2025 (11) TMI 1564 - AT - SEBI

Penalty Under s.15HB Cut to ?2 Lakhs Considering Elderly Director's Non-Tech Background and Covid-Era Procedural Delays

SAT considered an appeal challenging monetary penalty under s.15HB for a director lacking NISM certification and for delays in issuing duplicate share ... Directors not having NISM Certification - inward processing system - delay in issuing duplicate share certificates and transmission of cases - violation of the various Regulations, notifications and circulars of SEBI - imposition of a monetary penalty u/s 15HB - HELD THAT:- Admittedly, the Director who did not have NISM Certification was aged 75 years. He would not be very tech savvy and his explanation is plausible. The other violations have occurred during Covid period. Therefore, in our considered view ends of justice would be met by reducing the quantum of penalty to Rs. 2 Lakhs. The remaining portion of the order shall remain undisturbed. No costs. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the findings of multiple violations of SEBI Regulations, notifications and circulars by a registered Registrar to an Issue and Share Transfer Agent warranted interference by the Tribunal. 1.2 Whether the monetary penalty of Rs. 6 lakhs imposed under Section 15HB of the SEBI Act was excessive in light of the circumstances explained by the appellant, including the age of a Director and Covid-19 related constraints. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sustenance of findings of violations under SEBI regulatory framework Legal framework (as discussed) 2.1 The Tribunal noted that the Adjudicating Officer had imposed penalty under Section 15HB of the SEBI Act for violations of SEBI (Registrars to Issue and Share Transfer Agents) Regulations, 1993, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007, and relevant SEBI notifications and circulars. Interpretation and reasoning 2.2 Eight heads of violations were considered: (i) failure of one Director, an 'associated person', to hold the mandatory NISM certification during the inspection period; (ii) absence of certain mandatory clauses in agreements with issuer clients as per prescribed draft agreement; (iii) deficiencies in the inward processing system; (iv) delay in issuance of duplicate share certificates; (v) delay in processing transmission requests; (vi) delay in processing change of address requests; (vii) delay in processing change of bank account details; and (viii) improper maintenance of the register/record for destroyed share certificates. 2.3 The Tribunal recorded the appellant's explanations on each alleged violation, including age and technical difficulty for non-obtaining of NISM certification, subsequent rectification of agreements, claimed adequacy of inward system, Covid-19-related staff shortages and holidays causing delays, bulk KYC requests, and asserted maintenance or later correction of destruction records. 2.4 The Tribunal also recorded the respondent's stand that the violations stood established during inspection, that subsequent compliance or rectification was only post-inspection and did not erase past non-compliance, and that delays were computed after taking Covid-19 related relaxations into account. 2.5 The Tribunal did not overturn or contradict the findings of violation recorded by the Adjudicating Officer. It expressly stated that 'the remaining portion of the order shall remain undisturbed', thereby indicating that the factual findings of violations under the respective Regulations, notifications and circulars were allowed to stand. Conclusions 2.6 The Tribunal sustained the findings that the appellant had committed the eight categories of violations as recorded in the impugned order and declined to interfere with those findings, save to the extent of revisiting the quantum of penalty. Issue 2 - Appropriateness and reduction of penalty under Section 15HB of the SEBI Act Interpretation and reasoning 2.7 In assessing the appropriateness of the monetary penalty, the Tribunal considered mitigating circumstances put forth by the appellant, in particular: (a) the Director who lacked NISM certification was admittedly about 75 years old and, in the Tribunal's view, 'would not be very tech savvy', and his explanation of inadvertently pressing the 'back' button while attempting the examination was found 'plausible'; and (b) the other violations, especially the delays in processing various investor service requests, were found to have occurred during the Covid-19 period, when the appellant was working with limited staff and under restrictions. 2.8 Weighing these mitigating factors, the Tribunal held that the ends of justice would be met by reducing the quantum of penalty, rather than setting aside the findings of non-compliance. Conclusions 2.9 The Tribunal held that while the violations stood established, the penalty of Rs. 6 lakhs imposed under Section 15HB was excessive in the circumstances. It reduced the penalty to Rs. 2 lakhs and affirmed that the 'remaining portion of the order shall remain undisturbed,' with no order as to costs.