BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

Order Reserved On: 05.12.2013
Date of Decision : 12.12.2013

Appeal No. 56 of 2013

Ms. Sunita Gupta
E-1, Model Town-II,
Delhi-110 009 …Apelant

Versus

Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051. …Resndt

Mr. Shambhu Nath Singh, Advocate for the Appellant.

Mr. Kumar Desai, Advocate with Ms. Virakthi Hegde, Advocate for the
Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer
Jog Singh, Member

Per : Justice J.P. Devadhar

1. WhhtAdicat cer .O.”fosho) f e riti

andExche ard f a for ort by his order dated 23rd

January, 2013 was justified in imposing penalty of ` 3 lac under Section

15HB of Securities and Exchange Board of India Act, 1992 (“SEBI

for short) for trading as sub-broker without being registered and penalty of

` 2 lac under Section 15A(a) of the SEBI Act for non compliance of

summonses is the question raised in this appeal.

2. SEBI conducted investigation in the trading of the scrip of Sumeet

IntesLt. L” r rt) during period from 01.10.2006 to

12.03.2007 (Investigation Period for Convenience). Investigation revealed

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that the appellant, an individual vide letter dated 18th December, 2006 had

applied for registration as sub-broker but had commenced trading for her

clients w.e.f. 15th December, 2006 (See page 31 of the appeal paper book)

through stock-broker Parasram Holdings Pvt. Ltd. Further according to

SEBI appellant during the investigation had failed to furnish certain

documents called for under the summonses issued. Therefore, proceedings

were initiated and by impugned order dated 23.01.2013 penalties have

been imposed upon the appellant. This appeal is filed to challenge order

dated 23.01.2013.

3. It is contended by counsel for appellant that as per SEBI (Stock-

Brokers and Sub- Bro) les199 “192Rul” for short) the

appellant after applying for registration as sub-broker on 18.12.2006 was

entitled to deal in securities and therefore the trades effected by appellant

from the date of the said application till it was returned on 28.08.2007

cannot be faulted. There is no merit in the above contention because,

firstly appellant had commenced trading on behalf of her clients

admittedly w.e.f. 15th December, 2006 i.e. prior to making application for

registration as sub-broker on 18.12.2006 which was not even permitted

under 1992 Rules. Secondly, 1992 Rules have been rescinded by

notification dated 07.09.2006 w.e.f. 07.09.2006. Therefore, appellant who

had applied for registration as sub-broker on 18.12.2006 could not have

carried on trade as sub-broker neither under SEBI (Stock-Broker and Sub-

Broker) Regulations, 1992 (“192Regatnsfosrt nor under 1992

Rules which was rescinded w.e.f. 07.09.2006. Therefore, the decision of

AO that the appellant had traded as sub-broker in violation of Regulation

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11(1) of 1992 Regulations which prohibits trading in securities without

being registered as sub-broker, cannot be faulted.

4. Under Section 15HB of the SEBI Act, penalty for violation of any

Regulations made by SEBI could be up to ` 1 crore. In the present case,

AO has imposed penalty of ` 3 lac under Section 15HB of SEBI Act upon

the appellant which cannot be said to be unreasonable looking to the

seriousness of the offence committed by appellant in carrying on business

as sub-broker even before making application seeking registration as sub-

broker.

5. As regards imposition of penalty of ` 2 lac under Section 15A(a) of

SEBI Act is concerned, according to AO, appellant has failed to submit

following documents inspite of repeated summonses:-

  a.  Copy of income tax returns for the year 2006-07.  

  b.  Name and address of the counter party.      

c.  Bank statements for the period August 1, 2006 to  

   December 31, 2006.  

d.  All the bank accounts maintained during August 1,   

  2006 to July 31, 2007.  

  e.  Reasons for dealing in the scrip of SIL during the  

     period October 1, 2006 to March 12, 2007  

  f.  Details of off-market transactions in the scrip of SIL  

     done by the Noticee  

  g.  Connection with Purshottam Khandelwal.  

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6. First ground of AO that the appellant failed to furnish copy of

income tax returns for Assessment Year 2006-2007 is contrary to facts on

record, because, from appellant ’ s letter dated 07.09.2009 (at page 31 of

the paper book) it is seen that the appellant had forwarded the income tax

return for Assessment Year 2006-2007 along with letter dated 07.09.2009.

No grievance was made at any time by the investigating authority that the

letter dated 07.09.2009 was received without income tax return for

Assessment Year 2006-2007. In the absence of any grievance regarding

non receipt of the said income tax return at any time prior to the impugned

order, AO could not have recorded a finding in the impugned order that

the appellant had failed to furnish income tax return for Assessment Year

2006-2007. Therefore, the findings of AO that the appellant failed to

furnish income tax return for Assessment Year 2006-2007 cannot be

sustained. As regards the remaining grounds, it may be noted that

appellant vide her reply to the summonses did furnish some particulars

(page 31) but it is evident that certain documents which were specifically

sought through the summonses have not been furnished. Counsel for

appellant could not demonstrate that all the documents were in fact

furnished by the appellant. In these circumstances, finding of AO that the

appellant failed to furnish documents inspite of serving summonses

cannot be faulted.

7. Under Section 15A(a) of SEBI Act, penalty for failure to furnish any

document or any return is 1 lac per day or 1 crore whichever is less. In

the present case since the appellant has failed to furnish documents sought

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by the investigating officer, whether imposition of penalty of ` 2 lac

under Section 15A (a) of SEBI Act is justified is the question.

8. Referring to Section 15J of SEBI Act, it is contended by counsel for

appellant that since there is neither any gain or unfair advantage received

by appellant nor there is any loss caused to any investor, the AO was not

justified in imposing penalty upon appellant. It is further contended that

since appellant has closed her business, lenient view ought to have been

taken in the matter. Having carried on trade even before applying for

registration as sub-broker and having failed to furnish documents called

for in gross violation of 1992 Regulations and SEBI Act, the appellant

cannot escape penalty prescribed under the SEBI Act and the Regulations

made thereunder. Section 15J of SEBI Act requires the AO to impose

penalty prescribed under the SEBI Act depending upon facts of each case

and having due regard to the factors set out therein. Section 15J does not

postulate that penalty can be imposed only if the violations lead to

gain/unfair advantage to the person violating the provisions or loss to the

investors or the violation is repetitive in nature.

9. Strong reliance was placed by counsel for appellant on decision of

this Tribunal in Appeal No. 153 of 2012 (M/s. DSE Financial Services

Ltd. vs. SEBI) decided on 11.09.2012. In that case finding recorded by

AO was that the appellant therein had failed to maintain records in the

manner specified, which was a technical violation. Moreover, even after

recording that the noticee therein had not made any unlawful gains by

such violations which were technical in nature the AO had imposed

penalty upon the appellant therein. In that context this Tribunal held that

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since the technical violation was not repetitive, the AO was not justified in

imposing penalty. That decision cannot be construed to mean that penalty

cannot be sustained for violations of the provisions contained in the SEBI

Act and Regulations made thereunder unless the noticee has made

unlawful gains or unless any investor has suffered loss or that the

violations are repetitive in nature. In other words, a person who has

violated provisions of SEBI Act and the Regulations made thereunder

cannot escape penalty merely because that person has not made unlawful

gains or that the investors have not suffered or that the violations were

committed for the first time. Those factors are relevant for determining

the quantum of penalty and those factors cannot be made basis for

imposition of penalty. In the present case, the appellant has carried on

trading activity as sub-broker even before applying for registration which

is in gross violation of 1992 Regulations and has failed to furnish some

material documents inspite of two summonses which is again in gross

violation of Section 11C(2) and 11C(3) of SEBI Act. Hence reliance

placed on decision of this Tribunal in case DSE Financial Services Ltd.

(Supra) is totally misplaced. In any event, looking to the fact that

appellant has not made any unlawful gains and has not indulged in such

violations repetitively, the AO has imposed nominal penalty of ` 3 lac

under Section 15HB and ` 2 lac under Section 15A (a) of SEBI Act,

which cannot be said to be unreasonable. However, as noted earlier, since

AO has erroneously held that the appellant has failed to furnish income

tax return for Assessment Year 2006-2007, in our opinion, it would be

just and proper to sustain penalty under Section 15A (a) to the extent of

` 1 lac.

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10. Accordingly, appeal is partially allowed by modifying the impugned

order dated 23rd January, 2013 to the extent of reducing the penalty

imposed under Section 15A(a) of the SEBI Act from 2 lac to 1 lac.

11. Appellant is directed to pay the penalty amount of ` 3 lac imposed

under Section 15HB and penalty of ` 1 lac sustained under Section

15A(a) of SEBI Act, 1992 within a period of 4 weeks from today, failing

which SEBI will be entitled to recover the said amount with interest at

10% from today till payment.

12. Appeal is disposed in the above terms with no order as to costs. Sd/- Justice J.P. Devadhar
    Presiding Officer Sd/- Jog Singh Member 12.12.2013
    Prepared & Compared By: Pk