Shree Naman Securities & Finance Pvt. ... vs Sebi

Order Reserved On: 15.01.2021 Date of Decision : 10.03.2021

Misc. Application No. 304 of 2020 (Stay Application) And Appeal No. 290 of 2020

Shree Naman Securities & Finance Pvt. Ltd. 201, Shree Naman Plaza, S.V. Road, Opp. Shanker Lane, Kandivali (West), Mumbai- 400 067 ...Appellant

Versus

National Stock Exchange of India Ltd. Exchange Plaza, C-1, Block G, Bandra-Kurla Complex, Bandra (E), Mumbai- 400 051 ...Respondent

Mr. J. J. Bhatt, Advocate with Ms. Rinku Valanju, Mr. Pratham Masurekar, Ms. Hetal Joshi and Mr. Aditya Shah, Advocates i/b R V Legal for the Appellant.

Mr. Venkatesh Dhond, Senior Advocate with Mr. Rashid Boatwalla and Mr. Rahul Jain, Advocates i/b MKA & Co. for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member

Per: Dr. C.K.G. Nair, Member 2

1.

Vide order dated August 25, 2020, the Member and Core

Settlement Guarantee Fund Committee ("MCSGFC") of the

National Stock Exchange of India Limited ("NSE" for short)

imposed monetary penalty of Rs. 21,77,200/- (Rupees Twenty-

One Lakhs Seventy-Seven Thousand Two Hundred Only) and

one day suspension from the Futures & Options segment ("F&O

segment") and Commodity Derivative segment ("CD segment")

of the NSE on the appellant. This appeal has been filed

aggrieved by these directions.

2. A perusal of the impugned order would show that ten

specific violations have been noticed by the joint inspecting

team of the NSE and other stock exchanges etc. conducted for

the period April 01, 2018 to May 31, 2019. These violations/

non-compliance and penalty/action against each of these

violation/ non-compliance are tabulated at pages 15-16 of the

impugned order. Since these non-compliances have been

admitted by the appellant and the appellant is mainly seeking

remedy on one of the violations on account of disproportionality

we do not propose to detail the non-compliances, action taken

etc. therein. The main violation and the action taken agitating

the appellant is at Sr. No. 3 in the table relating to incorrect

reporting of margin collected from clients. On this violation a 3

monetary penalty of Rs. 18,54,800/- and one day suspension

from the F&O segment and CD segment have been ordered by

the MCSGFC.

3. It is the contention of the learned counsel Shri J. J. Bhatt,

appearing for the appellant that the charge is not that no margin

has been collected from the clients' concerned but there is a

shortfall in the margin collected to the tune of 6.27 lakhs in the

F&O segment and 12.28 lakhs in the CD segment. He further

contends that even these shortfalls from a few clients have been

received the next day from most of the clients and within 3 days

from the rest. It is also contended that the impugned order itself

records that the appellant has sufficient net worth of more than

Rs. 1 crore at the relevant time which means that the small sums

of delayed margin collection from a few clients would not result

in any undue risk or settlement default etc. Therefore, the

learned counsel contends that the amount of monetary penalty

as well as one day suspension is disproportionate to this minor

technical violation. He also relied upon an order of this

Tribunal in the matter of Bezel Stock Brokers Private Limited

vs. National Stock Exchange of India (Appeal No. 294 of 2018

decided on 30.01.2019) to emphasise that the impugned order

suffers from grave disproportionality in its directions. 4

4. The learned senior counsel Shri Venkatesh Dhond,

appearing on behalf of the respondent NSE, on the other hand,

contends that the violation has been noticed during inspection;

not disclosed by the appellant itself and as such the appellant

had tried to hide this violation and therefore the penalty has to

be full in terms of the relevant provisions which has been done

in the instant case. It was further contended that imposition of

only the monetary penalty, without the concomitant provision of

suspension, does not act as a necessary deterrent needed for

brokerages to follow the rules and regulations thoroughly.

Hence, given that the appellant failed to disclose the correct

details of margin collected and therefore made false declaration

which was detected only during a comprehensive inspection and

the fact that the appellant had admitted to the violation and there

are nine other violations as well the penalty (both monetary and

one day suspension) imposed on the appellant is necessary to

send the right signals.

5. Having heard the submissions made by the learned

counsel for the parties and perusing the documents produced

before us, we are of the considered view that in the given facts

of the case the penalty imposed is rather harsh and

disproportionate. It is admitted that the appellant did not make 5

the correct disclosure at the relevant time. But at the same time,

we note that the shortfall in the margin collected are small

amounts of Rs. 6,26,642 (Rs. 6.27 lakhs i.e. 0.14%) and Rs.

12,28,138 (Rs. 12.28 lakhs i.e. 14.25%) which is a negligible

proportion of the total margin needed to be collected and the

appellant had sufficient net worth. Given these undisputed

facts, as a first time step, the monetary penalty imposed is

sufficient to impart justice in the matter. However, we make it

clear that any repetition of such violations could entail the full

force of the applicable law.

6. Accordingly, the appeal is partly allowed. Monetary

penalty imposed is sustained; direction on one day suspension is

quashed. Consequently, Misc. Application No. 304 of 2020 is

also disposed of.

7. 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 Private Secretary on behalf of the bench

and all concerned parties are directed to act on the digitally 6

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

Dr. C.K.G. Nair Member 10.03.2021 RAJALA Digitally signed by PK KSHMI RAJALAKSHMI H NAIR

H NAIR Date: 2021.03.11 16:27:49 +05'30'