Appeal allowed for stock broker suspended over trading irregularities

The Securities Appellate Tribunal allowed the appeal of a registered stock broker who was suspended by the Securities and Exchange Board of India for alleged violations of regulations related to trading irregularities. The Tribunal held that the broker could not be held responsible for the actions of a sub-broker without evidence of wrongdoing by the sub-broker. As there were no specific instances of the broker failing to exercise due diligence, care, and skill, the suspension order was set aside, and no costs were awarded.

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Issues involved: Whether the appellant, a registered stock broker, failed to exercise due diligence, care, and skill thereby violating his code of conduct.

Facts: The Securities and Exchange Board of India (SEBI) ordered investigations into alleged irregularities in trading in the scrip of a company, where more than 37 lakh shares were forfeited due to non-payment of call money. It was found that certain entities, including Mayekar and KP, created artificial volumes in the market through matched trades.

Legal Analysis: The appellant, a member of the Bombay Stock Exchange and a registered stock broker, was served with a show-cause notice alleging contravention of various regulations. The charge against the appellant was that he failed to exercise due skill, care, and diligence in conducting his business as a stock broker. The Board suspended the appellant's registration based on the investigations and joint statement of the appellant and a partner of the firm.

Decision: The Securities Appellate Tribunal found that the appellant could not be held responsible for the actions of the sub-broker (the firm) unless it was alleged and established that the sub-broker had done something wrong. The Tribunal noted that there was no specific allegation or finding that the firm had engaged in any wrongdoing. It emphasized that the appellant, as the principal, could not be held accountable for the sub-broker's actions without evidence of wrongdoing. The Tribunal also highlighted the lack of specific instances where the appellant failed to carry out due diligence, care, and skill. As a result, the Tribunal allowed the appeal and set aside the suspension order.

Conclusion: The appeal was allowed, and the suspension order was set aside with no order as to costs.

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