ORDER
B. Samal, Member
1. The present appeal is against the order of the Chairman, SEBI in exercise of the powers conferred upon him by virtue of Sub-section (3) of Section 4 of the Securities and Exchange Board of India Act, 1992 read with regulation 29 of the SEBI (Stock Brokers & Sub- Brokers) Regulations, 1992 and regulation 13 of the SEBI (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 suspending the certificate of registration No. 230909932 granted to M/s. Betala Stock Broking Ltd., a member of the National Stock Exchange Ltd., for a period of 3 months. This order has been passed on 14th July, 2003.
2. The appellant is a member of the National Stock Exchange (NSE). During the inspection of the books of account, records and other documents of the appellant undertaken by the respondent during November 2000 under regulation 28(1) of the SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992, certain violations were observed. After considering the inspection report and the comments of the appellant, the respondent conducted an enquiry into the affairs of the appellant in terms of regulation 28(1) of the said regulations. An enquiry officer so appointed issued show-cause notice and considered the reply of the appellant. Further submissions were also made by the appellant during personal hearing before the enquiry officer who finally submitted the report dated 20th September, 2002.
3. The enquiry officer found the appellant having violated the requirements of following regulations and Respondent’s directions:
(i) Non maintenance of proper books of account and other records.
(ii) Dealing with unregistered sub-brokers
(iii) Stamp duty not affixed on contract notes.
(iv) Delay in making deliveries to clients.
(v) Proper segregation of client’s and own funds not maintained.
(vi) Non maintenance of client data base.
A show-cause notice dated 3rd October, 2002 was issued to the appellant. An opportunity of personal hearing was given to the appellant on 30th November, 2002. Shri R.C. Betala, promoter appeared before the enquiry officer and submitted that any default, on their part was on account of oversight and not with any mala fide intentions. Shri Betala also filed some additional documents and requested that the penalty of suspension for a period of 12 months may not be imposed.
4. It has also been stated in the impugned order that vide SEBI’s order dated 22-2-2000 the promoter/director of the said broker Mr. R.C. Betala was prohibited from accessing the capital market for a period of five years in the matter of public issue of Betala Global Securities Ltd. Further an enquiry against the said broker is pending in case of Cyberspace Ltd. It has also been noted in the report that the said broker was warned in the matter of Sound Craft Industries Ltd. However, the Counsel for the appellant has submitted that the said Mr. R.C. Betala is no more a director of the appellant.
5. In view of the submission of additional documents, the respondent conducted further inspections on 24-12-2002, 26-12-2002 and 27-12-2002. In the said inspection it was found that:
(i) The appellant has maintained the books of account and other records except the document register which was available at its Ahmedabad Branch.
(ii) No evidence was found to suggest that the said broker dealt with unregistered sub-brokers.
(iii) The clients had given their consents for retention of the securities. Therefore, the delay could not be attributed to the broker.
(iv) There is only non-segregation of the members’ funds and clients’ funds as it has not withdrawn fully money due to the appellant every time.
(v) There is no mis utilisation of the client’s fund by the broker.
6. The learned Counsel, Dr. Ashok Dhamija very forcefully pleaded that out of the six violations as mentioned in the Respondent’s report in case of five violations it was not proved. Only in one case, the Respondent found that the clients’ money has been erroneously withdrawn by the appellant for personal use. He also stated that out of 1,000 transactions inspected by the Respondent, only in the following 7 cases the inspection team found that payments were made from the clients’ account which are not client- related.
Name Date Nature of Exp. Amt. (Rs.) --------------------------------------------------------------- Roop Chand Betala 6-4-2000 Drawings 3,60,000 --------------------------------------------------------------- Ratna Betala 6-4-2000 Drawings 1,80,000 --------------------------------------------------------------- Self 2-6-2000 Foreign Travels 4,54.500 --------------------------------------------------------------- Telephone 18-7-2000 Telephone Exp. 3,849 --------------------------------------------------------------- Telephone 18-7-2000 Telephone Exp. 1,257 --------------------------------------------------------------- Roop Chand Betala 29-8-2000 Drawings 10,40,000 --------------------------------------------------------------- Ratna Betala 29-8-2000 Drawings 4,20,000
He clarified that this has been erroneously done as the staff handling the account continued to change and secondly client’s own money of more than Rs. 60 lakhs remained in this account without being segregated. He admitted that this should not have been done.
7. Shri Kumar Desai, learned Counsel for the respondent submitted that it is a very serious matter that from the clients’ account a large sum is being withdrawn for personal purposes. If it is assumed that the appellant’s money also remains in clients’ account it will be construed that true picture of the client’s business is being concealed. The books of account and records should be maintained in a transparent manner. The Appellant has also given contradictory replies. In 2001, it had submitted that it was due to oversight whereas before the Enquiry Officer it has submitted that four of these transactions were related to managerial remuneration.
8. We have examined the documents and facts submitted by both the learned counsels. The appellant has admitted withdrawal of the money from the clients’ account which is in violation of a condition for grant of the certificate of registration in terms of Rule 4(b) of the SEBI (Stock Brokers and Sub-Brokers) Rules, 1992.
9. It is noted that while enquiry officer has recommended for suspension of registration for a period of 12 months the Respondent (Chairman of SEBI) reduced the suspension for a period of three months.
10. It was submitted by the Counsel for the appellant that even one day’s suspension would completely ruin his business. His terminals will be switched off and the existing clients will flee. The learned Counsel vehemently argued that a simple warning will meet the ends of justice. It was further submitted that the impugned order was passed on 14th July, 2003 and throughout the pendency of the appeal there was an interim stay of the impugned order.
11. The appellant on his request had been given interim stay restraining operation of the impugned order on 4th August, 2003 for a period of 8 weeks which has been further extended till disposal of the appeal. There- fore, the appellant has not suffered so far on account of this impugned order.
12. In view of the facts and circumstances of the case we are inclined to take a lenient view. While upholding the impugned order of the responent we modify the period of suspension from three months to 7 days. The suspension will commence from the date of receipt of this order.
The appeal is disposed of accordingly.
No order as to costs.