M/S Prrsaar Proprietor- Ved Prakash ... vs Sebi

Date of Decision: 20.02.2017

Misc. Application No. 49 of 2017 And Appeal No. 53 of 2017

M/s Prrsaar Proprietor- Ved Prakash Gupta 17A/35, Vindyachal, 2nd Floor, Punjabi Bagh (West), New Delhi- 110 026 ...Appellant

Versus

National Stock Exchange of India Limited Exchange Plaza, Plot No. C/1, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai- 400 051 ...Respondent

Mr. Prakash Shah, Advocate for the Appellant.

Mr. Rashid Boatwalla, Advocate with Ms. Sneha Herwade, Advocate i/b MKA for the Respondent.

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

Per: Justice J.P. Devadhar (Oral)

1.

Not on Board. Taken up for hearing by consent of both parties.

2. Appellant is aggrieved by the order passed by the Disciplinary

Action Committee ("DAC" for short) of National Stock Exchange of

India Limited ("NSE" for short) dated February 03, 2017. By the said

order the DAC of NSE has declined to consider the Review Application 2

filed by the appellant against the decision of the DAC of NSE dated

October 25, 2016. As a result, penalty of ` 10 lac imposed against the

appellant and suspension of the trading membership of the appellant in

all segments for a period of 5 trading days from Monday 27 th February

2017 to Friday 3rd March, 2017 has attained finality.

3. Mr. Prakash Shah, learned counsel appearing on behalf of the

appellant submitted that total ban/prohibition from trading for 5 days is

erroneously imposed on the appellant in a "casual, nonchalant and blasé

manner". He submitted that the decision of the DAC of NSE is in

violation of NSE Circular dated June 27, 2013, because, as per that

circular suspending the trading is not contemplated for the violations

allegedly committed by the appellant. Counsel for the appellant further

submitted that all remedial and corrective measures to ensure that the

lapse, if any, found during inspection carried out by NSE does not recur

again have been taken and hence the impugned order deserves to be

quashed and set aside.

4. We see no merit in the above contentions.

5. During the course of regular inspection conducted by the NSE it

was inter alia noticed that the funds and securities of the clients of the

appellant were used for other than respective clients and accordingly,

show cause notice was issued to the appellant on November 04, 2015

alleging the following two violations:-

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a) Difference in quantity of securities as per back

office register of securities and holding

statement of beneficiary accounts.

b) Receipt of securities not from respective

clients.

6. With reference to the first violation alleged by NSE, the appellant

in the affidavit in reply dated November 20, 2015 stated as follows:-

"On verification of our records related with securities,

posting of securities in our back office software was not

done properly as well as ISIN Code and Scrip name

were also not updated as per the actual records, due to

this such records were not reconciled with our actual

holding as per holding statement of beneficiary

account."

With reference to the second violation alleged by NSE, appellant in the

affidavit in reply dated November 20, 2015 stated as follows:-

" As per our previous submission regarding the inspection,

the shares lying in the account of Mr. Naveen Kumar Gupta

(Client Code H1) belonging to the other clients and the

same was as per mutual understanding between Mr. Naveen

Kumar Gupta and respective clients, and were used by

Mr. Naveen Kumar Gupa by their consent only." 4

7. It is further interesting to note that the oral submission made by the

appellant as recorded in the order of DAC of NSE dated October 25,

2016 reads thus:-

"Prrsaar's oral submissions before DAC

7. Prrsaar was represented by its Proprietor, Mr. Ved

Prakash Gupta, who made the following oral

submissions:

a) He has been a Member in Commodity market

since 2004 and in Capital market since 2009.

He has worked in rural and semi-urban area.

He has also authored a book.

b) He admitted to all the violations pointed out in

Exchange show cause notice dated November

4, 2015 and offered apologies to DAC for the

inconvenience caused because of the same.

c) Because of his ill health, he had handed over

operations of the firm to NKG. NKG was a

relative. Shri Ved Prakash Gupta came to know

about the misutilization of client securities by

NKG only when the Exchange shared its

observations, however he was not aware of the

usage of funds raised by such misutilization. 5

d) As a proprietor of the firm, he could not take

any legal action against NKG who cheated him

because he is a close relative.

e) He has no knowledge on how NKG used the

money raised by the misuse of client securities.

However, he has recouped all clients' securities

and the balance of Register of Securities and

that of client beneficiary account is now

reconciled.

f) He assured that such violations will not be

repeated in future."

8. From the aforesaid submissions made by the appellant before the

DAC of NSE which are not in dispute, it is apparent that the appellant

had in fact committed the violations alleged in the show cause notice.

Moving the clients securities from the clients beneficiary account to

demat account of Naveen Kumar Gupta a relative of Mr. Ved Prakash

Gupta proprietor of the appellant and thereafter transferring the said

securities to the account of Global Fincap was in gross violation of the

norms laid down by NSE.

9. Counsel for the appellant sought to argue that there are several

errors in quantifying the amounts alleged to have been diverted from the

clients beneficiary accounts to the demat account of Naveen Kumar

Gupta. However, we have not permitted counsel for the appellant to raise

that plea, because, firstly, no such plea was raised in the Review 6

Application filed by the appellant before the DAC of NSE. Secondly,

even if there are some discrepancies in the quantum of amounts moved

from the clients beneficiary accounts, very fact that the appellant has

moved funds and securities from the clients beneficiary accounts itself is

sufficient to hold the appellant to be guilty of violating the norms

required to be followed by a member of the exchange.

10. Apart from the above, in the present case Naveen Kumar Gupta,

operating on behalf of the appellant had executed sale transactions

without holding the scrips and in fact, the appellant has accepted that the

sale obligations of Naveen Kumar Gupta were met by using securities of

other clients. Thus, it is established that in the present case securities

belonging to the clients' of the appellants have been utilized to meet the

pay in obligation of Naveen Kumar Gupta which is in gross violation of

the code of conduct prescribed for members of the exchange. Reliance

placed by the appellant on the Circular of NSE dated June 27, 2013 is

totally misplaced. The said circular clearly stipulates that serious action

could be taken depending upon the gravity of the violations committed.

In the present case, the violations committed by the appellant being

serious DAC of NSE was justified in taking stern action.

11. In these circumstances, penalty of ` 10 lac and suspending the

trading membership of the appellant for 5 trading days cannot be said to

be unreasonable or excessive.

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12. For all the aforesaid reasons we see no reason to entertain the

appeal and accordingly the appeal is hereby dismissed with no order as to

costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Jog Singh Member

Sd/-

Dr. C.K.G. Nair Member 20.02.2017 Prepared & Compared By: PK