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Shree Naman Securities & Finance Pvt. Ltd. v/s National Stock Exchange of India Ltd. Exchange Plaza

    Misc. Application No. 304 of 2020 (Stay Application) & Appeal No. 290 of 2020

    Decided On, 10 March 2021

    At, SEBI Securities amp Exchange Board of India Securities Appellate Tribunal


    For the Appellant: J.J. Bhatt, Rinku Valanju, Pratham Masurekar, Hetal Joshi, Aditya Shah, Advocates i/b R V Legal. For the Respondent: Venkatesh Dhond, Senior Advocate, Rashid Boatwalla, Rahul Jain, i/b MKA & Co., Advocates.

Judgment Text

Dr. C.K.G. Nair, Member

1. Vide order dated August 25, 2020, the Member and Core Settlement Guarantee Fund Committee (“MCSGFC”) of the National Stock Exchange of India Limited (“NSE” for short) imposed monetary penalty of Rs. 21,77,200/- (Rupees Twenty-One Lakhs Seventy-Seven Thousand Two Hundred Only) and one day suspension from the Futures & Options segment (“F&O segment”) and Commodity Derivative segment (“CD segment”) of the NSE on the appellant. This appeal has been filed aggrieved by these directions.

2. A perusal of the impugned order would show that ten specific violations have been noticed by the joint inspecting team of the NSE and other stock exchanges etc. conducted for the period April 01, 2018 to May 31, 2019. These violations/ non-compliance and penalty/action against each of these violation/ non-compliance are tabulated at pages 15-16 of the impugned order. Since these non-compliances have been admitted by the appellant and the appellant is mainly seeking remedy on one of the violations on account of disproportionality we do not propose to detail the non-compliances, action taken etc. therein. The main violation and the action taken agitating the appellant is at Sr. No. 3 in the table relating to incorrect reporting of margin collected from clients. On this violation a monetary penalty of Rs. 18,54,800/- and one day suspension from the F&O segment and CD segment have been ordered by the MCSGFC.

3. It is the contention of the learned counsel Shri J. J. Bhatt, appearing for the appellant that the charge is not that no margin has been collected from the clients’ concerned but there is a shortfall in the margin collected to the tune of 6.27 lakhs in the F&O segment and 12.28 lakhs in the CD segment. He further contends that even these shortfalls from a few clients have been received the next day from most of the clients and within 3 days from the rest. It is also contended that the impugned order itself records that the appellant has sufficient net worth of more than Rs. 1 crore at the relevant time which means that the small sums of delayed margin collection from a few clients would not result in any undue risk or settlement default etc. Therefore, the learned counsel contends that the amount of monetary penalty as well as one day suspension is disproportionate to this minor technical violation. He also relied upon an order of this Tribunal in the matter of Bezel Stock Brokers Private Limited vs. National Stock Exchange of India (Appeal No. 294 of 2018 decided on 30.01.2019) to emphasise that the impugned order suffers from grave disproportionality in its directions.

4. The learned senior counsel Shri Venkatesh Dhond, appearing on behalf of the respondent NSE, on the other hand, contends that the violation has been noticed during inspection; not disclosed by the appellant itself and as such the appellant had tried to hide this violation and therefore the penalty has to be full in terms of the relevant provisions which has been done in the instant case. It was further contended that imposition of only the monetary penalty, without the concomitant provision of suspension, does not act as a necessary deterrent needed for brokerages to follow the rules and regulations thoroughly. Hence, given that the appellant failed to disclose the correct details of margin collected and therefore made false declaration which was detected only during a comprehensive inspection and the fact that the appellant had admitted to the violation and there are nine other violations as well the penalty (both monetary and one day suspension) imposed on the appellant is necessary to send the right signals.

5. Having heard the submissions made by the learned counsel for the parties and perusing the documents produced before us, we are of the considered view that in the given facts of the case the penalty imposed is rather harsh and disproportionate. It is admitted that the appellant did not make the correct disclosure at the relevant time. But at the same time, we note that the shortfall in the margin collected are small amounts of Rs. 6,26,642 (Rs. 6.27 lakhs i.e. 0.14%) and Rs. 12,28,138 (Rs. 12.28 lakhs i.e. 14.25%) which is a negligible proportion of the total margin needed to be collected and the appellant had sufficient net worth. Given these undisputed facts, as a first time step, the monetary penalty imposed is sufficient to impart justice in the matter. However, we make it clear that any repetition of such violations could entail the full force of the applicable law.

6. Accordingly, the appeal is partly allowed. Monetary penalty imposed is sustained; direction on one day suspension is quashed. Consequently, Misc. Application No. 304 o

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f 2020 is also disposed of. 7. 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.