Progressive Share Brokers Pvt. Ltd vs Securities And Exchange Board Of India

Tarun Agarwala, Presiding Officer

The present appeal has been filed against the order dated October 21, 2022 passed by the Adjudicating Officer (“AO” for convenience) of the Securities and Exchange Board of India (“SEBI” for convenience) imposing a penalty of Rs. 5 lakhs under Section 15HB of the SEBI Act, 1992 for violation of Clause A(2) of Schedule II read with Regulation 9 of SEBI (Stock Brokers and Sub-brokers) Regulations, 1992 and SEBI Circular dated December 23, 2011.

The facts leading to the filing of the present appeal is, that during the course of investigation of front running of sell/ buy trades of Deutsche Mutual Fund by Malati Lata Jena it was observed from the “client registration form” of Malati Lata Jena that “in person verification” of Malati Lata Jena was done by the father of Fund Manager who was not a sub-broker or authorised person. Accordingly, the appellant who is a broker was issued a show cause notice dated June 22, 2021 to show cause why an enquiry should not be held and penalty should not be imposed for violation of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.

After enquiry, it was found that the appellant had not acted with due, skill, care and diligence while opening the trading account of Malati Lata Jena and accordingly imposed a penalty of Rs, 5 lakhs.

Having heard Shri Prakash Shah, the learned counsel for the appellant and Shri Manish Chhangani, the learned counsel for the respondent and upon a perusal of the record, we find that SEBI Circular dated December 23, 2011 provided that “in person verification” which is part of the Know Your Client (“KYC”) process was required to be carried out in the case of stock broker by their sub-brokers or authorised persons appointed by the stock-broker and after getting approval from the concerned stock exchange in terms of SEBI Circular dated November 06, 2009 and only such authorised person could perform the functions of “in person verification”.

In the instant case, admittedly at the time of opening the trading account of Malati Lata Jena in respect of KYC process the “in person verification” was not done by an authorised person and, consequently there was an infiniment on the part of the appellant in not complying with the process provided under the SEBI Circular dated December 23, 2011 and consequently violated Clause A (2) of Schedule II read with Regulation 9 of the SEBI (Stock Brokers and Sub-brokers) Regulations, 1992.

The fact that while opening the trading account of Malati Lata Jena the “client registration form” was not properly verified is admitted by the appellant.

We are of the view that the violation of the Circular in the given circumstances is a technical violation and in view of the fact that the appellant, as a broker, apart from registering Malati Lata Jena as a client had no role to play in the trades executed by Malati Lata Jena. We are of the opinion that a minimum penalty prescribed under Section 15HB should have been awarded.

Consequently for the reasons stated aforesaid, while affirming the violation committed by the appellant the penalty of Rs. 5 lakhs is reduced to the minimum penalty of Rs. 1 lakh under Section 15HB of the SEBI Act. The appeal is partly allowed.

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.