Bonanza Portfolio Ltd. vs Sebi

Date of Decision : 21.08.2017

Misc. Application No. 143 of 2016 And Appeal No. 201 of 2016

Bonanza Portfolio Limited Bonanza House, Plot No. M-2, Cama Industrial Estate, Walbhat Road, Behind "The Hub", Goregaon (East), Mumbai - 400 063. .....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. Mayur Khandeparkar, Advocate with Mr. KRCV Seshachalam and Mr. Pankaj Uttaradhi, Advocates i/b Vishesha Law Services for the Appellant.

Mr. Kumar Desai, Advocate with Ms. Omna Oak, Advocate i/b Legasis Partners for the Respondent.

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

Per : Dr. C.K.G. Nair, Member (Oral)

Misc. Application No. 143 of 2016:-

By this Misc. Application appellant seeks condonation of 62 days delay

in filing the appeal. For the reasons stated in the Misc. Application, delay is

condoned. Accordingly, Misc. Application is disposed of with no order as to

costs. 2

Appeal No. 201 of 2016:-

1.

This appeal is preferred by the appellant aggrieved by the order of the

Adjudicating Officer ('AO' for short) of Securities and Exchange Board of

India ('SEBI' for short) dated March 3, 2016. By the said order penalty of ` 20

lakh has been imposed on the appellant under Section 15HB of the SEBI Act,

1992 for violation of Regulation 6A(1)(e) of the SEBI (Stock-Brokers and

Sub-Brokers) Regulations, 1992 ('Stock-Brokers Regulations 1992' for short)

and clauses A(1), (2) and (5) of Code of Conduct specified under Schedule II

read with Regulation 7 of the Stock-Brokers Regulations 1992.

2. The facts relevant to the matter are as follows.

Based on sample analysis of investor grievances, SEBI conducted

inspection of related books and other records of the appellant covering the

period financial year 2012-13 and 2013-14 upto June 19, 2013. The inspection

was focusing on the adequacy of investor grievances handling mechanism and

infrastructure available with the appellant for timely redressal of investor

grievances. This inspection revealed that the appellant had violated provisions

under Regulation 6A(1)(e) of the Stock-Brokers Regulations 1992 as well as

clauses A(1),(2) and (5) of Code of Conduct specified in Schedule II read with

Regulation 7 of the Stock-Brokers Regulations 1992. Accordingly, the AO was

appointed vide order dated July 3, 2014. A show cause notice was issued on

March 4, 2015 giving a broad profile and nature of investor complaints

received by the appellant and delay in disposing of the same. It was also noted

that about 46% of the investor complaints received were relating to

unauthorized trading / misappropriation; grievances which are of serious

nature. The impugned order gives a detailed categorization of the grievances 3

received and the timeframe for resolving the same etc. Since these numbers are

not disputed; the details are not repeated here.

3. Mr. Mayur Khandeparkar, learned counsel appearing on behalf of the

appellant submitted the following:-

(a) The impugned order cannot be sustained because the show cause

notice dated March 4, 2015 was issued under a non-existent

regulation, under Regulation 6A of the Stock-Brokers

Regulations, 1992, which had been deleted from the said

Regulations with effect from September 22, 2013.

(b) It was further argued that even assuming that the show cause

notice by mistake quoted a wrong provision because the same

conditions were verbatim reproduced as Regulation 9 in the

amended Regulations dated September 22, 2013, the respondent

could not have used an omnibus provision under conditions of

registration on a matter dealing with investor grievances when

specific provision for the same has been provided for in the

Regulation itself.

(c) Similarly, penalty is imposed under an omnibus Section 15HB of

the SEBI Act, while specific provision is provided under Section

15C of SEBI Act for such violation.

(d) Further, as regards merit of the matter, the statements and the

records provided by the appellant to prove that all investor

grievances were handled well in time; 30 days time limit

prescribed is only a best endeavour provision; the appellant won

75% of the matters which were referred to for arbitration; the 4

time limit cannot be strictly maintained where third parties are

involved; only 54 out of 281 complaints exceeded the 30 days

period; mismatch of numbers in compliance were on account of

duplication of complaints received directly and sometimes

through the stock exchanges etc. The appellant had substantiated

that it had the necessary infrastructure and resources to deal with

investor grievances and had been dealing with them as best as

envisaged under the Regulations (best endeavour provision) and

as such has not violated any of the provisions relating to handling

of investor grievances.

(e) In short, the Show Cause Notice as well the impugned order

relied on unrelated provisions of the SEBI Act as well the Stock-

Brokers Regulations and did not consider the facts given by the

appellant, therefore, liable to be quashed.

4. We have perused the Show Cause Notice, the impugned order and other

material on record on the matter and heard the elaborate submissions made by

learned counsel for the appellant as well as the submissions made by

Mr. Kumar Desai, learned counsel for the respondent SEBI.

5. We note that the AO of SEBI has erroneously referred to Regulation

6A(1)(e) of the Stock-Brokers Regulations, 1992 which was deleted and

replaced as Regulation 9(e) with effect from September 22, 2013. Since the

Regulation existed but only the number had changed, we accept the statement

of the counsel for the respondent that it was a technical error which does not

affect the merits of the case. The conditions of registration under erstwhile

Regulation 6A(1)(e) and the newly inserted Regulation 9(e) are similarly

worded as follows:-

5

"Conditions of registration.

Any registration granted by the Board under regulation 6 shall be subject to the following conditions, namely,-

(a) .........

(b) .........

(c) .........

(d) .........

(e) he shall take adequate steps for redressal of grievances, of the investors within one month of the date of receipt of the complaint and inform the Board as and when required by the Board;"

6. Thus under Regulation 6A(1)(e) / 9(e) it was obligatory on part of the

appellant to take adequate steps for redressal of grievances of the investors

within one month of receiving the complaint. In the present case, admittedly,

appellant failed to take steps to redress grievances of 54 complaints within

one month of receiving the complaints. In such a case, condition of

registration being violated, the AO was justified in imposing penalty under

Section 15HB of the SEBI Act.

7. Argument of the appellant that for failure to redress the investor

grievances, the AO ought to have proceeded under Section 15C after calling

upon the appellant in writing to redress the investor grievances. As no such

intimation was given in writing it is submitted that the action taken against

the appellant cannot be sustained.

8. We see no merit in the aforesaid arguments.

9. Section 15C of the SEBI Act, 1992 is to be resorted to while dealing

with specific instances of investor grievances while the present matter is not

about such specific instances which have been amply made clear both in the

Show Cause Notice as well as in the impugned order. It is about the

availability of infrastructure and other mechanism for effectively handling 6

investor grievances in tune with volume of business. Accordingly, there is no

infirmity in imposing the penalty under 15HB. Therefore we hold that both

the show cause notice and the impugned orders are issued under the right

provisions of SEBI Act / Regulation, regarding conditions of granting

license, since taking adequate steps for redressal of investor grievances

within one month of the receipt of complaint is part of the conditions of

registration. Therefore whether an entity which has to fulfill this condition

has done the same in an effective manner or not is the question being probed.

Accordingly, we find no deficiency in resorting to the condition relating to

the registration of the appellant as a broker under the Stock-Broker

Regulations 1992 and imposing penalty under Section 15HB of the SEBI

Act, where the violations are proved.

10. The appellant argued that the 30 days timeframe for dealing with

investor grievances is only to the extent of replying to the grievances and it is

a best endeavour clause. We do not agree with this view because the

Regulation says that "he shall take adequate steps for redressal of grievances

of investors within one month of date of receipt of the complaint". We also

note that as per appellant's own submissions 54 complaints out of 281

complaints received were even replied to after 30 days. As such, we do not

find any fault in holding the appellant guilty of violating the relevant

Regulations resulting that investor grievances have not been dealt within the

prescribed time limit.

11. We further note that the violations relating to the adequacy of

infrastructure and mechanism for handling investor grievances is repetitive

since SEBI had issued a warning on this issue on August 11, 2011 based on

an inspection covering January 2009 - February 2010. Responding to that the 7

appellant had stated on September 19, 2011 that sufficient steps were taken to

rectify these shortcomings.

12. Given the above facts, we do not find any reason to interfere with the

impugned order. Accordingly, appeal is dismissed with no order as to costs.

Appellant is directed to pay the penalty within 30 days from the date of this

order.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

21.08.2017 Prepared and compared by:

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