DALMIA SECURITIES P LTD Vs. G S REDDY DEPUTY GENERAL MANAGER SEBI
SECURITIES APPELLATE TRIBUNAL
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(1.) THE Appellant is a Depository Participant (DP) registered with the Securities and Exchange Board of India (Respondent No. 1 SEBI) under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996 (the DP Regulations). THE Appellant has been granted separate registrations to act as DP in National Securities Depository Ltd., (Respondent No. 2 - NSDL) and Central Depository Services Ltd., (CDSL). THE Appellant is also a registered member of the National Stock Exchange of India Ltd. (NSE), the Calcutta Stock Exchange (CSE) and the Stock Exchange at Mumbai (BSE). THE certificates of registration to act as DP in NSDL and CDSL were granted on 17-3-1997 and 27-12-1999 respectively. THE registration is valid for a period of five years. But it is renewable. Since the currency of the Appellant's registration as DP in NSDL was to be over by 18-3-2002, it applied for renewal. Respondent No. 1 renewed the registration subject to certain conditions and communicated the same to the Appellant vide letter dated 2-9-2002. THE signatory of the letter who is a functionary under SEBI, has been arrayed as Respondent No. 1 in the appeal. THE text of the said letter is extracted below. THE condition stipulated at item No. 3 therein is under challenge in the present appeal.
"September 2, 2002. DALMIA SECURITIES PRIVATE LIMITED Ideal Plaza, No. N315, 3rd Floor 11, 1, Sarat Bose Road, Kolkata - 700 020.
Sub: Renewal of Certificate of Registration as Participant under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.
Please refer to your application for renewal of registration as participant in the National Securities Depository Ltd. in terms of Form E of the SEBI (Depositories and Participants) Regulations, 1996.
1. We are pleased to renew the certificate of registration granted to you as participant in the National Securities Depository Ltd.in terms of Regulation 23. THE certificate has been renewed subject to the conditions and provisions mentioned in :
(a) Securities and Exchange Board of India Act, 1992.
(b) THE Depositories Act, 1996.
(c) Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996.
(d) THE Bye-Laws of the National Securities Depository Limited.
(e) THE agreements entered into by yourselves with the National Securities Depository Limited and the beneficial owners.
(2.) You will also ensure compliance with the Guidelines/Directives/ Instructions etc. issued by the Securities and Exchange Board of India or the Government of India from time to time relating to the activities carried on by you.
Your renewal is subject to the condition that no new accounts shall be opened by you.
(3.) PLEASE return a copy of this letter to SEBI, duly signed by an official authorised in this regard, in acceptance of the above terms and conditions. [Emphasis supplied]"
A copy of the said letter was marked to the Managing Director of Respondent No. 2, advising "to ensure the implementation of condition specified at point No. 3".
2. The Appellant claiming to be aggrieved by the condition stipulated in para 3 of the said letter has preferred the present appeal.
3. Shri Somasekhar Sundaresan, learned Counsel, appearing for the Appellant referred to the communication dated 2-9-2002 issued by Respondent No. 1 to the Appellant, conveying renewal of registration as DP in NSDL, subject to the condition that no new accounts shall be opened by the Appellant. Learned Counsel submitted that the said condition is a prohibition on the Appellant undertaking any business for new clients and that the prohibition is to continue during the currency of the renewal period of 5 years. He submitted that in terms of Regulation 22 of the DP Regulations, application for renewal of registration is required to be made three months in advance of the expiry date of the registration, that the Appellant in compliance thereof submitted duly filled in application on 31-12-2001 with Respondent No. 2 and the said Respondent in turn forwarded the same to Respondent No. 1, apparently without any adverse observations, that had there been any omission or commission or misconduct on the part of the Appellant, Respondent No. 2 would have reported the same to Respondent No. 1 as it would have been aware of the same from the periodical inspection of the activities of the Appellant carried out by it. He submitted that on 16-4-2002 the Appellant received a letter from Respondent No. 1, advising the Appellant to call on Respondent No. 1. The meeting was scheduled on 23-4-2002. The Appellant responded to the same and that Respondent No. 1 put only one question at that time to the Appellant's representative that as to whether the Appellant was connected with one Dinesh Dalmia of a company called DSQ Software Ltd., to which the Appellant's reply was in the negative. Learned Counsel submitted that thereafter on 6-5-2002, the Respondent No. 1 referring to the Applicant's application for renewal, required the Appellant to give a written undertaking stating that the Appellant and its directors were not connected with Shri Dinesh Dalmia of DSQ Software Ltd., or any of its group companies in any manner that within 2 days, vide letter dated 8-5-2002 the Appellant wrote back confirming that neither the Appellant nor its directors were connected in any manner with Shri Dinesh Dalmia, that there was no further queries from the Respondent with regard to the pending application, that after nearly 4 months Respondent No. 1 vide letter dated 2-9-2002, conveyed the decision to renew the DP registration with the stipulation that the renewal was subject to the condition that the Appellant will not open new accounts. In this context Shri Somasekhar Sundaresan also referred to the letter dated 9-9-2002 from Respondent No. 2 to the Appellant referring to the decision of Respondent No. 1 advising the Appellant to ensure compliance of the same. On the same day i.e. 9-9-2002, the Appellant wrote to Respondent No. 1 requesting it to delete the said condition. In this context he referred to the copy of the said letter filed at Annexure F to the appeal and particularly to portion stating that "the said prohibitory order has been made without any grounds or reasons", that "no condition can be imposed by SEBI while granting the certificate of registration to a participant under Regulation 20 of the aforementioned Regulations. In fact also no condition was imposed while the initial registration was given to us. The application for renewal also is to be treated in the same manner as if it is a fresh application for grant of registration. In any case no condition can be imposed at the time of renewal unless there was any basis for the same, say adverse finding in the inspection by NSDL in the absence of which such action is blatantly arbitrary and unfair." He referred further to the submission made in the letter that "Without prejudice to the aforesaid and assuming but not admitting that the renewal can be conditional, it is submitted that the said condition imposed by you has no nexus to the objects sought to be achieved by the SEBI Act and Depositories Act and the said Regulations. We also state that there could be no reason or material on the basis of which the said condition could be imposed. We have never violated the provisions of the aforementioned Acts and the Regulations and have fully protected the interest or our account holders. No complaint has ever been made against us.
4. We, therefore, humbly submit that the said condition should be deleted. Without prejudice to the aforesaid, we also call upon you to inform us the reasons and material, if any, on the basis of which the said condition has been imposed to enable us to make representation for its withdrawal".;
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