a pre decisional hearing in view of the urgency involved, atleast a post decisional hearing should have been given and recorded the grounds for putting such a condition in an order but nothing of that sort was done. Learned Counsel submitted that the Respondent has acted in an arbitrary manner ignoring the well settled principles of natural justice and therefore, that part of the order restraining the Appellant from opening new accounts deserves to be set aside.
12. Shri Joby Mathew, learned representative of Respondent No. 1 submitted that the Appellant's application for renewal was received in the Respondent's office on 9.1.2002 from NSDL, that vide letter dated 16.4.2002 the Appellant was advised to call on the concerned officer on 23.4.2002. He submitted that the Respondent's query as to whether the Appellant was connected with Shri Dinesh Dalmia was in the context of certain ongoing investigations and after taking into consideration all the relevant factors, renewal was granted to the Appellant, with certain conditions including the impugned one. He submitted that the Respondent has not rejected the application, that only certain conditions in the interest of the investors in the securities market were put, which the Respondent is empowered under the Regulations, that requirement of the Appellant being heard arises only in the case of rejection of a request for registration and , not in case of grant of registration. He submitted that Section 11 of the Securities and Exchange Board of India Act, 1992 (the Act) requires the Respondent to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit, that the legislature has thus cast a duty on the Respondent protect the interest of investors by adopting appropriate measures. He referred to section 12 of the Act requiring the intermediaries including DPs to get registered with the Respondent, that these intermediaries are not to transact their respective business except under and in accordance with the conditions of the certificate of registration obtained from the Respondent in accordance with the regulations made under the Act, that the Regulations titled "Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 governing the Depository Participants etc. has been notified by the Respondent. In this context Learned Representative referred to regulation 19 and submitted that the said regulation requires the Respondent to take into account all matters which are relevant to or relating to the efficient and orderly functioning of the Participant and in particular whether the applicant complies with the requirements stated therein including the one as to whether the "applicant is a fit and proper person" and "the grant of certificate of registration is in the interest of investors in the securities market." He also referred to sub regulation (2) of regulation 22 and submitted that as per the said regulation, application for renewal is required to be dealt with in the same manner as if it were a fresh application for grant of registration, that the Appellant's application was considered taking into consideration the matters specified in regulation 19 and granted renewal stipulating certain conditions. Learned Representative submitted that in March 2001, the Respondent came to know about market manipulation in the scrip of Ranbaxy Laboratories Ltd., and investigations were going on when the Appellants renewal application came up for consideration and in that context in the interest of investors, a ban on opening new accounts was put as a condition while granting the renewal, that ultimately after investigation if it is found that the Appellant is clean, the condition would be revoked; that the said condition was put in the larger interest of the securities market and that the Respondent is concerned about the safety of the market.
13. With reference to the letters seeking information from the Appellant produced and relied on by the Appellant's Counsel, Shri Joby Mathew submitted that these letters prove that investigations were in progress, that it is not necessary or proper for the Respondent to tell the Appellant the details of the investigation at that point of time. In this context he referred to the following averments in the Respondent's reply and submitted that the reasoning has been stated clearly therein"
"The NSDL vide its letter dated 9.1.2002 forwarded the renewal application to the appellant. While considering the same, it was noticed that the Appellant was called upon to furnish certain information regarding investigations in some matters, that in relation to the investigation in the matter of price manipulation of the shares of DSQ Software the information was sought from the appellant and the investigation were in progress Similarly in relation to the investigation in the matter of price manipulation in the shares of Global Tele Systems Ltd. (GTL) details were sought from the Appellant and Shyam Sunder Dalmia in respect of transactions done by GTL on their accounts and on behalf of their clients. The investigations were in progress (It) had also started a preliminary investigation in the trading of the scrip of Infar (I) Ltd., The Appellant had dealt in that scrip during the investigation. Further, in the matter of investigation in respect of price manipulation in the shares of Ranbaxy Laboratories Ltd. trading details were called for from the Appellant and Shyam Sunder Dalmia. The investigations were in progress. Thus the above said investigations were in progress when the application of the appellant for renewal of its certificate of registration was under consideration. It may be mentioned that in the matter of price manipulation in the shares of Ranbaxy Laboratories Ltd. the enquiry proceedings have been initiated against the appellant in respect of its role in the said activities..."
14. Learned Representative in all fairness, submitted that investigation into the transactions in the scrips of Infar is over and nothing adverse has been noticed against the Appellant by the investigating officer
15. Learned Representative submitted that the reason for putting the impugned condition was not given to the Appellants because of the ongoing investigations as disclosure of the same, it was felt, would adversely affect the investigation. . He submitted that the first registration granted to the Appellant was valid for the period from 17.3.1997 to 16.3.2002, that though the renewal granted vide communication dated 2.9.2002 is valid from 17.3.2002, the impugned condition was effective only prospectively i.e. from 2.9.2002 and therefore if the Appellant had opened any accounts during 17..3.2002 to 1.9.2002, the same would be protected and the clients who joined the DP during the said interim period would not be put to difficulties. Shri Joby Mathew submitted that the impugned condition is open to review by the Respondent; if on the basis of the material collected during the investigation warrant such a review.
16. Learned Representative of Respondent No. 2 submitted that he has no submissions to make.
17. It is an admitted fact that the Appellant is a member of BSE, NSE and CSE and also a member of CDSL and is carrying on with its activities and the Respondent No. 1 has not put any particular restriction on the Appellant's activities in those exchanges and CDSL. The Appellant's registration to act as DP in NSDL as per the registration granted 17.3.1997 was valid upto 16.3.2002. Respondent did not put any restriction on the activities during the currency of the said registration. In fact learned Representative during the course of the argument had submitted that the impugned restriction would be operative only from 2.9.2002 i.e. the date on which the decision renewing the certificate of registration was communicated to the Appellant though the renewal is with effect from 17.3.2002. He had admitted that the reason for stipulating the impugned condition was not communicated to the Appellant as it was not necessary as per the regulations, that even otherwise information could not be revealed at this stage as the Respondent had called for certain information from the Appellant relating to certain investigations in progress in respect of certain scrips.
18. The Respondent had placed considerable reliance on certain regulations viz. 19, 20, 22 and 23 in support of its contention that it is empowered to put conditions while granting renewal of registration certificates to act as DPs. Certain regulations considered relevant to the issue under consideration are extracted below:
As per Regulation 19, "For the purpose of grant of certificate of registration the Board shall take into account all matters which are relevant to the efficient and orderly functioning of a participant and in particular whether the applicant complies with the following requirements namely:-
(a) xxxxxxxxxx
(b) xxxxxxxxxx
(c) xxxxxxxxxx (cc) the applicant is a fit and proper person
(d) the grant of certificate of registration is in the interest of investors in the securities market.
(1)After considering the application under regulation 16, with reference to matters specified in regulation 19, if the Board is satisfied that the applicant is eligible for grant of certificate of registration, grant a certificate in Form F. (2) The grant of certificate of registration in Form F shall be subject to the following, namely:-
(a) the participant shall pay the registration fee specified in Part A of the Second Schedule in the manner specified in Part B thereof, within fifteen days of the receipt of intimation from the Board.
(b) the participant shall comply with the provisions of the Act, Depositories Act, the bye-laws, agreements and these regulations.
(c) the depository through which an application or certificate of registration has been forwarded holds a certificate of commencement of business under regulation 14.
(d) if any information previously submitted by the participant to the Board is found to be false or misleading in any material/particular, or if there is any change in such information, the participant shall forthwith inform the Board in writing.
(e) the participant shall redress the grievances of beneficial owners within thirty days of the date of the receipt of the complaint and keep the depository informed about the number and the nature of redressals, and
(f) the participant shall pay annual fees specified in Part A of the Second Schedule in the manner specified in Part B thereof.
The certificate of registration issued under regulation 20, or renewed under regulation 22 shall be valid for a period of five years from the date of its issue or renewal, as the case may be.
Regulation 22 -
(1)Three months before the expiry of the period of validity of a certificate of registration, the participant shall, if so desires, make an application for renewal in Form E through the depository in which it is a participant (2) The application for renewal under sub regulation (1) shall accompany the fee specified for issue of certificate of registration and shall be dealt with in the same manner as if it were a fresh application for grant of certificate of registration.
Regulation 23.The Board may renew a certificate of registration granted to a participant subject to the conditions of certificate specified in regulation 22.
Regulation 24 (1) Where an application for the grant of certificate of registration under regulation 16 or for its renewal under regulation 22 does not satisfy the requirements specified in regulation 19, the Board shall reject the application after giving the applicant an opportunity of being beard.
(2) The decision of the Board to reject the application shall be communicated to the applicant in writing within thirty days of such decision, stating therein the grounds on which the application has been rejected.
19. From the legal position emerging from the regulations cited above it is clear that the Respondent is empowered to grant registration and renewal of the registration subject to certain conditions. The certificate of registration can be granted subject to conditions is evidenced from provisions in section 12(1A) of the Act also as the section stipulates that "No depository, participant, custodian of securities, foreign institutional investors, credit rating agency or any other intermediary associated with the securities market as the Board may by notification in this behalf specify, shall buy or sell or deal in securities except and in accordance with the conditions of a certificate of registration obtained from the Board in accordance with the regulations made under this Act." The section recognises SEBI as the authority empowered to issue certificates of registration, and therefore, obviously the power to impose conditions is also vested in SEBI. The Respondent's submission that it is empowered to issue certificate subject to conditions, thus in my view, is tenable. But at the same time it has to be understood that the power to impose conditions is not unbriddled. It is subject to limitation. As a public authority, the Respondent is expected to act in a reasonable and fair manner. It is not to act arbitrarily and whimsically. The expression reasonable means rational, according to the dictates of reason and not excessive or immoderate. In order to decide whether the impugned condition is reasonable or not one must look at the nature and the effect of the condition and the manner in which it is imposed. "Reasonableness" is to be gauged with reference to the attendant facts and circumstances of each case. In this context the following observation made by the Hon'ble Madras High Court in Sri Lakshmindra Theertha Swamyar of Sri Shirur Mutt V The Commissioner (AIR 1952 Mad 613) is to be noted:
"The phrase reasonable restriction connotes that the limitation imposed on a person in enjoyment of the right should not be arbitrary or of an excessive nature, beyond what is required in the interests of the public. The word "reasonable" implies intelligent care and deliberation that is the choice of a course which reason dictates."
20. Therefore. the basic question which requires consideration in the light of the challenge on the impugned condition is as to whether the impugned condition could be considered as reasonable and it was made in a fair manner. Answer to this would depend upon the material on record and the procedure followed by the Respondent in imposing the said condition. Before going into these details it is considered pertinent to note that the Appellant's contention that in terms of regulation 22(2) the application for renewal is required to be "dealt with in the same manner as if it were a fresh application for grant of certificate of registration" and as no such "prohibitory condition" was put while granting the new registration the Respondent can't impose any "prohibitory condition" while renewing the certificate. In my view the said condition is untenable. Since the renewal is to be considered "as if it is a fresh registration", for good reason the Respondent is empowered to put conditions while granting renewal as it is empowered to put conditions on "first registration". The Appellant's submission that as per regulation 23, the renewal can be subject only to those conditions of certificate of registration specified in regulation 22, has no legal support. As noted earlier as per sub regulation (2) of regulation 22 the Respondent is empowered to deal with the renewal application in the same manner as if it were a fresh application for grant of certificate of registration. In this context it is noted that regulation 19 enumerates the matters to be considered for grant of certificate of registration. In terms of regulation 20(1) after considering the application under regulation 16, with reference to matters specified in regulation 19, if the Respondent is eligible for grant of certificate of registration, Respondent may grant a certificate in and that grant of certificate of registration shall be subject to the requirement specified in clauses (a) to (f) stated in subject regulation (2). It is, therefore, clear that the Respondent is empowered to issue certificate subject to compliance of certain requirements/conditions by the applicant and the same is the case in respect of grant of renewal.
21. The Respondent's contention that regulation 24 requires the applicant to be given an opportunity of being heard only in case of rejection of renewal application, that since the Respondent has not rejected the Appellant's application there was no need to give any personal hearing to the Appellant is difficult to accept. As noted earlier, in terms of regulation 12(1A) certificate of registration is issued to enable the entities stated therein, including DPs to buy, sell or deal in securities and the Appellant's renewal application is for permission for dealing in securities as a Depository Participant. The renewal sought for is for continuation of business. The permission sought for is not for transacting business only for the clients already under service, but for fresh business also through new clients. Since the Respondent has refused permission to do any fresh business by opening new accounts, that decision of the Respondent in my view tantamounts to rejection of the Appellant's request seeking renewal of certificate of registration to carry on its business activities as DP and as such it was incumbent on the Respondent to give an opportunity to the appellant to put forth its case, before arriving at a decision imposing such restraint on trade on the Appellant.
22. Learned representative of the Respondent had submitted that since there was ongoing investigations in respect of suspected market manipulation in the scrips of certain companies and the Respondent had called for certain information from the Appellant in that connection and as such it was decided not to disclose the reasons for imposing the impugned condition, is difficult to accept in the absence of any material from the Respondent's side to show that it had atleast prima facie reason to believe the involvement of the Appellant in the alleged "manipulation" which it was investigating. In this context it is noted that the procedure for investigation into market manipulation is provided in chapter III of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities) Market Regulations. The Respondent has failed to produce any evidence to show that investigation has been initiated against the Appellant. The investigation process commences, as per the said regulation on the Board appointing an investigating officer for the purpose. The Appellant's submission that only routine details were called for and the Appellant had furnished the same and the Appellant has not been served with any notice in any of the cases referred to by the Respondent is a matter required to be noted. If the requirement of issuing notice has been dispensed with, it has to be recorded. The Respondent has also admitted in its reply that the "Appellant was called upon to furnish certain information regarding investigation in some matters." It is difficult to appreciate the Respondent's version that since the Respondent had called for certain information from the Appellant in respect of certain investigations and therefore, in the interest of the investors in the securities market such an adverse condition was imposed. If such an adverse condition was really warranted, the logic in allowing the Appellant to carry on with its existing business and debarring it only from taking up fresh business is found unconvincing. If the Respondent was of the view that in the light of the material in its possession, the Appellant was found unfit to be allowed to operate or deal in securities in the interest of investors, instead of allowing to carry on the existing activities, the proper course would have been to refuse renewal, or hold on the decision on the application till such time the investigations are completed. In this context it is also noted that the Appellant is allowed to continue with its activities as Member of BSE, NSE and CSE and also as a DP in CDSL. If a person is found "not fit and proper", to act as a DP and do fresh business for the reason that he is not a fit and proper persons in the light of the ongoing investigation, how its activities as a broker or DP in CDSL can be allowed to continue undisturbed or for that matter how the Appellant was found fit and proper to carry on its existing activities as a DP in NSDL itself by granting renewal of registration as DP. The Respondent has not provided any explanation in this regard. The Respondent has not put forward any valid reason justifying the imposition of the impugned condition.
23. On a careful consideration of the material facts placed before me and applicable legal provisions stated above I am of the view that the impugned condition is unreasonable and the decision was taken in an unjust and unfair manner. Therefore, that part of the impugned order stipulating the condition that no new account shall be opened by the Appellant deserves to be set aside. I do so.
24. However, it is made clear that the Respondent No. 1 is at liberty to take suitable action against the Appellant, including suspension or cancellation of the certificates of registration granted to the Appellant in accordance with the regulations if there are sufficient reasons for such action.
25. The appeal is disposed of in the above lines.