At, SEBI Securities amp Exchange Board of India Securities Appellate Tribunal
By, THE HONOURABLE MR. JUSTICE TARUN AGARWALA
By, PRESIDING OFFICER & THE HONOURABLE MR. JUSTICE M.T. JOSHI
By, JUDICIAL MEMBER
For the Appellant: Abhishek Venkatraman, KRCV Seshachalam, Sabeena Mahadik, Pankaj Uttaradhi, Aayush Kothari, i/b. Visesha Law Services, Advocates. For the Respondent: Pradeep Sancheti, Senior Advocate, Rashid Boatwalla, Dhruv Jadhav, i/b. MKA & Co., Advocates.
Tarun Agarwala, Presiding Officer
1. The present appeal has been filed against the order dated 2nd March, 2021 passed by the Member and Core Settlement Guarantee Fund Committee of the National Stock Exchange of India Ltd. (hereinafter referred to as “NSE?) imposing a penalty of Rs.7,05,600 for violation of shortfall of client funds and false reporting of margin collected from clients of NSE in F&O Segment.
2. The appellant is a stock broker and is in the business of stock broking for 35 years. A show cause notice dated 11th August, 2020 was issued alleging that there was a shortfall of funds to pay off its creditors as on 10th July, 2020 to the tune of Rs.6.57 crores and that there was false reporting of margin collection to the Exchange in the F&O Segment. Other violations were also indicated which we are not concerned in the present appeal.
3. The committee after considering the replies and after considering the material evidence on record found that there was shortfall of funds to pay off its creditors and that there was a false reporting of margin and, consequently, levied a penalty of Rs.6,57,000 and Rs.48,600 respectively.
4. We have heard Mr. Abhishek Venkatraman, Advocate assisted by Mr. KRCV Seshachalam, Ms. Sabeena Mahadik and Mr. Pankaj Uttaradhi and Mr. Aayush Kothari, Advocates for the appellant and Mr. Pradeep Sancheti, Senior Advocate assisted by Mr. Rashid Boatwalla and Mr. Dhruv Jadhav, Advocates for the Respondent.
5. The learned counsel for the appellant has confined his argument only on the issue of shortfall of client funds and submitted that admittedly there was a shortfall of clients? funds but submitted that the said shortfall happened on account of exigencies which was beyond its control. It was submitted that the shortfall occurred on July, 2020 during the peak of Covid 19 pandemic and the lockdown declared by the Government of India. It was contended that as a result of this pandemic the credit facility which was granted by the ICICI Bank was not extended and this resulted in the shortfall of the client funds. It was also contended that the shortfall was recouped within six months by January, 2021 by mortgaging certain properties. It was, thus, contended that a lenient view should have been taken by the committee.
6. On the other hand, the learned senior counsel appearing for the respondent drew our attention to the appellant’s letter dated 25th August, 2020 and submitted that as per the said letter the shortfall had started in January, 2020 when there was no pandemic.
7. We are unable to appreciate the submissions of the respondent’s counsel. The respondent cannot take advantage of a letter written by the appellant in response to the show cause notice. The show cause notice clearly alleges that there was a shortfall of clients? funds on 10th July, 2020 to the tune of Rs.6.57 crores. The explanation given by the appellant that credit facilities was not extended by ICICI Bank has not been disputed. The fact that this credit facility crunch occurred during the peak of the pandemic has also not been disputed. We take judicial notice of the fact that during the pandemic period the appellants made efforts to recoup the clients? securities and the shortfall was removed in January, 2021 by mortgaging its properties. Needless to say that it is not easy to mortgage properties during the pandemic period.
8. The Supreme Court in Hindustan Steel vs. State of Orissa [(1969) 2 SCC 627] held-
“whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute.”
9. Considering the aforesaid, we are of the opinion that in the given circumstances which shall not be treated as a precedent, a liberal approach should have been adopted by the respondent instead of applying the circulars mechanically. Consequently, while affirming the violation we reduce the penalty in the given circumstances from Rs.7,05,600 to Rs.3,50,000.
10. For the reasons stated aforesaid the appeal is partly allowed. The penalty of Rs.7,05,600 to Rs.3,
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50,000. 11. 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.