Market regulator Securities and Exchange Board of India (SEBI) on Friday imposed a penalty of Rs15 lakh on Asit C Mehta Investment Intermediaries for violating regulatory norms. Asit C Mehta Investment Intermediaries is a SEBI-registered stockbroker.
SEBI conducted a joint inspection of the books of accounts and other records from 11 September 2020 to 20 October 2020 along with Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE) and Central Depository Services (India) Limited (CDSL), and examined the compliance with various regulatory norms prescribed by SEBI. The period of inspection was from 1 April 2019 to 31 July 2020
In its order, SEBI said that the entity was involved in gross misconduct, wherein it has been found to be indulging in: misusing of its clients' funds, reporting incorrect margin to NSE and BSE in F&O (Futures & Options) and Commodity Derivatives (CD) segment and further funding its clients beyond T+2+5 amounting to Rs6.32 crore. In seven cases, the preference for settlement of clients' account was not obtained. The broker did not upload know-your-customer (KYC) details of 7,268 individual clients on the portal of CKYCR (Central Know Your Customer Registry).
Also, the regulator observed that it found discrepancies in uploading the contact details of Asit C Mehta Investment Intermediaries’s clients, gross discrepancy in calculation of net worth, incorrect reporting of net worth to exchanges.
The broker incorrectly reported the data towards weekly monitoring of client funds and did not report 121 clients traded in the last 12 months in the monthly enhanced supervision.
In its response to the show-cause notice (SCN), Asit C Mehta Investment Intermediaries submitted that since it was a joint inspection, BSE and NSE also have initiated the proceedings. BSE has levied penalty of Rs6,57,000 on the broker for the same set of violations. The said order was set aside by securities appellate tribunal (SAT) and subsequently BSE had issued a SCN. Thereafter, BSE levied penalty of Rs3,18,174 for the same set of violations. The broker has paid the penalty amount to BSE.
The broker further submitted that it has been penalised for the same set of violations flowing from the same inspection by both NSE and BSE. Asit C Mehta Investment Intermediaries claimed to have paid penaltyfor the same set of violations to two Exchanges; hence, no penalty be imposed in this case. The noticee argued that if separate penalties are levied by each of the authority, the joint inspection by NSE, BSE CDSL and SEBI will not serve any purpose. In the interest of natural justice, the broker ought not to have been penalised twice/thrice for the same set of violations.
SEBI’s adjudicating officer found that the NSE had issued SCN to the broker prior to the commencement of the joint inspection. While the SCN issued in the current case, he found that charge of ‘G’ negative on the broker also covers 39 trading days’ period during September 2019 to March 2020, wherein the extent of mis-utilisation of client’s funds increased from Rs34.55 lakh on 12 September 2019 to Rs26 crore on 26 March 2020 and the same was covered in SCNs issued by NSE and BSE.
NSE had also issued warning and direction to the broker regarding “findings of minimum specified net worth requirement for members” observed during the joint inspection and initiated through separate SCN dated 1 January 2021.
The adjudicating officer thus concluded that only a part of the violation pertaining to mis-utilisation of funds w.r.t. from the shortfall of clients’ funds in the weekly submissions for the week ending 10 July 2020 (for NSE and BSE) and shortfall of clients’ funds in the weekly submissions for the week ending 4 September 2020 (for BSE) is overlapping and penalty imposed earlier by NSE and BSE for these limited violations can be a mitigating factor in the instant proceedings. But for other violations brought out in the SCN, he found no merit in the contention of the noticee and rejected it.
“It is of utmost importance that every registered intermediary shall maintain the required level of knowledge and competency and abide by the provisions of the Act, Rules, Regulations and circulars and directions issued by SEBI. In this regard, any omission on part of the registered intermediary is detrimental to the interest of investors in securities market,” SEBI stated in its order.