BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

              Appeal No. 118 of 2012  

                   Date of decision: 16.7.2012 

Rajendra Jayantilal Shah
G/20, Hemkoot Building,
Opp. Gandhigram Rly. Station,
Ellisbridge, Ahmedabad – 380 006.

           …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. Deepak R. Shah, Advocate for the Appellant.
Dr. Poornima Advani, Advocate with Mr . Ajay Khaire and Ms. Rachita Romani,
Advocates for the Respondent.
CORAM : P. K. Malhotra, Member & Presiding Officer ( Offg.)
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy
The appellant is a broker in the Ahmedabad Stock Exchange and sub-broker of ASE
Capital Markets Ltd. Challenge in this appeal is against an order passed by the whole time
member of Securities and Exchange Board of India (for short the Board) on May 3, 2012
issued in exercise of powers conferred unde r section 19 of the Securities and Exchange
Board of India Act read with Regulation 28(2) of Securities and Exchange Board of India
(Intermediaries) Regulations, 2008 (referred to hereinafter as the Intermediaries
Regulations). The appellant was found guilty of violating the provisions of Regulation 4 of
the Securities and Exchange Board of India (Prohibition of Fraudul ent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as FUPT
Regulations) and clause A of the code of condu ct prescribed for stock brokers in Schedule
II under regulation 7 of the Securities and Exch ange Board of India (Stock Brokers and
Sub-brokers) Regulation, 1992 (her einafter referred to as Br okers Regulations). He was
also found guilty of violating the provision s of clause A and D of code of conduct

2
prescribed for sub-brokers in Schedule II und er regulation 15 of the Brokers Regulations.
The certificate of registration of the appellant was suspended for a period of two months by
virtue of the order of the whole time member.

2. Investigation in the dealings in the shares of Adani E xports Ltd. (the company) for
   the period November 27, 2003 to December 23, 2003 revealed wide fluctuations in the
   price and volume of the scrip of the compan y. The unusual variation in the price and
   volume of the scrip was found to be on account of synchronized/reversal of trades done by
   a few clients and brokers. During the period of investigation the price of the scrip rose
   from 209.55 to 443.10 touching a high of 478 on December 19, 2003. The enquiry conducted by the designated authority found that that the appellant had acted in violation of regulation 4 of the FUTP Regulations and clause A of the code of conduct prescribed for stock brokers and sub-brokers. On March 19, 2010 a penalty of 2 lacs was imposed on
   the appellant under sections 15 HA and HB of the Securities and Exchange Board of India
   Act, 1992 (the Act) by the adjudicating officer . The adjudication order was not contested
   by the appellant. An enquiry was ordered under the Interm ediaries Regulations with
   respect to the same violations. The enqui ry officer submitted a report on March 19, 2010
   holding the appellant guilty of violating the above said provisions of FUTP Regulations and
   code of conduct prescribed for stock brokers/sub-brokers. However, he recommended that
   no further punitive action is warranted in the case since monetary penalty of 2 lacs has been imposed. The whole time member of the Board differed. A notice was issued to the appellant on September 17, 2010 calling upon the appellant to show cause why a higher penalty should not be levied for the impugned violations. Initially there was no response from the appellant. On receipt of a reminder fr om the Board the appellant filed a reply on November 25, 2010. It was cont ended that the appellant wa s not in possession of the relevant records after the lapse of a period of more than 7 years and so specific replies could not be given to the points raised in the show cause notice. It was submitted that the appellant has been punished with a monetary penalty of 2 lacs for the impugned violations
   and imposition of a higher penalty would amount to double jeopardy. It was also submitted
   by him that he was a small time broker de pending on the Ahmedabad Stock Exchange for
   his survival and so any furt her punitive action of the whole time member would ruin his 3
   source of living. Later a pers onal hearing was also afforded to Shri Deepak R. Shah,
   Advocate who appeared on behalf of the appella nt. After considering the facts of the case
   and the submissions made by the appellant the whole time member of the Board passed an
   order on May 3, 2012 suspending the certificate of registration of the appellant for a period
   of two months.
3. Shri Deepak R. Shah, learned counsel for the appellant, submitted that the
   suspension of certificate of registration of the appellant is a very harsh penalty considering
   the facts of the case and alleged violations. According to him, the appellant has already
   been subjected to a penalty of ` 2 lacs and the impugned action of suspension of certificate
   of registration is highly unjust and disproporti onate. It is represen ted that the enquiry
   officer has not recommended a ny further punitive action after considering the facts of the
   case and the punishment now imposed by the whole time member is highly unjust and
   disproportionate to the gravity of the viol ations committed by the appellant. With a
   reference to the impugned order, it is submitte d that there is no finding regarding aiding or
   abetting the fraudulent action of the clients a nd the appellant should not be held guilty of
   violating the FUTP Regulations since he was ac ting at the behest of the client. There was
   no connivance with the clients in the alleged manipulation of the price and volume of the
   scrip, nor was there any negligence on his part as a broker since he had taken reasonable
   precautions and safeguards in the dealings with the client. According to the appellant’s
   learned counsel, suspension of registration after a period of about 7 years from the period of
   investigation is highly unjust and the appellant is put to practical difficulties in locating
   relevant records and furnishing replies to the qu eries raised. With reference to regulation
   28(2) of the Intermediaries Regulations, it is argued that the whole time member should
   have passed appropriate orders within 120 days from the date of receipt of the reply from
   the appellant and the delay in passing the im pugned order is against the time line provided
   for in the said regulations.
4. Dr. Poornima Advani, learned counsel appearing for the Board, defended the order
   of the whole time member. A ccording to her, there is no question of any double jeopardy
   in this case since the provi sions of the Act empower the Board to initiate parallel
   proceedings of adjudication, enquiry and prosecution. With reference to the trading pattern 4
   observed during the investigation period it is submitted that synchronized transactions took
   place for 19 trading days and this could not have happened without the active participation
   and involvement of the appellant broker. With reference to the matching of the trades and
   timing of the order of trades it is observed that the role of the appellant in facilitating the
   trade in a synchronized manner cannot be brushed aside. It is specifically pointed out that
   the scrip being illiquid the broker should have been on his gu ard and he should have taken
   remedial measures as soon as structured deals were noticed. With reference to regulations
   contained in Intermediaries Regulations, it is submitted that there is no mandatory time line
   in regulation 28(2) and so the impugned order cannot be held to be vitiated in this regard.
5. We have considered the rival arguments. Admittedly, the impugned order relates to
   second round of proceedings as far as the appellant is concerned. The appellant was
   already imposed a penalty of ` 2 lacs for the violations high lighted in the present order.
   There is no gainsaying the fact that the Board is empowered to initiate parallel proceedings
   for adjudication, enquiry and prosecution. However, the facts of the case and gravity of the
   violation have to be given due regard before imposing a second round of punishment. It is
   true that the appellant had vi olated the provisions of FUTP Regulations and the code of
   conduct for stock brokers/sub-brokers. The appellant did not contest the adjudication order.
   The enquiry officer, who was entrusted with th e enquiry of this case as per regulations
   contained in Intermediaries Regulations, gave his recommendations as under:
   “I find that in respect of the same violations, a monetary penalty of
   Rs.2,00,000/- (Rupees two lacs only) has been imposed on the Noticee vide
   Adjudication Order No.PG/AO-13/2010 da ted March 19, 2010. In view of
   this, I hereby recommend no punitive acti on as specified in regulation 27 of
   the Intermediaries Regulations against the Noticee.”
   He has considered the gravity of the violations committed by the appellant. There is no
   dispute regarding the fact that the whole time member of th e Board has every right to go
   beyond the recommendations of the enquiry o fficer and impose a higher penalty if the
   circumstances so warrant. But in the present case, we are of the vi ew that the facts and
   circumstances of the case do not warrant a high er penalty of suspen sion of registration.
   The whole time member has considered only the very same violations which were subject
   matter of the monetary penalty in the adjudica tion order. It has been observed by the
   whole time member that he has noted the findi ngs of the enquiry office that there is no 5
   direct link between the appellant (broker) an d his client. The whole time member has
   concluded that the appellant failed to preven t his client from carry ing out its nefarious
   design and thus aided and abetted in creating artif icial volumes. He played a vital role in
   the manipulation of the scrip by synchronizati on/reversal trades a nd creating artificial
   liquidity in the scrip of the company. Sim ilarly, with respect to the code of conduct
   prescribed for brokers/sub-brokers the whole time member concluded that the appellant has
   failed to perform statutory duties expected from a prudent stock broker.
6. The allegations and findings in the adjudication order passed on March 19, 2010 are
   almost identical. The appellant is a small time broker. Th e transactions took place way
   back in the year 2003. Consid ering the nature of the transactions and the status of the
   appellant it may not be just and reasonable to suspend hi m from the market in 2012 in
   respect of certain violations committed in the year 2003 for which monetary penalty has
   already been imposed in 2010. We are not ente ring into a discussion about the role of a
   broker vis-à-vis that of a client and the scope of aiding and abetting in fraudulent
   transactions. There are a host of decisions fo r and against the appellant relating to similar
   conduct and transactions depending on the f acts of each case. There are cases like
   Networth Stock Broking Ltd. vs. Securities and Exchange Board of India decided on June
   19, 2012 (Appeal no.5 of 2012) relating to ai ding and abetting by the broker and the
   relationship of the broker and client inter se . Similarly, there are decisions like Amgis
   Holdings Private Limited vs. Securities an d Exchange Board of India decided on
   December 27, 2010 (Appeal no.114 of 2007) which point to timing and trading pattern in a
   given case. Each case has to be judged in the backdrop of the facts relating to that case. In
   the present case, suffice it to say that cancellation of registration of the appellant after nine
   years of the incident is uncalled for, partic ularly when for the same violation monetary
   penalty has been imposed and paid by the appellant.
7. There is some merit in the contention of the appellant that the impugned order is
   delayed and is not in conformity with regulation 28(2) of the Intermediaries Regulations.
   We are conscious of the fact that the said regulation does not prescribe a blanket time limit.
   It has been laid down that after providing the person with an opportunity of being heard the
   designated member may pass appropriate orders as expeditiously as possible and endeavor 6
   shall be made to pass the order within 120 days from the date of re ceipt of reply of the
   notice of hearing. In the present case, personal hearing took place in July 2011 whereas the
   impugned order was passed in May 2012. Since no new material or evidence different
   from the ones considered in the adjudication order has been brought on record the whole
   time member could have passed the order within a reasonable time.
   Having regard to the peculiar facts of the case, we are of the view that the case does
   not call for suspension of certif icate of registration of the appellant as ordered in the
   impugned order. We, therefore, set aside the 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
   16.7.2012
   Prepared and compared by
   RHN