Aryav Securities Pvt. Ltd. vs Sebi

Date of Decision : 04.03.2016

Appeal No. 45 of 2016

Aryav Securities Pvt. Ltd. Unit 104, 1st Floor, Merlin Chambers, 18, British India Street, Kolkata - 700069. ...Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Prakash Shah, Advocate for the Appellant.

Mr. J.P. Sen, Senior Advocate with Mr. Anubhav Ghosh, Advocate i/b The Law Point for the Respondent.

WITH Appeal No. 46 of 2016

MKB Securities Pvt. Ltd. 3B, Lal Bazar Street, ...Appellant Basement, Room No. 3, Kolkata - 700001

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Bharat Redij, Advocate for the Appellant.

Mr. J.P. Sen, Senior Advocate with Mr. Anubhav Ghosh, Advocate i/b The Law Point for the Respondent. 2

WITH Appeal No. 47 of 2016 Geometry Vanijya Pvt. Ltd. 11, Clive Row, 5th Floor, Kolkata - 700001. ...Appellant Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Bharat Redij, Advocate for the Appellant.

Mr. J.P. Sen, Senior Advocate with Mr. Anubhav Ghosh, Advocate i/b The Law Point for the Respondent.

WITH Appeal No. 49 of 2016 Odyssey Securities Pvt. Ltd. 16, India Exchange Place, 3rd Floor, Room No. 30, Kolkata - 700001. ...Appellant Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Ketan, Rupari, Chartered Accountant for the Appellant.

Mr. J.P. Sen, Senior Advocate with Mr. Anubhav Ghosh, Advocate i/b The Law Point for the Respondent.

WITH Appeal No. 50 of 2016 N S Broking Pvt. Ltd. 115, Bangur Avenue, Block - C, Kolkata - 700055. ...Appellant Versus Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...Respondent

Mr. Ketan, Rupari, Chartered Accountant for the Appellant.

Mr. J.P. Sen, Senior Advocate with Mr. Anubhav Ghosh, Advocate i/b The Law Point for the Respondent. 3

CORAM : Justice J.P. Devadhar, Presiding Officer Jog Singh, Member

Per : J.P. Devadhar (Oral)

1.

Appeal Nos. 49 of 2016 and Appeal No. 50 of 2016 which are not on

Board are mentioned by counsel for appellants for urgent relief. Since the

issue raised in these two appeals are similar to the issues raised in Appeal

No. 45 of 2016, 46 of 2016 and 47 of 2016 which are on Board, all these

appeals are heard together and disposed of by this common order.

2. In all these appeals, the appellants have challenged the ex-parte

ad-interim order passed by the Whole Time Member ('WTM' for short) of

Securities and Exchange Board of India ('SEBI' for short) on

February 17, 2016. By the said order 22 stock brokers including appellants

herein have been restrained from buying, selling or dealing in the securities

markets, either directly or indirectly, in any manner, except as a stock broker

for their existing clients in the cash segment until further orders.

3. Out of 22 stock brokers covered under the ex-parte order dated

February 17, 2016 eight stock brokers had filed appeals bearing number 11

to 18 of 2016 and by our order dated February 25, 2016 we had quashed the

said ex-parte order dated February 17, 2016 qua the eight appellants therein.

For the reasons stated in the said order, we are inclined to quash and set

aside the impugned order dated February 17, 2016 qua the appellants herein.

4. However, counsel for SEBI while submitting that the order passed by

this Tribunal on February 25, 2016 would squarely apply to the present

appeals, sought time to file an affidavit with a view to place on record that

the total turnover of each appellant set out in the respective appeals are

erroneous. Further, relying on a decision of the Apex Court in the case of 4 Securities and Exchange Board of India v. Kishore R. Ajmera (Civil Appeal

No. 2818 of 2008 decided on February 23, 2016) counsel for SEBI

submitted that in the facts of present case, ex-parte ad-interim order passed

by the WTM of SEBI cannot be faulted.

5. We see no merit in the above contentions raised on behalf of SEBI

for the following reasons:-

(a) In the order of this Tribunal dated February 25, 2016 'total

turnover' has not considered as the relevant criteria for

quashing the ex-parte order of SEBI dated February 17, 2016

qua the eight appellants therein. Therefore, assuming that

there is some error in the total turnover set out in the

respective appeals, the said error would have no bearing in

disposing of these five appeals based on the aforesaid decision

of this Tribunal dated February 25, 2016.

(b) Decision of the Apex Court in case of Kishore R. Ajmera

(supra) does not support the case of SEBI because, firstly, in

that case, action was taken against Kishore R. Ajmera (the

stock broker) only after completing the investigation, whereas,

in the present case, ex-parte order is passed against appellants

even though the investigation is going on. Secondly, the Apex

Court in that case has held that the broker cannot be held

liable merely because the broker knew that the clients were

related entities and that the volume of trades executed by those

clients was significant. In the present case, even though there

is no material on record to suggest that appellants were aware

that the trades executed by them on behalf of the clients were

non genuine reversal trades, ex parte order is passed against 5

the appellants solely based on the volume of reversal trades

executed by the said clients through the appellants as brokers.

Thus, the aforesaid decision of the Apex Court instead of

supporting the case of SEBI supports the case of the appellants

that SEBI cannot pass any order much less an ex-parte order

against the brokers (appellants herein) solely on the ground

that the clients have allegedly executed large volume of

unnatural reversal trades through the appellants.

6. Apart from the above, as noted in our order dated February 25, 2016,

although SEBI by its order dated August 20, 2015 has restrained 59 clients

who allegedly made loss/profit in excess of Rs.5 crore by executing

unnatural reversal trades through 18 brokers, by the impugned order dated

February 17, 2016, SEBI has sought to restrain in all 22 brokers including

11 out of 18 brokers whose clients have been restrained from entering the

securities market by order dated August 20, 2015. The decision of SEBI in

not passing any order against 7 brokers out of 18 brokers whose clients have

allegedly made unnatural profit/loss exceeding Rs.5 crores is without any

justification. If SEBI considers that 7 brokers need not be restrained from

entering the securities market even though their clients indulged in unnatural

reversal trades, then, there is no reason for not applying the same yardstick

in case of appellants. Thus, the decision of SEBI in passing the ex-parte

order against the brokers solely based on the quantum of alleged unnatural

trades executed by their clients is not only contrary to the decision of the

Apex Court in case of Kishore R. Ajmera (supra) but also tends to

discriminate between the brokers who are similarly situated.

7. It is impossible to believe that the impugned order is passed in the

interest of investors, because even after holding that 11228 clients of 22 6

brokers (see Table-2 in the impugned order) have allegedly indulged in

unnatural reversal trades with a view to make unnatural profits/loss, the said

11228 clients are permitted to carry on trades in the securities market

whereas, the said 22 brokers are being restrained from entering the securities

market even though there is not an iota of evidence to suggest that the said

brokers were aware of the fact that their clients were indulging in reversal

trades with a view to make unnatural profit/loss. If SEBI considers that the

clients who have allegedly indulged in unnatural reversal trades need not be

restrained from entering the securities market by passing ex-parte order,

then, there is no reason as to why the brokers of those clients should be

restrained from entering the securities market by passing an ex-parte order.

8. Accordingly, for the aforesaid reasons and for the reasons set out in

our order dated February 25, 2016, we set aside the ex-parte ad-interim

impugned order of SEBI dated February 17, 2016 qua the appellants herein.

9. We further make it clear, that quashing the impugned order qua the

appellants herein would not come in the way of SEBI to initiate proceedings

against them in accordance with law and pass orders as it deems fit.

10. All the appeals are disposed of in the above terms with no order as to

costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

04.03.2016 Prepared and compared by:

MSB/RHN