BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved On: 04.04.2019
Date of Decision : 26.04.2019
Appeal No. 72 of 2019
Neon Vinimay Pvt. Ltd.
510, Kamlalya Centre, 5th Floor,
156A, Lenin Sarani,
Kolkata,
West Bengal- 700 013
…Appellant
Versus
National Stock Exchange of India Limited
Exchange Plaza C-1 Block G,
Bandra-Kurla Complex, Bandra (East),
Mumbai-400 051
…Respondent
Ms. Mugdha Modi, Advocate i/b Juris Link for the Appellant.
Mr. Sachin Chandarana, Advocate with Ms. Shreya Anuwal and
Mr. Pranjal Krishnan, Advocates i/b Manilal Kher Ambalal &
Co. for the Respondent.
CORAM: Justice Tarun Agarwala, Presiding Officer
Dr. C.K.G. Nair, Member
Justice M. T. Joshi, Judicial Member
Per: Dr. C.K.G. Nair
1.

This appeal has been filed challenging the decision of the
Disciplinary Action Committee (hereinafter referred to as
“DAC”) of the National Stock Exchange of India Limited
2
(hereinafter referred to as “NSE”) dated January 17, 2019. By
the said decision, the DAC reiterated its earlier decision dated
September 11, 2018 sought to be reviewed by the appellant with
a Review Application filed on September 19, 2018, imposing a
monetary penalty of ` 13,47,300/- as well as one day suspension
of trading in the Futures and Options Segment (F&O Segment)
for repeated false reporting of margin collected from clients by
the appellant.

2.

The appellant is a private limited company and a stock-
broker/ trading member registered with NSE for dealing in the
Cash and F&O segments. NSE conducted inspection of the
books of accounts, operations and compliances of the appellant
in their Kolkata Office on July 19, 2017.

This inspection
revealed certain violations in relation to reporting the margin
collected by the appellant in the F&O Segment on four
occasions amounting to ` 14,02,368/- and clarifications were
sought from the appellant by providing a copy of this
preliminary inspection report. On April 03, 2018 NSE issued a
show cause notice for violations relating to three out of four said
instances of margin collection and reporting. On April 11, 2018
the appellant gave its reply. On August 02, 2018 the DAC of
NSE passed an order levying a monetary penalty of
3
` 13,47,346/- which is 100% of the alleged false margin
reported, along with one day suspension of trading from the
F&O segment. On September 19, 2018 the appellant filed a
Review Application before the DAC requesting them to
consider the additional submissions/ evidences and sought
review of the penalty imposed. On January 17, 2019 the DAC
of NSE rejected the Review Application and reaffirmed its
earlier decision. Aggrieved by this rejection of review by the
DAC the present appeal has been filed.

3.

We have heard the learned counsel for both the parties,
Ms. Mugdha Modi appearing for the appellant and Shri Sachin
Chandarana appearing for the respondent.

4.

Learned counsel for the appellant took great efforts in
explaining that no false reporting of margin has been committed
by the appellant; in all the three instances cheques were
deposited by the clients in the dedicated account of the appellant
but those cheques got dishonored because of the absence of the
signature of the account holder which the appellant was not
aware of since the appellant was given document relating to
deposit not the cheque itself. Subsequently, when the appellant
came to know that the cheques got dishonored immediately the
4
open positions were squared off by the appellant and, therefore,
there was no need for uploading revised data regarding margin
collection and in any case not uploading the revised margin
collection data is only an unintentional, clerical and operational
error and such mistakes are not liable for any penalty. Learned
counsel citing the relevant NSE circular dated October 23, 2013
relating to margin collection and reporting and the related
Frequently Asked Questions (FAQs) tried to distinguish
between “false margin reporting” and “wrong margin reporting”
and thereafter, submitted that if at all the appellant is held to
have committed any violation it could be that of wrong
reporting of margin rather than false reporting of margin.

5.

Learned counsel for the appellant citing an order of SEBI
M/s Indovision Securities Limited V/s Securities and
Exchange Board of India (Adjudication Order No. AO/SGVS/EAD/31/2017 decided on 08.03.2017), further submitted
that the penalty levied on the appellant herein is severe and
exorbitant.

6.

The learned counsel for the respondent NSE, on the other
hand, submitted that proper margin collection and reporting is
an indispensable factor in maintaining market integrity as any
5
failure in proper margin collection and reporting could play
havoc with the settlement system leading to a cascading effect
on the entire market. Therefore, the rules, procedures and
operational aspects of margin collection and reporting is
strenuously followed and violations, if any, would be dealt with
immediately and very strongly for protecting the investors and
in ensuring market integrity.

In the instant case, it is an
admitted fact that the appellant did not submit proper account of
margin collection, therefore, made false reporting on three
occasions and it is a repeated offence which according to the
circulars of the exchange would result in both monetary penalty
amounting to 100% of the falsely reported amount as well as
suspension of the Member.

7.

We find no merit in the contentions of the learned counsel
for the appellant, since the various circulars relating to margin
collection placed before us are quite clear as regards the correct
way of reporting. It is also very clearly stated in the circular
dated October 23, 2013 that no client should be allowed to trade
without receiving the margin. Moreover, the following
clarifications regarding margin reporting have been specifically
stated in the NSE circular issued by its inspection department on
October 23, 2013 which is extracted as below:-
6
“To All Members
Sub : Clarification regarding Margin Reporting
This is with reference to the Exchange circulars
NSE/INSP/19583
dated
Dec
14,
2011
NSE/CMPT/19587
December
14,
2011,
NSE/CD/19588 dated December 14, 2011 and
NSE/CMPT/21163 dated July 02, 2012, regarding
margin collection and reporting.
Members’ attention is drawn to below provisions:
a) Client margin reporting file to be uploaded up
to T+5 working days i.e 5 working days after the
trade date through CIM(Collateral Interface for
Members) or through the Extranet.
b) Multiple margin files can be uploaded for the
same trade date with incremental batch numbers
within the said five days. Where multiple files are
uploaded for a trade day, the information of client
margin collected as provided in the file with latest
batch number for the trade date is considered as
final.
c) Cheques from clients shall be considered as
adequate margin collected provided the same
have been received / recorded in the books of
trading member on or before T day and deposited
by member by T+1 day (excluding bank holiday,
if any) and cleared subsequently.
In this regard it is further clarified that:
a) In case a cheque is received from a client and
the same is recorded in the books on or before T
day and deposited by T+1 day, Member shall
report the margin collected from such client after
considering the effect of such cheque, if the same
is cleared within T+5 days.
b) Members should ensure that only cheques
which are cleared should be considered and
cheques dishonored or not cleared up to T+5
7
working days should not be reported as margin
collected. If subsequent to the margin reporting
by the Member, the cheque deposited by the
Member is dishonored or not cleared within T+5
working days, then revised margin file shall be
uploaded after factoring into the effect of such
dishonored or non-cleared cheques ,with
incremental batch number within the above
mentioned five days.
Failure to report the correct margins to the
Exchange may result in false margin reporting by
the Member and accordingly appropriate actions,
as applicable, may be initiated by the relevant
authority.”
The above clarifications clearly state that even in case of
dishonored cheques the procedure of reporting include
uploading the revised margin factoring in such dishonored or
non cleared cheques within 5 working days of the trade.

8.

Therefore, even assuming that the member was not aware
of the possibility of dishonoring the cheques on the trading day
(T day) when it was deposited the member had sufficient time to
rectify the false margin reported. In any case such an argument
is perverse since it strikes at the very root of the endeavour to
ensure a robust settlement system which is fundamental to
market integrity. Therefore, the contention that it was only an
unintentional, clerical and operational error does not have any
merit.

8
9.

The contention that the mistake committed was only
wrong reporting and not false reporting also does not have any
merit because in the FAQs relied on by the appellant, ‘wrong
reporting’ is a situation where there is some discrepancy in the
amount reported relating to a particular margin collection as is
evident from the example given in the FAQs. For instance
instead of the total 100% margin to be collected if it is short by
certain percentage (less than 10%, less than 20% etc.) what
would be the consequences is what is given in the examples. In
case of a more than 50% wrong reporting the consequences are
that of 2% of the wrongly reported amount and five days
suspension from trading. Since, in the instant case, on all the
three occasions it was a case of 100% reporting deficiency
consequent to dishonoring of the cheques deposited by the
clients it cannot be treated as wrong reporting particularly when
the appellant did not upload the revised margin data. We,
therefore, do not find any reason to treat it as wrong reporting
rather than false reporting.

10. Given the above, there is no merit in the submissions
made by the appellant. However, given the fact that there are
only three such instances and the amounts involved on each
occasion are not very large the penalty of 100% of the falsely
9
reported margin i.e. ` 13,47,300/- is sufficient to meet the ends
of justice and additional penalty of suspension of trading for one
day from the F&O segment makes it too harsh. Accordingly,
we uphold imposition of only the monetary penalty. Appeal is
partly allowed. No order on costs.

Sd/Justice Tarun Agarwala
Presiding Officer
Sd/Dr. C.K.G. Nair
Member
Sd/Justice M. T. Joshi
Judicial Member
26.04.2019
Prepared & Compared By: PK