Clients' funds misuse penalty set aside where margin calculation dispute required fresh examination of the alleged mismatch.

Penalty for alleged misuse of clients' funds could not stand without a fresh examination of the underlying mismatch calculation, because the appellant disputed the figures and said the clients' margin component had not been included. The tribunal noted that the impugned finding rested on an unexplained credit-balance mismatch, but the appellant had produced material pointing to a different computation and the reply did not categorically deny those figures. On that basis, the penalty order was set aside and the matter remitted to the adjudicating authority for reconsideration after accounting for the clients' margin and permitting further evidence.

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Issues: Whether the penalty for misuse of clients' funds could be sustained when the appellant disputed the mismatch by including the margin applicable to clients and sought reconsideration of the factual calculation.

Analysis: The impugned order proceeded on the basis that the earlier circular mechanism was not applicable to the inspection period and that the mismatch between clients' credit balance and funds remained unexplained. However, the appellant had specifically asserted that the margin applicable to clients was not accounted for, and had placed material showing a different position. The response to that assertion did not contain a categorical denial of the figures relied upon by the appellant. In these circumstances, the calculation underlying the finding of misuse required fresh examination after taking the margin component into account, and the appellant was permitted to place further evidence.

Conclusion: The penalty order was set aside and the matter was remitted to the adjudicating authority for fresh consideration of the alleged mismatch after accounting for the margin applicable to clients.

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