SEBI - CASE STUDY ABOUT ARBITRARY PENALTY LEVIED and harassment of some of small self-employed traders and investors selected based on inquiry for some of periods only.

[DEV KUMAR KOTHARI]

Under SEBI (Prohibition of Fraudulent and Unfair Trading Practices related to Securities Markets) Regulations 2003 ( “PFUTP Regulations,2003”).

From the website of SEBI relevant information have been collected from orders and analysed to find that the penalty levied on small innocent traders or investors are very high and arbitrary. In this case study   

Noticee is Shri Ajay Kumar Baid to whom SCN/ show cause notice no. OIAE/IGRD/MJS/19733/2021 Dated 17^th August 2021 was issued.

It has been mentioned in order of AO that after finality of enquiry for the above period appropriate action was initiated against 14, 720 entities in a phased manner and for this reason it is considered that SCN was issued within reasoanble time and is not time barred.

Broker was  Giriraj Stock Broking Pvt. Ltd.

AO: ADJUDICATING OFFICER, SEBI who passed the order.  ADJUDICATION ORDER NO.: OIAE/IGRD/AO/MS/GK/2021-22/15730 against which  now noticee has  preferred  appeal before SAT.

ACT or SEBI Act: THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.

Alleged counter party:  Wonderland Paper Suppliers Private Limited 

S/E or stock exchange: Bombay Stock Exchange / BSE

IP – Inquiry Period and subject matter:

Trading activities of certain entities in ISO, BSE , Derivatives alleged to be Illiquid, for period April 1, 2014 to September 30, 2015

SCN is after about seven years from last date of enquiry period. This should be considered barred by limitation by way of reasonableness.

SCN  is  for alleged violation of  Regulations 3(a),(b),(c) and 4(1),4(2)(a) of regulations. The SCN is an omnibus notice not specifying any particular clause of provision alleged to be violated and amount of penalty intended to be levied. 

There is no evidence that the noticee  know and have  direct or indirect relationship or any connection with the counterparty .

Amount of penalty levied  has no basis. On consideration of  volume of transactions of  noticee , counter party and brokers, NIL  penalty imposed on Brokers and amount of penalty imposed on Counter party the amount of penalty imposed on  noticee is arbitrary , unjust and illegal.

1. In the following table for the same Inquiry period (IP)  and Inquiry matter details of trades and penalty in case of appellant, counter party and broker are summarized.

DESCRIPTION	IN CASE OF APPELLANT AJAY BAID	IN CASE OF COUNTER PARTY	In case of Giriraj Stock Broking (P) Ltd –Broker of  Appellant
SCN for Penalty proceeding  under section And order	S.15HA rws 15I and 15J SCN Alleged violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2) (a) of PFUTP Regulations, 2003? Penalty levied  for the violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2) (a) of the PFUTP Regulations	S.15HA rws 15I and 15J SCN Alleged violation of Regulations 3(a), (b), (c), (d), 4(1), 4(2)(a) of PFUTP Regulations? Penalty levied for violation of regulations 3(a), (b), (c) and (d), 4(1), 4(2)(a) of PFUTP Regulation	Under sections 11(1), 11(4) and 11B and section 12A(a), (b) and (c)
DATE ORDER	30.3.2022	25.02.2019	Vide ad interim order dt. 17.02.2016 AO SEBI imposed some restrictions but that order was  quashed and set aside by SAT vide order dt. 14.03.2016. so no penalty or penal action has been taken against brokers.
Order no.	ADJUDICATION ORDER NO.: OIAE/IGRD/AO/MS/GK/2021-22/15730	ADJUDICATION ORDER NO. EAD-9/ AO/SM/ 240 /2018-19]	WTM/RKA/ISD/ 25/ 2016
Number of trades	1 buy and 1 sale with one counter party all alleged to be non-genuine	100 trades out of which 92were alleged to be non-genuine
	2 trades	92 trades
	2,12,000 units	14890000 units
	in one stock option	in 39 stock option
Penalty imposed	Rs.5 lakh	Rs.7.20 lakh	Nil
Security	FEDB15JUL125.00PEW4
Investigation matter and period	illiquid Stock Options segment at the BSE for the period April 01, 2014 to September 30, 2015	trading activities of certain entities in ISO, BSE for period April 1, 2014 to September 30, 2015	Trading in stock options segment for the period April 1, 2014 to March 31, 2015
Penalty per Trade work out	Rs.2,50,000	Rs.7826	NIL

The above table  shows arbitrariness in  levy of penalty in case of noticee  which is Rs.2,50,000/- per trade whereas Rs.7826/- per trade in case of the  counter party. The Broker has been absolved of any charges and no penalty has been imposed on him and other brokers, as per information gathered.

It is also observed from orders of  AO on website and SAT that in many cases, AO has not imposed any penalty in cases of SCN issued to similar noticee

This only shows case of harassment of self-employed small traders and investors like noticee.

Feed back and views of learned reades are welcome.