Required proof for holding Brokers/ Sub- Brokers liable for Fraudulent Practices: SEBI Act and Regulations
Civil Appeal No. 2818 of 2008
Bench: Justice Ranjan Gogoi; Prafulla C. Pant
Brief: In this judgement, the honourable’ Apex Court’s concerned bench has decided several civil appeals, in which common question of law arose that what sort of proof required for holding brokers or sub- brokers liable for fraudulent or manipulative practices under the Regulations- ‘Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations’ and liable for violating the Code of Conduct specified in Schedule- II and Regulation- 9 of the ‘Securities and Exchange Board of India (Stock- Brokers and Sub- Brokers) Regulations of 1992’. As per Court, the fundamental principal law that the proof of an allegation levelled against a person may be in the form of direct substantive evidence or it may be inferred, in many cases, by a logical process of reasoning from the totality of the attending facts and circumstances. The Court has observed in this case that the conclusion has to be gathered from various circumstances like the volume of the trade effected, period of persistence in trading, particulars of the buy and sell orders and the proximity of time between the two, etc. Moreover, the Court has seen the developing doubts as to whether the transaction was genuine or not?, in connection with the facts that the broker himself has initiated sale of a particular quantity of the scrip on any particular day and approximately equal number of the same scrip, at the end of the day, has come back to him moreover, that the trading has gone without settlement of the accounts, like without any payment, etc. Thus, as per observation of the Court, the Brokers or Sub- Brokers failure to this minimum requirement and their persistence in trading in the particular scrip would disclose the negligence and lack of due care and caution. Also such facts also demonstrate the deliberate intention of the indulging the trading beyond the forbidden limits and as such attracting the FUTP Regulation’s provisions. Moreover, the court, further, observed that on this extent of the persistence on the part of the broker in indulging with transaction of the kind concerned, the difference between Violation of the Code of Conduct Regulations and the FUTP Regulations would depend. Also, as per court’s opinion, the volume of the transactions and period of time tha the same were indulged in, are the basis on which the dividing line which is separating the negligence and deliberate intention in relation to such transactions. In the present cases it is clear from all surrounding facts and circumstances that the respondents have transgression on their part beyond the said permissible dividing line. Moreover, the court also denied the violation of the plea of natural justice as raised on behalf of the respondent in one of the several cases. Also, the court fixed it that if the primary authority thinks it fit to impose different penalties in different cases involving the different set of facts, then court cannot see how and why the said thinking was drawn by such authority.
Read the Judgement here