In the matter of Consortium Securities (P) Ltd.
The Securities and Exchange Board of India
Before Ms Raj Rani Bhalla, Adjudicating Officer
Decided on July 29, 2005

Relevancy of the case: Maintenance of margin deposit book in electronic form.

Statutes & Provisions Involved

• The Information Technology Act, 2000 (Section 4)
• Securities and Exchange Board of India Act, 1992 (Section 15-A, B, F, I, J)

Relevant Facts of the Case

• An inspection of the books of accounts and other records of CSL (Consortium Securities (P) Ltd.)  conducted by G. Jai & Associates, CA, found that CSL had violated particular provisions of the said Act. Consequently, A copy of the inspection report was given to CSL.
• Furthermore, it was asked to submit its comments on the findings. The replies provided by CSL were considered and found unsatisfactory. Subsequently, an Adjudicating Officer was to decide the present proceedings.

 Prominent Arguments by the Advocates

• CSL’s counsel submitted that they have duly maintained a margin deposit book in the Excel format daily. It included the details of margins deposited with the client’s exchange and margins.
• Furthermore, they contended that the accounting software used by them was capable of generating a margin report relating to all their clients at any point in time. They were also maintaining daily margin reports downloaded from the Exchange FTP server. Moreover, separate margin accounts were open for each client in their client ledger.
• Referring to section 4 of the Information Technology Act 2000. CNL argued that the said section overrides the provisions of any other law. Therefore, maintaining the margin deposit book in electronic form constitutes adequate compliance.
• Lastly, Per J.M. Morgan Stanley Retail Services Pvt. Ltd’s case maintenance of prescribed documents in electronic form was sufficient in compliance with the Broker Regulations.

Opinion of the Bench

• The Adjudicating officer observed that though the member has not maintained a separate margin deposit book, it appears it has been downloading the margin reports from the NEAT system daily.
• Furthermore, he observed that the system can generate physical reports of the margins of clients, indicating the client’s gross exposure. This is why electronic forms of such reports were not adequate.

Final Decision

• The Adjudicating officer thus, imposed a penalty of Rs. 1,35,000/- w.r.t several violations directing CNL to pay the amount through a demand draft in favour of SEBI, within 45 days of receipt of the order.

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