Progressive Share Brokers Pvt. Ltd. vs Sebi
- CitationAppeal No. 109 of 2023
Ratio decidendi
The rule this decision rests on
A violation of a SEBI circular requiring in-person verification in the KYC process to be carried out by a sub-broker or an authorised person approved by the stock exchange, where that verification was performed by an unauthorised person, is established even though the broker's conduct is characterised as a technical breach, since the requirement is part of the KYC process mandated under the circular and the breach of it constitutes non-compliance with the regulations. Where a penalty is imposed for such a technical violation and the broker had no role in the trades executed by the client beyond registering the client, the minimum penalty prescribed under Section 15HB of the SEBI Act is the appropriate sanction, and a penalty above that minimum is reduced accordingly.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
Date of Decision: 24.01.2023
Appeal No. 109 of 2023
Progressive Share Brokers Pvt. Ltd. 122-124, Laxmi Plaza, Laxmi Industrial Estate, New Link Road, Andheri (West), Mumbai- 400 053 ...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. Prakash Shah, Advocate i/b Prakash Shah & Associates for the Appellant.
Mr. Manish Chhangani, Advocate with Ms. Samreen Fatima and Mr. Sumit Yadav, Advocates i/b The Law Point for Respondent SEBI.
CORAM: Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member
Per: Justice Tarun Agarwala, Presiding Officer (Oral)
1.
The present appeal has been filed against the order dated
October 21, 2022 passed by the Adjudicating Officer ("AO" for
convenience) of the Securities and Exchange Board of India 2
("SEBI" for convenience) imposing a penalty of Rs. 5 lakhs
under Section 15HB of the SEBI Act, 1992 for violation of
Clause A(2) of Schedule II read with Regulation 9 of SEBI
(Stock Brokers and Sub-brokers) Regulations, 1992 and SEBI
Circular dated December 23, 2011.
2. The facts leading to the filing of the present appeal is, that
during the course of investigation of front running of sell/ buy
trades of Deutsche Mutual Fund by Malati Lata Jena it was
observed from the "client registration form" of Malati Lata Jena
that "in person verification" of Malati Lata Jena was done by
the father of Fund Manager who was not a sub-broker or
authorised person. Accordingly, the appellant who is a broker
was issued a show cause notice dated June 22, 2021 to show
cause why an enquiry should not be held and penalty should not
be imposed for violation of the SEBI (Stock Brokers and Sub-
brokers) Regulations, 1992.
3. After enquiry, it was found that the appellant had not acted
with due, skill, care and diligence while opening the trading
account of Malati Lata Jena and accordingly imposed a penalty
of Rs, 5 lakhs.
4. Having heard Shri Prakash Shah, the learned counsel for
the appellant and Shri Manish Chhangani, the learned counsel 3
for the respondent and upon a perusal of the record, we find that
SEBI Circular dated December 23, 2011 provided that "in
person verification" which is part of the Know Your Client
("KYC") process was required to be carried out in the case of
stock broker by their sub-brokers or authorised persons
appointed by the stock-broker and after getting approval from
the concerned stock exchange in terms of SEBI Circular dated
November 06, 2009 and only such authorised person could
perform the functions of "in person verification".
5. In the instant case, admittedly at the time of opening the
trading account of Malati Lata Jena in respect of KYC process
the "in person verification" was not done by an authorised
person and, consequently there was an infiniment on the part of
the appellant in not complying with the process provided under
the SEBI Circular dated December 23, 2011 and consequently
violated Clause A (2) of Schedule II read with Regulation 9 of
the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.
6. The fact that while opening the trading account of Malati
Lata Jena the "client registration form" was not properly
verified is admitted by the appellant.
4
7. We are of the view that the violation of the Circular in the
given circumstances is a technical violation and in view of the
fact that the appellant, as a broker, apart from registering Malati
Lata Jena as a client had no role to play in the trades executed
by Malati Lata Jena. We are of the opinion that a minimum
penalty prescribed under Section 15HB should have been
awarded.
8. Consequently for the reasons stated aforesaid, while
affirming the violation committed by the appellant the penalty
of Rs. 5 lakhs is reduced to the minimum penalty of Rs. 1 lakh
under Section 15HB of the SEBI Act. The appeal is partly
allowed.
9. This order will be digitally signed by the Private
Secretary on behalf of the bench and all concerned parties are
directed to act on the digitally signed copy of this order.
Certified copy of this order is also available from the Registry
on payment of usual charges.
Justice Tarun Agarwala Presiding Officer
Ms. Meera Swarup PRERNA Digitally signed Technical Member 24.01.2023 by PRERNA
PK MANISH MANISH KHARE Date: 2023.01.25 KHARE 15:52:33 +05'30'
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