2015 (10) TMI 1717 - AT - Companies Law

Penalty for Violation of SEBI Circular read with Clause A(2) of the Code of Conduct; Regulation 15 of Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Regulations, 1992 Whether 4 terminals, out of terminals granted, at 3 locations were allotted to ultimate clients in contravention to said regulations? Held That - Terminals under issue not managed by authorized employee or by sub-broker himself - Appellant found guilty of violating the Circular as well as the Code of Conduct and norms prescribed under Stock Brokers and Sub - Brokers Regulations, 1992 Penalty imposed is not unjustified Appeal dismissed.

Summary

Issues:
Challenge to penalty imposed for violation of SEBI Circular and Code of Conduct under Stock Brokers Regulations.

Analysis:
1. The Appellant contested a penalty of &8377; 3 lac imposed for breaching SEBI Circular dated 22nd October, 2001 and Code of Conduct under Stock Brokers Regulations. The investigation revealed the Appellant's failure to adhere to prescribed business conduct. A show-cause notice was issued, and the Appellant denied the allegations.

2. The Adjudicating Officer, after a thorough inquiry, found that 4 out of 20 terminals allotted to the Appellant were given to ultimate clients, violating SEBI Circular and regulations. The Appellant argued that terminals were managed by professionals on contract basis, but the Circular clearly restricts terminals to specific locations.

3. The Tribunal analyzed the Circular and upheld the violation, emphasizing the need for proper control over terminals. The Appellant was found guilty of breaching the Circular and Code of Conduct. Reference was made to Circular No.163 dated 20th April, 2000 by the National Stock Exchange, reinforcing the requirement for terminals to be under direct control of authorized personnel.

4. The Appellant's contention that the penalty was unjustified was dismissed. The Adjudicating Officer considered various factors and imposed a token penalty of &8377; 3 lacs. The Tribunal highlighted the absence of quantifiable figures to assess disproportionate gain, but noted the turnover from the terminals in question.

5. Ultimately, the Tribunal dismissed the Appeal, emphasizing the Appellant's allowance of ultimate clients to operate terminals meant for sub-brokers or authorized employees. The decision underscored the importance of adhering to SEBI Circular and regulations, urging caution in permitting and monitoring terminal operations.

Conclusion:
The Tribunal upheld the penalty imposed on the Appellant for violating SEBI Circular and Code of Conduct under Stock Brokers Regulations, emphasizing the need for strict adherence to prescribed business practices and control over trading terminals. The Appeal was dismissed, with no costs awarded.