Decided on May 30,2003



C.Achuthan, - (1.) THE Appellant is a stock broker registered with the Respondent. It is a member of the National Stock Exchange of India Ltd. (NSE). THE Respondent carried out inspection of the books of account, and other records of the Appellant some time in November 2000. THE inspection revealed the following shortcomings: (i) failure to maintain Margin Deposit Book under regulation 17 of the Securities and Exchange Board of India (Stock Broker and Sub-broker) Regulations, 1992 (the Stock Broker Regulations). (ii) Delay in making payment to the clients (iii) Failure to obtain acknowledgements from clients on the Contract Notes, failure to affix stamps and disclose the order receipt time, on the Contract Notes. (iv) Incomplete client registration form (v) Dealt with unregistered sub brokers. (vi) Made off-the-floor transactions without reporting the same to NSE.
(2.) The Respondent forwarded a copy of the inspection report and obtained the comments of the Appellant on the findings of the inspection and thereafter decided to enquire into the affairs of the Appellant. An enquiry officer was appointed on 24.6.2002 for the purpose. The enquiry officer submitted his report to the Respondent on 31.10.2002. The enquiry officer confirmed the findings of the inspection, except the charge of delay in making payment to the clients. He recommended that the certificate of registration of the Appellant be suspended for a period of six months. The Respondent considered the enquiry report and in terms of regulation 13(2) of the Stock Broker Regulations, issued a notice to the Appellant with a copy of the enquiry report, to show cause as to why the penalty as recommended by the enquiry officer should not be imposed upon it. The Appellant responded to the said notice by making written reply followed by oral submissions. The Respondent thereafter issued the impugned order on 10.1.2003. By the said order the certificate of registration granted to the Appellant was suspended for a period of 6 months . The order was to come into operation after three weeks from the date of the order. The Appellant claiming to be aggrieved by the said order filed the present appeal. The order though dated 10.1.2003 and was to be effective after three weeks, was communicated to the Appellant by the Respondent's office vide its letter dated 27.2.2003 informing that the suspension will come into effect from 3.3.2003. The Appellant filed the appeal on 3.3.2003 with an urgent application praying for an interim order staying the operation of the impugned order during the pendency of the appeal. The parties were heard on the said prayer and after considering all the relevant aspects an interim order was passed on 3.3.2003 staying the operation of the impugned order for a period of eight weeks. Shri Bharat Merchant, learned Counsel appearing for the Appellant submitted that the Appellant has not committed any serious violation of the Act or any rules or regulations so as to warrant such a harsh punishment of suspension of its certificate of registration for six months. He submitted that the charges are not scrip driven but procedural lapses of technical nature of not any adverse consequence on investor interest. Learned Counsel submitted that by the impugned order only the certificate of registration granted to the Appellant as stock broker was cancelled. But the letter dated 27.2.2003 whereunder the order was forwarded to the Appellant has expanded the scope of the order by stating that on and from the date of the suspension, the Appellant will cease to carry on any activity as an intermediary during the period of its suspension. He submitted that the Appellant was holding a certificate of registration to carry on the activities of Portfolio Manager also for the period from 16.3.1995 to 15.3.2001 that no enquiries have been made against the Appellant in its activities in the Scheme of Portfolio Management Services.
(3.) SHRI Merchant described the profile of the Appellant that it is carrying on stock broking business since January, 1996, that it was holding Portfolio Management Licence during the period16.3.95 to 15.3.2001, that it is also registered as trading member since 2nd June, 2000 and as a Self Clearing Member since 5.7.2002. According to the learned Counsel it is servicing more than 3500 clients registered with it, that it has 10 branches, that issued about 80,000 Contract Notes per year, that no investor complaint is pending and during the course of its tenure of 7 years only 8 complaints had been received and none of them is pending.;

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