2013 (12) TMI 1475 - AT - Companies Law

Penalty u/s 15HB & Section 15A(a) of SEBI Act, 1992 - Charges of trading as sub-broker with out registration - Non compliance of summons - Held that - Charges of trading as sub-broker with out registration - Firstly appellant had commenced trading on behalf of her clients admittedly w.e.f. 15th December, 2006 i.e. prior to making application for registration as sub-broker on 18.12.2006 which was not even permitted under 1992 Rules. Secondly, 1992 Rules have been rescinded by notification dated 07.09.2006 w.e.f. 07.09.2006. Therefore, appellant who had applied for registration as sub-broker on 18.12.2006 could not have carried on trade as sub-broker neither under SEBI (Stock-Broker and Sub-Broker) Regulations, 1992 ( 1992 Regulations for short) nor under 1992 Rules which was rescinded w.e.f. 07.09.2006. Therefore, the decision of AO that the appellant had traded as sub-broker in violation of Regulation 11(1) of 1992 Regulations which prohibits trading in securities without being registered as sub-broker, cannot be faulted. Non compliance of summons - First ground of AO that the appellant failed to furnish copy of income tax returns for Assessment Year 2006-2007 is contrary to facts on record, because, from appellant s letter dated 07.09.2009 , it is seen that the appellant had forwarded the income tax return for Assessment Year 2006-2007 along with letter dated 07.09.2009. No grievance was made at any time by the investigating authority that the letter dated 07.09.2009 was received without income tax return for Assessment Year 2006-2007. Also it is evident that certain documents which were specifically sought through the summonses have not been furnished. Counsel for appellant could not demonstrate that all the documents were in fact furnished by the appellant. In these circumstances, finding of AO that the appellant failed to furnish documents inspite of serving summonses cannot be faulted. - However since AO has erroneously held that the appellant has failed to furnish income tax return for Assessment Year 2006-2007, in our opinion, it would be just and proper to sustain penalty under Section 15A (a) to the extent of ₹ 1 lac. - Decided partly in favour of the appellant.

Summary

Issues:
1. Imposition of penalty under Section 15HB of SEBI Act for trading as a sub-broker without registration.
2. Imposition of penalty under Section 15A(a) of SEBI Act for non-compliance of summonses.

Analysis:
1. The appellant was penalized for trading as a sub-broker without being registered and for non-compliance with summonses issued by SEBI. The appellant had applied for registration as a sub-broker but started trading for clients before the application was approved. The tribunal found that the appellant's actions violated Regulation 11(1) of the SEBI Act, prohibiting trading without registration. The penalty imposed under Section 15HB of the SEBI Act was deemed reasonable given the seriousness of the offense.

2. Regarding the penalty under Section 15A(a) of the SEBI Act for non-compliance with summonses, the appellant was accused of failing to provide various documents, including income tax returns and bank statements. The tribunal noted that while the appellant had submitted some documents, crucial ones were missing. The penalty of Rs. 2 lac was challenged, arguing that the appellant had submitted the income tax return for the relevant year. The tribunal found the penalty justified for the other documents not furnished, reducing it to Rs. 1 lac due to the error in assessing the income tax return submission.

3. The appellant contended that since no gain or loss occurred, and the business was closed, the penalties were unwarranted. However, the tribunal clarified that penalties under the SEBI Act are not solely based on financial gains or losses but also on violations of regulations. Citing a previous case, the tribunal emphasized that penalties can be imposed even without unlawful gains or investor losses. The penalties imposed on the appellant were considered nominal given the violations. The tribunal partially allowed the appeal, reducing the penalty under Section 15A(a) to Rs. 1 lac and upholding the penalty under Section 15HB.

4. The appellant was directed to pay the penalties within four weeks, failing which SEBI would be entitled to recover the amounts with interest. The appeal was disposed of with no order as to costs.