Judgment:
J.P. Devadhar, Presiding Officer (Oral)
1. Appeal is disposed of in terms of the minutes of the order duly signed by counsel for both the parties with no order as to costs.
A.S. Lamba, Member
The present appeal has been filed before Securities Appellate Tribunal by Keynote Capitals Ltd. (Appellant) vs. BSE Ltd. (Respondent No. 1) and Indian Clearing Corporation Ltd. (Respondent No. 2) under Section 23L of Securities Contract (Regulation) Act, 1956. Appellant is aggrieved by order of Respondent No. 1 dated December 30, 2013 for appropriating ` 89,08,935.25, which is claimed to be due to Appellant, as sale proceed of sale of shares in scrip of ABG Shipyard, shares registered in name of Prime Securities Ltd. (for short Prime Sec.)
2. Facts of case, in brief, are that Appellant is a stock broker registered with SEBI, BSE and NSE, and one of the clients of Appellant is Prime Sec., and that Prime Sec was actively trading in stock market through Appellant on BSE. As a result of trading by Prime Sec. from October 4, 2012 to February 13, 2013, Prime Sec. had outstanding debit balance, which was due and payable to appellant by Prime Sec. and with a view to liquidate outstanding dues by Prime Sec. to Appellant, Prime Sec. consented to allow Appellant to sell its shares in ABG Shipyard scrip and appropriate sale proceeds to itself, which amounted to ` 89,08,935.25 and would have satisfied Appellants dues from Prime Sec., arising out of trade undertaken by Appellant on behalf of Prime Sec on BSE.
3. However, before this amount of Rs.89,08,935.25 payment could be appropriated by Appellant to itself, BSE informed Appellant that due to default of Prime Sec. to BSE and ICCL, as decided in a meeting on 26th February 2013 in SEBI, where Appellant and Prime Sec. were also present, Appellant is requested to withhold payment of funds, without any adjustments, and to remit this payment to BSE, which was complied with by Appellant. Thereafter, Appellant requested BSE to release payout in its favour, on February 28, 2013 following by many reminders and verbal discussions and also providing a detailed background of transactions undertaken by itself on behalf of Prime Sec. which justified its rightfulness of appropriating payment to itself, with request to BSE to release the same.
4. From material available on record, it is seen vide letter dated October 25, 2013 of BSE (Exhibit I of MOA) that National Securities Clearing Corporation Ltd. declared M/s Prime Broking as defaulter vide their circular dated October 15, 2013, in future and options segments and consequently M/s. Prime Broking is declared defaulter in capital market segment. Consequent to this action by National Securities Clearing Corporation Ltd., ICCL informed declaration of M/s. Prime Broking Company (India) Ltd., as a defaulter in all segments of ICCL, as required under SEBI Master circular dated March 17, 2010.
5. It is further stated in letter of BSE dated October 25, 2013 (Exhibit I):-
œDuring the said period, the matter with regards to œsharp price fall in certain scrips and withholding of the pay out of various entities associated with œPrime Group? was placed before the Disciplinary Action Committee (œDAC?) of the exchange wherein it approved the lifting of withholding instructions issued earlier by BSE. The same was intimated to ICCL for their necessary action.?
6. It is not clear as to what period referred in œduring the said period?, but it amply clear that œlifting of withholding instructions were approved by DAC of BSE and these instructions were intimated to ICCL by BSE for necessary action. From this, it can be safely inferred that lifting of withholding instruction refer to withholding of payment of Rs.89,08,935.25, which was remitted by Appellant to BSE, as required by BSE vide their letter dated February 27, 2013. Presumably, this payment remitted to BSE was available with ICCL and hence decision of Disciplinary Action Committee (DAC) of BSE, was intimated to ICCL for their necessary action.
7. Even if period/date of above decision of DAC is not mentioned anywhere in letter of BSE dated October 25, 2013 yet it is certain that it was before M/s. Prime Broking is declared defaulter by NSCCL on October 15, 2013 and ICCL informed declaration of M/s. Prime Broking as defaulter on October 17, 2013.
8. It is for consideration why BSE informed only ICCL of decision of DAC of lifting of withholding instructions and not to Appellant, when Appellant was the interested party, most affected by decision of BSE to direct Appellant to remit the payment, under consideration, to BSE. Why this decision of DAC of lifting of withholding instructions, was communicated by BSE to only ICCL, and not to appellant - the most effected party “ when appellant had made several references to BSE to release the withheld payout; first being on February 28, 2013 followed by several reminders which remained unanswered during relevant period.
9. Even if above mentioned matter of BSE was not enough, BSE conducted a limited purpose inspection of appellant in the matter of KYC of its client, œPrime Sec?, and brought out certain discrepancies. These discrepancies were duly corrected by Appellant. While authority of BSE (Respondent no. 1) to inspect its brokers cannot questioned but on the other hand should be welcomed; yet undersigned is constrained to point out timings and purpose of inspection, which was undertaken after Appellant had remitted payment to Respondent No. 1 (BSE) and was pursuing with BSE, release of payout, timing and purpose of limited purpose inspection undertaken by Respondent No. 1 of Appellant, is certainly open to questioning.
10. Another aspect that appears certain in the present case is regarding secrecy maintained by Respondent No. 1 in entire dealing of the case, which is very pronounced when it got information / undertakings from Prime Sec. regarding their defaults to ICCL and how the same is to be made good. This was done by not involving Appellant, who was the affected party, by getting information / undertaking from Prime Sec directly. The most notable is correspondence from Prime Broking Company (India) Ltd. dated September 27, 2013 addressed to ICCL (Respondent No. 2 and wholly owned subsidiary of Respondent No. 1), which authorizes Respondent No. 2 to adjust Rs.33,37,500.45, withheld by Respondent No. 2 on February 27, 2013 against its dues to Respondent No. 2.
11. This above payment, referred was in fact Rs.89,08,935.25 and Rs.33,37,500.45 but against authorization by Prime Broking Company Ltd. for Rs.33,37,500.45, Respondent No. 2 adjusted Rs.89,08,935.25 and when this information was obtained by Appellant from Prime Broking Company Ltd. and Respondent No. 2 was confronted with same, Respondent No. 2, instead of apologizing for its mistake, almost scolded the Appellant for œchosen to raise the issue only with a view to create unnecessary controversy in the matter? (Page no. 22 of MOA). The undersigned is also constrained to point out entire correspondence of Respondent No. 1 at various stages, appears to written in a hostile, unresponsive and impolite manner which is not expected of an Institute which works only through œBrokers? and present Appellant being one of its œBrokers?. Respondent should have been more positive and prompt in dealing with Appellant.
12. The last issue that comes to notice of undersigned is that Respondent No. 2 is a wholly owned subsidiary of Respondent No. 1 and their interests are inter-linked and inter-connected and in present case, moot question for consideration is whether Appellant or Respondent No. 2 is legally entitled to receive pay out of Rs.89,08,935.25 due to default of Prime Sec. to both Appellant as well as Respondent No. 2. As stated Respondent No. 1 and 2 are inter-linked and inter-connected (Respondent No. 2 being wholly owned subsidiary of Respondent No. 1) and if interests of Respondent No. 2 are in conflict with Appellant and Respondent No. 1 should not sit in judgment in the matter. Respondent No. 1 will always be sympathetic to interests of Respondent No. 2 and Appellant can never get justice forum Respondent No.1. There is clear case of conflict of interest of Respondent No. 1 who is also the judge / decider in the matter; hence there is no possibility/likelihood of Appellant getting a fair deal/justice from Respondent No. 1, in the matter.
13. This œperhaps? explains the entire chain of events, when Appellant was directed to remit payment to Respondent No. 1, which got passed to Respondent No. 2; Respondent No. 1 took time to respond to references of Appellant and replies to Appellant were neither accurate, prompt or polite; Respondent No.1. resorted to threatening tactics by its limited inspection of Appellant; Respondent No. 1 did not keep Appellant on board while dealing with Prime Sec.; Respondent No. 1 did not furnish documents to Appellant despite Appellant requesting for same; Respondent No. 1 did not inform Appellant of lifting of withholding instructions of payouts withheld, by DAC. Respondent No. 1 scolded the Appellant when it was pointed out by Appellant that Respondent No. 2 appropriated to itself a different and higher amount than was authorized by Prime Sec. to Respondent No. 2.
14. Without going further in the matter, the undersigned is constrained to point out lack of promptitude, sensitivity, clock and dagger approach and insidious manner of dealings of Respondent No. 1 in the entire matter, which is not a healthy and fair way of conducting business by an organization which claims to be pioneering in securities market in India and is a trendsetter for other stock exchanges in India and abroad.
15. In the circumstances, it is apparent that Respondent No. 1, has vested interest in the matter (conflict of interest referred to above) and hence is not expected to do justice in the case. However, it may be mentioned that undersigned has not gone into merits and contentions of any of the parties, in the present appeal, which is yet to be heard and decided and all contentions of parties are open, but yet, undersigned is of the view that no useful purpose will be served by referring the matter back to Respondent No. 1 for reconsideration, in terms of œMinutes of Order? agreed and signed by learned counsel for Appellant and Respondents on March 24, 2014 and accordingly, it is, hereby, ordered that in consideration of entirety of the matter and issues involved and in interest of justice and to avoid delay, the appeal is heard and disposed of by this Tribunal.