BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 28.02.2019
Date of Decision
: 05.04.2019
Appeal No. 268 of 2018
Jindal Dyechem Industries Pvt. Ltd.
110 Babar Road,
New Delhi – 110 001.

….Appellant
Versus
Multi Commodity Exchange of India Limited
Exchange Square, Suren Road,
Chakala, Andheri East,
Mumbai – 400 093.

…Respondent
Ms. Nidhi Singh, Advocate i/b Vidhi Partners for the
Appellant.
Mr. Sameer Pandit, Advocate with Ms. Madhupreetha
Elango, Advocate i/b Wadia Ghandy & Co. for the
Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Per : Dr. C.K.G. Nair, Member
1.

This appeal has been filed challenging the order of the
Disciplinary Action Committee (‘DAC’ for short) of the
Multi Commodity Exchange of India Limited (‘MCX’ for
short) dated June 19, 2017. By the said order the DAC
2
reaffirmed the penalty of Rs. 13,54,372/- on the appellant in
accordance with the circular of MCX dated August 1, 2006
read with circular dated August 21, 2006 which provided for
the quantum of penalty in cases of violation of limits on open
position.

2.

The appellant is a private company who is a Trading-
Cum-Clearing member of the MCX. On the basis of a special
audit directed by the then regulator of commodity derivatives
market, the erstwhile Forward Markets Commission (FMC),
the special audit was conducted by the PwC and based on
their report it was alleged that the appellant breached the open
position limits of its client M/s. Splendid Builders Private Ltd.
during January 11, 2007 to January 27, 2007 in Mentha Oil
January 2007 expiry contract. What is held in the impugned
order is that during the period between January 11, 2007 and
January 27, 2007 the appellant violated limits on client level
open position in January 2007 Mentha Oil contract on 14
trading days. During these days M/s. Splendid Builders
Private Ltd. traded with the appellant as well as with M/s.
Indiabulls Commodities Ltd. another member broker of
MCX. Accordingly, the DAC of the MCX, after hearing the
parties and after obtaining written submissions etc. levied a
3
penalty of Rs. 13,54,372/- on the appellant for violation of
position limits in terms of Exchange Circular dated August 1,
2006. This was decided by the DAC in its meeting held on
December 3, 2014 and communicated to the appellant vide
letter dated January 2, 2015 and the said penalty was
subsequently recovered by the Exchange from the account of
the appellant.
3.

Aggrieved by the order of the DAC the appellant
approached the High Court of Delhi through a Writ Petition
but later on withdrew the Writ Petition with permission to file
an appeal before this Tribunal. When the matter came up for
hearing before this Tribunal on August 8, 2016 MCX sought
permission to withdraw its impugned order communicated to
the appellant on January 2, 2015 with liberty to pass a fresh
order on merits and in accordance with law. The prayer was
granted. After issuing a fresh notice and hearing by the DAC
and providing documents sought etc. the impugned order was
passed by MCX on June 19, 2017, reiterating the amount of
penalty of Rs. 13,54,372/-.

4.

Learned counsel for the appellant Ms. Nidhi Singh
contended that the appellant never violated open position
4
limits of its client as alleged in the impugned order. The client
was using the services of two brokers which the appellant was
not aware of since the appellant had no role in its
management. In any case, the open position with each broker
is within limits of 20,000 kilograms and hence no violation is
involved. Further, no action was taken by the MCX against
the other broker. There was delay in returning the payment
deducted by MCX based on the earlier order which was
quashed by the Tribunal in August 2016 and the same amount
of penalty reimposed by the impugned order is exorbitant. For
similar violations other Exchanges impose lower penalties.
5.

Learned counsel for the respondent MCX Shri Sameer
Pandit
submitted
that
the
appellant
and
its
client,
M/s, Splendid Builders Private Ltd. are closely related
entities. Mr. S.K. Jindal the promoter / director of the
appellant company is also a shareholder in M/s. Splendid
Builders Private Ltd. the client of the appellant. He held
8.48% shares in the latter as on December 10, 2016. Further,
the appellant itself held 3.26% shares of this client. Moreover,
the KYC form of the client filed by M/s. Splendid Builders
Private Ltd. with M/s. Indiabulls Commodities Ltd. has the
name and photo of Mr. S.K. Jindal as the contact person /
5
authorized managing partner. The correspondence address
given in those KYC details is 110, Babar Road, New Delhi
which is the same address of the appellant. So given these
facts M/s. Splendid Builders Private Ltd. is just another face
of the appellant with a distinct legal entity status. So the
argument that the appellant and its client M/s. Splendid
Builders Private Ltd. have no connection is absolutely devoid
of merit. While M/s. Splendid Builders Private Ltd. filed
detailed KYC documents with M/s. Indiabulls Commodities
Ltd., the KYC details filed by this client with the appellant are
mostly blank except the same address of 110, Babar Road,
New Delhi, date of incorporation and PAN number. All these
clearly show that the appellant and M/s. Splendid Builders
Private Ltd. are not only closely connected entities but in fact
controlled by Mr. S.K. Jindal, the promoter and director of the
appellant. He further submitted that no action was taken
against the other member broker M/s. Indiabulls Commodities
Ltd. because that broker had no other connection with its
client M/s. Splendid Builders Private Ltd. and independently
the position limit taken by this client with them was within
the permissible limits on all the 14 trading days. The appellant
was punished with a penalty because the appellant and its
client are closely connected entities and managed by the same
6
person and therefore the appellant knew that in addition to the
position in Mentha Oil taken by M/s. Splendid Builders
Private Ltd. with the appellant they were also trading with and
having position with the other broker M/s. Indiabulls
Commodities Ltd., in the same contract and therefore
knowingly violated the open position.

6.

On a specific query as to why trading by clients could
not be monitored across brokers so as to generate total
position taken by each client with multiple brokers, learned
counsel submitted that during the relevant time, January 2007,
such a system was not in position in commodity derivatives
exchanges though the same was subsequently implemented
after PAN was made as the sole identifier. Therefore, the
Exchange was neither in a position to ascertain nor aware of
the issue of position limits violation till the report of the PwC
was made available to them in April 2014 consequent to the
directions of the Forward Market Commission.
7.

Learned counsel for the respondent further contended
that both in terms of the erstwhile Forward Markets
Commission Circular dated August 21, 2006 as well as the
Circular of SEBI dated September 27, 2016 issued after
regulation of commodity derivatives market was transferred
7
to SEBI, the quantum of penalty for such violation is
specifically laid down. He also submitted that though the
penalty could have been imposed from the date of violation
and hence the interest thereon could have been charged
actually the penalty has been imposed only from the date of
the impugned order.
8.

After hearing the counsel for the parties and after
perusing the documents placed before us we find no merit in
the contentions of the appellant. The entire argument of the
appellant is based on the premise that the client in question
M/s. Splendid Builders Private Ltd. is an independent entity
which is like any other client of a broker. It is on record that
the appellant and its client concerned M/s. Splendid Builders
Private Ltd. are closely connected entities both in terms of
ownership and management. Given this position the appellant
cannot take shelter under ignorance of the behavior of its
client. From the records it is also clear that the client M/s.
Splendid
Builders
Private
Ltd.

and
M/s.

Indiabulls
Commodities Ltd. were arm’s length entities and as such the
finding that M/s. Indiabulls Commodities Ltd. was not aware
of the trading position being taken by this client with another
broker (appellant) cannot be faulted. Accordingly, we hold
8
that the penalty imposed on the appellant for violation of open
position limits in Mentha Oil contracts is justifiable. The
submission that the penalty is on the higher side is also devoid
of merit as penalty imposable under the instant Circulars is
what is imposed and the same has been imposed only from
the date of the impugned order though the violation was ten
years earlier. It is also important to note that the open position
violation was on 14 trading days and ranges from 15% to 45%
more than 20,000 kilograms which is allowed; not marginal to
claim any mitigation.
9.

In the result, we find no merit in the appeal and the
same is dismissed. Given the facts and circumstances of the
case there is no order on costs.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
05.04.2019
Prepared and compared by:msb