ORDER
N.K. Sodhi, J. (Presiding Officer)
1. Sudden spurt in the price and trading volumes of shares of some companies had been engaging the attention of the Securities and Exchange Board of India (for short ‘the Board’). IFSL Limited (for short ‘the company’) which was listed on the Bombay Stock Exchange (BSE) was one such company. Detailed investigations were ordered to look into the trading of the scrip and on the basis of the material collected by the Board, it passed an ex parte interim order on September 28, 2005 restraining, among others, one Jay Shah from buying, selling or dealing in the scrip of the company directly or indirectly till further directions. This ex parte order was immediately put up by the Board on its website and was sent to the Stock Exchanges across the country including the BSE. It is not in dispute that BSE on receipt of that order put it on its website and also put up the same on its notice board for the information of all and sundry. Rule 67 of the Rules framed by the BSE provides that a notice to the general body of its members may be published by posting the same on the notice board and every member shall be deemed to be affected by such notice immediately after it is posted.
2. Jay Shah, the barred entity had been trading in the scrip of the company through India Infoline Securities Ltd. as his broker. After the passing of the ex parte order on 28-9-2005 Jay Shah did not trade in the scrip of the company through his earlier broker and approached the appellant which is also a member of the BSE and a registered stock broker with the Board. It is common case of the parties that despite the restraint order passed by the Board, Jay Shah traded in the scrip of the company through the appellant as his broker on 11 -10-2005 and 14-10-2005. On both these days the appellant executed a number of trades on behalf of Jay Shah and traded in as many as 1,92,993 shares of the company. This trading was obviously contrary to the zestraint order passed by the Board. We are informed that the Board has taken appropriate action against Jay Shah for violating the restraint order. Since the appellant had acted as a broker it was also served with a show-cause notice dated 2-2-2006 alleging that it had not exercised due skill, care and diligence while executing trades on behalf of Jay Shah as required of a stock broker in terms of para A(2) of Schedule II of the Code of Conduct prescribed for stock brokers. The appellant was required to show-cause why penalty be not levied against it under Section 15HB of the Securities and Exchange Board of India Act, 1992 (for short ‘the Act’). The appellant filed its reply stating that it had no knowledge of the restraint order dated 28-9-2005. It was pleaded that the appellant was not a party to the restraint order nor was the said order served on it either by the Board or by the BSE and since it was not aware of the same, it had committed no violation whatsoever. On a consideration of the material available on the record the adjudicating officer came to the conclusion that the appellant was guilty of not exercising due skill, care and diligence as a stock broker and as a result of its negligence, it allowed a debarred entity to trade in the scrip of the company. Accordingly, by his order dated 5-4-2007 he imposed a monetary penalty of Rs. 5 lakhs on the appellant. It is against this order that the present appeal has been filed under Section 15T of the Act.
3. We have heard Dr. Rajnish Pandey, Chartered Accountant-the authorized representative of the appellant and also the learned Counsel for the Board. What is contended on behalf of the appellant is that it was not aware of the restraint order dated 28-9-2005 and, therefore, it could not have violated any of the provisions of Code of Conduct prescribed for the stock brokers under the Securities and Exchange Board of India (Stock Brokers and Sub-brokers) Regulations, 1992 (hereinafter called the ‘Regulations’). The learned Counsel for the respondent, on the other hand, pointed out that the restraint order was on the website of the Board as well as of the BSE and that the appellant as a stock broker was required to access the same while dealing with its clients on whose behalf it was executing trades in the securities market. She relied upon rule 67 of the Rules framed by the BSE referred to in the earlier part of the order. We have given our thoughtful consideration to the rival contentions of the parties and are of the view that the charge levelled against the appellant stands established on the facts of this case. Para A in Schedule 11 to the Regulations prescribes the Code of Conduct for stock brokers. It provides that a stock broker shall maintain a high standard of integrity, promptitude and fairness in the conduct of all his business and that he shall act with due skill, care and diligence in the context of his business. The short question that we are required to answer is whether the appellant acted with ‘due skill, care and diligence’ while executing trades on behalf of Jay Shah on 11-10-2005 and 14-10-2005. Admittedly, on those dates Jay Shah had been debarred by the Board from trading in the scrip of the company. We are prepared to accept the plea of the appellant that it was not aware of the restraint order but that will not absolve the appellant from performing its duty as a stock broker which it was required to do under the Code of Conduct. The charge against the appellant is not that it allowed a debarred entity from trading in the scrip of the company. The charge is that it had failed to exercise due skill, care and diligence while executing the trades. The appellant is a member-broker of the BSE. The least that was expected from it was that it should have accessed the website of the BSE to make himself aware of the various notices, orders and circulars issued by it or by the Board. Had it done so, it would have become aware of the restraint order which, as already observed, was on the website of both the BSE and the Board. In that event it would not have allowed Jay Shah to trade in the scrip of the company. Not having done so we are clearly of the view that the appellant was negligent in the performance of its duties as a stock broker and that it failed to exercise due skill, care and diligence while executing the trades in question. The consequences of this culpable negligence have been rather grave. A barred entity was allowed to trade in the market which is detrimental to the interests of the investors and also to the market itself. In this view of the matter, we uphold the impugned order.
4. The learned authorized representative of the appellant then urged that the penalty levied by the adjudicating officer is highly excessive and the impugned order is harsh.
5. We do not think so in view of the grave consequences that flow from the negligence of the appellant.
In the result, the appeal fails and the same is dismissed with no order as to the costs.