M/S Jitendra Pukhraj Jain vs Sebi

violations in its functioning. Following a letter of

observations/SCN, reply and personal hearing the impugned

Order was passed on 25 August, 2020.

3. The allegations against the appellant are summarized at

page 16 of the impugned order in a table indicating the details

of violations as well as the penalty imposed. There are five

violations on which monetary penalty has been imposed, such

as non-settlement of client funds and securities, incorrect

reporting of margin, non-issuance of statements etc. In addition,

there are 3 violations on which the appellant has been given

advise. The total amount of penalty imposed is Rs. 701700. 3

4. We have heard Mr. Rajesh Khandelwal, learned counsel

for the appellant and Mr. Vishal Kanade, learned counsel along

with Mr. Sachin Chandarana, Mr. Rashid Boatwalla, Mr. Rahul

Jain and Mr. Pruthvi Dhinoja, advocates for the respondent

through video conference.

5. The learned counsel Mr. Rajesh Khandelwal, appearing on

behalf of the appellant submits that he is not seeking any relief

on the penalty imposed on 4 of the charges; except on serial no.

7 in the table referred to above where a penalty of Rs. 5 lakhs

has been imposed. The said violation is "Member has engaged

as a Principal in a business other than that of securities

involving personal financial liability". It is also the submission

of the learned counsel for the appellant that there is no

prescribed penalty for this violation. Moreover, it was

contended that the appellant did not give 4 loans totaling

Rs.1.43Cr., as stated in para 3.4 of the impugned Order, as a

business as the said amounts were given to members of the

family which unintentionally got reflected in the accounts of the

appellant. Being a proprietary concern it is difficult to maintain

the broker account and the personal account separately at times,

it was contended. It was also submitted that for shortfall in the

Networth of the appellant a separate direction has been given at 4

serial no. 8 of the summary chart explaining the charges and

penalty.

6. The learned counsel Mr. Vishal Kanade, appearing on

behalf of the respondent NSE, on the other hand, submits that it

is a combination of factors such as giving loans from the books

of the appellant, consequent reduction in the Networth of the

appellant etc. which led to the imposition of the said penalty

amount of Rs. 5 lakhs. However, the learned counsel admits

that there is no prescribed penalty but the Committee has

considered the totality of the factors and imposed a penalty of

Rs. 5 lakhs on this ground.

7. Having heard the learned counsel for the parties, and

having perused details of the particular violation on which the

appellant has sought leniency, we note that Rule 8(3)(f) of the

Securities Contracts (Regulation) Rules, 1957 imposes

restrictions on the members of Exchange from conducting any

business other than in securities. Hence the finding in the

impugned order that by giving loans to other entities, including

employees/ family members of the appellant, the appellant has

violated the said Rule 8(3)(f) of the Securities Contracts

(Regulation) Rules, 1957. We also note that the intention 5

behind the said provision is to prevent negative impact on the

balance sheet of a broker and to maintain the safety and

integrity of the securities trading eco system.

8. At the same time, we are of the view that giving a one-

time help in the form of a small amount of loan to family

members/ employees etc. cannot be always taken as engaging in

a business of providing loans. We also note the plea of the

appellant that the said loan has been fully recovered and the

appellant has given an undertaking to the Exchange not to

repeat such violations in future as the same has occurred

unintentionally only once during about 25 years' business of

the appellant as a broker.

9. Considering all these factors, we are of the view that the

appellant deserves leniency on this ground. However, at the

same time since maintaining the integrity of the balance sheet of

the broker is of paramount importance and therefore,

irrespective of the motive behind lending certain amount to the

family members/ employees of the appellant, we do not propose

to exonerate or give full relief to the appellant on this ground. 6

In the given facts and circumstances of the matter, therefore, we

are of the view that a penalty of Rs. 1 lakh for this particular

violation is sufficient to serve the interest of justice.

10. Accordingly, the total amount of penalty of Rs.701700

imposed on the appellant is hereby reduced by an amount of Rs.

4 lakhs and the respondent is at liberty to recover the balance

amount of Rs.301700/-. Appeal is partially allowed with no

orders on costs.

12. The present matter was heard through video conference

due to Covid-19 pandemic. At this stage it is not possible to sign

a copy of this order nor a certified copy of this order could be

issued by the Registry. In these circumstances, this order will be

digitally signed by the Presiding Officer on behalf of the bench

and all concerned parties are directed to act on the digitally

signed copy of this order. Parties will act on production of a

digitally signed copy sent by fax and/or email.

Justice Tarun Agarwala Presiding Officer 7

Dr. C.K.G. Nair TARUN Digitally signed by TARUN AGARWAL DN: c=IN, o=PUBLIC WORKS DEPARTMENT UTTAR PRADESH, postalCode=221505, st=Uttar Pradesh, Member 2.5.4.20=30fcf68685192bbc53e6ff1608a83fb3881de7ac2ab795

AGARWAL 4d509c85ed6e0f7c41, serialNumber=095f8b286bb0b1cd07ff676611f4f5e7999727d40 4aa38ca422f9d3529bdb8a3, cn=TARUN AGARWAL Date: 2020.11.17 13:08:48 +05'30'

Justice M. T. Joshi Judicial Member 17.11.2020 PK