In the matter of Consortium Securities (P) Ltd.

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      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.) was conducted by G. Jai & Associates, CA, from 29.09.2002 to 15.11.2002. The inspection period was from 01.04.2000 to 31.08.2002. During the inspection, it was found that CSL had violated particular provisions of the said Act. A copy of the inspection report was given to CSL. Further, it was asked to submit its comments on the findings. The replies provided by CSL were considered and not found satisfactory. Subsequently, an Adjudicating Officer was appointed for conducting the present proceedings.

 Prominent Arguments by the Advocates

  • The CSL submitted that they have duly maintained a margin deposit book in the excel format daily. Subsequently, the details of margins deposited with the exchange and margin deposited by clients with them were also included in the same. It was further 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 had also been opened for each client in their client ledger.
  • For the purpose, attention was invited to Section 4 of the Information Technology Act 2000. It was submitted that the said section overrides the provisions of any other law. Therefore, maintenance of the margin deposit book by them in electronic form constitutes adequate compliance.
  • CSL also referred to the case of J.M. Morgan Stanley Retail Services Pvt. Ltd where maintenance of prescribed documents in electronic form was considered as being sufficient compliance of 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. It is also observed that reports of margins of clients could also be generated from the system, indicating the client’s gross exposure.

Final Decision

  • The Adjudicating officer imposed a penalty of Rs. 1,35,000/- w.r.t several violations. The latter was directed to pay this amount by way of demand draft in favour of SEBI, within 45 days of receipt of this order.

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