Asit C. Mehta Investment ... vs Sebi

Date of Hearing: 25.7.2022 Date of Decision: 03.1.2023

Appeal No.92 of 2021

Asit C. Mehta Investment Interrmediates Ltd. "Nucleus House", 5th Floor, Saki Vihar Road, Andheri (East), Mumbai - 400 072. ...Appellant

Versus

Securities and Exchange Board of India SEBI Bhawan, C4-A, G Block, Bandra-Kurla Complex, Bandra (E), Mumbai - 400 051. ...Respondent

Mr. Abishek Venkattraman, Advocate with Mr. Aayush Kothari, Advocate i/b. Visesha Law Services for the Appellant.

Mr. Akshay Kolse Patil, Advocate with Ms. Nidhi Singh, Ms. Binjal Samani, Ms. Aditi Palnitkar and Ms. Moksha Kothari, Advocates i/b. Vidhii Partners for the Respondent.

CORAM: Justice M.T. Joshi, Judicial Member Ms. Meera Swarup, Technical Member 2

Per: Justice M.T. Joshi, Judicial Member

1. Aggrieved by the direction of the learned Adjudicating

Officer („AO‟ for short) dated 30th December, 2020

imposing a penalty of Rs.7 lakhs under Section 15HB of

the Securities and Exchange Board of India Act, 1992

(hereinafter referred to as „SEBI Act‟) and Section 23D of

the Securities Contracts (Regulation) Act, 1956 and for

violation of Clause A(2) of the Code of Conduct specified

in Schedule II read with Regulation 9(f) of the Securities

and Exchange Board of India (Stock Brokers) Regulations,

1992 (hereinafter referred to as „Stock Brokers

Regulations‟), the present appeal is preferred.

2. The appellant is a stock broker. Securities and

Exchange Board of India (hereinafter referred to as

„SEBI‟) conducted multi-theme inspection of the records

of the appellant in the year 2015 for the period between 1st

April, 2012 to 30th September, 2015. During inspection it 3

found various irregularities. It was found that the

appellant failed to settle the funds and securities of its

clients, misused the client funds and, therefore the penalty

was imposed.

3. We have heard Mr. Abishek Venkattraman, Advocate

assisted by Mr. Aayush Kothari, Advocate for the

appellant and Mr. Akshay Kolse Patil, Advocate assisted

by Ms. Nidhi Singh, Ms. Binjal Samani, Ms. Aditi

Palnitkar and Ms. Moksha Kothari, Advocates for the

Respondent.

4. Show cause notice was issued by the respondent SEBI

dated 16th September, 2020 giving the details of the breach

said to have been committed by the appellant. The main

charge was of misuse of clients‟ funds. Respondent SEBI

had inspected 45 cases on sample basis. In all these

sample cases the respondent found that the appellant has

misused the clients‟ funds wherein funds of credit balance

clients was used for the debit balance clients and for its 4

own purposes. The amount of misuse ranged from 43% to

70% of funds of the credit balance clients. The appellant

submitted that to arrive at the said conclusion the

respondent has relied on SEBI Circular

SEBI/HO/MIRSD2/CIR/P/2019/95 dated 26th September,

2016 which became effective on 1st July, 2017 and,

therefore, is not applicable for the inspection period. It

was further submitted that unfunded and unutilized part of

the bank guarantee has not been considered while

computing the amount of mis-utilisation.

5. Upon hearing both the sides in our view, the contention

of the appellant cannot be accepted. This Tribunal had an

occasion to deal with a similar objection regarding the

applicability of the subsequent circular in the case of

Arihant Capital Markets Ltd. vs. SEBI, Appeal no.521 of

2019 decided on 21st October, 2021. In paragraph 10, this

Tribunal held as under: 5

"10. Upon hearing both sides and upon perusing the relevant circulars, in our view, the order cannot be faulted with. The earlier circular had clearly stated that the funds of the client cannot be applied for any other purposes. The appellant's case was that the funds were applied by it for the dues for their associates, group company, etc. Now, during the arguments only, the issue of nonexistence of formula in the previous circular is brought up. In fact, the said formulization is nothing but the crystallization of the earlier circular."

6. Thus, the subsequent circular was merely formulization

of the earlier circular to prevent the misuse of the clients‟

funds either for its own purpose by the stock broker or for

debit balance of the clients. The record clearly shows that

the appellant has used the credit balance of the clients in

the fashion as stated above.

7. As regard next charge of non-settlement of the funds

and securities it was found that credit balance of 1311

inactive clients was not settled by the appellant. Further, 9

active clients balance was not settled. According to the

appellant as per its own interpretation of NSE‟s circular 6

dated 29th October, 2013 the pay out of client whose credit

balance was less than Rs.10,000 was not required to be

done at the relevant time. However, when the Exchange

had clarified thereafter the appellant had regularly started

settling the clients‟ funds having credit balance upto

Rs.10,000.

8. Respondent SEBI found that the appellant has not

produced any documentary evidence to support its case for

non-settling of the accounts being less than Rs.10,000.

Regarding the interpretation of the NSE circular,

respondent SEBI held that as per appellant itself has

misinterpreted the circular. Not only that no material was

produced to show that so far as 1311 inactive clients are

concerned their credit balance was less than Rs.10,000.

Out of the cases of 9 active clients whose accounts were

not settled, the appellant itself had admitted these

irregularities in 5 active clients‟ cases. 7

9. Considering all these facts on record so far as merit of

the case is concerned, we do not find any reason to

interfere in the impugned order.

10. The appellant had taken a plea of delay and latches in

initiation of proceedings. It was submitted that while the

inspection was held in the year 2015 the show cause notice

was issued on September, 2020. The learned counsel for

the appellant therefore submitted that this delay itself has

caused prejudice to the appellant.

11. Upon hearing both the sides, we find that except the

bald statement that the delay has caused prejudice no facts

are pleaded to show as to how prejudice is caused to the

appellant by delay of 5 years. The respondent had

collected the record during inspection from the appellant

and again placed the same before the appellant vide the

show cause notice. The appellant also had the said record

with it. Therefore, considering all the facts on record we 8

do not find any error to interfere with the impugned order.

Hence the following order.

ORDER

12. The appeal is hereby dismissed without any order as to

costs.

13. This order will be digitally signed by the Private

Secretary on behalf of the bench and all concerned parties

are directed to act on the digitally signed copy of this

order. Certified copy of this order is also available from

the Registry on payment of usual charges.

Justice M.T. Joshi Judicial Member

Ms. Meera Swarup Technical Member

RAJALAKS Digitally signed by HMI RAJALAKSHMI HARISH HARISH NAIR 03.1.2023 NAIR Date: 2023.01.10 10:23:45 +05'30' RHN