BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

 Appeal No. 105 of 2012 

 Date of decision: 04.07.2012  

UPSE Securities Ltd.
Padam Towers, 14/113, Civil Lines,
Kanpur – 208 001 (U.P.) … Appellant
Versus
The Manager,
Inspection Department,
National Stock Exchange of India Limited (NSE)
Exchange Plaza,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051. … Respondent
Mr. K. D. Gupta, Authorized Representative for the Appellant.
Mr. Sachin Chandarana, Advocate with Ms. Shambhavi Arjunwadkar,
Advocate for the Respondent.
Coram : P. K. Malhotra, Member & Officiating Presiding Officer
S.S.N. Moorthy, Member
Per : P. K. Malhotra (Oral)
The present appeal has been filed against the Order dated December 9, 2011
passed by the National Stock Exchange of India Limited (for short NSE) against the
appellant imposing a monetary penalty of ` 45,000/- for certain irregularities noticed by
NSE during the course of inspection of the books of account of the appellant.

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2. The appellant is a public limited compa ny and wholly owned subsidiary of U.P.
   Stock Exchange Ltd. It is a member of Bombay Stock Exchange, National Stock
   Exchange and MCX Stock Exchange Ltd. and registered as a st ock broker with the
   Securities and Exchange Board of India. NSE carried out inspection of the books of
   accounts, documents and records of the appe llant and observed that the appellant had
   committed certain irregularities in its functioning as a st ock broker. By the impugned
   order, NSE imposed a total penalty of 45,000/- in respect of the following three irregularities: (i) One Ledger account is maintained for the clients who are also acting as sub-broker - penalty imposed is 25,000.
   (ii) Contract Notes are not sent directly to the client s. They are sent to the
   sub-brokers who in turn give them to the clients – penalty imposed is
   10,000. (iii) Trading Member has not displaye d its notice board at the sub-broker’s office in accordance with NSE Circular - penalty imposed 10,000.
3. Against the aforesaid order, the appe llant filed a review petition which was
   considered by the Internal Committee for Minor Actions of NSE (the committee) and
   after considering the representation, the committee in its meeting held on
   December 29, 2011 decided that the penalty of 10,000 levied on the appellant in respect of ‘notice board of the trading member not displayed at the inspection location’ be dropped. In the present appeal, the a ppellant is challenging the penalty of 25,000
   imposed on it for not maintaining clie nt ledger properl y and penalty of ` 10,000
   imposed for not dispatching/delivering contract notes to the clients directly within 24
   hours.
4. NSE had issued a circular to all its members on December 24, 2010 giving a list
   of violations and applicable penalties. It is the case of NSE that in view of the fact that
   no satisfactory explanation was offered by the appellant in respect of the above
   violations, the committee imposed above penalties as laid down in the said circular. 3
5. We have heard the authorized repres entative of the appellant and the learned
   counsel for NSE and are of the view that the appeal deserves to be allowed. The first
   irregularity is with regard to maintaining one ledger account for the clients who are also
   acting as their sub-brokers. During the course of argumen t the learned counsel for the
   respondent referred to para 6 of the Regulations issued by NSE. Para 6.1.3B (e) of the
   said regulations reads as under:
   “The Trading Members shall keep a separate ledger
   account for each client in respect of the transactions on the
   Exchange and shall not mingle such account with the
   account of the client in respect of transactions of any other
   stock exchange or any other transaction which the trading
   member may enter into with such client.”
   A bare perusal of the said regulation makes it clear that it talks of a separate ledger
   account for each client in respect of the transactions on the stock exchange which shall
   not mingle with the account of the client in respect of transactions of any other stock
   exchange. The case of the appellant is that it was maintaining ledger account for the
   clients who are also acting as their sub-brok ers. There is no clarity in the said
   regulation that even in respect of client who is acting in dual capacity i.e., as a client
   and as a sub-broker of the broke r, separate account is to be maintained in respect of
   transactions as client and as sub-broker. After NSE directed the appellant to maintain
   separate accounts in its deal ings as a client and as a sub-broker, the appellant has
   complied with the requirements. Keeping in view the ambiguity in the existing
   regulation, we are of the view that penalty of ` 25,000 imposed on this count is uncalled
   for.
6. On the second issue relating to contract notes not being sent directly to the client
   and being routed through the sub-broker, it is the case of NSE that the appellant had not
   produced any evidence to prove that the cont ract notes were delivered to the client
   within 24 hours. It is the case of the appellant that it is issuing contract notes to its client
   within 24 hours of the execution of the trade and the notes are sent to the client through
   the sub-broker. The regulations require that contract notes should be issued without
   delay which has been done by the appellant. We find merit in th e argument of the 4
   appellant. The regulation also provides that a sub-broker shall render necessary
   assistance to his client in obtaining the co ntract note from the stock-broker. If the
   contract notes have been issued within the prescribed limit and the same were sent to
   the sub-broker, in our view, it does not amoun t to violation of any specific regulation
   that might have been issued by NSE.
   In the result, the appeal is allowed and the impugned order set aside with no
   order as to costs. Sd/- P. K. Malhotra Member & Presiding Officer ( Offg.) Sd/- S.S.N. Moorthy Member 04.07.2012
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