Appeal against Order of Expulsion dismissed by Hon'ble SAT

Appeal against Order of Expulsion dismissed by Hon'ble SAT

In this matter, being aggrieved by the decision of the Member and Core Settlement Guarantee Fund Committee (MCSGFC) of the respondent no.1(National Stock Exchange of India Ltd.) where under the appellant was expelled from the membership of the respondent exchange and also declared as a defaulter, the appeal was filed.

The consequential notices dated 29th April, 2020 and 1st May, 2020 calling for claim from the investors were also challenged. The Hon'ble Securities Appellate Tribunal has dismissed this Appeal.

The appellant was a registered trading member of respondent no.1. National Stock Exchange of India Ltd. (NSE) as well as respondent no.2 BSE Ltd. Respondent no.1 had carried the inspection of the records and papers of the appellant from time to time and more particularly of the period 2017-18, 2018-19 and 2019-20.

During the inspection, irregularities like misuse of client securities, non-maintenance of required net worth, use of client's funds for meeting margin obligation of the debit balance of other clients were noted. The appellant's license therefore was suspended with effect from 31st May, 2019.

The appellant submitted that the appellant in fact was the victim of the circumstances as due to the mischief of one entity it had suffered huge losses. The appellant wanted to surrender the license issued by the both the respondents.

As per the Appellant, during the pendency of the proceedings before the Committee of the respondent no.1 and, thereafter also the appellant continued to resolve the complaints of the investors. 99.9% of the total complaints were settled. Only complaints worth Rs.5.9 lakhs remained pending as on the date of hearing that could be found from the finding of the Committee of the respondent no.1. The impugned order, according to the Appellant was harsh and unreasonable.

The respondents took the Tribunal through the details of the violations committed by the appellant for last three financial years as noted in the inspection as admitted by the appellant. Those would show that the appellant had misused client funds and securities and clients' funds was used for margin obligations of the proprietary trading of the appellant.

It was also put forth by the respondents that the Committee of the respondent no.1 concluded that the appellant was a repeat violator. It was recorded that monetary penalty on earlier three occasions for the years 2015-16, 2016-17 and 2017-18 respectively was levied against the appellant.

The Tribunal noted that the appellant continuously remained the violator indulging in serious act of misusing client's securities etc. as detailed previously. All the violations were admitted by the Appellant. No reply was submitted to the show cause notice issued regarding violation noted in the inspection for the year 2017-18.

Considering the request of the appellant that he wanted to surrender his license after redressing the complaints the investors, the Committee of respondent no.1 time and again granted him time in hearing of the proceedings. However, ultimately finding that the complaints were not resolved completely the impugned order was passed.

According to the Tribunal, after declaration of the appellant as a defaulter more complaints of the investors were pouring in with the respondent nos.1 and 2. The appellant was earlier penalized for similar violations for the financial years 2015-16, 2016-17 and 2017-18.

The Tribunal was of the view that the appellant was a continuous violator much less a repeat violator. Besides respondent no 1 had already granted more than sufficient opportunity to redress the complaints of the investors, as it pleaded that it wanted to surrender the license. Therefore, this was not a fit case for interference in the impugned order. Hence the appeal was dismissed without any order as to costs