2012 (9) TMI 1114 - AT - Companies Law

Violation of SEBI provisions - deficiencies with regard to manipulation of records and in the functioning of the appellant - investigation - Held that - The purpose of carrying out inspection is not punitive and the object is to make the intermediary comply with the procedural requirements in regard to the maintenance of records. We have also observed that every minor discrepancy/irregularity found during the course of inspection is not culpable and the object of the inspection could well be achieved by pointing out the irregularities/deficiencies to the intermediary at the time of inspection and making it compliant. As per the observations made by the adjudicating officer himself, the violations committed by the appellant are mostly technical in nature; some of them are solitary instances and for others the appellant has mostly taken/initiated corrective measures. In view of this, we are of the view that the adjudicating officer was not justified in taking punitive action.

Summary

Issues:

1. Violations by the appellant related to manipulation of records and functioning observed during inspection by the Board.
2. Imposition of penalty by the adjudicating officer under sections 15F & 15HB of the Act and section 19G of the Depositories Act, 1996.
3. Examination of the nature of violations and the appropriateness of punitive action by the adjudicating officer.
4. Comparison with a previous case to determine the purpose of inspection and the approach towards minor discrepancies.

Analysis:

The case involved an appeal by a subsidiary of Delhi Stock Exchange Limited, registered as a stock broker and depository participant, against a penalty imposed by the Board for violations discovered during an inspection. The Board found deficiencies in record maintenance and functioning, leading to the imposition of a penalty of `4 lacs under relevant Acts and regulations. The adjudicating officer's order was based on these violations, prompting the appeal by the appellant.

Upon review, the Appellate Tribunal noted the observations made by the adjudicating officer, highlighting that the violations were mostly technical in nature and did not result in unlawful gains or repetitive non-compliances. Drawing from a previous case, the Tribunal emphasized that the purpose of inspections is not punitive but aimed at ensuring compliance with procedural requirements. It was emphasized that not every minor discrepancy is culpable, and the inspection's objective could be achieved by guiding the intermediary to rectify irregularities during the inspection itself.

Considering the technical nature of the violations, the Tribunal concluded that the adjudicating officer's punitive action was unwarranted. Citing the lack of unlawful gains and the corrective measures taken by the appellant, the Tribunal set aside the impugned order and allowed the appeal, with no costs imposed. This decision was based on the understanding that the violations were minor and technical, with the primary goal of ensuring compliance rather than punitive measures.