SEBI's independent oversight and margin compliance rules allow further action despite prior exchange inspection and recommendatory reports.

SEBI retains independent regulatory power to proceed against capital-market intermediaries even after a stock exchange has inspected the same conduct, because exchange action under its bye-laws does not estop or bar SEBI's supervisory jurisdiction. Under the Intermediaries Regulations, the designated authority's report is only recommendatory, so the designated member may independently issue a further show-cause notice and impose an enhanced penalty after hearing the noticee. The margin framework requires upfront collection of margin in permitted, readily realizable forms from the trading member or constituent; acceptance of impermissible substitutes, wrong reporting of margin, and excess exposure to trading members constitute regulatory breaches.

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Issues: (i) Whether SEBI was precluded from initiating proceedings after the stock exchange had already inspected and acted upon the same conduct; (ii) whether the designated member was bound by the designated authority's recommendation and could issue a further show-cause notice and enhance the penalty; (iii) whether the appellant violated margin collection and reporting requirements by accepting and treating as margin non-permissible forms and by giving excess exposure to trading members.

Issue (i): Whether SEBI was precluded from initiating proceedings after the stock exchange had already inspected and acted upon the same conduct.

Analysis: The regulatory power over capital-market intermediaries remains with SEBI, except where statute excludes it. Action by a stock exchange under its bye-laws does not create an estoppel against SEBI, nor does it bar SEBI from exercising its independent power where market integrity and investor protection require intervention. The exchange and SEBI proceedings operate in different fields, and SEBI's supervisory role over margining and intermediary conduct is preserved notwithstanding prior exchange action.

Conclusion: The appellant's objection was rejected and SEBI's proceedings were held maintainable.

Issue (ii): Whether the designated member was bound by the designated authority's recommendation and could issue a further show-cause notice and enhance the penalty.

Analysis: Under the Intermediaries Regulations, the designated authority's report is only a recommendation. The designated member is required to consider that report, but is not confined to the charges or penalty suggested therein. The scheme of the regulations permits the designated member to independently evaluate the material, issue a show-cause notice, and pass such order as considered appropriate after hearing the noticee.

Conclusion: The challenge to the post-enquiry notice and enhancement of penalty failed.

Issue (iii): Whether the appellant violated margin collection and reporting requirements by accepting and treating as margin non-permissible forms and by giving excess exposure to trading members.

Analysis: Margin under the regulatory framework must be collected upfront in permitted liquid forms from the trading member or constituent itself, so that it is readily available and realizable for risk containment. Accepting bank guarantees funded by the clearing member's own leverage, undated or post-dated cheques, and property transactions as substitutes for margin defeated the purpose of margining and amounted to impermissible accommodation of defaulting members. Wrong reporting of collected margin and continued excess exposure compounded the breach, and the explanation of market stress did not legalize non-compliance with the margin framework.

Conclusion: The findings of violation were affirmed against the appellant.

Final Conclusion: The appeal was found to be without merit, and the impugned order was sustained in full.

Ratio Decidendi: SEBI retains independent regulatory authority to proceed despite prior exchange action, the designated authority's report is only recommendatory, and margin must be collected from the trading member in permissible, immediately realizable forms without wrongful reporting or impermissible accommodation.

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