J.P Devadhar, Presiding Officer (Oral):— Not on Board. Taken up for hearing by consent of both parties.
2. Appellant is aggrieved by the order passed by the Disciplinary Action Committee (“DAC” for short) of National Stock Exchange of India Limited (“NSE” for short) dated February 03, 2017. By the said order the DAC of NSE has declined to consider the Review Application filed by the appellant against the decision of the DAC of NSE dated October 25, 2016. As a result, penalty of Rs. 10 lac imposed against the appellant and suspension of the trading membership of the appellant in all segments for a period of 5 trading days from Monday 27 February 2017 to Friday 3 March, 2017 has attained finality.
3. Mr. Prakash Shah, learned counsel appearing on behalf of the appellant submitted that total ban/prohibition from trading for 5 days is erroneously imposed on the appellant in a “casual, nonchalant and blasé manner”. He submitted that the decision of the DAC of NSE is in violation of NSE Circular dated June 27, 2013, because, as per that circular suspending the trading is not contemplated for the violations allegedly committed by the appellant. Counsel for the appellant further submitted that all remedial and corrective measures to ensure that the lapse, if any, found during inspection carried out by NSE does not recur again have been taken and hence the impugned order deserves to be quashed and set aside.
4. We see no merit in the above contentions.
5. During the course of regular inspection conducted by the NSE it was inter alia noticed that the funds and securities of the clients of the appellant were used for other than respective clients and accordingly, show cause notice was issued to the appellant on November 04, 2015 alleging the following two violations:—
a) Difference in quantity of securities as per back office register of securities and holding statement of beneficiary accounts.
b) Receipt of securities not from respective clients.
6. With reference to the first violation alleged by NSE, the appellant in the affidavit in reply dated November 20, 2015 stated as follows:—
“On verification of our records related with securities, posting of securities in our back office software was not done properly as well as ISIN Code and Scrip name were also not updated as per the actual records, due to this such records were not reconciled with our actual holding as per holding statement of beneficiary account.”
7. With reference to the second violation alleged by NSE, appellant in the affidavit in reply dated November 20, 2015 stated as follows:—
“As per our previous submission regarding the inspection, the shares lying in the account of Mr. Naveen Kumar Gupta (Client Code H1) belonging to the other clients and the same was as per mutual understanding between Mr. Naveen Kumar Gupta and respective clients, and were used by Mr. Naveen Kumar Gupa by their consent only.”
8. It is further interesting to note that the oral submission made by the appellant as recorded in the order of DAC of NSE dated October 25, 2016 reads thus:—
“Prrsaar's oral submissions before DAC
7. Prrsaar was represented by its Proprietor, Mr. Ved Prakash Gupta, who made the following oral submissions:
a) He has been a Member in Commodity market since 2004 and in Capital market since 2009. He has worked in rural and semi-urban area. He has also authored a book.
b) He admitted to all the violations pointed out in Exchange show cause notice dated November 4, 2015 and offered apologies to DAC for the inconvenience caused because of the same.
c) Because of his ill health, he had handed over operations of the firm to NKG. NKG was a relative. Shri Ved Prakash Gupta came to know about the misutilization of client securities by NKG only when the Exchange shared its observations, however he was not aware of the usage of funds raised by such misutilization.
d) As a proprietor of the firm, he could not take any legal action against NKG who cheated him because he is a close relative.
e) He has no knowledge on how NKG used the money raised by the misuse of client securities. However, he has recouped all clients' securities and the balance of Register of Securities and that of client beneficiary account is now reconciled.
f) He assured that such violations will not be repeated in future.”
9. From the aforesaid submissions made by the appellant before the DAC of NSE which are not in dispute, it is apparent that the appellant had in fact committed the violations alleged in the show cause notice. Moving the clients securities from the clients beneficiary account to demat account of Naveen Kumar Gupta a relative of Mr. Ved Prakash Gupta proprietor of the appellant and thereafter transferring the said securities to the account of Global Fincap was in gross violation of the norms laid down by NSE.
10. Counsel for the appellant sought to argue that there are several errors in quantifying the amounts alleged to have been diverted from the clients beneficiary accounts to the demat account of Naveen Kumar Gupta. However, we have not permitted counsel for the appellant to raise that plea, because, firstly, no such plea was raised in the Review Application filed by the appellant before the DAC of NSE. Secondly, even if there are some discrepancies in the quantum of amounts moved from the clients beneficiary accounts, very fact that the appellant has moved funds and securities from the clients beneficiary accounts itself is sufficient to hold the appellant to be guilty of violating the norms required to be followed by a member of the exchange.
11. Apart from the above, in the present case Naveen Kumar Gupta, operating on behalf of the appellant had executed sale transactions without holding the scrips and in fact, the appellant has accepted that the sale obligations of Naveen Kumar Gupta were met by using securities of other clients. Thus, it is established that in the present case securities belonging to the clients' of the appellants have been utilized to meet the pay in obligation of Naveen Kumar Gupta which is in gross violation of the code of conduct prescribed for members of the exchange. Reliance placed by the appellant on the Circular of NSE dated June 27, 2013 is totally misplaced. The said circular clearly stipulates that serious action could be taken depending upon the gravity of the violations committed. In the present case, the violations committed by the appellant being serious DAC of NSE was justified in taking stern action.
12. In these circumstances, penalty of Rs. 10 lac and suspending the trading membership of the appellant for 5 trading days cannot be said to be unreasonable or excessive.
13. For all the aforesaid reasons we see no reason to entertain the appeal and accordingly the appeal is hereby dismissed with no order as to costs.