Pradeep A. Ramnani vs Sebi

Date of Decision : 03.08.2017

Misc. Application No. 118 of 2016 And Appeal No. 172 of 2016

Pradeep A. Ramnani A/602, Peoples Cosmopolitan, TPS - 3, 24th Road, Bandra (West), Mumbai - 400 050. .....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. Vikram Nankani, Senior Advocate with Mr. H.S. Khokhawala, Advocate i/b M/s. Nankani & Associates for the Appellant.

Mr. Rajesh Nagory, Advocate with Mr. Pulkit Sukhramani and Ms. Vidhi Jhawar, Advocates i/b The Law Point for the Respondent.

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

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

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) issued on March 22, 2016. By the said order a

penalty of ` 5 lakh has been imposed on the appellant under section 15HB

of the Securities and Exchange Board of India Act, 1992 ('SEBI Act' for

short) for violation of Clauses A(1) and A(2) of the Code of Conduct for

Sub Brokers as stipulated in Schedule II r/w Regulation 15(1)(b)(d) of SEBI 2

(Stock Brokers and Sub Brokers) Regulations, 1992 and SEBI Circular No.

SEBI/MIRSD/DPS-1/Cir-31/2004 dated 26.08.2004 which stood modified

as SEBI/MIRSD/16/2011 dated 22.08.2011, NSE Circular No.

NSEIL/LEGAL/3534 dated 02.08.2002 and NSE Circular No.

NSE/MEM/3589 dated 05.09.2002.

2. The appellant is a sub broker registered with both Bombay Stock

Exchange Ltd. ('BSE' for short) and National Stock Exchange of India Ltd.

('NSE' for short) at the relevant time. SEBI conducted an inspection of the

books of accounts and other records of the appellant pertaining to period

between April 2012 and March 2013. This inspection revealed that the

appellant had executed trades in the Futures & Options ('F&O' for short)

segment without having the stipulated qualifications for the same. It was

further revealed that he made certain off-market transfer of shares to his

client and received payment in cash which are also against SEBI Circulars

on this subject. However, in the impugned order benefit of doubt is given to

the appellant for the second violation and penalty is imposed only for the

first violation. It is an undisputed fact that the appellant did not have the

necessary qualification i.e. the NSE's Certification in Financial Market

('NCFM' for short) required for executing trades in the F&O segment.

Though the appellant did not have this qualification he executed 3 self

trades and 3 trades on behalf of his client during the period from 01.04.2009

to 31.03.2013. This was done by becoming a sub broker of Angel Broking

Pvt. Ltd. ('Angel Broking' for short) and by means of becoming an

"Authorized Person" of the NSE to deal in the F&O segment. While the

SEBI and NSE Circulars clearly state that to become an Authorized Person

NCFM certification is mandatory, certificates of 3 other persons were used

by the appellant's broker i.e. Angel Broking and a terminal was placed with 3

the appellant by Angel Broking w.e.f. 11.11.2008 which continued till the

appellant's surrender of sub broker-ship on 09.10.2013.

3. Shri Vikram Nankani, Learned Senior Counsel appearing on behalf

of the appellant stated that clear position relating to the requirement of

NCFM certification was not known to the appellant, Angel Broking did not

insist on having NCFM certification and provided the appellant with a

terminal and the appellant mainly did only self trades and 3 minor

transactions were only done for clients. It was also argued that since the

main broker i.e. Angel Broker has been punished through the impugned

order with higher penalty of ` 20 lakh, the appellant deserves leniency in

terms of full application of section 15J of SEBI Act since the alleged

violation is of a minor nature as far as the appellant is concerned.

4. We do not find any merit in the above contentions.

5. It is an admitted fact that the appellant was aware of the requirement

of NCFM certification as a pre-requisite for becoming an Authorized Person

and/or for executing trade in F&O segment of NSE. Moreover, being a sub

broker the appellant was expected to know and follow the rules and

regulations fully and cannot take shelter under ignorance. The argument of

the appellant is that the NCFM certificates of 3 other qualified persons were

used and uploaded by Angel Broking and the appellant has no role in the

same also cannot be accepted because the appellant was aware that the same

was an illegal use and he himself did not possess the necessary

qualifications. Therefore, the argument that since the fault was committed

by his broker i.e. Angel Broking and a higher penalty imposed upon them

has been already paid is sufficient in the matter cannot be accepted. The

contention that conditions under section 15J of SEBI Act not been taken into

account is also not correct as under section 15HB of SEBI Act the 4

maximum penalty imposable is upto a crore of rupees (with minimum of not

less than ` 1 lakh). Therefore, mitigating factors are already taken into

account when the AO imposed a penalty of only ` 5 lakh. It is also noted

that for a graver violation by the broker a penalty of ` 20 lakh has been

imposed thereby maintaining inter-se proportionality between the two

appellants in the same matter.

6. For the above stated reasons, we see no merit in the appeal and the

appeal is dismissed with no order as to costs. Appellant is directed to pay

the penalty amount within 30 days from the date of this order.

7. In the result, Misc. Application No. 118 of 2016 seeking stay of the

impugned order becomes infructuous which is also disposed of accordingly.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

03.08.2017 Prepared and compared by:

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