TaxTMI 
TaxTMI 
2025 (2) TMI 426
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....efund 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 objection raised in this regard is myopic, does not....
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....6 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 Investor Protection Fund. 15. Vide Circular dated 01.08.2019 the imposi....
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....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 follows : Securities and Exchange Board of India CIRCULAR CIR/HO/MIRSD/DOP/CIR/P/2019/88 August 01, 2019 To The Managing Directors/Chief Executive Officers of All Recognized ....
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....ront 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 case of short reporting of margin/margin on consolidated crystallized obligation/MTM, can member pass on the penalty to the clients? Member shall not pass on the penalty w.r.t. short collection of upfront margins to clients under any circumstances. In case of failure (requirement not met by the client) on part of the client resulting which pena....
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....d 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 of challenge, and I am unable to find any support from the material on record as to the reason or basis for such selection. Apart from the offending date itself, there are other conditions that would have to be satisfied, for the refund of the penalty. 33. A perusal of GRC proceedings dated 31.03.2023 would reveal that the only reason why a portion of the relief sought fo....
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....y 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 to the F&O system of trading. It is the bounden duty of the client entering into the stock market to read, understand and assimilate the basic rules and regulations of trading in the F&O Segment in which he has been very active. He cannot turn a blind eye to the primary responsibilities cast upon him to be vigilant of his trading account and to monitor and safeguard the credit in his trading account. Keepi....