BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI
Appeal No. 5 of 2012
Date of decision: 19.06.2012
Networth Stock Broking Ltd.
Office No. 1001/1002, 10th Floor,
Atlanta Centre, Opp. Udyog
Bhawan, Sonawala Road,
Goregaon East, Mumbai – 400 063. ……Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051. …… Respondent
Mr. P. N. Modi, Advocate with Mr. Neville Lashkari , Mr. Joby Mathew, Mr. Deepak Dhane, Advocates for the Appellant.
Mr. Shiraz Rustomjee, Senior Advocate with Mr. Mobin Shaikh, Advocate for the Respondent
CORAM : P. K. Malhotra, Member & Presiding Officer (Offg.)
S. S. N. Moorthy, Member
Per : P. K. Malhotra
This appeal has been filed against the order dated December 27, 2011 passed by the whole time member of the Securities and Exchange Board of India (for short the Board) under regulation 28( 2) of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 holding the appellant guilty of violating regulation 4 (a), (b), (c) and (d ) of the Securities and Exchange Board of India (Prohibition of Fraudulent an d Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (for short FUTP regulations) and clause A (2), (3), (4) and (5) of the Code of Conduct prescribed for the stockbrokers in Schedule II under regulation 7 of the Securities and Exchange Board of India (Stock broker and Sub-broker) Regulat ions, 1992 (for short Stockbrokers
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Regulations) and suspending the certificate of registration of the appellant for a
period of one month.
- The appellant is a public limited company which is registered as a
stockbroker with the Board. It had execu ted trades on behalf of its clients,
among others, in the scrip of G. G. Automotive Gears Ltd. (for short the
company). The Board carried out investiga tions in the dealings of the scrip of
the company for the period from August 1, 2002 to October 16, 2002 and it
found that a group of four member broke rs, including the appe llant, and their
clients traded in the scrip of the company in a circular manner intra day for forty
days during the investigation period. The appellant had executed trades on
behalf of its client Ms. Indumati Goda. Proceedings were intitiated against the
brokers and their clients separately around the same time. Show cause notice
dated June 5, 2006 was issued to the four brokers including the appellant alleging
that the four member brokers and their c lients had traded in a circular pattern
intra day for forty days during the period of investigation. The brokers and their
clients involved in the circular trading alongwith the contribution of each was
referred to in the show cause notice in the form of a table which is reproduced
hereunder for facility of reference:-
S. No. Broker Name and Code Client Name No. of
Shares
Bought
No. of
Shares
sold
1 DPS Shares and Securities Pvt.
Ltd. (Clg. No. 151)
- Anju Gandhi (A017)
- Atul Gandhi (A018)
- Harshad (H012)
- Soham Securities (S251)
- S
- S012
3500
28000
8125
40000
2500
18230
5000
30850
8125
48999
2500
18250
2 Unique Stockbro Pvt. Ltd.
(Clg. No. 170)
- Hitesh Shah (8654)
- Trusha Goda (9393)
66775
29890
67825
37750
3 Networth Broking Limited
(Clg. No. 197)
I U Goda (3217) 111250 98420
4 Action Financial Services
(India) Limited (Clg. No. 444)
P B Chandrashekhar (406748) 120479 111030
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The show cause notice further mentioned that investigations had revealed that one
Shri Shirish C. Shah had fruadulently traded on behalf of Ms. Indumati Goda and
her daughter in law Ms. Trusha Goda. On the basis of these allegations in the
show cause notice, the appellant was al leged to have violated provisions of
regulation 4 of the FUTP regulations and also the Code of Conduct prescribed for
the stockbrokers under the stockbroker’s regulations.
- The appellant filed its reply denying the allegation that it was involved in
any way in the circular trades in th e scrip of the company. However, the
appellant admitted that it had executed tr ades on behalf of Ms. Indumati Goda.
On consideration of the material collected during the investigations and the
enquiry, the enquiry officer submitted his report dated January 22, 2009 holding
the appellant guilty of charges levelled against it. A copy of the enquiry report
was then furnished to the appellant alongwith a notice dated March 16, 2009
calling upon it to show cause as to w hy the same should not be accepted. The
appellant again filed its reply on April 22, 2009 denying the allegation that it was
a party to the circular trading. However, the whole time member, after
considering the material on record, noted that the appellant had traded in the scrip
of the company for its client Ms. Indum ati Goda and it aided and abetted the
creation of misleading appearance of trading by its clients in the securities market.
By his order dated April 19, 2011, the whole time member of the Board held the
appellant guilty of violating the provisions of regulation 4 (a), (b), (c) and (d) of
the FUTP regulations and also Clause A (1) to (5) of the code of conduct
prescribed for the stockbrokers under the stockbrokers regulations and suspended
the certificate of registration of the a ppellant for a period of one month. The
appellant challenged the said order before this Tribunal. Af ter hearing learned
counsel for the parties at length, the Tr ibunal, by its order dated June 21, 2011,
remanded the matter to the Board for pro ceeding afresh in the matter. While
remanding the matter to the Board, the Tribunal observed as under:-
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“We have heard ………………………………………………. the
appellant has been found guilty of aiding and abetting its client,
namely Ms. I. U. Goda for the creation of misleading appearance
of trading in the securities market by executing circular trades.
Separate proceedings had been initiated against the clients as well
including Ms. I. U. Goda and it is common ground between the
parties that she has been let off the charge of executing circular
trades. It must be remembered that every broker executes either a
self trade or a trade on behalf of his client(s). Admittedly, in the
case before us the appellant is said to have executed trades on
behalf of Ms. I. U. Goda and the finding recorded by the whole
time member is that while executing trades on her behalf, the
appellant had aided and abetted her in creating misleading
appearance of trading in the sc rip of the company. When Ms.
Goda has been exonerated, we wonder how the finding against the
appellant that it aided and abetted her in executing false/circular
trades can be upheld. It is clear from the record that Ms. I. U.
Goda has been exonerated of the charges on the ground that the
aforesaid Shirish Shah had fraudu lently executed trades on her
behalf by opening bank accounts in he r name. In this view of the
matter, we cannot uphold the findi ng recorded by the whole time
member.
In the result, the appeal is allowed and the impugned order set
aside. The case is remanded to the respondent Board for taking
fresh proceedings in accordance with law. Since the transactions
that have been called in question were executed way back in 2002
and the matter is quite old, we di rect that the proceedings be
concluded expeditiously but not later than six months from the date
of receipt of this order. We make it clear that all contentions raised
on both sides are kept open and th e Board shall decide the issues
afresh without being influenced by any observation made by us in
this order. No costs.”
- In compliance with the order passed by this Tribunal, the Board issued a
fresh show cause notice dated Septembe r 27, 2011 on the basis of the enquiry
report dated January 22, 2009 modifying the charge to some extent. The relevant
part of the notice which enumerates th e charge is reproduced hereunder for ease
of reference:-
“a. There was an unusual spurt in th e prices and volumes in the
scrip of GGAGL on Bombay Stock Exchange (BSE). During
the period of August 01, 2002 to October 16, 2002, the price
of the scrip increased from Rs. 23 as on August 01, 2002 to
Rs. 115.30 as on October 16, 2002 coupled with steep
variation in volumes i.e. from 16,847 shares as on August 01,
2002 to 1,05,776 shares as on September 17, 2002 and from
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77,041 shares as on September 18, 2002 to 19,962 shares as
on October 16, 2002.
b. A group consisting of four brokers including you, Unique
Stockbro Pvt. Limited (Unique), DPS Shares and Securities
Pvt. Limited (DPS) and Action Financial Services (I) Limited
(Action) were found trading intr a-day for 40 days in circular
manner which contributed to an unusual spurt in the traded
volumes of the scrip of GGAGL during the relevant period.
The shares were being rotated in a circular manner among the
group of said brokers.
c. The total volume generated by way of such circular trades by
the said group of four brokers, was 4,28,749 shares i.e., about
19% of the total quantity of the shares traded during the
period of investigati on. The total numb er of shares bought
and sold among the said four brokers is same i.e. 4,28,749
shares. Out of this you had purchased 1,11,250 shares and
sold 98,420 shares in the sc rip of GGAGL while trading on
behalf of your registered c lient Ms. I. U. Goda on whose
behalf Shirish C. Shah had placed orders/ fruadulently traded.
The orders in respect of most of the trades entered by you
were entered with a startling proximity in the timing, price
and quantity with that of said brokers, thus resulting into
matching of the orders.
d. The Enquiry Officer has found that the trades were
synchronized and circular in na ture and executed in such a
manner that led to creation of artificial volumes in the scrip
and was designed to create a false market leading to
significant price movement in the scrip.
e. The Enquiry Officer after considering the facts of the case
including your submissions ha s recommended a penalty of
suspension of certificate of re gistration for a period of one
month.
- It was found by the Enquiry Officer that one Mr. Shirish Shah
had fraudulently traded on behalf of your client Ms. Indumati
Goda. It was submitted by you that Mr. Shirish C. Shah was
neither your client nor your re misier. It was observed from
you letter dated Decembe r 22, 2004 wherein you had
admitted that your client Ms. Indumati Goda had never come
to your office and her regist ration form for opening the
account and required documents were submitted by Shirish
C. Shah. It was also submitted by you that Shirish Shah only
used to place the orders. A copy of said letter is enclosed as
Annexure ‘A’. You as a stock broker is expected to have
taken necessary steps to prevent the commission of
irregularities/violations by Shirish Shah who had fraudulently
dealt on behalf of Ms. I. U. Goda in the scrip of GGAGL in
the manner stated above. Shirish Shah could not have traded
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in the name of Ms. I. U. Goda without taking you in
confidence and without your knowledge and co-operation.”
On the basis of the above, it was alleged that the appellant had violated provisions
of regulation 4 (a), (b), (c ) and (d) of the FUTP regulations and Clause A (1) to
(5) of the code of conduct prescribed under the stockbrokers regulations.
- The appellant submitted its reply dated November 21, 2011 again
denying the charges. It also took prelim inary objection stating that the direction
of the Tribunal is to initiate fresh proceedings in accordance with law. However,
instead of proceeding afresh, the Board has relied on the same enquiry report and
issued a fresh show cause notice. It was also stated by the appellant that in the
enquiry report there is only one reference to Shirish Shah which states that Shirish
Shah, remisier of Unique (another broker) had fradulently traded on behalf of Ms.
Indumati Goda and her daughter in law Ms. Trusha Goda. In paragraph 3 of the
fresh show cause notice, reproduced a bove, the allegation of fraud has been
pleaded but no material/particulars or details of the fraud have been provided as to
how and in what manner Shirish Shah had committed fraud on Indumati Goda
and on her daughter in law and how the appellant is connected to the fraud
committed by Shirish Shah. The appellan t again reiterated its request for
furnishing copies of the order / trade l ogs and also sought permission to cross-
examine Indumati Goda. The whole time member of the Board, after considering
the material on record, rejected the preliminary objection and request of the
appellant for cross-examining Indumati Goda and held him guilty of violating the
provisions of 4 (a), (b), (c) and (d) of the FUTP regulations and also Clause A (2)
to (5) of the code of conduct under the stockbrokers regulations and, by the order
dated December 27, 2011, suspended certificate of registration of the appellant for
a period of one month. Hence the present appeal.
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- We have heard the learned counsel fo r the parties at le ngth. They have
taken us through the records of the case, placed before us certain
judgments/orders stated to be relevant to the points on issue and taken us through
the relevant provisions of the Act and th e regulations. The appellant has been
found to be guilty of violating the pr ovisions of regulation 4 of the FUTP
regulations on the ground that all the four brokers including the appellant had
followed the common pattern of circul ar trading which also indicates
synchronization in placing of orders thereby creating artificial volume in the scrip
of the company which resulted in increasing the price of the scrip. It is nobody’s
case that the trades executed were not circular in nature. Since the trades
executed were circular in nature and were executed on 38 consecutive trading
days among the four brokers, the whole time member has jumped to the
conclusion that there was connivance of the noticee with its counter party brokers
and hence the trades are manipulated. No doubt, circular/synchronized trades
were executed and the Board initiated action against the brokers and the clients
including the appellant. What we have to see is when the appellant is being
charged with fraud what is the evidence di rect or circumstantial, against him on
record to show that either he was pa rty to the fraud or he knew that other
brokers/clients are playing fraud or some mischief leading to commission of fraud
thereby violating the provisions of th e FUTP regulations. The only finding
recorded by the whole time member is that in view of the repeated trades day after
day one might conclude that the appella nt had knowledge of the fraud. This
Tribunal has been consistently holding that violation of FUTP regulations
involves commission of fraud which is indeed a serious market offence and a high
degree of probablity is required to establ ish such a charge. There has to be
enough material on record to show that the broker had knowledge of the game
plan at the time of executing the trade or the trading pattern of the client gives rise
to some suspicion about the mischief. Merely because the appellant acted as a
broker of one of the parties, it does not follow that he was a party to the game
plan of the client in executing matching trades. The foundation of enquiry under
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enquiry regulations is a valid notice and al so that the charge levelled therein has
to be clear, precise and unambiguious so that the dilinquent knows what exactly
he is charged with. The whole time member appears to have jumped to the
conclusion that merely because circular trades were executed on 38 days by the
appellant, his intention was manipulative. This finding is based on no material on
record and it appears that the whole time member has not appreciated the concept
of circular/synchronised trades. Admittedly, the trades in question were executed
by the clients and the appellant was acting only as a broker. It has not entered
into any proprietory trades. If there is some evidence or material available on
record that the appellant knew that the trades were fictitious then there would be
no hesitation in upholding the finding of the Board. However, there is no such
link available either on the record or any fi nding to this effect has been recorded
by the whole time member. There is no ma terial on record to show that the
appellant, as a broker knew, that the trades were circular/synchronised. There are
no findings that either the broker and their clients were connected persons or they
were acting in concert. Trading was through the exchange mechanism and was
online where the code number of the broker alone is known and it is not possible
for anyone to know from the screen as to who the clients are. Merely because the
appellant acted as a broker it cannot be concluded that he must have known about
the transactions. There has to be more material on record to prove that fact.
While drawing the inference that the appellant must have known about the nature
of the transaction, the Board could have made enquiries from the clients which it
has failed to do. Mr. Shiraz Rustomjee, learned senior counsel for the respondent
Board, very streneously urged before us that a trade cannot match on the screen of
the exchange without active connivance of the broker. The trades matched on 38
trading days and such matching cannot be a matter of coincidence. In support of
his argument learned senior counsel for the Board relied on th e order of this
Tribunal in the case of Ajmera Associat e Pvt. Ltd. vs. SEBI (Appeal no. 13 of
2007 decided on 5.2.2008) which has also been relied upon by the whole time
member in the impugned order. Counsel has also placed reliance on the order of
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this Tribunal in the case of Triumph International Finance Ltd. vs. SEBI (Appeal
no. 35 of 2002 decided on 4.5.2007). He pa rticularly emphasised the following
observations of the Tribunal:-
“Out of the four parties to the tr ansactions the three have already
been penalized. The appellant as a broker is the one against
whom action has now been take n by the impugned order. The
question that arises for consideration is – could it be said that the
appellant was innocent and whether such large number of trades
could have matched on the sc reen without the knowledge and
active involvement of the appellant as a broker. The answer has
to be in the negative. It is the broker who plays a pivotal role in
synchronizing the trades with th e counter broker and match the
same through the exchange mechanism by punching the buy and
sell orders simultaneously. It is true that the brokers act on the
advice of their clients but it is they who actually implement the
game plan. In the trades now in question the buyer, the seller and
CSFB as the seller’s broker have already been found guilty. It is
inconceivable that such large number of trades could have
matched on the screen without the appellant as the buyer’s broker
being a party to the game plan. Since the buy and sell orders were
punched into the system simultaneouly in such large numbers and
they all matched, we cannot believe that it was a coincidence and
the only inference that can be dr awn is that there was a prior
meeting of the minds before the trades were executed and this
disturbs the true price discovery mechanism of the exchange.”
- The submission made by learned seni or counsel for the Board may not
be wholly correct. There can be a variet y of reasons for the trades matching on
the screen of the exchange. Merely because a trade has matched both in regard to
price and quantity and that the buy and sell orders were placed at the same time it
cannot lead to the conclusion that the br oker had knowledge of fictitious trades
being executed between the buyer and the seller. It has been observed by this
Tribunal in a number of cases that on a screen based trading system, it is not
possible for a broker to know who the counter party is at the time when the trades
are executed. The case of Triumph Inte rnational Finance Ltd., relied upon by the
Board, is distinguishable as it was categorically admitted in that case that in all
the trades the buyers and th e sellers were Ketan Pare kh entities who were found
guilty of executing manipulative trades and had been proceeded against by the
Board. The appellant was also found to be a close associate of Ketan Parekh and
10
his investment/broking companies. The Board has not brought any material on
record in the case in hand proving any nexus between the appellant and the other
broker entities or the clients. Even in the case of Ajmera (supra) this Tribunal has
observed that merely because the two c lients have executed matched trades, it
does not follow that their brokers were n ecessarily a party to the game plan.
Following the decision in the case of Kasat Securities Pvt. Ltd. vs. SEBI (Appeal
no. 27 of 2006 decided on 20.6.2006), this Tribunal has held in a number of cases
including in the case of Bipin R. Vora vs. SEBI (Appeal no. 62 of 2006 decided
on 13.9.2007), M. J. Patel Shares and Stockbrokers Ltd. vs. SEBI (Appeal no. 157
of 2004 decided on 17.7.2006) that merely because the appellant acted as a broker
of one of the parties, it does not follow that he was a party to the game plan of the
client in executing the matched trades. In the case of Ramaben Samani Finance
Pvt. Ltd. vs. SEBI (Appeal no. 91 of 2006 decided on 22.10.2007), the Tribunal
has specifically observed that there has to be enough material on record to show
that the broker knew about the game plan at the time of executing the trade.
Therefore, if a broker has to be attr ibuted knowledge of circular/synchronized
trades, the Board must have with it some material on record from which such
knowledge can be inferred. Merely because the appellant has acted as a broker it
cannot lead us to the conclusion that he had knowledge of the wrong doing. It is
true that the trades have been found to be circular/synchronized, but there is
nothing on record to show that the appe llant had knowledge of the manipulative
intent or mischief of the client. While dealing with an iden tial situation, this
Tribunal has made following observations in the case of Kasat Securities Pvt. Ltd.
vs. SEBI (Appeal no. 27 of 2006 decided on 29.6.2006):-
“Trading was through the exchange mechanism and was online
where the code number of the broker alone is known and the
learned counsel for the parties are agreed that it is not possible for
anyone to ascertain from the screen as to who the clients were.
This is really a unique feature of the stock exchange where, unlike
other moveable properties, securities are bought and sold between
the unknowns through the exchange mechanism without the buyer
or the sellet even getting to meet. Therefore it is not possible for
the broker to know who the part ies were. Merely because the
appellant acted as a broker cannot lead us to the conclusion that it
11
must have been about the nature of the transaction. There has to
be some other material on the r ecord to prove this fact. The
Board could have examined so meone from KIL to find out
whether the appellant knew about the nature of the transactions
but it did not do so. As a broker, the appellant would welcome
any person who comes to buy or se ll shares. The Board in the
impugned order while drawing an inference that the appellant
must have known about the natu re of the transactions has
observed that the appellant failed to eqnuire from its clents as to
why they were wanting to sell the securities. We do not think that
any broker would ask such a question from its clients when he is
getting business nor is such a qu estion relevant unless of course,
he suspects some wrong doing for which there has to be some
material on the record.”
- It has been specifically pleaded by the appellant that during the
investigation period, i.e. in the year 2002, there was no software available for
carrying out long or real time surveillance and it was not possible to carry out
surveillance of thousands of transactions of all clients on a daily basis. It has also
been pleaded by the appellant that the impugned trades in the scrip of the
company were done on behalf of its cl ients and the intra day trading was the
normal/usual pattern of the trading adopted by the said client. The appellant had
not entered into any proprietory trades in the scrip. It is a matter of record that
there were positive media reports regardi ng the said company and the financial
performance of the company had shown good results. Therefore, the appellant
had no reason to suspect any irregularity in the increase in the price of the scrip.
The client had been regular ly trading in the same fashion in as many as 26
different scrips and, since inception, the c lient’s trading pattern was primarily by
way of day trading whereby she bought a nd sold equal quanti ties in respective
scrips in the course of the day. All payments were made from her bank account
and even for her delivery based trades, deliveries were made from her demat
account. These are all relevant submissi ons made by the appellant which have
been totally ignored by the whole time member while passing the impugned
order. Under the circumstances, we are of the considered view that the Board has
failed to establish the charge of fraud as alleged.
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- There is another reason as to why th e charge cannot sustain. In the first
round of litigation, while passing the or der of June 21, 2011, this Tribunal had
specifically observed that the charge of aiding and abetting the client cannot be
upheld against the appellatn because the c lient has been exonerated of the charge
on the ground that one Shirish Shah had frudulently executed the trades on behalf
of Indumati Goda. We find almost identic al finding has been given by the whole
time member in the impugned order also wh en he observed that Shirish Shah has
executed the manipulative trades with the active connivance of the appellant or “if
one generously thinks aided by the negligence of the noticee”. Shri P. N. Modi,
learned counsel for the appellant has placed on record a copy of the order passed
by the whole time member of the Board against Shirish Shah in which, Shirish
Shah has been found guilty of executing circular trades. But no evidence has
been brought on record to show that the appellant knew the manipulative intent of
Shirish Shah or both were acting in concert. The fact that the appellant was never
in contact with Ms. Indumati Goda makes no difference for the reasons that at the
relevant time there was no law, rules, re gulations or orders that required that a
broker must collect the registration form only by requiring client to personally
come to the broker’s office and submit the same. It is the appellant’s case that the
client’s registration form alongwith pr escribed KYC documents including proof
of identity and number of particulars were collected. It is no case of the Board
that KYC norms were not followed by the appellant at the relevant time. In this
view of the matter, we are unable to ag ree with the findings of the whole time
member that the appellant had connived with Shirish Shah or was negligent in
executing the trades. These findings of the whole time member are not supported
by any material on record. - Learned counsel for the appellant ha d also challenged the order on the
ground of violation of principles of natural justice as copies of the order/trade logs
were not provided to it and, inspite of request made, the appellant was not
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afforded an opportunity to cross-examine Ms. Indumati Goda. In its reply dated
November 21, 2011 to the show cause notice the appellant had specifically stated
that it has not been “furnished with th e documents or material which would show
or imply that Ms. Indumati Goda or her daughter in law, Ms. Trusha Goda have
disputed or denied the said trades.” It was further stated that the charges are
fundamentally based on allegation that Mr . Shirish Shah had fraudulently traded
on behalf of Ms. Indumati Goda. The appe llant contended that no particulars or
details of the alleged fraud have been di sclosed and the appellant had not been
given an opportunity to cross-examin e Ms. Indumati Goda. The whole time
member of the Board, while passing the impugned order, has rejected these
contentions of the appellant observing that trade logs have been supplied to the
appellant and that no document which ha s not been provided to the noticee is
being relied upon in the proceeding. Howe ver, we notice that what has been
provided to the appellant with the show cause notice is not copy of the trade logs.
The annexure to the show cause notice provides only trading pattern of the four
brokers and not the trade logs. Admitte dly, the order logs were not provided
although the appellant requested for the same. This, in our view, has caused
prejudice to the a ppellant in making a proper repr esentation. The whole time
member of the Board has also observed that th e request of the noticee to
cross-examine Ms. Induamati Goda is not maintainable because, “SEBI has not
solely relied on the submi ssion of Ms. Indumati Goda and the facts of the case
have been independently verified”. On th is count also, we are of the considered
view that the whole time member has faile d to comply with the principles of
natural justice. Learned senior counsel for the Board stated before us that no
prejudice is caused to the appellant by not providing order/trade logs as the details
of the trading pattern were provided to the appellant alongwith the show cause
notice. In support of this argument leaned senior counsel relied on the judgment
of the Hon’ble Supreme Court in the case of Haryana Financial Corporation
and Anr. Vs. Kailash Chandra Ahuja [(2008) 9 SCC 31]. We have perused
the said judgemnt. This judgment basically lays down the proposition that if there
14
is no prejudice caused to a delinquent employee due to non-supply of inquiry
report then the order of punishment cannot be set aside merely on the ground that
no copy of enquiry officer’s report was suppl ied. This case also refers to the
various earlier decisions given by the S upreme Court on the same issue and the
position was summarized by the Court as under:-
“From the aforesaid decisions, it is clear that though supply of
report of Inquiry Officer is part and parcel of natural justice and
must be furnished to the delinque nt- employee, failure to do so
would not automatically result in quashing or setting aside of the
order or the order being declared null and void. For that, the
delinquent employee has to show ‘prejudice’. Unless he is able to
show that non-supply of report of the Inquiry Officer has resulted
in prejudice or miscarriage of justice, an order of punishemnt
cannot be held to be vitiated. And whether prejudice had been
caused to the delinquent- employ ee depends upon the facts and
circumstances of each case and no rule of universal application
can be laid down.”
In this judgment itself, the Court has restated the principles of natural justice and
indicated that they are flexible and in the recent time, they had undergone a sea
change. If there is no pr ejudice to the employee, an action cannot be set aside
merely on the ground that no hearing was afforded before taking decision by the
authority. The non observance of the natural justice is itself prejudice to any man
and proof of prejudice independent of pr oof of denial of natural justice is
unnecessary. While passi ng the impugned order the whole time member has
observed that “ SEBI has not solely relied upon the submission of Ms.
Indumati Goda” (emphasis supplied). This observation itself indicates that there
were certain submissions made by Ms. Indumati Goda which have been taken into
consideration but the appellant has not b een provided either with the copies of
those submissions or afforded an oppor tunity to cross-examine Ms. Indumati
Goda. This is in violation of principles of natural justice. This Tribunal has been
consistently holding that the best way to prove circular/synchronised trades is to
have a look at the order/trade logs. In th e absence of copies of order/trade logs,
the appellant has been denied a chance of proper defence. We have no hesitation
in holding that the appeal must succeed even on the ground that while holding
15
enquiry against the appellant, the Board has not followed the principles of natural
justice by not providing it with copies of the order/trade logs and denying it copy
of submissions made by Ms. Indumati Goda and an opportunity to cross-examine
her.
For the reasons stated above we are of the considered view that the
whole time member of the Board has failed to bring home the charge against the
appellant of violating regulation 4 of the FUTP regualtions and the code of
conduct under the stockbrokers regulati ons. We, therefore, set aside the
impugned order and allow the appeal with no order as to costs.
Sd/-
P. K. Malhotra
Member &
Presiding Officer (Offg.)
Sd/-
S. S. N. Moorthy
Member
19.06.2012
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