Securities Appellate Tribunal (SAT) allows the Appeal filed by Sunshine Stock Broking against National Stock Exchange (NSE)

Securities Appellate Tribunal (SAT) allows the Appeal filed by Sunshine Stock Broking against National Stock Exchange (NSE)

The Hon'ble Securities Appellate Tribunal (SAT) has allowed the Appeal filed by M/s. Sunshine Stock Broking Private Limited (Appellant) against the National Stock Exchange of India Limited (Respondent) and the matter has been remanded to the Member and Core Settlement Guarantee Fund Committee (MCSGFC / Committee).

The present appeal was filed against the order passed by the Member and Core Settlement Guarantee Fund Committee imposing a penalty of Rs. 99,18,800/- and one day suspension for false reporting of margin money.

The contention of the appellant was that the penalty imposed by the Committee was pursuant to a SEBI circular dated August 10, 2011 whereby a maximum penalty of 100% was imposed even though the discrepancy noticed was not repetitive in nature. It was, urged that the principle of proportionality should have been considered and imposition of maximum of 100% was excessive and unwarranted in the facts of the given case.

On the other hand, the respondent contended that once a violation has been established then there is no discretion available with the respondent and penalty is required to be imposed as per circular dated August 10, 2011.

The Hon'ble SAT heavily relied on the decision in GRD Securities Limited vs National Stock Exchange of India Ltd. &Anr. and stated that the controversy involved in the present case was squarely covered by this Judgment and also the case of Alice Blue Financial Services Pvt. Ltd vs National Stock Exchange of India Ltd. was relied upon.

The Tribunal very clearly reiterated the law laid down in the case of GRD Securities wherein the Tribunal had considered the effect of the circular dated August 10, 2011 and held that the angle of proportionality is still required to be considered.

In that matter it was observed by the Tribunal that the Circular issued by SEBI dated August 10, 2011 specifies different percentages of penalty with respect to short-collection / non-collection of margins from clients in equity and currency derivatives segment. While it specifies small proportion of 5% to 10% of margin short fall as penalty for non-reporting, it specifies that 100% of the short-collection shall be imposed as penalty.

If such violation is noticed at the time of inspection then in addition to 100% penalty one day suspension has to be imposed. The said circular does not differentiate between situations involving upfront collection of cheques but late depositing or late crediting of the said amount and no upfront collection at all and hence suffers from the proportionality principle.

Further, proportionality is a basic principle to be adhered to while interpreting any provisions relating to punishment where the consequences are serious. In the instant case the violation is not in collecting the margin per se from the clients upfront but in delayed crediting of margin money. Delayed crediting of margin and not collecting the margin are not the same and has different consequences and cannot be treated on par.

Penal consequences have to follow proportionality. Therefore, it had been opined in that case that a violation which leads to a complete failure of the market or market integrity and a violation which has no impact on the market need to be distinguished in interpreting proportionality.

In Allice Blue also, the Tribunal reiterated its decision in GRD Securities.

In the light of the afore mentioned observations, the Tribunal affirmed that the respondent fairly conceded that the Committee is required to reconsider the matter in the light of the observation made in the aforesaid two decisions.

It was also directed that the deposit of a sum of Rs. 35 lakhs pursuant to the order dated August 17, 2020 would continue to remain in deposit with the respondent till the matter is finally decided by the Committee. The Committee has also been directed to decide the matter after giving an opportunity of hearing within three months from today. The deposit made by the appellant would be subject to the result of the fresh order passed by the Committee.