MANSUKH SECURITIES AND FINANCE LTD. Vs. THE ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD OF INDIA

JUDGEMENT

(1.) THE Appellant before us is a public limited company incorporated under the Companies Act, 1956. It is a member of the National Stock Exchange of India Limited and is registered with the Securities and Exchange Board of India (the Board) as a stock broker as well as participant of National Securities Depository Limited. The Board carried out inspection of books of accounts and records of the Appellant during October 6, 2004 to October 13, 2004 for the financial years 2002 -2003, 2003 -2004 and for 2004 -2005 up to the date of inspection and noticed certain irregularities in the maintenance of books of accounts and compliance with the regulations/circulars issued by the Board from time to time. A copy of the inspection report was made available to the Appellant on January 3, 2005 asking it to submit its comments together with documents, if any, in support of the comments. Thereafter a show cause notice dated September 14, 2007 was issued to the Appellant indicating the irregularities committed by it in the maintenance of records and asking it to show cause as to why an enquiry should not be held against it in terms of Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalty by the Adjudicating Officer) Rules, 1995 and why penalty should not be imposed under Section 15HB of the Securities and Exchange Board of India Act, 1992. The Appellant filed a reply dated November 12, 2007 denying the allegations of irregularities and denying that it had violated any of the regulations/guidelines of the Board with regard to maintenance of its books of accounts. An opportunity of hearing was also provided to the Appellant after which the adjudicating officer of the Board passed the impugned order dated February 14, 2011 holding the Appellant guilty of the following irregularities:

(2.) WE have heard the learned Counsel for the parties who have taken us through the record. It is argued by learned Counsel for the Appellant that it has furnished satisfactory explanation which has not been accepted by the adjudicating officer. The alleged irregularities are procedural in nature and following the dictum of earlier orders of this Tribunal, no penalty can be imposed on the Appellant for the alleged irregularities. Our attention was also drawn to an order of this Tribunal passed on June 16, 2011 in Appeal No. 23 of 2011 (Religare Securities Limited v. Securities and Exchange Board of India) wherein the Tribunal has observed as under:

(3.) THE other irregularity for which the Appellant has been held guilty by the adjudicating officer is that the Appellant allowed unauthorized persons i.e. the employees of its group company M/s. Uttam Financial Services Limited to carry out proprietary account trading besides client based trading. The Appellant had admitted that some persons who operated the proprietary account trading enabled terminals were employees of its group company and those employees were seconded to it by the said group company and were working under the direct control and supervision of the Appellant. The proof of secondment of the persons by the group company was also submitted by the Appellant which was not accepted by the adjudicating officer on the ground that it is not ascertainable whether the persons who were deputed to the notice carried out the proprietary trading besides client based trading. The other ground for not accepting the Appellant's reply was that the memos of secondment are blanket agreement entered into with a group company. We are unable to accept the logic given by the adjudicating officer of the Board. In the absence of any bar in the rules or regulations on this subject, we do not find any illegality or irregularity in the procedure adopted by the Appellant in this regard. Further the Appellant has been held guilty of violating regulation 26(xv) of the stock brokers regulations. The said Regulation makes a stock -broker or sub -broker liable to monetary penalty if he fails to comply with directions issued by the Board under the Act or Regulations framed there under. No provisions of the Act or Regulations have been pointed out which have been violated by the Appellant in this case. We are, therefore, unable to agree with the findings arrived at by the adjudicating officer in this regard.