At, SEBI Securities amp Exchange Board of India Securities Appellate Tribunal
By, THE HONOURABLE MR. JUSTICE TARUN AGARWALA
By, PRESIDING OFFICER & THE HONOURABLE DR. C.K.G. NAIR
For the Appellant: Vijay Sambrani, Authorised Representative. For the Respondent: Rashid Boatwalla, Rahul Jain, i/b Manilal Kher Ambalal & Co., Advocates.
Dr. C.K.G. Nair, Member
1. This appeal has been filed aggrieved by the order of the National Stock Exchange of India Limited (“NSE” for convenience) dated January 14, 2020 whereby, inter alia, the appellants’ membership has been suspended and subsequently effected from January 15, 2020.
2. The appellant is a registered partnership firm and is a Securities and Exchange Board of India (“SEBI” for convenience) registered trading member of NSE since 1995. The appellant was served with a show cause notice dated July 30, 2019 by NSE alleging various violations and directing it to show cause as to why action, including suspension and/or monetary penalty, should not be taken against the appellant for the stated alleged violations. The appellant in its reply dated August 19, 2019 assured full compliance with the NSE Rules and Regulations and requested to take a lenient view on some of the violations which inadvertently happened. Thereafter, the Member and Core Settlement Guarantee Fund Committee (“MCSGFC” for convenience) in its meeting held on December 20, 2019 passed an interim direction prohibiting the appellant from doing any new client registration which was communicated to the appellant vide NSE letter dated December 23, 2019. Thereafter vide impugned order dated January 14, 2020 a penalty of Rs.5,47,900/- has been levied on the appellant and ordered suspension of the appellant from the membership of the NSE in all segments from the date of this order till the appellant infuses fresh funds/ capital to recoup the shortfall of client funds reported in weekly enhanced supervision submissions and thereafter submits suitable evidence to the satisfaction of the Exchange at the earliest and not later than 45 days from the date of the order. Thereafter, on January 15, 2020 the suspension was effected.
3. It is the submission of Shri Vijay Sambrani, Managing Partner of the appellant, appearing on behalf of the appellant that the order suspending the operation of the appellant without any notice has come as a shock since the appellant was making all out efforts in enhancing its compliance systems and for infusing more funds. Since the suspension was effected from the very next day itself no option was available to the appellant in saving its business. Without going into the details regarding the merits of the case it is the submission of the authorised representative of the appellant that as an immediate relief the appellant may be allowed to operate his broking business to a limited extent which would make it feasible for bringing in more funds. He submitted that already some funds have been infused and by January 31, 2020 he would infuse Rs.1 crore more so as to reduce the outstanding shortfall to Rs.5.75 crores by that date and thereafter by the end of each month he would infuse Rs.1 crore each. Therefore, in effect by the end of six months the entire outstanding shortfall would be wiped out. He also submitted that the appellant may be allowed to operate subject to limits of trading in the cash segment of the Exchange alone till the shortfall is completely removed and if there is any interim increase in the shortfall suspension may be reimplemented. In short, the authorised representative seeks to keep the business alive though in a truncated way and subject to enhanced supervision of NSE and with a time bound plan of bringing down the shortfall in funds.
4. We have also heard Shri Boatwalla, learned counsel appearing for respondent NSE as well as perused the records produced before us. We note that there have been a number of charges against the appellant in the show cause notice many of which are sustained in the impugned order as well. We also note that as an interim direction the appellant was prohibited from registering any new clients. We are also told that the appellant is immediately willing to pay penalty amount of Rs.5,47,900/-. Moreover, the MCSGFC has given a window of upto 45 days time to implement necessary steps to the appellant to infuse funds to recoup shortfall of client funds. However, from the very next day of the impugned order suspension has been effected.
5. Given the above facts and circumstances and the assurance given by the Managing Partner of the appellant, we are of the considered view that some limited relief to the appellant is in the interest of justice. After all suspending or closing down the business of a broker is in nobody’s interest unless it is conclusively proved that the broker is working against the interest of the investors or that of the securities market. The main finding in this matter is relating to some shortfall of client funds reported in the weekly enhanced supervision. Though, this is a serious offence it may not require an immediate cessation of all activities of the appellant. At the same time, we are not inclined to give the relief in terms of the time lines as prayed by the appellant.
6. Accordingly, after considering all the factors and in the present facts and circumstances, we pass the following directions:-
a) Appellant shall pay the monetary penalty of Rs.5,47,900/- within one week.
b) If the appellant infuses Rs.1 crore funds and thereby reduce the shortfall from the current level of Rs.6.75 crores to Rs.5.75 crores by January 31, 2020 NSE shall allow the appellant to operate in the cash segment of the Exchange using one Terminal i.e. Terminal No. 5621.
c) Permission for the
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limited trading as at (b) above shall be subject to enhanced supervision of NSE and on the condition that it shall not result in any additional shortfall of client funds. d) Appellant shall recoup remaining shortfall of Rs.5.75 crores in two installments of Rs.3 crores by February 29, 2020 and Rs.2.75 crores by March 31, 2020. e) NSE shall be at liberty to re-impose the suspension or to take any other appropriate measures in case of failure of the appellant in complying with any of the aforesaid directions. 7. Appeal is disposed of on above terms with no orders on costs.<