15E.

Penalty for failure to observe rules and regulations by an asset management company: Where any asset management company of a mutual fund registered under this Act, fails to comply with any of the regulations providing for restrictions on the activities of the asset management companies, such asset management company shall be liable to *[a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.] *Substituted by the SEBI (Amendment) Act, 2002 S.13 (w.e.f.29-10-2002), for a penalty not exceeding five lakh rupees for each such failure.

Case Study Shriram Mutual Fund vs. SEBI Petitioner: The chairman, SEBI Respondent: Shriram mutual fund Date of Judgment: 23/05/2006 Bench: Dr. AR. Lakshmanan & Lokeshwar Singh Panta Details of the case: Shriram mutual fund which got registered in 1994 had floated 5 schemes under its head of Asset management. It conducted business through its brokers associated with its sponsor in excess of the permissible limits prescribed under 25 (7) (a) of SEBI (Mutual fund) Regulations, 1996. The company had violated the law on 12 occasions. The respondent failed to comply with the terms and conditions attached to the Certificate of Registration which are statutory in nature, as prescribed by Regulation 15 (D)(b) of the Securities and Exchange Board of India Act, 1992. Verdict: The Adjudicating Officer, after hearing the parties, imposed penalty of Rs.5lacs under Section 15E for failure to comply with Regulations 25 (7) (a) of SEBI (Mutual Funds) Regulations, 1996 with regard to routing of transactions through associate brokers and also penalty of Rs.2lacs under Section 15D (b) of SEBI Act, 1992 for its failure to comply with the terms and conditions of Certificate of Registration granted to it.

The aggrieved party had later appealed with SAT (Securities Appellate Tribunal) however; the SAT upheld the judgment passed by the bench of Dr. AR. Lakshmanan & Lokeshwar Singh Panta. Limits prescribed under 25 (7) (a) of SEBI (Mutual fund) Regulations, 1996: An Asset management company shall not through any broker associated with the sponsor, purchase or sell securities, which is average of 5% or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes; Provided that for the purpose of this subregulation, aggregate purchase and sale of security shall exclude sale and distribution of units issued by the mutual fund; Provided further that the aforesaid limit of 5% shall apply for a block of any three months. 15F.Penalty for failure in case of stock brokers If any person, who is registered as a stock broker under this Act, (a) Fails to issue contract notes in the form and in the manner specified by the stock exchange of which such broker is a member, he shall be liable to a penalty not exceeding five times the amount for which the contract note was required to be issued by that broker; (b) Fails to deliver any security or fails to make payment of the amount due to the investor in the manner within the period specified in the regulations(within 24 hours of the trade), he shall be liable to #[a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less.] (c) Charges an amount of brokerage which is in excess of the brokerage specified in the regulations( 2.5% of contract price), he shall be liable to #[a penalty of one lakh rupees] or five times the amount of brokerage charged in excess of the specified brokerage, whichever is higher. # Substituted by the SEBI (Amendment) Act, 2002, S. 14 (i) (ii) (w.e.f. 29-10-2002), for a penalty not exceeding five thousand rupees for each day during which such failure continues. For the purpose of adjudging under section 15 F, SEBI shall appoint any of its officers not below the rank of Division Chief to be an adjudicating officer for holding an enquiry in the prescribed manner after giving the person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty

Case Study Guiness Securities vs. SEBI Petitioner: SEBI Respondent (Noticee): M/s. Guiness Securities Ltd. Adjudicating Officer: Tajinder Singh, but was later replaced by Satya Ranjan Prasad Details: M/s. Guiness Securities Ltd., a member of the National Stock Exchange of India Ltd., the Bombay Stock Exchange Ltd. and a Depository participant of the National Securities Depository Ltd., having SEBI Registration Nos. INB231146037, INB011146033 and IN-DPNSDL-239-2004 respectively, to inquire into and adjudge under sections 15C, 15F and 15 HB of the Securities and Exchange Board of India Act,1992 the violations alleged to have been committed by the Company, which were observed during its inspections conducted by SEBI in the month of October. Violations: The Noticee had violated/contravened the provisions of rules 8(1) (f) and 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957; rule 4(e) of the SEBI (Stock Brokers and Sub Brokers) Rules, 1992; clauses A(1), (2), (5), B (1) and (2) of the code of conduct for stock brokers as stipulated under schedule II read with regulation 7 of the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 and the directives issued under various SEBI circulars. Offence: The company was alleged to have Charged higher rates from clients towards purchase and sale of shares. Dealt with unregistered sub-brokers. Did not collected margins from many of its clients for their trades and also permitted them to trade without sufficient cash balance. Did not transfer the corporate benefits received/pay outs to the clients within the stipulated time. Mis-utilized clients funds for meeting pay-in obligations of other clients. Indulged in fund based activities by lending and borrowing funds for the transactions of the clients and charging interest for the same. Failed to redress the investors complaints within a reasonable time.

Verdict: While the adjudication proceedings were in progress, the Noticee made an application dated January 04, 2010 along with an affidavit of undertakings and waivers in terms of SEBI Circular No. EFD/ Cir.-1/2007 dated 20th April, 2007 for settlement of the proceedings through Consent Order. Subsequently, the Noticee proposed revised consent terms vide letter dated July 19, 2010, without admitting or denying the guilt and subject to clauses of the undertakings and waivers, submitting that they were willing to pay a sum of 15,00,000/- (Rupees fifteen lakh only) towards settlement charges in the matter. The revised consent terms as proposed by the Noticee were placed before the High Powered Advisory Committee (HPAC) on June 14, 2011 and HPAC after deliberation recommended the case for settlement on the aforesaid revised consent terms proposed by the Noticee. The recommendations of HPAC were subsequently placed before the panel of Whole Time Members of SEBI. The consent order was passed on the 2nd day of August 2011 and came into force with immediate effect.