At, SEBI Securities Exchange Board of India Securities Appellate Tribunal
By, CORAM: JUSTICE KUMAR RAJARATNAM
By, PRESIDING OFFICER
By, N.L. LAKHANPAL
Appellant – Represented by: Mr. P.N. Modi, Sr. Advocate & Mr. Sagar Divekar, Advocate. Respondent – Represented by: Ms. Deepa Kuruvilla, Advocate.
Per: N.L. Lakhanpal, Member
1. The appeal was taken up for final disposal with consent of parties.
2. The impugned order dated 10.9.2004 reads as follows:-
“Therefore, I, in exercise of powers conferred on me vide Regulation 13(4) of the enquiry regulations read with Section 4(3) of the SEBI Act do hereby warn M/s. Indsec Securities & Finance Ltd. to be more careful in future while undertaking transactions in securities on behalf of their clients. I also advise them to note that any future lapse on their part in complying with the requirements of the Code of Conduct for stock brokers would invite stringent action.”
3. It is common ground that the appellants were charged with having entered into synchronized deals with ICICI Brokerage Services Ltd. (hereinafter referred to as “IBSL”) in order to buy shares of Global Trust Bank Ltd. on behalf of their clients. An enquiry officer was appointed to go into the conduct of the appellant as well as IBSL and the enquiry officer had recommended suspension of their registration for a period of 4 months. Yet by its order dated 9.9.2004 SEBI exonerated IBSL and on the next day passed an order against the appellants warning them to be careful in future on the charge of violation of clause A(2) of the code of conduct for stock brokers prescribed under Regulation 7 of the Broker Regulations. Clause A(2) enjoins upon a stockbroker to act with due skill, care and diligence in the conduct of all his business. The respondent has arrived at this finding of lack of care and diligence on the basis of the following reasoning.
“I have noted the submissions of the said broker that they acted as per the instructions of their clients; however, in doing so, they were also required to comply with statutory requirements such as the Code of Conduct. As intermediaries in the stock market, a duty was cast on them to refrain from facilitating manipulative activities in the market. The manner and pricing of the transactions should have alerted the said broker to the possibility of market manipulation and they should have advised their clients against continuing the said transactions in the said manner; but they failed to do so.”
4. At the time of hearing the learned counsel for the appellant pointed out that “manner “ of transactions can only refer to the alleged synchronization of trades on which the respondent has given a finding of not guilty. Regarding pricing, the learned counsel argued that when the respondent had categorically held that there was no price manipulation there was no question of any lack of due skill, care or diligence. As against this, the learned counsel for the respondent argued that the respondent had assessed the facts logically and objectively and had exonerated IBSL while issuing a mere warning to the appellant to be more careful in future in observance of the code of conduct and that there was no cause for this Tribunal to interfere.
5. We are inclined to agree with the learned counsel for the respondent and we would normally hesitate to interfere in cases which result in the issue of a mere warning after the entire due process has been gone through. This is so despite the fact that warning is a formal penalty under Regulation 13(1)(a) of SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 and hence appealable before us. However, in the present case the appellant has filed an affidavit stating that this warning would result in cancellation of 90% of his business because the institutional clients insist on dealing with brokers who have an absolutely clean record. We also find that when the main charge of synchronization has failed there is no question of expecting the broker to have been alerted to the possibility of market manipulation because of the manner and pricing of the transactions. There is also a categorical finding in the impugned order to the effect that there was no price
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manipulation. Besides, the counter-party in the impugned transactions namely, the IBSL has been exonerated by SEBI in a separate order. It is self-evident that on a charge of synchronization, it is not possible to punish one side while exonerating the other. 6. In the circumstances, we find the impugned order to be unsustainable. Accordingly, the appeal is allowed and the impugned order is set aside. No order as to costs.