Geojit Financial Services Limited vs Sebi

Date of Decision: 08.08.2019

Appeal No. 354 of 2019

Geojit Financial Services Limited 34/659-P, Civil Line Road, Padivattom, Kochi, Kerala- 682 024 ...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. Rajesh Nagory, Advocate with Ms. Sabeena Mahadik and Mr. Pankaj Uttaradhi and Mr. Sagar Hate, Advocates i/b Vishesha Law Services for the Appellant.

Mr. Vishal Kanade, Advocate with Ms. Faiza Dhanani and Mr. Chirag Bhavsar, Advocates i/b MDP & Partners for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M. T. Joshi, Judicial Member

Per: Justice Tarun Agarwala (Oral)

1.

An inspection of the books of accounts of the appellant

who is the broker was conducted for the Financial Year 2013-

2014 and 2014-2015 to examine whether the broker had made

compliance of various regulatory norms prescribed by Securities 2

and Exchange Board of India ("SEBI" for convenience).

During the inspection it was found that various SEBI Circulars

and Regulations were not followed. On this basis, a show cause

notice was issued to show cause as to why penalty should not be

imposed. The appellant filed its reply, based on which, after

giving an opportunity of hearing, the impugned order was

passed by the Adjudicating Officer ("AO" for convenience)

imposing a penalty of ` 5 lakhs under Section 15C of the SEBI

Act, and Section 23C of the Securities Contracts (Regulation)

Act, 1956 ("SCRA" for convenience) and another sum of ` 25

lakhs under Section 15HB of the SEBI Act and Section 23H of

the SCRA.

2. The appellant being aggrieved by the aforesaid penalty has

filed the present appeal. We have heard Shri Rajesh Nagory the

learned counsel for the appellant and Shri Vishal Kanade the

learned counsel for the respondent. At the outset, the learned

counsel for the appellant submitted that admittedly the appellant

had violated some of the Circulars issued by SEBI but contends

that the violation was not such which would lead to imposition

of such a heavy amount of penalty. The learned counsel thus

contended that in the given circumstances when the alleged

violation of subsequently rectified immediately after the 3

violation was pointed out during the course of investigation the

penalty should be reduced considering the mitigating

circumstances.

3. In the light of the aforesaid submission the present appeal

is being disposed off at the admission stage without calling for a

reply from the respondent since no factual controversy is

involved.

4. The appellant has been penalized a sum of ` 5 lakhs for

non-redressal of the investors complaint on the SCORES

platform within the stipulated period of 30 days. It was found

that during the period in question out of 23 complaints 18 of the

complaints were redressed within time and the remaining five

were redressed within the time ranging from 32 to 41 days after

receipt of the complaints. The AO found that apparently there

has been a violation of Regulation 9(e) of the SEBI (Stock

Brokers and Sub-Brokers) Regulations, 1992 ("Brokers

Regulations" for convenience). We however observe that in the

5 instances the delay is not huge and the grievance was

redressed at the earliest opportune moment within 15 days of

the expiry of the period. It is not a case where the complaints 4

were not redressed but is a case where there has been a small

delay in the disposal of the complaint.

5. It was found that the appellant was not settling the

accounts of the clients and was retaining the amount of

` 10,000/-. The contention of the appellant was that they are

taken consent from the clients to retain the amount. The AO

however, has found that no such consent was placed before the

AO and therefore gave a categorical finding and that the

appellant had violated the Circular. This retention of the

amount of ` 10,000/- was done away by the appellant

immediately after it was pointed out during the investigation.

6. In the third instance, we find that the appellant was not

settling the client's account where the amount was less than

` 1,000/-. The reason submitted by the appellant was that in

many cases the bank clearing charges were higher than the

payout made. The investors became upset and therefore

considering the administrative inconvenience the appellant

decided not to settle the funds which were upto ` 1,000/- It was

also stated that after this irregularity was pointed out in the

inspection, the same was cured and the amount has been paid to

the clients. We however find that the total amount involved 5

which the appellant had retained ranged from ` 43 lakhs to ` 83

lakhs.

7. The AO further found that the appellant was not settling

the inactive clients and the reason submitted by the appellant

was that the accounts could not be settled in as much as the

legal heirs of the deceased client had not furnished the requisite

documents. As a result, the money had been kept in clients

Fixed Deposit ("FD") on the basis of the advice given by the

National Stock Exchange of India Limited (NSE). The AO did

not accept this contention on the ground that the advisory note

of NSE was not placed before the AO.

8. Having regard to the aforesaid violations, we find that this

was the first time violation which was pointed out in the

inspection. Such violation had not occurred earlier. Further, the

appellant has 84,000 clients and there is no complaint from any

client with regard to the retention of the aforesaid amount or

non-settlement of the clients account. Further, we find that the

retention of ` 10,000 of the clients has been paid out and even

the amount less than ` 1000/- has also been cleared. We are

also of the opinion that the submission raised by the appellant

with regard to non-settlement of the clients who had died has 6

not been disbelieved nor the AO has given any finding that the

appellant had not made the FD of the clients who had died.

9. In the light of the aforesaid considerations, we are of the

opinion that the penalty of ` 30 lakhs in the circumstances of

the case is high and unjustified. Considering the mitigating

circumstance that the violation was not deliberate and the same

was rectified when pointed out coupled with the fact that the

amounts of the deceased client has been kept in the FD which

has not been disputed we feel that for the said violations the

quantum of penalty in the interest of justice should be reduced.

Considering the aforesaid factors and the mitigating

circumstances, we reduce the amount of penalty from ` 30 lakhs

to ` 15 lakhs. The appeal is partly allowed and the impugned

order is accordingly modified to the extent stated aforesaid.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M. T. Joshi Judicial Member 08.08.2019 Prepared and compared by PK