SAT imposes ₹50,000 cost on NSE for its ‘failure to follow directions’

PALAK SHAH Mumbai | Updated on October 13, 2020 Published on October 13, 2020

The tribunal also asks the bourse to return 90% excess fine it had charged from a broker

The Securities and Appellate Tribunal (SAT) has imposed a cost of ₹50,000 on National Stock Exchange (NSE) and asked it to return 90 per cent excess fine it had charged from a broker.

SAT was irked that the NSE did not follow directions issued by the tribunal and the Supreme Court (SC) in a matter wherein it had charged excess fines from a broker for improper use of client funds. SAT said it had imposed the cost since the matter came to it thrice and went to the SC, and the broker was entitled for the cost of litigation which “we assess at ₹50,000”. The NSE had imposed a fine of ₹10 lakh on Prrssar Commodities and also suspended the broker for 5 days after it conducted an inspection and found irregularities by the broker. The action was with regard to the broker placing client securities with bank or financial institutions to raise funds, which were not used for respective client obligations or margins.

Penalty clause

However, the exchange by-laws under which the NSE had charged the penalty prescribe a maximum penalty of ₹1 lakh, or 0.1 per cent of the value of the misuse, whichever is higher. SAT found that if the penalty was calculated at the rate of 0.1 per cent of the value, it would have come to ₹54,300. In this case, the highest penalty could not have been more than ₹1 lakh. The Supreme Court did not stay the proceedings against the broker but asked the exchange to stick to the rule on penalty.

SAT observed that ₹10 lakh penalty was imposed but the calculation of how this amount was arrived “is a mystery and is not known nor do we find anything in the reply given by the respondent (NSE)”.

“At the outset, the SC as well as this Tribunal had made it apparently clear that penalty has to be calculated under the circular dated June 27, 2013. Instead of calculating the penalty, the (NSE) committee has dwelled at length giving reasons to support its earlier order and justifying the need to impose a penalty of ₹10 lakh over and above the maximum penalty prescribed.

“Only a simple calculation was required to be given and no justification was required. The (NSE) committee has gone over board and has clearly misunderstood the directions of the SC and this Tribunal,” the SAT said in its order. SAT further found that the NSE, while making the aforesaid observations, also found that the amount misused by the broker from client securities was ‘recouped’ and that no loss was caused to the investor or the client.

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Published on October 13, 2020
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