Imposition of Rs. 20 Lakhs penalty on stock broker for delay in complying with a SEBI circular was excessive: SAT

Case Details: ACML Capital Markets Ltd. v. Securities and Exchange Board of India - [2022] 141 taxmann.com 381 (SAT-Mumbai)

Judiciary and Counsel Details

• • Justice Tarun Agarwala, Presiding Officer, M.T. Joshi, Judicial Member & Ms Meera Swarup, Technical Member
  • Vinay Chauhan & K.C. Jacob, Advs. for the Appellant.
  • Sumit Rai, Ravi Shekar Pandey & Ms Samreen Fatima, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant was a registered stockbroker. The SEBI conducted an investigation of the books of account and other records from 01.01.2013 to 31.12.2014. Based on the inspection report a notice was issued to the appellant to show cause as to why an inquiry should not be held and a penalty should not be imposed under section 15HB of the SEBI Act and section 23H of the Securities Contracts (Regulation) Act, 1956 for alleged non-compliance of various circulars of SEBI.

The Adjudicating Officer, after considering the reply of the appellant and the material evidence on record found that the appellant had committed various violations of the SEBI Circulars which was not expected from a registered stockbroker.

Further, since the appellant failed to adhere to high standards of service, a penalty of Rs. 20 lakhs was imposed on the appellant. Thereafter, the appellant filed an appeal to the Securities Appellate Tribunal (SAT) against the order passed by the Adjudicating Officer.

SAT Held

The SAT observed that the objective of inspection of books of account and records of any Intermediary is to monitor and identify any non-compliance with respect to process procedures and systems prescribed through various provisions of the SEBI Act, Rules, Regulations and Circulars issued from time to time. Thus, the broker is required to take corrective steps in the event any irregularity is pointed out during the course of an inspection.

Further, the SAT observed that there was no serious lapse on the part of the appellant for not complying with the various circulars of SEBI. Admittedly, there have not been compliances within the stipulated period as specified in the circular and there has been a delay, however, the compliances were made by the appellant when the inspection had taken place.

The SAT held that though there was some delay on the part of the appellant stockbroker for non-compliances of various circulars of SEBI within the stipulated period, the lapse was not such which required the Assessing Officer to impose a penalty of Rs. 20 lakhs, which, was excessive.

Further, the SAT held that it was not a case where non-compliance was found at the time of the inspection and compliance was made thereafter. Therefore, the penalty was to be reduced from Rs. 20 lakhs to Rs. 5 lakhs, which the appellant was directed to pay within 4 weeks.

List of Cases Referred to

• • Religare Securities Ltd. v. SEBI [Appeal No. 23 of 2011, dated 16-6-2011] (para 7).