TaxTMI 
TaxTMI 
2025 (2) TMI 426
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....nasmuch as it advises the trading member to refund the penalty levied on account of short/non-collection of upfront margin to clients, if the same has been passed on to the clients after 11.10.2021. 4. The first objection to the prayer is that Circular dated 02.09.2022 is a beneficial Circular and by seeking declaration of this nature, the petitioner has, in fact, sought removal of a benefit that has been granted by the respondents. In arguing so, I believe that the respondents have lost sight of the fact that the challenge is qua the fixation of the date, 11.10.2021 and not to the Circular perse. What the petitioner is aggrieved by is the restriction under the Circular to refund the penalty levied on account of short/non-collection of upfront margin to clients, if the same has been passed on to the clients after 11.10.2021. 5. The benefit of the Circular has been made unavailable to those situations where the penalty has been passed on to clients prior to 11.10.2021. A distinction is thus made between those clients who have received demands of penalty before and after the stipulated date, that is, 11.12.2021 which is what the petitioner assails. I am of the view that the ....
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.... to the width of power available to this Court under Article 226 of the Constitution of India. In light of this discussion, this Writ Petition is held to be maintainable. 12. The detailed submissions of Mr.K.Jagannathan, learned counsel for the petitioner, Mr.P.Giridharan, learned counsel for R1 and Mr.C.Prasanna Venkatesh, learned counsel for R2 have been heard. 13. The submissions of the petitioner are that Circulars issued by the SEBI in exercise of powers under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Section 10 of the Securities Contracts (Regulation) Act, 1956 are for the protection of the interests of investors. A series of Circulars have been issued over the years, specifically providing for the levy of penalty on trading members for short collection/non-collection of margin from clients in Equity and Currency Derivative segments. 14. Mr.Jagannathan would take me through the Circulars pointing out that the first of Circulars comes into effect on 01.09.2011. The second Circular is dated 07.09.2016, and stipulates that the penalty collected for short collection/non-collection of margins from clients should be credited to the Inv....
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.... from clients in Equity and Currency Derivatives segments: For each member 'a' Per day Penalty as % age of 'a' (Rs 1 lakh) And (10% of applicable margin) 0.5 (Rs 1 lakh) Or (10% of applicable margin) 1.0 Where a = Short-collection/non-collection of margins per client per segment per day ........... 21. The Circular went on to stipulate different circumstances where there could be a short/non-collection of margins and set out various parameters that would be applicable in those different situations. 22. On 07.09.2016, a Circular was issued by SEBI setting out a mechanism for regular monitoring of, and imposition of penalty for short collection/non-collection of margins from clients. Paragraph 1 of Circular dated 10.08.2011 was reiterated therein and other stipulations also set out to address different situations of non/short levy. This Circular states that the penalty collected should be credited to the Investor Protection Fund. 23. On 01.08.2019, the rationalization measures continued, and it was stated that earlier Circulars dated 10.08.2011 and 07.09.2016 stood rescinded. Clause 3 of this Circular stipulated as fo....
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....dated crystallized obligation/MTM, can member pass on the penalty to the clients? In case of failure (cheque not cleared or margin* requirement not met by the client) on part of the client resulting which penalty is levied by the Clearing Corporation on the member for short reporting of client upfront margins/margin on consolidated crystallized obligation/MTM losses, member may pass on the actual penalty to the client, provided he has evidences to demonstrate the failure on part of the client. Wherever penalty for short reporting of upfront margin/margin on consolidated crystallized-obligation/MTM losses is being passed on to the client relevant supporting documents for the same should be provided to the client. *Member cannot pass on the penalty w.r.t.short collection of upfront margin to client. 26. This stood modified under Circular dated 12.10.2021 reading thus: 'National Stock Exchange of India Limited CIRCULAR DEPARTMENT: INSPECTION Download Ref No: NSE/INSP/49929 Date: October 12, 2021 Circular Ref. No:48/2021 To All Members, Sub : Guidelines/clarifications on Margin collection & reporting 15. In....
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....rities and to promote the development and regulation of the securities market. 30. Subsequent Circulars dated 31.07.2020, 12.10.2021 and 02.09.2022 have been issued by the NSE only. Though NSE in its counter states that those Circulars were issued in consultation with SEBI, that statement is not supported by SEBI itself, and these Circulars appear to have been issued by SEBI unilaterally. 31. A specific query was put forth to Mr.Giridharan, learned counsel for SEBI as to whether any records were available to indicate discussion with SEBI prior to issuance of the three Circulars as aforesaid and he confirms that there are none. While the authority under which the Circulars have been issued is itself not in question, policy decisions that impinge on the rights of the investing public would have to be bound by Rules of proportionality and cannot be seen to be arbitrary or whimsical. That apart, it also does not seem appropriate that the NSE could impose a condition/restriction unilaterally in regard to a benefit that has extended by SEBI, without prior sanction/approval. 32. In the present case, it is the selection of the date, that is, 11.10.2021, that is the subject matter ....
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....ioner and HDFC/TM. Observations of GRC: The Complainant has been trading with the TM from 2017 onwards and has been transacting all through financial year 2021-22. He has been a ultra-high net worth trader and is well versed with the market formalities. He claims that in the month of March 22 he was alerted by his auditor about margin penalty charges being debited in his account by the TM on a regular basis and he was shocked to see the huge debits in his account over the period of 1st April 21 to 8th March 22 amounting to Rs.8.83 Crs. He has claimed the reversal and refund of this amount by TM. Considering the huge volume of business carried out by the complainant and the oral submissions made during the hearing, the complainant comes across as a seasoned trader and his claim that he has not seen the emails sent by the TM and is not aware that margin shortfalls attract penalties, seems to be a hollow claim and is not tenable. Having executed the RDD (Risk Disclosure Document) which forms part of the KYC, he is deemed to have fully understood the risks involved in the market and that payment of margins and penalty for non-payment of margins are integral t....
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....25 dt 02 Sept 2022 From which it is very clear a. that trading members are not permitted to pass on the penalty levied by clearing corporations on account of "short/non-collection of upfront margins" to clients under any circumstances b. that members are advised to refund the penalty levied by clearing corporations on account of "short/non-collection of upfront margins" to the clients on an immediate basis if same has been passed on to the clients after 11th October, 2021. By their own submissions the TM has quoted the above circulars in their replies and has also mentioned in his reply dated 4th March 23 that penalty on upfront margin cannot be passed to the Client from October 12, 2021. Further vide their communication dated 29th March 2023, TM has given the break-up of the Rs.8.85 Crs as below:- period 1 - (1st April 21 to 11th Oct 21) - 5.08 Crs and period 2 (12th Oct 21 to 8th Mar 22) - 3.77 Crs The TM has also computed the penalty amount on account of non-payment of Mark to Market Margins from 12th Oct 21 to 8th Mar 22 as Rs 87,39,571.96/- which can be passed on to the client. This brings the net margin r....