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TMI Blog2019 (11) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... ember 15, 2015 the Whole Time Member ('WTM' for short) of Securities and Exchange Board of India ('SEBI' for short) has ordered the suspension of registration of the appellant, who is a broker with the National Stock Exchange of India Limited ('NSE' for short), for a period of one year. This appeal has been filed aggrieved by the said order. 2. Facts relevant to the matter are the following:- (a) Officials of SEBI and NSE conducted a joint inspection of two branch offices of the appellant in Aligarh, U.P. and registered office in Delhi during January - February 2005. These inspections brought out a number of irregularities in the functioning of the appellant as a stock broker. The inspection report was submitted on June 20, 2005. A cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the appellant for a period of one year. The main findings in the impugned order are that the appellant had committed grave violations, including allowing unregistered entities and clients to operate the trading terminals allotted to it by the NSE; aiding and abetting unregistered entities to function as sub-brokers by issuing contract notes carrying several client codes to such unauthorized persons such as BGSPL; failing to collect daily margins from its clients or collecting margins less than the required amount under the law, reporting of false information regarding such margins collection to the NSE; delay in remitting dividends to its clients; failing to maintain a proper segregation between its own funds and its clients fund e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees of BGSPL might have been in the premises for doing BGSPL's own work. Salary slips or bank statements could not be produced because the Aligarh office of the appellant was closed since about 2005. Therefore, it was wrong to allege that there was mismatch between the trade logs in the books of account of the appellant as well as stock exchange data. The diaries / manual registers found in the premises were also not of the appellant. 4. Further, on the allegation of not separating or intermingling appellant's own account with client accounts and thereby violating SEBI circular dated November 18, 1993 the learned senior counsel contended that these payments were paid from appellant's own account for various services rendered by some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from hired premises, some of them belonging to its clients. However, all the premises were taken on rent and were operated by appellant's own employees. Therefore, for some minor technical violations penalty of one year suspension of registration of the appellant is too harsh. Effectively, one year suspension of a broker's registration is like capital punishment because during such a long period all clients would move away and the business has to be closed. Given the fact that appellant has 26 sub brokers in 10 cities and 200 employees, such a harsh order will affect not only the appellant's own business but lead to large number of unemployment. Moreover, the fact that during the last 13 years the appellant was not found wanting in its func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Sharma, who is stated to be the landlord. Similarly, on account codes mismatch details relating to 192 such clients are on record in Volume-I of the appeal memo. Effectively, the appellant was using a system of unauthorized sub broker which is a serious offence. 8. On a detailed hearing of the matter and perusal of all the records we feel that the contentions of the appellant are more in the nature of explanations or justifications rather than proof of no violations. Even if it is assumed that the branch offices of the appellant were operating in hired premises and some of the premises were taken on lease from clients and some of these premises had other brokers or entities also functioning do not absolve the appellant from serious defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p later is not germane to the matter because what is relevant is whether they were certified sub brokers at the relevant time. Therefore, given these major violations we do not find any fault in penalizing the appellant with an order of suspension. 10. However, given the undue delay in passing the impugned order during which substantial positive changes have happened in broker operations, procedures and technology on account of continuous changes in regulations, regulatory practices and market dynamics many of the violations of the past era would look magnified now. The instant violations in 2005 therefore would look very serious when compared with the practices in 2015 as a decade of development in the securities / financial markets co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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