TMI Blog2020 (1) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... present circular is concerned. In our view, the appellant had committed breach of the directions contained in the said circular. Considering the fact that though none of the prescribed mode of cash transfer was adopted by the appellant as provided by the circular, nonetheless, there was no cash handling in any of the transactions. Considering all these facts on the record, in our view, a penalty of ₹ 5 lacs would be fair. - Misc. Application no. 18 Of 2016, Appeal nos. 10, 29 And 196 Of 2016 - - - Dated:- 6-11-2019 - Justice Tarun Agarwala, Presiding Officer, Dr. C.K.G. Nair, Member And M.T. Joshi, Judicial Member P.N. Modi, Sr. Adv. and Ms. Kalpana Desai, Adv. for the Appellant. Gaurav Joshi, Sr. Adv., Anubhav Ghosh and Ms. Rashi Dalmia, Advs. for the Respondent. ORDER M. T. Joshi, Common question of facts and law has arisen in the present three appeals filed against three different orders passed by the respondent Securities and Exchange Board of India (hereinafter referred to as, 'SEBI'). Therefore, all the appeals are being decided by the present common order. Appeal No. 10 of 2016 Anand Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / made by the brokers from/to the clients strictly by account payee crossed cheques/demand drafts or by way of direct credit into the bank account through EFT, or any other mode allowed by RBI. The brokers shall accept cheques drawn only by the clients and also issue cheques in favour of the clients only, for their transactions. However, in exceptional circumstances the broker or sub-broker may receive the amount in cash, to the extent not in violation of the Income Tax requirement as may be in force from time to time. 4. During the inspection of the accounts of the appellant - the broker in securities market, it was found that the present appellant has also a group company, namely, Anand Rathi Commodities Ltd. (ARCL), a commodity broker. It was found that on 21,198 instances amounting to ₹ 220 crores transfer of funds was made between the appellant securities broker to the group company i.e. commodity broker during financial year 2012-13. Out of this fund transfer, there were total 11,220 instances, amounting to ₹ 119 crores of payments made from appellant's client bank account to Anand Rathi Commodities Ltd. According to SEBI, these transactions were don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money on client authority is permissible. In the present case, money was transferred from the client's accounts to his own account in the commodities market on client's letter of authority. The AO in the impugned order in paragraph No. 26 observed in this regard as under :- 26...... If argument put forward by the notice that the said transfers are executed with client's consent is accepted, it will also convey a wrong message to the market participants that this practice has been regularised. This may also have wider implications from systemic point of view. 10. This is against the guidelines provided in the circular dated November 18, 1993 itself, therefore, the order, to that extent is required to be set aside. 11. This takes us to the aspect of transactions allegedly carried out by the appellant contrary to the directions contained in SEBI circular No. MRD/SE/Cir-33/2003/27/08 of August 27, 2003. The circular, inter-alia, provides that the broker and the sub-broker shall not accept cash from the client. It provides for modes of handling of the amount strictly, (i) by account payee cross cheque; (ii) demand draft; (iii) direct credit into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of authorization letter were different from that of the KYC. In the circumstances, the AO observed that since the transactions were carried out against the two circulars as detailed in Appeal No. 10 of 2016, the appellant would be liable for penalty. Accordingly, upon considering the material on record, a penalty of ₹ 20 lacs was imposed. 16. The learned counsel for the appellant submits that only in cases where the amount withdrawn was less than ₹ 5,000/-, the authority of the client was not obtained. The amount was meager one. There was no complaint from any of the clients. Signature mismatch can occur. Considering all these facts, he submitted that the penalty imposed is very disproportionate. 17. Learned counsel for the respondent, on the other hand submitted that in some cases there was no authorization at all though the amount was higher as detailed (supra). In one case, the appellant has filed the authority letter in the appeal. The learned counsel for the respondent however, pointed out that the authorization is after the transaction and the same is produced in the appeal. 18. Considering the fact that only in cases where the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was transferred in the financial year 2011-12. During the inspection period also 23 funds transfer in the similar fashion amounting to ₹ 2.01 lacs has occurred. The appellant's contention was that those were the exceptional incidents. The AO held that this explanation is not acceptable. 22. As regards the second charge, the appellant explained that only some of credit balances of all credit clients should not be considered for verifying funds lying in the bank accounts as the same would be in isolation, because pay-in and pay-out happens on net basis and hence even debit balances of all debit clients should be considered. Emphasizing on the net basis pay-in and pay-out, the appellant contended that settlement at member level shall not be considered and thus, the allegation that the credit funds of the clients was used is wrong. The AO however observed that the submission cannot be accepted as the funds of credit balance client was used for obligation of debiting balance client. Further, it was pointed that the account of the credit balances clients account had eroded by adopting the said practice. It was found that the said practice was in violation of SEBI circ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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