Ashok Kumar Kayan vs Securities & Exchange Board Of India

Tarun Agarwala, Presiding Officer

The present appeal has been filed against the order dated May 19, 2022 passed by the Adjudicating Officer (hereinafter referred to as ‘AO’) of Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) for violating provisions of Clauses 2, 3, 4, 5 and 6 of SEBI circular CIR/MIRSD/16/2011 dated August 22, 2011 and Clauses A(2) and A(5) of Code of Conduct as specified in Schedule II read with Regulation 9(f) of Broker Regulations.

We have heard Ms. Anjali Agrawal, the learned counsel with Mr. Rajendra Kumar Agrawal, FCA for the appellant and Mr. Akash Rebello, the learned counsel with Mr. Nishit Dhruva, Mr. Ravishekhar Pandey, Ms. Shefali Shankar, the learned counsel for the respondent.

We find that the appellant is a registered stockbroker. His premises was inspected on March 7, 2016 for the period from April 1, 2012 till March 7, 2016. In the inspection report, the appellant was asked to give reply to the findings in the inspection report which reply was duly given immediately. After six years, a show cause notice was issued on April 13, 2022 to show cause as to why penalty should not be imposed for violating Clauses 2, 3, 4, 5 and 6 of SEBI circular CIR/MIRSD/16/2011 dated August 22, 2011, Clauses 1, 2, 3 and 4 of SEBI Circular MIRSD / Cir-5/2012 dated April 13, 2012 and Clauses A(2) and A(5) of Code of Conduct as specified in Schedule II read with Regulation 9(f) of SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (hereinafter referred to as Stock Broker Regulations / Broker Regulations’) .

The AO after considering the material evidence on record found that the appellant had violated the aforesaid circulars and accordingly imposed a penalty of Rs. 3,50,000/-.

The appellant before us submitted that there is an inordinate delay in the issuance of the show cause notice and the deficiencies pointed out in the inspection report was duly complied with and the deficiencies had also been removed.

Admittedly, the inspection was conducted on March 7, 2016, and a reply was given immediately thereafter. Thereafter, nothing was done and the show cause notice was eventually issued after six years on April 13, 2022.

In our view, there has been an inordinate delay in the issuance of the show cause notice. No cogent explanation has been given by the respondent as to why the show cause notice could not be issued earlier. The mere fact that the AO was appointed but could not issue a show cause notice as he got transferred is no valid excuse for delaying the initiation of the proceedings.

In the absence of any justification, we are of the view that the show cause notice was not issued within a reasonable time and in fact there has been an inordinate delay in the issuance of the show cause notice. We are further of the opinion that old and stale dispute should not be raised.

In similar circumstances, this Tribunal after considering the various case laws quashed the impugned order on the ground of delay in initiating proceedings in Shriram Insight Share Brokers Ltd. vs. SEBI in Appeal No. 559 of 2020 decided on January 4, 2022. In the said case, the show cause notice was issued on December 12, 2019 wherein the inspection of books of account was conducted during January / February 2012. This Tribunal in its decision quashed the impugned order on the ground of inordinate delay. The said judgment was affirmed by the Hon’ble Supreme Court by an order dated March 28, 2022 in Civil Appeal No. 1863 of 2022 Securities and Exchange Board of India vs. Shriram Insight Share Brokers Ltd.

The aforesaid decision is squarely applicable in the instant appeal. For the reasons stated aforesaid, the impugned order is quashed. The appeal is allowed with no order as to costs.

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.