2010 (7) TMI 1142 - Board - Companies Law

Summary

Issues Involved:
1. Whether the Noticee failed to exercise due care, skill, and diligence while executing trades for its clients, violating Clause A(2) of SBSB Regulations.
2. Whether the violations, if any, attract any monetary penalty u/s 15HB of SEBI Act.
3. Determination of the monetary penalty considering factors mentioned in Section 15J of SEBI Act, 1992.

Summary:

Issue 1: Failure to Exercise Due Care, Skill, and Diligence
Investigations by SEBI revealed that a group of connected clients traded significantly in the scrip of Karuna Cables Ltd. (KCL), leading to allegations against Indiabulls Securities Ltd. (Notice) for failing to exercise due care, skill, and diligence. The Notice argued that it had no reason to suspect its clients' intentions, as they had complied with KYC requirements and traded in various other scrips. The Notice also highlighted that it merely acted as an agent, executing trades based on client instructions without any proprietary trading in KCL.

Issue 2: Attraction of Monetary Penalty u/s 15HB of SEBI Act
The adjudicating officer considered whether the Notice's actions warranted a monetary penalty. The Notice contended that it had adhered to client instructions in the normal course of business and had no prior understanding with the connected clients to manipulate the scrip. The officer noted the absence of substantial evidence proving the Notice's involvement in manipulation or any connection beyond the client-broker relationship.

Issue 3: Determination of Monetary Penalty
The adjudicating officer examined the relevant legal provisions and case laws cited by the Notice. It was concluded that the Notice had acted reasonably and prudently, as required by law. The officer found merit in the Notice's submissions and determined that the charges of failing to exercise due skill, care, and diligence were not substantiated.

Conclusion:
The adjudicating officer concluded that the charges against the Notice did not stand established. Therefore, no monetary penalty was imposed. The decision was made u/s 15-I(2) of the SEBI Act, 1992, and a copy of the order was sent to the Notice and SEBI.