Boi Shareholding Limited vs Sebi

Order Reserved on: 10.04.2018

Date of Decision : 12.04.2018

Appeal No. 256 of 2017

BOI Shareholding Limited Bank of India House, 4th Floor, 70/80, M.G. Road, Fort, Mumbai - 400 001. ..... 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. Paras Parekh, Advocate with Mr. Ravichandra Hegde and Ms. Stuti Shah, Advocates i/b J Sagar Associates for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Mr. Santanu Mitra and Mr. Anubhav Ghosh, Advocates i/b Desai & Diwanji for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair, Member

1.

This appeal is filed challenging the order of the Adjudicating Officer

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

short) dated July 31, 2017 whereby a penalty of ` 40 Lakh has been

imposed on the appellant under Section 15HB of SEBI Act read with

Section 19G of the Depositories Act, 1996 for delayed implementation of

the SEBI Circulars / Guidelines relating to anti-money laundering (AML)

policy.

2. The appellant is a company incorporated under the Companies Act

and functions as a clearing house for BSE Ltd. and having its own 2

depository participant services. It is wholly owned subsidiary of Bank of

India.

3. SEBI, on June 29, 2015 conducted an inspection of the appellant's

books of accounts to examine whether the appellant had put in place

systems and processes to comply with the Circulars issued by SEBI relating

to the AML policy to be adopted, among others. The appellant was asked to

explain the discrepancies noticed vide SEBI's letter dated July 2, 2015. The

appellant replied on November 16, 2015 stating that all the discrepancies

have been dealt with and assured maintenance of high standards in future.

On March 8, 2017 SEBI issued a Show Cause Notice (SCN) to the appellant

alleging violation of AML/CFT policy under the Prevention of Money

Laundering Act, 2002 ('PMLA' fort short) effected from July 1, 2005 as to

why adjudication proceedings should not be initiated against the appellant

for violation of - (i) AML/CFT policy; (ii) Client Risk Categorization; and

(iii) Suspicious Transaction Monitoring and Reporting. Following reply and

opportunity of personal hearing etc. the impugned order was passed on July

31, 2017 whereby the appellant was found to have violated AML/CFT

policy by delaying its proper implementation by a number of years and

therefore imposed a penalty of ` 40 Lakh on the appellant. According to the

impugned order, the appellant is alleged to have violated clause 11 of the

Third Schedule of Regulation 20AA of the Securities and Exchange Board

of India (Depositories and Participants) Regulations, 1996 ('DP

Regulations' for short) for non-incorporation of the provisions of the (i)

SEBI Master Circular no. CIR/ISD/3/2010 on AML/CFT dated December

31, 2010, (ii) Circular no. CIR/MIRSD/2/2013 issuing Guidelines on

Identification of Beneficial Ownership dated January 24, 2013 and (iii)

Circular no. CIR/MIRSD/1/2014 dated March 12, 2014, modifying the

AML Circular.

3

4. The table given at pages 4 to 6 of the impugned order lists six

violations committed by the appellant in terms of delay in implementation

of the required policies and practices under anti-money laundering policy.

Such delays range from 2 to 4 years. However, it is not disputed that though

delayed, the appellant is in compliance with all the ingredients of the anti-

money laundering policy as required under the extant SEBI Circulars.

5. The basic contention of Shri. Paras Parekh, Learned Counsel

appearing on behalf of the appellant is that the policy framed was more like

procedural in nature to be incorporated in the internal policies of the

appellant which has been done. As such, there has been no violation per se.

However, without pressing this argument further, Counsel for the appellant

submits that the amount of penalty of ` 40 Lakh imposed is too high given

that the violations are only in the nature of procedural delays and did not

adversely affect the investors in any manner. Further, in a few other similar

matters the penalty imposed by SEBI was either Nil (in the matter of IFCI

Financial Services Limited) or ` 1.50 Lakh (in the matter of Triveni

Management Consultancy Services Limited). However, in the case of the

appellant despite proper implementation of the necessary directions of SEBI

penalty of ` 40 Lakh has been imposed which is highly disproportionate for

the alleged violations.

6. Learned Senior Counsel Shri Gaurav Joshi appearing on behalf of the

respondent SEBI contends that the AML policy was to be implemented with

full force given that they are emanating from international obligations and

as provided for under the Indian laws. Therefore, delay of several years for

implementing each of the six noted violations cannot go unpunished.

7. We have perused the records produced before us. In the Master

Circular on AML/CFT dated December 31, 2010 issued by SEBI we note 4

that all the registered intermediaries were directed to comply with the

requirements contained therein on an immediate basis. Similarly, subsequent

amendments made on January 24, 2013 also required adoption on

immediate basis though the Circular dated March 12, 2014 does not specify

the implementation time schedule. However, following the spirit of the basic

policy it has to be presumed that implementation has to be done at the

earliest. From the evidence produced before us it is clear that the appellant

has implemented all the requirements of the AML/CFT policy as specified

in the SEBI Circulars though belatedly. We have also noted that for delayed

implementation / violation SEBI has imposed varying penalty including no

penalty in some cases. However, under the relevant Sections i.e. 15HB of

SEBI Act read with Section 19G of the Depositories Act, 1996 the penalty

imposable for each violation shall not be less than ` 1 Lakh which may

extend to 1 Crore rupees. Accordingly, the minimum penalty imposable in

case of six violations committed by the appellant should be in tune with the

statutory provisions relating to the penalty.

8. Given the fact that, though belatedly, the appellant has implemented

all the required policies and procedures on AML/CFT policy as stipulated

under the various circulars of SEBI and by the penalty precedent set by

SEBI itself we are of the view that the penalty of ` 40 Lakh imposed on the

appellant is excessive. We, therefore, reduce the amount of penalty imposed

on the appellant to ` 6 Lakh.

9. Appeal is partly allowed in the above terms with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 12.04.2018 Prepared and compared by:msb