Decided on August 21,2003



C.Achuthan, - (1.) THE Respondent No.1 (SEBI) appointed Respondent No.2 (the Adjudicating Officer) to inquire into and adjudge alleged contravention of section 15 D(b) and section 15E of the Securities and Exchange Board of India Act, 1992 (the SEBI Act) by Shriram Mutual Fund and Shriram Asset Management Co. Ltd., the Appellants herein. THE charge against the Appellants was that they had conducted business through brokers associated with them, in excess of the limits prescribed under regulation 25(7)(a) of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 (the Regulations) in 12 cases, during the period from June 1998 to September 1999. It has also been alleged that Shriram Mutual Fund had failed to comply with the terms and conditions attached to the certificate of registration granted to it in as much as it did not exercise diligence to ensure that the transactions by its asset management company confined to the permissible limits. . THE Adjudicating Officer, after inquiry confirmed the charges and vide order dated 24.6.2002 imposed a sum of five lakh rupees as penalty on Shriram Asset Management Company under section 15E of the SEBI Act for failure to comply with regulation 25(7)(a) and two lakh rupees on Shriram Mutual Fund under section 15 D(b) of the SEBI Act for failure to comply with the terms and conditions attached to the certificate of registration. As per the SEBI Act no person is entitled to carry on the business of mutual fund without obtaining a certificate of registration from SEBI. THE certificate of registration is issued subject to certain conditions. One of such conditions is that the Mutual Fund will comply with the provisions of the Regulations. THE Appellants claiming to be aggrieved by the said order preferred the present appeals.
(2.) The findings on the charges levelled against the Appellants and reasons for imposing penalty, have been stated in the impugned order. The relevant portion from the order is extracted below: "Appreciation of Evidence and Findings The main allegations against the Fund are that it had transacted business through associate brokers in excess of the permissible limits prescribed under Regulations 25(7)(a) of SEBI (Mutual Funds) Regulations. 12 such instances falling under 6 quarters between June 1998 and September 1999 were detailed in the notice dated 1st April, 2002. Regulations 25(7)(a) of SEBI (Mutual Fund) Regulations, 1996 reads as under Asset management Company and its obligations. "An Asset Management Company shall not through any broker associated with the sponsor, purchase or sell securities, which is average of 5 per cent or more of the aggregate purchase and sale of securities made by mutual fund in all its scheme: Provided that for the purpose of this sub-regulation, the aggregate purchase and sale of securities shall exclude sale and distribution of units issued by the mutual fund: Provided further that the aforesaid limit of 5 per cent shall apply for a block of any three months". It is not disputed that the Fund had exceeded the aforesaid prescribed limits when it had transacted business through brokers associated with the sponsor in the following instances:- JUDGEMENT_446_TLSB0_20030.htm However, it was contended that the limits prescribed were exceeded principally on account of small size of the Fund, low volume of transactions, thinly traded securities, administrative and operational exigencies.
(3.) IT was, further submitted that between 1/4/98 and 30/9/2000, the total brokerage paid to the associate brokers is Rs. 4.66 lakhs.;

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