SAT dismisses the Appeal filed by Amrapali Capital and Finance Services

SAT dismisses the Appeal filed by Amrapali Capital and Finance Services

The Securities Appellate Tribunal has dismissed the Appeal filed by M/s. Amrapali Capital and Finance Services Ltd. against National Stock Exchange of India Limited.

This Appeal challenged the order of the Member and Core Settlement Guarantee Fund Committee (MCSGFC) of National Stock Exchange of India Limited (NSE) by which a monetary penalty of Rs. 1,01,67,582/-, which is 15% of the value of profit earned by the appellant from the alleged non genuine trades carried out by the appellant in its proprietary account, had been imposed on the appellant, in addition to warning to desist from such practices in future.

The main charge against the appellant was that the appellant had engaged in synchronized trading with one entity, namely, Affluence Gems Private Limited (Affluence Gems) and the said trades were in the nature of "fraudulent and unfair practices" under Regulation 4.6.2 (1) (b) of the F&O Regulations.

The Appellant mainly contended that it had executed large volume of transactions during the financial year 2018-19 in the F&O segment of NSE to the tune of Rs. 14,640 crore. Therefore, the alleged non-genuine trades had no meaning, particularly, since the appellant was trading in liquid and frequently trades scrips only and that too on the stock exchange platform. Therefore, the appellant was not having any knowledge about the identity of the counter party.

Moreover, there were only nine scrips in which trades executed by the appellant had significant matching with Affluence Gems and only the summary was provided to the appellant instead of detailed trade data including that of matched quantity with Affluence Gems.

The Respondent on the other hand, submitted that there was sufficient evidence to show that the appellant had indulged in fraudulent and unfair trading practices and the penalty imposed which was 15% of the profit made was neither disproportionate or excessive.

According to the Hon'ble SAT, the appellant is a broker and a public limited company who has been a member of the stock exchange since 1995 and operates in all segments of the stock exchanges and therefore, is fully aware of the laws relating to proprietary trading in addition to trading on behalf of clients as a broker. The appellant is under obligation to discharge its functions including the proprietary trading functions with utmost care and diligence.

The Tribunal noted that matching of more than 90% of the appellant's trading with one counter party on multiple trading days and that too in liquid stock futures contracts could not be just chance even though the trading had been done through the anonymous trading platform of the stock exchange, and would indicate some meeting of minds as the ratio of the Apex Court's Judgment in Kishore Ajmera put forth.

Since such matching with one counter party was not disputed and the data relating to the same have been given to the appellant not giving the name of the counter party per se did not prejudice the appellant in any manner.

It was opined by the Tribunal that it was immaterial whether the said counter party was A, B or C; the only relevant question was whether a significant proportion of trading by the appellant had matched with one counter party.

Appellant's contention that since out of 130 scrips in which it traded and trading in only 9 scrips had any concentration and hence there was no wrong-doing was also devoid of any merit since only trading of scrips in which significant concentration had been found to be violative of the relevant provisions.

It was further noted that as per relevant provision in the NSE Circulars dated 13 December 2018 and 04 February 2020 the exchange is empowered to impose monetary penalty in the range of 15% to 100% of the profit earned by an entity through such non-genuine trades. In the present case only the minimum penalty at the rate of 15% had been imposed; which was in accordance with applicable law and did not suffer from disproportionality or harshness.