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Judgment
M. T. Joshi, J
The present appeal is preferred against the impugned order dated August 25, 2020 passed by the Member and Core Settlement Guarantee Fund Committee (hereinafter referred to as 'Committee') of the respondent National Stock Exchange of India Ltd. (hereinafter referred to as 'NSE') levying penalty of Rs. 7,03,000/- with respect to 7 violations found to have been committed by the appellant during conducting inspection for the calendar year 2018.
The learned counsel for the appellant submitted that out of 7 violations, the appellant restricts it's relief as regards penalties imposed on two counts only i.e. penalty of Rs. 5 lac for engaging into business other than that of the securities involving personnel financial liability and of Rs. 1 lac for non-furnishing of trading terminal details to the exchange.
We have heard Ms. Akansha Jain, PCS with Ms. Ragini Singh, Ms. Aastha Golecha, the learned counsel for the appellant and Mr. Pradeep Sancheti, the learned senior counsel with Mr. Rashid Boatwalla, Mr. Aditya Vyas, the learned counsel for the respondent through video conference.
The submission from both the sides would show that at the time of passing of the impugned order, the appellant had already applied for surrender of the license granted to the appellant as the member of the respondent NSE in capital market as well as F&O segment.
So far as the issue of engagement in the business other than the securities is concerned the respondent NSE has found that on 7 occasions during the relevant period the appellant had advanced an amount of Rs. 1,47,94,491/- to various entities.
The appellant had in his submission explained the heads of advances. In four of the cases, it submitted that, the advances were made for the purchase of office premises, purchase of property, towards share application money while in rest of the cases it submitted that it was an advance in the nature of inter corporate deposits and the amount was recovered. The appellant however failed to supply any documentary evidence in four cases that the payment was made towards purchase of furniture, property, etc. The learned counsel for the appellant submitted that the substantial amount has already been recovered at the time of passing of the order. As regards the advance made to Triveni Conductors Ltd. i.e. one of the entities, of Rs. 28,69,300/-, he submitted that it was an inter corporate deposit. He further submitted that in the case of Geojit BNP Paribas Financial Services Ltd., Securities and Exchange Board of India by an order dated October 31, 2017 the Adjudicating Officer had recorded that there is no restriction in law on the brokers making inter corporate deposits. Further, circular dated November 6, 2017 does not prescribe any penalty. In the case of M/s Jitendra Pukhraj Jain vs. NSEIL Appeal no. 390 of 2020 dated November 17, 2020, this Tribunal for same violation had reduced penalty from Rs. 5 lac to Rs. 1 lac and, therefore, in the alternative he submitted that penalty should be reduced.
In the case of Geojit BNP Paribas Financial Services Ltd. cited (supra) relied upon by the appellant, it was a case where the surplus fund invested by the appellant in a mutual fund was loaned to it's other subsidiaries. Those investments gave it higher returns. The net worth of the noticee in that case was very substantive. In the financial year 2013-14, it was Rs. 395 crore. In the present case, due to the advancing of the amount by the appellant, the net worth had fallen drastically and for having negative net worth, the appellant is also indicted by the same impugned order. It was however let off on caution only because it was in the process of surrendering it's license. The case of Geojit, therefore, would not be applicable in the present case.
In the case of M/s Jitendra Pukhraj Jain (supra), one time advance in small amount was made by the broker therein to a family member and, therefore, considering this fact the penalty of Rs. 5 lac was reduced to Rs. 1 lac. In the present case, we find that the appellant had advanced an amount of Rs. 1,47,94,491/- to 7 entities.
The appellant failed to justify the payment with any documentary evidence. In the circumstances, the ratio of M/s. Jitendra Pukhraj Jain (supra) would not be applicable. However, finding that the appellant has now surrendered the license we deem it fit to reduce the penalty from Rs. 5 lac to Rs. 3 lac.
Next of the issue is regarding use of the terminal at other location than reported to the exchange. The impugned order would show that the CTCL terminal location was reported to the exchange at 401, Starlit Tower, 4th Floor, 29, Y. N. Road, Indore but was not found at the said location. The appellant before the Committee submitted that the said terminal was used by it's authorised person Mr. Manoj Lunia who used to operate the said terminal from the reported location. His registered office was at the same address. He however shifted his own office recently alongwith terminal. After the inspection the address and the said ID was changed on the exchange platform with the correct location details. The Committee imposed a penalty of Rs. 1 lac for the said violation found during the inspection period.
The learned counsel for the appellant submitted that the exchange circular dated February 13, 2013 provides that the location of the CTCL terminal should be at the main / branch office or in the office of registered sub-broker and approved authorised person of the trading member or at the co-location facility provided by the exchange, etc. He, therefore, submitted that the location of the terminal is required at the office of the brokers, sub-brokers, etc. Since Mr. Manoj Lunia who was the registered sub-broker and authorised person changed his office within the distance of 2-3 k.m., it was merely a mismatch of the details of the CTCL address. Therefore, at the most penalty at Rs. 100 for mismatch for 60 days i.e. total Rs. 6000/ would have been imposed as per the applicable circular.
The learned counsel for the respondent however opposed the same. He submitted that the address of the authorised person as well as the terminal is required to be registered and after the terminal is not found on the registered address / place, a penalty of Rs. 1 lac is required to be paid.
Upon hearing both sides, we find that there is no merit in the submission of the learned counsel for the appellant. The appellant himself in submission before the Committee accepted the violation by submitting that the address of the ID of the CTCL terminal was changed after the inspection. Considering the facts on record, the following order :-
ORDER
The appeal is hereby partly allowed without any order as to costs. As regards the penalty of Rs. 5 lac imposed on the appellant as regard to engagement as the principal in the business other than that of securities, the penalty is reduced to Rs. 3 lacs. Rest of the appeal is hereby dismissed without any order as to costs.
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 signed copy of this order. Parties will act on production of a digitally signed copy sent by fax and/or email.