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SEBI - CASE STUDY ABOUT ARBITRARY PENALTY LEVIED and harassment of some of small self-employed traders and investors selected based on inquiry for some of periods only.

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SEBI - CASE STUDY ABOUT ARBITRARY PENALTY LEVIED and harassment of some of small self-employed traders and investors selected based on inquiry for some of periods only.
DEV KUMAR KOTHARI By: DEV KUMAR KOTHARI
June 28, 2022
All Articles by: DEV KUMAR KOTHARI       View Profile
  • Contents

Under SEBI (Prohibition of Fraudulent and Unfair Trading Practices related to Securities Markets) Regulations 2003 ( “PFUTP Regulations,2003”).

From the website of SEBI relevant information have been collected from orders and analysed to find that the penalty levied on small innocent traders or investors are very high and arbitrary. In this case study   

Noticee is Shri Ajay Kumar Baid to whom SCN/ show cause notice no. OIAE/IGRD/MJS/19733/2021 Dated 17th August 2021 was issued.

It has been mentioned in order of AO that after finality of enquiry for the above period appropriate action was initiated against 14, 720 entities in a phased manner and for this reason it is considered that SCN was issued within reasoanble time and is not time barred.

Broker was  Giriraj Stock Broking Pvt. Ltd.

AO: ADJUDICATING OFFICER, SEBI who passed the order.  ADJUDICATION ORDER NO.: OIAE/IGRD/AO/MS/GK/2021-22/15730 against which  now noticee has  preferred  appeal before SAT.

ACT or SEBI Act: THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992.

Alleged counter party:  Wonderland Paper Suppliers Private Limited 

S/E or stock exchange: Bombay Stock Exchange / BSE

IP – Inquiry Period and subject matter:

Trading activities of certain entities in ISO, BSE , Derivatives alleged to be Illiquid, for period April 1, 2014 to September 30, 2015

SCN is after about seven years from last date of enquiry period. This should be considered barred by limitation by way of reasonableness.

SCN  is  for alleged violation of  Regulations 3(a),(b),(c) and 4(1),4(2)(a) of regulations. The SCN is an omnibus notice not specifying any particular clause of provision alleged to be violated and amount of penalty intended to be levied. 

There is no evidence that the noticee  know and have  direct or indirect relationship or any connection with the counterparty .

Amount of penalty levied  has no basis. On consideration of  volume of transactions of  noticee , counter party and brokers, NIL  penalty imposed on Brokers and amount of penalty imposed on Counter party the amount of penalty imposed on  noticee is arbitrary , unjust and illegal.

  1. In the following table for the same Inquiry period (IP)  and Inquiry matter details of trades and penalty in case of appellant, counter party and broker are summarized.

DESCRIPTION

IN CASE OF APPELLANT AJAY BAID

IN CASE OF COUNTER PARTY

In case of Giriraj Stock Broking (P) Ltd –Broker of  Appellant

SCN for Penalty proceeding  under section

And order

S.15HA rws 15I and 15J

SCN Alleged violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2) (a) of PFUTP Regulations, 2003?

Penalty levied  for the violation of Regulations 3(a), (b), (c), (d), 4(1) and 4(2) (a) of the PFUTP Regulations

S.15HA rws 15I and 15J

SCN Alleged violation of Regulations 3(a), (b), (c), (d), 4(1), 4(2)(a) of PFUTP Regulations?

Penalty levied for violation of regulations 3(a), (b), (c) and (d), 4(1), 4(2)(a) of PFUTP Regulation

Under sections 11(1), 11(4) and 11B and

section 12A(a), (b) and (c)

DATE ORDER

30.3.2022

25.02.2019

Vide ad interim order dt. 17.02.2016 AO SEBI imposed some restrictions but that order was  quashed and set aside by SAT vide order dt. 14.03.2016. so no penalty or penal action has been taken against brokers.

Order no.

ADJUDICATION ORDER NO.: OIAE/IGRD/AO/MS/GK/2021-22/15730

ADJUDICATION ORDER NO. EAD-9/ AO/SM/ 240 /2018-19]

WTM/RKA/ISD/ 25/ 2016

Number of trades

1 buy and 1 sale with one counter party all alleged to be non-genuine

100 trades out of which 92were alleged to be non-genuine

 
 

2 trades 

92 trades

 
 

2,12,000 units

14890000 units

 
 

in one stock option

in 39 stock option

 

Penalty imposed

Rs.5 lakh

Rs.7.20 lakh

Nil

Security

FEDB15JUL125.00PEW4

   

Investigation matter and period

illiquid Stock Options segment at the BSE for the period April 01, 2014 to September 30, 2015

trading activities of certain entities in ISO, BSE

for period April 1, 2014 to September 30, 2015

Trading in stock options segment for the period April 1, 2014 to March 31, 2015

Penalty per Trade work out

Rs.2,50,000

Rs.7826

NIL

The above table  shows arbitrariness in  levy of penalty in case of noticee  which is Rs.2,50,000/- per trade whereas Rs.7826/- per trade in case of the  counter party. The Broker has been absolved of any charges and no penalty has been imposed on him and other brokers, as per information gathered.

It is also observed from orders of  AO on website and SAT that in many cases, AO has not imposed any penalty in cases of SCN issued to similar noticee

This only shows case of harassment of self-employed small traders and investors like noticee.

Feed back and views of learned reades are welcome.

 

By: DEV KUMAR KOTHARI - June 28, 2022

 

 

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