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Securities and Exchange Board of India (SEBI), Special Court, Maharashtra: In the instant case dealing with unregistered brokerage, Vishal Sadashivrao Gaike, J. deliberated over the issue that whether a delay in filing a complaint against unregistered sub-brokers, can be condoned or not. It was held that, in view of the facts of such cases and seriousness of such allegations (as they are in the instant case), it is in the interest of justice that such a delay be condoned.

Facts:

On 19-06-2001, SEBI received a complaint from a person named J. P. Mittal stating that the accused, Balaji and Co., were dealing in Securities as a sub-broker without obtaining a registration certificate from SEBI and thereby duping its clients by providing fake shares. Consequently, via a letter dated 11-09-2001, the accused was informed about the said complaint and they were directed to seek registration immediately. It was also informed that their failure to do so would result in further violation of the SEBI Act and would subsequently attract penal action. Since there was no reply from the accused,therefore, SEBI filed the present matter under Section 24(1) of the SEBI Act, 1992 against the accused for violation of Section 12 of the SEBI Act. The instant case had been in the pipeline for about 20 years, however owing to the nature of the complaint, SEBI filed the instant application on behalf of the complainant for condonation of delay under Section 473, CrPC.

The accused opposed the present application with two contentions:

(1) There had been a delay of three months and fourteen days i.e., 106 days in filing the complaint.

(2) The schedule of the Economic Offences (Inapplicability of Limitation) Act, 1974 (‘the 1974 Act') does not include the SEBI Act, 1992, hence, the legislative intent to exclude the same is clear. The accused claimed that after cognizance has been taken by the Court, a delay cannot be subsequently condoned. It is also mandatory that before taking cognizance of the offence, the Court has to satisfy itself of the grounds for the extension of time which was not done in the present case. Therefore, the present complaint itself is not maintainable along with the present application which has been filed twenty years after cognizance has been taken.

Analysis and Findings:

The Court heard both sides and placed reliance on a case presented by the complainant, i.e., Sukhdev Raj v. State of Punjab, 1994 Supp (2) SCC 398, In this case, the issue before the Supreme Court was whether the delay in filing the charge sheet can be condoned prior to the conclusion of the trial and particularly before the judgment was delivered. The Supreme Courtheld that, “Section 473, CrPC does not in any clear terms lay down that the application should be filed at the time of filing challan itself. The words ‘so to do in the interest of justice' are wide enough”.

The Court also held that the contention of SEBI, that the SEBI Act 1992 replaced the Capital Issues (Control) Act, 1947, hence the Economic Offences (Inapplicability of Limitation) Act, 1974 applies to the SEBI Act, is unacceptable because the Schedule in the 1974 Act does mention SEBI Act, 1992. When the said Schedule has not been amended by the legislature after the repeal of the Capital Issues Control Act, 1947, then the Courts have no power to read the name of the SEBI Act, 1992 in the same. Thus, a delay has occurred in the filing of the complaint for which SEBI should seek condonation.

The Court observed that the complainant had provided the explanation that SEBI is an autonomous body entrusted with the task of regulating the Securities Market. Before any prosecution is launched, approval of the competent authority is required, and only after the satisfaction of the said authority can a prosecution be launched. The Court noted that the complainant in its application had rightly pointed out that the SEBI Act is a social welfare legislation, and the legislative intent was to promote orderly and healthy growth of the Securities Market and to protect the interest of investors. It has also been observed that while interpreting provisions of a social welfare legislation, the paramount duty of the Court is to adopt such an interpretation so as to further the purpose of law and if possible, eschew the one which frustrates it. Subsequently, the Court accepted the complainant's explanation for the delay in filing the complaint.

Conclusively, the Court held that the delay has been properly explained, and since there are serious allegations against the accused, in the interest of justice it is necessary to condone the delay in filing the present complaint.

[Securities and Exchange Board of India v. Balaji & Co., CNR No. MHCCO2-000792-2015, decided on 02-07-2022]


Advocates who appeared in this case :

Anubha Rastogi, Spl.P.P, Advocate, for the Complainant/ SEBI;

Prashant Trivedi, Advocate, for the Accused.


*Sucheta Sarkar, Editorial Assistant has reported this brief.

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Securities Exchange Board of India (SEBI): Dark Fibre/Leased Line connectivity allowed to certain Stock Brokers, the Adjudicating Officer In the matter relating to Dark Fibre/ Leased Line connectivity allowed to certain Stock Brokers, the Adjudicating Officer Suresh B Menon has who was CEO of NSE at the relevant time;observed some irregularities in respect of co-location and corporate governance at National Stock Exchange Limited (‘NSE’) for which it has been penalized with Rs. 7 crores fine. Chitra Ramakrishna, who was CEO of NSE at the relevant time; and Key Management Persons Subramanian Anand, and Ravi Varanasi were fined with Rs. 5 Crores each.

In 2015, a whistleblower approached SEBI alleging various irregularities in respect of Co-location and corporate governance at NSE. A Cross Functional team of SEBI Officials was formed to examine the issues. There were irregularities with respect to certain brokers getting Point to Point (P2P) dark fiber connectivity from Sampark Infotainment Private Limited (‘Sampark’).

The stock brokers and the person associated with the securities market violated the following provisions:

  1. Securities and Exchange Board of India Act, 1992 (‘SEBI ACT’)
  2. Securities Contracts (Regulation) Act, 1956 (‘SCRA’)
  3. Rules and Regulations made under SEBI (Stock Exchanges and Clearing Corporations) Regulations, 2012 (‘SECC Regulations’)
  4. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (‘PFUTP’)
  5. SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992 (‘Stock Broker Regulation’)

Issues:

The NSE’s employees were investigated for the illegal relation with the stock brokers on the basis that they were benefiting from preferential access to the exchange system. Sampark illegally arranged the cabling in the co-location rack of NSE that other stock brokers suffered with lower latency compared to other trading members connected to Sampark. Several other identities indulged in fraudulent and unfair trade practices related to the securities market.

The Court observed:

  1. The mode of communication adopted for making changes to the existing circulars violated the principle of transparency.
  2. Preferential treatment was shown by NSE by allowing Sampark to provide P2P connectivity.
  3. W2W had a lower latency advantage due to the manner in which P2P connectivity was provided through Sampark
  4. NSE facilitated the arrangement between Sampark and Reliance in an attempt to give post facto legitimacy to an unauthorized activity of Sampark.
  5. NSE acted fraudulently, without any verification of license facilitated an arrangement to regularize and give ex post facto legitimacy to an unauthorized activity of Samaprk and thereby NSE failed in ensuring fair, equal and transparent access to all its members.
  6. NSE did not maintain and preserve the books of account and document.
  7. W2W and GKN, in collusion with the employees of NSE and Sampark made significant profit due to unfair latency advantage available with them.

Noticing that the act on the part of the Noticees had a huge impact on the market, the Court observed,

“Stock Brokers like W2W and GKN made unfair gains at the cost of other stock brokers who had complied with the guidelines and circulars of NSE, in this regard.”

Order and Penalty:

The Court, exercising the powers conferred upon it under Section 15-I of the SEBI Act, 1992 read with rule 5 of the Adjudication Rules, imposed monetary penalties on all the Noticees.

NSE Limited was penalized Rs 5 Crores charged under Section 15-HA of the SEBI Act, 1992, Rs. 1 Crore charged under Section 15-HB of the SEBI Act, 1992 and Rs. 1 Crore under Section 23-H of the SCRA, 1956. Chitra Ramakrishna, Subramanian Anand and Ravi Varanasi were fined with Rs. 5 Crores each. Remaining Noticees have been fined with penalties ranging from R. 10 Lakhs to Rs. 6 Crores.

The Noticees have been directed to pay the said amounts within 45 days of the receipt of the order by the way of Demand Draft in favor of “SEBI- Penalties Remittable to Government of India”.

[Dark Fibre/Leased Line connectivity allowed to certain Stock Brokers by NSE, In re, ADJUDICATIONORDER Ref. No. ORDER/SBM/ASR/2022-23/17390-17407, order dated 28.06.2022]