Partly allowed

Radar Securities Limited

SAT30 May 2003

Case brief

AI extract

What is this about?

The Securities Appellate Tribunal modified an SEBI order suspending Radar Securities Ltd.'s registration certificate. While affirming the dismissal of charges regarding margin books and contract note defects due to technicalities, the Tribunal found trading with unregistered entities unproven. It deemed the original six-month suspension disproportionate to established technical violations and redu

What did the court decide?

Suspension of registration certificate reduced from six months to two months.

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BEFORE THE SECURITIES APPELLATE TRIBUNAL

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MUMBAI

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APPEAL No.22/2003

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Radar Securities Ltd., Appellant Vs. Securities & Exchange Board of India Respondent Present

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Shri Bharat Merchant
Advocate
Shri Utpal Joshi,
AdvocateFor Appellant
Shri Ananta Barua,
Jt. Legal Adviser, SEBI
Shri Santosh Shukla,
Asstt. Legal Adviser, SEBIFor Respondent

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ORDER

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The Appellant is a stock broker registered with the Respondent. It is a member of the National Stock Exchange of India Ltd. (NSE). The Respondent carried out inspection of the books of account, and other records of the Appellant some time in November 2000. The inspection revealed the following shortcomings:

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(i) failure to maintain Margin Deposit Book under regulation 17 of the Securities and Exchange Board of India (Stock Broker and Sub-broker) Regulations, 1992 (the Stock Broker Regulations). (ii) Delay in making payment to the clients

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(iii) Failure to obtain acknowledgements from clients on the Contract Notes, failure to affix stamps and disclose the order receipt time, on the Contract Notes.

Radar Securities Limited — Securities and Capital Markets | SAT (2003)

Partly allowed

Radar Securities Limited

SAT30 May 2003

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Case brief

AI extract

What is this about?

What did the court decide?

Suspension of registration certificate reduced from six months to two months.

¶1

BEFORE THE SECURITIES APPELLATE TRIBUNAL

¶2

MUMBAI

¶3

APPEAL No.22/2003

¶4

Radar Securities Ltd., Appellant Vs. Securities & Exchange Board of India Respondent Present

¶5

Shri Bharat Merchant
Advocate
Shri Utpal Joshi,
AdvocateFor Appellant
Shri Ananta Barua,
Jt. Legal Adviser, SEBI
Shri Santosh Shukla,
Asstt. Legal Adviser, SEBIFor Respondent

ORDER

(iii) Failure to obtain acknowledgements from clients on the Contract Notes, failure to affix stamps and disclose the order receipt time, on the Contract Notes.

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Shri Merchant stated that another charge which the Respondent has leveled against the Appellant is that of dealing with unregistered sub brokers that according to the Respondent transactions have been carried out with members of Calcutta Stock Exchange, who were neither registered as remisiers with NSE nor were they registered as sub brokers with the Respondent which is in violation of SEBI circular dated 31.3.1997. He referred to the entities with whom the Appellant had transaction – these are (i)VPT Securities (ii)Pawan Deora (iii)Sadasuk Kabra (iv) Kamani Stock Broking Services P. Ltd. and (v) G. M. Pyne. Learned Counsel submitted that Kamani Stock Broking Services P. Ltd. was trading with the Appellant on its account and not for its clients and not as a sub broker or as a remisier, that there was no reason to disbelieve or disregard such confirmation and there was no material available to the contrary. He further submitted that in respect of the other four entities referred to in the enquiry report, the Appellant had raised bills, Contract Notes and issued cheques only in the names of the said entities and all orders were executed on the NEAT system in their name and code only. The same clearly establishes that the Appellant had dealings with such entities not as their sub broker. Learned Counsel submitted that the Appellant was not in a position to know and could not have been known as to whether Pawan Deora & Co., VPT Securities (P) Limited, G.M. Pyne were trading for themselves or on behalf of their clients as the Circulars relied upon and referred to in the enquiry report clearly puts the onus on the sub-brokers themselves to obtain registration with SEBI. Shri Merchant submitted that no case has been made out of the Appellants having wilfully and deliberately entered into transactions with the said entities knowing that they were not trading on behalf of themselves but were trading on behalf of their clients. He submitted that the enquiry officer’s finding that Pawan Deora & Co., VPT Securities (P) Limited and M/s. G. M. Pyne were acting as unregistered sub-brokers of the Appellant and unregistered remisiers of NSE is based on surmises and conjectures. He submitted that the size of volumes traded by such entities or the fact of their being members of the Calcutta Stock Exchange Association Limited, could not in any manner lead to the conclusion that such entities were trading not on their own account, but for their clients, that it was common for members of other Stock Exchanges to act on their own account in significant volumes for jobbing, arbitrate, investment and trading. He submitted that the SEBI Circular dated 31.3.1997, in any event, had not been communicated to the Appellant by NSE.

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the violations are of technical nature with no adverse effect on the investors and the securities market is not tenable. Shri Barua submitted that as a condition for grant of the certificate of registration in terms of rule 4 (b) of the SEBI (Stock Brokers and Sub-Brokers) Rules, 1992, every stock broker is under obligation to comply with the statutory requirement prescribed under said regulation, that under section 11 of the SEBI Act, the Respondent is empowered to take measures to protect the interests of investors and to regulate the securities market inter alia by registering and regulating the working of the stock brokers, that the directives contained in the SEBI circulars are measures for regulating the working of stock brokers, that the code of conduct specified in Schedule II also provides for the minimum standards for the working of the stock brokers. If the regulatory requirements are violated by the stock brokers on the ground that the violations are technical and hence not punishable, the measures taken by SEBI for regulation of the stock brokers would be rendered nugatory and the regulatory function would be jeopardized. The requirements of Contract Notes, time stamping etc are the requirements which SEBI has put in place for the purpose of investor protection and to remove certain mala fide practices, and non compliance of SEBI directives cannot be viewed as technical. He further submitted that indulging in transactions which are prohibited can not be allowed on the ground of any technicality or otherwise especially when such transactions are likely to have a detrimental effect on regulation of the securities market, that every stock broker is under obligation to comply with the provisions of the Act and the Rules and Regulations made there under as also the circulars and guidelines issued by the Board from time to time, and that it is also imperative that all the members of the stock Exchange adhere to the byelaws of the Exchange. It was submitted that Regulation 7 provides that the stock broker holding the certificate shall at all times abide by the Code of Conduct as specified in Schedule II, that Clause A(5) of Schedule II provides that a stock broker shall abide by all provisions of the Act and the Rules Regulations issued by the Government, the Board and the Stock Exchange from time to time as may be applicable to him. According to the Respondent the Appellant has committed several violations as observed in the order and has not taken due care and diligence in observance and compliance of the statutory requirement in conduct of its business as a stock broker, that the Appellant has violated the condition of registration specified in rule 4(b) of the SEBI (Stock Brokers and Sub-brokers) Rules, 1992.

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On a perusal of the show cause notice issued to the Appellant by the Respondent based on the enquiry report, it is seen that it was held against the Appellant that it had not maintained “Margin Deposit Book” as required vide regulation 17(1)(k) of the Stock Broker Regulations. The Appellant’s version is that since it had not collected margin it was not required to maintain the book, and as far as margin deposit made by it with stock exchange, there is a facility of Electronic Down Load and a separate file is being maintained for such margin down load by the Appellant. As the Appellant rightly pointed out that it is not the charge that the Appellant had traded without collecting margin. Hence, the Appelant cannot be penalised in the proceedings initiated by the Respondent viewing that the Appellant traded without obtaining adequate margin. Therefore, the circular dated 18.11.1993 requiring the brokers to collect requisite margin has no application to the instant charge. The Respondent has not controverted the Appellant’s contention that it had not collected margin from its clients. In my view the margin deposit book required to be maintained under regulation 17(1)(k) is not only confined to margins received from the clients, but it also covers the margin deposit made by the broker with the exchange. Since the Appellant has claimed that it has not received margin from the clients, the question of furnishing the details of the same in the book do not arise. However, since the Appellant has deposited margin money with the exchange, it was required to be recorded in the margin deposit book. In this connection it is to be noted that the details of the margin deposit are available on the exchanges’ computer and available at a click. According to the Appellant, it had down loaded the statement and kept in a file the details in seriatim. This has not been disputed by the Respondent. The Respondent’s grievance is not that the material information is not available, its objection is more on the manner in which it is stored. No doubt the ideal thing would have been to literally comply with the requirement of regulation 17((1)(k) to the extent it was applicable to the Appellant. However, since the Appellant is stated to have maintained effectively the record of its margin deposit with the exchange, the failure to maintain the information in the “book form” can not be considered as a grave violation of the regulation to warrant penalty of suspension of its certificate of registration.

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independent of the Stock Broker Regulations or Regulations of Exchanges. If stamps of adequate value are not affixed, the consequences as provided under the Stamp Act will follow. But at the same time it is for the broker to ensure that the stamps of adequate value are affixed on the contract note. The duty is cast upon him. It is noted that the Appellant has admitted its failure in this regard. The Contract Note provides space for recording “Trade time”. This “Trade time” is the one which refers to execution of the trade. Not the placement of the order by the client. However, according to the Respondent, its ciricular dated 11.2.97 requires every stock broker to maintain record of time of placing the order with it. According to the said circular (it is addressed to the Stock exchanges) “the broker member should maintain record of time when the client has placed the order and reflect the same in contract note along with the time of execution of the orders”. By the said circular the stock exchanges were directed to initiate action in this regard. The Appellant’s submission that NSE had not circulated the said circular is not convincing. Failure to carry out the Respondent’s direction by NSE would have attracted consequences. In any case the said circular was displayed on the Respondent’s Website. The receipt of the order from the client and execution of order by broker are not one and the same. Stamping the receipt time is important from the investor protection angle as it has a bearing on the transaction rate. Failure to do so is a matter of concern. It is noted from the NSE Regulation (6.1.3) that a stock broker is required to maintain order book reflecting therein amongst other details, the date and time of orders received from clients. Therefore it is not that there is no other source to locate order receipt time, in the event of any dispute. But this information is not readily available to the client. The Appellant’s argument that the format of the Contract Note was not amended and therefore it was not required to do time stamping has no basis. It is well settled that an administrative circular is effective as an interim measure till the regulations are amended incorporating the requirement of the circular. In my view the Respondent’s charge of the default on the part of the Appellant in complying with the requirements of retaining counterfoil/duplicate of the contract note, stamping time of receipt of the order and affixing stamps, as per the Indian Stamp Act stand established.

Radar Securities Limited

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Radar Securities Limited

Case brief

What is this about?

What did the court decide?

Issues for consideration

Cases cited

Parties & counsel

Coram

Case details

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