Share India Securities Limited
(Formerly Known as FMS Securities Ltd.)
14, Dayanand Vihar,
Near Karkardooma Metro Station
Delhi-110092.
….. Appellant Versus
Securities and Exchange Board of India
SEBI Bhavan, C-4A, G Block,
Bandra Kurla Complex,
Bandra (East), Mumbai – 400 051
…...Respondent Mr. Prakash Shah, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mobin Shaikh, Advocate for the Respondent.
CORAM : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy, Member
The appellant is a public limited company registered under the Companies Act,
1956 and it was formerly known as FMS Securitie s Ltd. It has corporate membership of
National Stock Exchange, Bombay Stock Exch ange, MCX-SX Stock Exchange Ltd. and
United Stock Exchange of India and is also a depository participant of Central Depository
Services (India) Limited. The present appeal is directed against imposition of penalty of
a sum of ` 5 lacs on the appellant unde r section 15 HB of the Securities and Exchange
Board of India Act, 1992 (the SEBI Act). The penalty ha s been imposed on account of
the conclusion drawn by the adjudicating offi cer that the appellant had dealt with an
unregistered stock broker and thereby violated the provisions of Re gulation 18B of the
Securities and Exchange Board of India (S tock Brokers and Sub-Brokers) Regulations,
1992 (referred to hereinafter as the Stock Brokers and Sub-Brokers Regulations) read
with circular no. SMD/POLICY/Cir-11/97 da ted May 21, 1997 issued by the Securities
and Exchange Board of India (for short the Board).
2
- The Board received complaints against one M/s. Rishabh Shares and Securities
(Rishabh), a sub-broker of M.G. Capital Services Limited. The Board collected
information in respect of Rishabh from other stock brokers, sub-brokers etc. On
examination of the material obtained from various entities it was observed by the
inspecting authority that the appellant had allowed Rishabh and another entity to deal
with it as sub-brokers wit hout any registration with Secu rities and Exchange Board of
India and that Rishabh had deal t through the appellant on behalf of its clients. So the
appellant was held to be guilty of viola ting the provisions of Stock Brokers and Sub-
brokers Regulations. The appellant’s representative was provided with the demat account
of Rishabh indicating the transactions which Rishabh put through the appellant on behalf
of its clients. It was also provided with th e list of clients of Ri shabh whose client IDs
were appearing in the pool account and bene ficiary account of the appellant. Rishabh
was maintaining a running account with the clie nts and the appellant settled the accounts
with Rishabh through M.G. Cap ital Services Ltd. The appe llant could not explain the
transactions to the satisfaction of the ad judicating officer. He concluded that the
appellant had dealt with a sub- broker who is not registered with any stock exchange and
the appellant was knowingly dealing on behalf of the clients of Rishabh through Rishabh.
A penalty of ` 5 lacs was imposed. Hence this appeal. - In the appeal memorandum it is stated th at the adjudicating officer acted in total
ignorance of the fact that Rishabh was registered as a sub-broker on the NSE.
Confronted with this statement of the appe llant the learned couns el for the respondent
fairly conceded that this point is not pressed since the facts of the case show that Rishabh
was registered as a sub-br oker on the NSE. The learne d counsel for the respondent
would accept the position of law as enunciated by the Delhi High Court in National Stock
Exchange Members vs. Union of India a nd Others 2006 (133) Company Cases 504 and
would admit that multiple registration is not necessary. However, he argued that the
appellant had committed a default in allowing M G Capital Services Limited to adjust the
accounts of Rishabh relating to the trades between the appellant and Ri shabh. In other
words, the conduct of the appellant in allowing Rishabh to deal on behalf of their clients
through it is highlighted by the learned counsel for the respondent for which the appellant
is liable to be penalised.
3
- We have heard the learned counsel for bot h the parties. We have gone through
the show cause notice and the impugned order. It is true that the adjudicating officer has
mentioned that the appellant had knowingly dealt through Risha bh on behalf of its
clients. However in the s how cause notice, which is the foundation of the impugned
order no specific charge has be en made out in respect of the above violation. From a
reading of the show cause notice and the impu gned order it is clear that the respondent
had sufficient material in respect of the above mentioned violation though specific charge
has not been spelt out in the show cause notice. It goes without saying that a show cause
notice should be precise and it should contain specific charges against a delinquent. It is
possible for the delinquent to meet the charges only when they are specifically laid down
in the show cause notice. In the present case a reading of the show cause notice would
give an impression th at the charge relates to dealings with a sub-broker who is not
registered with any stock exchange. Sin ce the respondent Board is in possession of
sufficient material in respect of the appellan t’s dealings with Rishabh and its clients we
feel that the case requires fresh considera tion after issuing a proper show cause notice
stating the facts of the case and charges to the appellant. In this view of the matter, we
remand the case to the respondent Board for fresh consideration as per law.
In the result, the impugned order is se t aside and the matter remanded to the
Board for fresh consideration after issuing a show cause notice clearly laying down the
charge(s) and passing a fresh order in accordance with law. Since this is an old matter,
we would expect the Board to pass appropriate order as expeditiously as possible. There
is no order as to costs.
Sd/-
P.K. Malhotra
Member
Sd/-
S.S.N. Moorthy
Member
9.1.2012
Prepared and compared by
RHN
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No.188 of 2011
Date of Decision : 9.1. 2012
Share India Securities Limited
(Formerly Known as FMS Securities Ltd.)
14, Dayanand Vihar,
Near Karkardooma Metro Station
Delhi-110092.
….. Appellant Versus
Securities and Exchange Board of India
SEBI Bhavan, C-4A, G Block,
Bandra Kurla Complex,
Bandra (East), Mumbai – 400 051
…...Respondent Mr. Prakash Shah, Advocate for the Appellant.
Mr. Kumar Desai, Advocate with Mr. Mobin Shaikh, Advocate for the Respondent.
CORAM : P. K. Malhotra, Member
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy, Member
The appellant is a public limited company registered under the Companies Act,
1956 and it was formerly known as FMS Securitie s Ltd. It has corporate membership of
National Stock Exchange, Bombay Stock Exch ange, MCX-SX Stock Exchange Ltd. and
United Stock Exchange of India and is also a depository participant of Central Depository
Services (India) Limited. The present appeal is directed against imposition of penalty of
a sum of ` 5 lacs on the appellant unde r section 15 HB of the Securities and Exchange
Board of India Act, 1992 (the SEBI Act). The penalty ha s been imposed on account of
the conclusion drawn by the adjudicating offi cer that the appellant had dealt with an
unregistered stock broker and thereby violated the provisions of Re gulation 18B of the
Securities and Exchange Board of India (S tock Brokers and Sub-Brokers) Regulations,
1992 (referred to hereinafter as the Stock Brokers and Sub-Brokers Regulations) read
with circular no. SMD/POLICY/Cir-11/97 da ted May 21, 1997 issued by the Securities
and Exchange Board of India (for short the Board).
2
- The Board received complaints against one M/s. Rishabh Shares and Securities
(Rishabh), a sub-broker of M.G. Capital Services Limited. The Board collected
information in respect of Rishabh from other stock brokers, sub-brokers etc. On
examination of the material obtained from various entities it was observed by the
inspecting authority that the appellant had allowed Rishabh and another entity to deal
with it as sub-brokers wit hout any registration with Secu rities and Exchange Board of
India and that Rishabh had deal t through the appellant on behalf of its clients. So the
appellant was held to be guilty of viola ting the provisions of Stock Brokers and Sub-
brokers Regulations. The appellant’s representative was provided with the demat account
of Rishabh indicating the transactions which Rishabh put through the appellant on behalf
of its clients. It was also provided with th e list of clients of Ri shabh whose client IDs
were appearing in the pool account and bene ficiary account of the appellant. Rishabh
was maintaining a running account with the clie nts and the appellant settled the accounts
with Rishabh through M.G. Cap ital Services Ltd. The appe llant could not explain the
transactions to the satisfaction of the ad judicating officer. He concluded that the
appellant had dealt with a sub- broker who is not registered with any stock exchange and
the appellant was knowingly dealing on behalf of the clients of Rishabh through Rishabh.
A penalty of ` 5 lacs was imposed. Hence this appeal. - In the appeal memorandum it is stated th at the adjudicating officer acted in total
ignorance of the fact that Rishabh was registered as a sub-broker on the NSE.
Confronted with this statement of the appe llant the learned couns el for the respondent
fairly conceded that this point is not pressed since the facts of the case show that Rishabh
was registered as a sub-br oker on the NSE. The learne d counsel for the respondent
would accept the position of law as enunciated by the Delhi High Court in National Stock
Exchange Members vs. Union of India a nd Others 2006 (133) Company Cases 504 and
would admit that multiple registration is not necessary. However, he argued that the
appellant had committed a default in allowing M G Capital Services Limited to adjust the
accounts of Rishabh relating to the trades between the appellant and Ri shabh. In other
words, the conduct of the appellant in allowing Rishabh to deal on behalf of their clients
through it is highlighted by the learned counsel for the respondent for which the appellant
is liable to be penalised.
3
- We have heard the learned counsel for bot h the parties. We have gone through
the show cause notice and the impugned order. It is true that the adjudicating officer has
mentioned that the appellant had knowingly dealt through Risha bh on behalf of its
clients. However in the s how cause notice, which is the foundation of the impugned
order no specific charge has be en made out in respect of the above violation. From a
reading of the show cause notice and the impu gned order it is clear that the respondent
had sufficient material in respect of the above mentioned violation though specific charge
has not been spelt out in the show cause notice. It goes without saying that a show cause
notice should be precise and it should contain specific charges against a delinquent. It is
possible for the delinquent to meet the charges only when they are specifically laid down
in the show cause notice. In the present case a reading of the show cause notice would
give an impression th at the charge relates to dealings with a sub-broker who is not
registered with any stock exchange. Sin ce the respondent Board is in possession of
sufficient material in respect of the appellan t’s dealings with Rishabh and its clients we
feel that the case requires fresh considera tion after issuing a proper show cause notice
stating the facts of the case and charges to the appellant. In this view of the matter, we
remand the case to the respondent Board for fresh consideration as per law.
In the result, the impugned order is se t aside and the matter remanded to the
Board for fresh consideration after issuing a show cause notice clearly laying down the
charge(s) and passing a fresh order in accordance with law. Since this is an old matter,
we would expect the Board to pass appropriate order as expeditiously as possible. There
is no order as to costs.
Sd/-
P.K. Malhotra
Member
Sd/-
S.S.N. Moorthy
Member
9.1.2012
Prepared and compared by
RHN