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Judgment
,,
M. T. Joshi, J",,
Aggrieved by the decision of the Member Core and Settlement Guarantee Fund Committee (hereinafter referred to as “MCSGFCâ€/â€The,,
Committeeâ€) of the respondent National Stock Exchange of India Limited (hereinafter referred to as “NSEâ€) dated February 28, 2020 imposing",,
a penalty of Rs. 10 lakhs (Rupees Ten Lakhs Only) for not finding 10 terminal of the appellant at the reported location against the rules and circular,,
the present appeal is preferred.,,
During the inspection of the appellant’s premises in the month of July 2018, some irregularities/ discrepancies were noted by the inspecting",,
team. Minor irregularities were satisfied by imposing a penalty of Rs. 10,000/- by the Internal Committee of Minor Action. The major issue of user of",,
10 terminals by the appellant form the places other than designated was handled by the MSCGFC vide the impugned order. Upon considering the,,
reply of the appellant to the show cause notice as well as upon personal hearing the MSGFC found that the appellant had operated 10 terminal at the,,
locations other than reported to the respondent NSE. Therefore, the penalty came to be imposed at the rate of 1 lakh per terminal.",,
The appellant is a stock broker. It has obtained 102 trading terminals for two locations at Kolkata as detailed in the order. While some of the,,
terminals were found closed or were having negligible tradings, with respect to disputed 10 terminal according to the respondent the appellant was",,
unable to provide the details and location of these 10 trading terminals. Therefore, the show cause notice dated May 07, 2019 was issued.",,
The appellant inter-alia replied that on the date of inspection, there was an alarm call from Exchange with respect to order-to-trade ratio and",,
therefore the appellant had to log off some of its terminals to keep the order-to-trade ratio in order. It was further explained that when the officials of,,
the respondent NSE checked the premises of the appellant they did not check the entire sections of their office. Some of the sections were overlooked,,
by the inspecting teams which were simultaneously carried out by 5 inspection teams. Lastly it was contended that as the inspecting team visited the,,
office premises approximately at 3:20 p.m. some of the dealers of the appellant had already completed their job for the day and therefore they had,,
wrapped-up their terminal for the day.,,
In view of the above explanations additional show cause notice dated January 07, 2020 was issued to the appellant, thereby giving the details of the",,
trading time from all the terminals. It pointed out that even after 3:20 PM the trades were executed from the 6 out of 10 disputed terminals. Exhibit-A,",,
annexing the details was provided to the appellant.,,
The appellant replied that on that day the alarm call was received by Bombay Stock Exchange with respect to order-to-trade ratio and therefore the,,
appellant was required to log off some of it’s active terminals. Further as the inspecting team had visited the office at Salt Lake of the appellant it,,
was already 3:20 p.m, and therefore as some of the dealers of the appellant had completed their trades, they had closed their terminals.",,
Vide the impugned decision the Committee of the respondent held that while in the earlier reply it was vaguely stated that the alarm call was from a,,
stock exchange, in the next of the reply however it was explained that it was the alarm call from the Bombay Stock Exchange. Therefore not naming",,
a particular Exchange in the earlier response was branded by the respondent’s Committee as a mischievous explanation. As regards the timing,",,
that at 3:20 p.m some of the dealers of the appellant had completed their work and closed the terminals, the respondent’s Committee observed",,
that vide the additional show cause notice it was brought to the notice of the appellant that post 3:20 p.m 6 terminal out of those 10 terminals were,,
found executing trades as proved by the log annexed to the additional show cause notice as Annexure A. The Committee therefore concluded that the,,
appellant was unable to demonstrate the availability of the terminals as well as the usages of the terminal from the declared locations of the appellant,",,
during the inspection. The appellant was therefore held liable for the penalty for acting against the Circular No. NSE/MSD/34638 dated April 13,",,
2017. The Committee further observed that the appellant failed to adhere to the professionalism and the trading practices. It further found that there,,
was a contravention of the following Regulations/ circular:-,,
“i. Regulation 4.2 of NSEIL CMFO Regulations require members to establish, maintain, and enforce procedures to supervise its business",,
and to conduct periodic review/ inspection of their offices and records of the operations carried out by them,,
ii. Exchange circular no. NSE/INSP/28434 dated December 24, 2014 which state that the members are required to ensure adequate",,
monitoring and control over the trading terminals operated from the offices including sub broker and AP location of the members.,,
iii. Exchange circular no. NSE/MA/22732 dated February 13, 2013 inter alia states that: “..Trading members shall report the details of",,
L2 digit CTCL/IBT/DMA/STWT terminals to the Exchange before routing any order through such terminals to avoid mismatches. Failure to,,
upload the details, by member, if observed shall render such terminals unauthorized and shall consequently attract disciplinary action as",,
prescribed by the Exchange from time to time…â€,,
iv. Exchange circular no. NSE/MA/22732 dated February 13, 2013 inter alia states that: “…trading members can carry out their order",,
activity on the same day subsequent to the upload of terminals through ENIT…â€,,
In the circumstances, the penalty as detailed above came to be imposed.",,
Heard Shri Jaikishan Lakhwani, learned counsel for the appellant and Shri Vishal Kanade, learned counsel for the respondent through video",,
conference. The learned counsel for the appellant submitted that a joint inspection was conducted by NSE/BSE/MSEI/MCX AND NCDEX on the,,
fateful day. In fact all the terminals were located at the Salt Lake office of the appellant. The Inspecting Officer reached the Salk Lake office only at,,
3:20 p.m. around which time the market closed. The Inspecting Officer did not ask for the said terminals. The Inspecting Officer failed to carry the,,
inspection completely and in proper manner. Further on that day as there was an alarm call from the Bombay Stock Exchange as detailed above some,,
of the terminals were required to be closed and therefore the finding of the Committee are wrong.,,
Without prejudice to the above submission, it was contended that the respondent was not able to establish that the terminals were located at any",,
other premises. The only findings are that the terminals were not found at the designated location. As per the Circular No. NSE/INSP/28434 dated,,
December 24, 2014 the penalty can be imposed only for using the terminal at a location other than designated location.",,
Further, as regards the quantum of the penalty it was submitted that the Circular No. NSE/INSP/36248 dated November 06, 2017 on the basis of",,
which the penalty is imposed itself provides that the penalties indicated therein are only indicative in nature and could undergo change in specific cases,,
depending on the frequency and gravity of the violations. Admittedly, the present violation is the first violation.",,
Therefore, according to him, the penalty of Rs. 10 lakh imposed upon the appellant is excessive.",,
Sr. No.,Details of contravention,Penalty/Disciplinary Action
8,"Unauthorized extension of
NEAT/ Trading terminal/
Non-upload of CTCL Trading
terminals to the Exchange/
Location of terminal at a
place other than main/ branch
office and the location of the
offices of registered sub
brokers/ authorized persons
of the member not uploaded
to Exchange","Rs. 1 Lac per location.
In cases where non-upload of details of more than five CTCL terminals are observed and
such CTCL terminals are also observed to be operated by entities acting as unregistered
intermediaries in the CM segment or as intermediaries in the F&O segment and/ or such
terminals are observed to be used for carrying out illegal trading activity, suspension of the
trading membership may also be considered depending upon the gravity of the violation.