2023 (11) TMI 1404

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....s been preferred by Magnum Equity Broking Limited (the Appellant) against order dated May 30, 2022 passed by the Member and Core Settlement Guarantee Fund Committee ('MCSGFC'/ 'Committee' for short) of the National Stock Exchange of India Limited ('NSE' for short) imposing a monetary penalty of Rs. 8,12,000/- pursuant to violations observed during joint inspection conducted by Securities and Exchange Board of India ('SEBI' for short) along with Stock Exchanges during the period January 20, 2021 to March 08, 2021 for the period April 01, 2019 to September 30, 2020. 2. The Appellant is a Trading Member registered with the NSE and enabled for trading in the Capital Market (CM) segment since November 1994, Futures & Options (F&O) segment sin....

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.... of eleven violations observed during the inspection. 4. We have heard Shri Prakash Shah, the learned counsel with Shri Kushal Shah, CA for the Appellant and Shri Gaurav Joshi, the learned senior counsel with Shri Rashid Boatwalla and Ms. Samiksha Rajput, the learned counsel for the Respondent. 5. At the outset, the issue raised by the Appellant that as the joint inspection was conducted by SEBI, the post- inspection enforcement action should be taken by SEBI is misconceived. We are satisfied that the Respondent is competent to initiate the post-inspection enforcement as per their Bye-laws, Rules, Regulations and Circular issued from time to time. Adequate opportunities were given by the Respondent to the Appellant to present their ca....

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....llant for placing funds as inter-corporate deposits with the NBFC. The Appellant further contended that the allegation of the Respondent that this was a repeat violation leading to a higher penalty was also erroneous as the present matter was not similar to the earlier violation noticed during the inspection commencing the period July 01, 2016 to June 30, 2017. In the earlier instance the violation was on account of the Appellant extending loans to several unrelated entities. 8. For facility, Rule 8(3)(f) of Securities Contract (Regulation) Rules, 1957, Rule 5(b) (erstwhile Rule 4(b) of Chapter III of Rules of the Exchange and SEBI Circular No. SMD/Policy/Cir-6/97 dated May 07, 1997 are extracted below:- Rule 8(3)(f) of SCR Rule....

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....es except as a broker or agent not involving any personal financial liability unless he undertakes on admission to severe his connection with such business." SEBI Circular No. SMD/Policy/Cir-6/97 dated May 07, 1997 "Based on the suggestions/representations received from various Stock Exchanges, SEBI has examined the applicability of Rule 8(1)(f) and 8(3)(f) of the Securities Contract (Regulation) Rules, 1957, relating to Fund Based Activities of Brokers. It has been opined that borrowing and lending of funds, by a trading member, in connection with or incidental to or consequential upon the securities business, would not be disqualified under Rule 8(1)(f) and 8(3)(f)." 9. A plain reading of the Rule 8(3)(f) of SCR Rules....