M/S PRRSAAR THROUGH ITS PROPRIETOR VED PRAKASH GUPTA versus NATIONAL STOCK EXCHANGE OF INDIA LTD. on 22 July 2019

O R D E R

1. Appeal admitted.

2. Heard learned counsel for the parties.

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3. This appeal takes exception to the order dated 20.02.2017passed by the Securities Appellate Tribunal at Mumbai in Misc. ApplicationNo.49 of 2017 and in Appeal No.53 of 2017, whereby the AppellateTribunal rejected the appeal preferred against the order dated 03.02.2017passed by the Disciplinary Action Committee of National Stock ExchangeCof India Ltd. which found the appellant guilty of indulging in financialirregularities and misconduct in conduct of business, and for which afine/penalty of Rs.10 lakhs with suspension from trading membership ofthe appellant for five trading days came to be imposed.

4. The argument of the appellant before this Court is that theDpenalty/fine could be imposed only in the context of Circular dated27.06.2013. The relevant part of the circular read thus:

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Rs. 1,00,000/- or 0.1% of the value of misuse whichever is higher.

“19. Improper use of funds raised by placing of clients securities with bank/any other financial institutions viz. funds not used for respective client obligation/margins.

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Mis-utilization of clients’ funds and/or securities.”

5. Thus, the appropriate authority could not have issued suspensionof trading membership of the appellant. Further, the authority could nothave imposed penalty/fine more than quantified in the circular extractedabove.

6. The respondent, however, relied on the bye-laws, Chapter IVRule 1, which reads thus:- “Disciplinary Jurisdiction

(1) The relevant authority may expel or suspend and/or fineunder censure and/or warn and/or withdraw any of the M/S PRRSAAR THROUGH ITS PROPRIETOR VED PRAKASHGUPTA v. NATIONAL STOCK EXCHANGE OF INDIA LTD.

membership rights of a trading member if it be guilty ofcontravention, non-compliance, disobedience, disregard orevasion of any of the Bye Laws, Rules and Regulations of theExchange or of any resolutions, orders, notices, directions ordecisions or rulings of the Exchange or the relevant authorityor of any other Committee or officer of the Exchangeauthorized in that behalf or of any conduct, proceeding or methodof business which the relevant authority in its absolutediscretion deems dishonourable, disgraceful or unbecoming atrading member of the Exchange or inconsistent with just andequitable principles of trade or detrimental to the interests, goodname or welfare of the Exchange or prejudicial or subversiveto its objections and purposes.”

7. The provision regarding suspension of business reads thus:

“Suspension of Business:

(8) The relevant authority may require a trading member tosuspend its business in part or in whole:

(a) Prejudicial Business: When in the opinion of the relevantauthority, the trading member conducts business in a mannerprejudicial to the Exchange by making purchases or salesof securities or offers to purchase or sell securities for thepurpose of upsetting equilibrium of the market or briningabout a condition of demoralization in which prices will notfairly reflect market value, or”

8. It is then submitted that ample power is bestowed on theappropriate authority to suspend the trading membership of a memberwho indulges in prescribed misconduct. It is contended that no fault canbe found with the order passed by the appropriate authority and hasbeen rightly affirmed by the Appellate Tribunal.

9. After considering the rival submissions, it is noticed that theappellant had specifically raised the issue about the appropriateness ofthe order suspending the trading membership of the appellant and alsoregarding the quantum of penalty imposed by the appropriate authority.That can be discerned from the contention recorded in paragraph 3 ofthe impugned order which, inter alia, reads thus:

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A“... He submitted that the decision of the DAC of NSE is inviolation of NSE Circular dated June 27, 2013, because, as perthat circular suspending the trading is not contemplated for theviolations allegedly committed by the appellant...”

10. The Appellate Tribunal, however, has not examined thisBcontention but proceeded to reject the appeal on the specious groundthat the penalty imposed by the appropriate authority cannot be said tobe unreasonable or excessive. The argument of the appellant was thateven though the appropriate authority can suspend the tradingmembership of the member indulging in misconduct, it can be resortedto only when it falls within the concerned Bye-law such as Bye-law 8(a)Crelied upon by the respondent - which envisages that the trading membermust conduct business “in a manner prejudicial to the Exchange” etc.Further, the penalty could not have exceeded an amount of Rs. 1 lakh or0.1% of the value of misuse, whichever is higher. These argumentshave not been dealt with by the Appellate Tribunal at all.

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11. Resultantly, we deem it appropriate to set aside the impugnedorder and relegate the appellant before the Appellate Tribunal by restoringappeal No. 53 of 2017 to the file of the Securities Appellate Tribunal,Mumbai for reconsideration only on the issue of quantum of punishmentawarded to the appellant. Indeed, while passing the final order, it will beEopen to the Tribunal to pass appropriate order with regard to the amountdeposited by the appellant pursuant to order dated 27.02.2017 passed bythis Court.

12. We make it clear that the Appellate Tribunal will not go intotechnicalities of the effect of withdrawal of the appeal by the appellantFbearing No. 60/2017. The Appellate Tribunal must decide the restoredappeal on the issue of quantum of punishment afresh expeditiously.

13. The Civil Appeal is allowed in the above terms. No order as tocosts.

14. Pending applications, if any, stand disposed of.

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Devika Gujral

Appeal allowed.

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