M/s. SMIFS Ltd vs National Stock Exchange Of India Limited

Meera Swarup, Technical Member

Appeal No. 104 of 2024 has been filed by M/s. SMIFS Ltd. (Appellant) impugning order dated November 20, 2023 passed by Member and Core Settlement Guarantee Fund Committee (‘MCSGFC’ for short) of National Stock Exchange of India Limited (‘NSE’ for short) imposing a penalty of Rs. 28,87,100/- alleging that the Appellant has facilitated non- genuine trades thereby violating the provisions of Regulations 4.5.4(c)(i) and Regulation 4.6 of NSEIL Regulations.

The Appellant and Respondent were heard on the plea for interim stay on the impugned order as prayed by the Appellant.

The Appellant’s case is that the trades executed as a broker on behalf of two of its clients were genuine and executed through the Exchange mechanism. The Appellant has been a Trading Member since November 1994 and has always complied with the Regulations mandated by the Respondent and SEBI. The trades were executed on behalf of their clients for availing the Margin Trading Facility (‘MTF’ for short) and were not executed for the purpose of creating a false or misleading appearance of trading or for influencing the market price of the scrip. The trades were carried out in cash segment in highly liquid securities and the Respondents have failed to show how the concerned securities were manipulated. Further, the penalty imposed is unjust and the Appellant already has deposits and collaterals of approximately Rs. 76.03 crores lying with the Respondent.

On the other hand, the learned senior counsel for the Respondent prayed that no interim relief should be allowed to the Appellant as the broker has failed to be vigilant in the securities market by allowing and facilitating non-genuine transactions. Admittedly, the trades were synchronized, counterparties were wife and husband and the same broker facilitated the trades for the counterparties. The broker failed to flag the impugned transactions as abnormal and non-genuine and failed to maintain the integrity of the market. The penalty imposed on the Appellant is as per the law. The Respondent has no discretion in case of imposition of the penalty and has duly imposed a penalty of 100% of profit earned / loss made. Considering the evident involvement of the Appellant in the impugned transactions and the penalty imposed is in accordance with the law, the Respondent submitted that the impugned order should not be stayed.

Having heard both the parties on the interim stay on the impugned order, I am of the opinion that balance of convenience lies in favour of the Appellant. The Appellant has not personally gained from the impugned transactions and the Respondent has deposits / collaterals worth approximately Rs. 1 crore of the Appellant over and above the margin requirement of the trading member.

Considering the aforesaid, the Appellant is directed to deposit a sum of Rs. 14.60 lakh with the Respondent within four weeks from today. If the said amount is deposited, the balance amount of penalty shall not be recovered during the pendency of the appeal.

The Respondent is directed to file a reply on the appeal within three weeks from today. Rejoinder may be filed within three weeks thereafter. The mater would be listed for admission and for final disposal on May 7, 2024.