TMI Blog2019 (5) TMI 1672X X X X Extracts X X X X X X X X Extracts X X X X ..... our opinion, the appropriate measure is for the appellant to approach the relevant clearing house. The appellant is required to file an application under Clause 5 of Chapter VII of the bye-laws of the National Securities Clearing Corporation Limited for annulment of the trades. A perusal of Clause 5 makes it clear that if there is a willful misrepresentation or material mistake or if there is fraud the relevant authority is empowered to annul the trades. In so far as the freezing of the demat account is concerned, we are of the opinion that SEBI was justified in directing the appellant to approach the EOW. No error in this regard. We find that EOW has passed an order for freezing the demat account. The appellant is already pursuing the matter before the Delhi High Court. Thus, no order could be passed by SEBI in this regard. Matter directing the appellant to move an appropriation application under Clause 5 of Chapter VII of the bye-laws of National Securities Clearing Corporation Limited (NCL). If such an application is filed, the said Clearing Corporation will decide the matter at the earliest after hearing all concerned parties. Tribunal observes that the finding of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clearing MemberTrading Member Agreement dated November 14, 2017 and, in this agreement, Allied was obligated to place the margin with the appellant. Pursuant to this agreement, Allied provided margins to the appellant by way of mutual fund unit s apart from some cash, as collateral on the basis of which the appellant was clearing the trades of Allied in Futures Options (F O) Segment of the NSE. The mutual funds provided by Allied was transferred to the appellant s demat account and, thereafter, in the approved custodian account of NCL. 3. In December 2018, Allied sold certain Options Contracts on NIFTY in the F O Segment expiring on March 28, 2019 and June 27, 2019 ( Options Contracts ). It is alleged that as consideration for selling these Options Contracts, Allied received an upfront premium of around ₹ 380 crores and the appellant was required to clear these Options Contracts using these mutual funds. 4. Before these mutual funds could be utilized for clearing the trades of Allied, Securities and Exchange Board of India (hereinafter referred to as SEBI ) received an interim report from NSE with regard to the irregularities committed by Allied. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019 and that the appellant may also be permitted to utilize the collateral in accordance with the agreement entered with Allied. 8. SEBI by an order dated March 29, 2019 held that the exparte interim order was passed against 11 noticees in which the appellant is not a noticee and, therefore, the appellant has no locus standi to apply for modification of the ex-parte interim order. With regard to the request of the appellant from being exempted from providing mark to market margin money SEBI informed that the matter shall be examined by the concerned department. SEBI also directed that the collaterals have been frozen by the EOW and not by SEBI and, therefore, such defreezing is not within the purview of SEBI. On the question of annulment of trades, SEBI directed that the appropriate authority is the Stock Exchange in terms of SEBI Circular dated July 16, 2015. 9. The appellant being aggrieved by the said order of SEBI has filed the present appeal praying not only for the quashing of the order passed by SEBI but also praying that appropriate direction be issued for the annulment of the trade undertaken by Allied. 10. We have heard Shri Gaurav Joshi the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second Options Contracts will expire on June 27, 2019 and therefore proactive measures are required to be considered immediately otherwise the appellant would become bankrupt. It was, thus, urged that SEBI is required to be proactive and take appropriate measures immediately as it is not only affecting the appellant but the scam made by Allied will affect the securities market. 12. Shri Dada the learned senior counsel, on the other hand, contended that the plea of the appellant for annulment of the trades is patently misconceived as he is not a party to the contracts. The securities which were given to the appellant as collateral by Allied have been frozen by the EOW against which the appellant has filed a Writ Petition where he is pursuing the matter before the Delhi High Court. It was contended that if a fraud has been committed by Allied the trades which Allied have entered with counter parties cannot be annulled at the instance of the appellant. It was urged that the appellant is obligated to square off the trades of Allied under the Agreement executed between the appellant and Allied. It was urged that if a fraud has been played upon the appellant by Allied such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to cancel the relevant contracts with its constituents. From a perusal of aforesaid provision it is clear that annulment of a trade can either be done suo motu by the relevant authority or on an application by a trading member. The appellant is not a trading member and, therefore, cannot apply under the byelaws of the Stock Exchange. The direction of SEBI is that the Stock Exchange deals with the annulment of the trades is incorrect in so far as it relates to the appellant since he is a clearing member and is not a trading member. 17. The appellant is however, a member of the NCL which has also framed its bye-laws. The relevant Clause for annulment of trades has been specified in Clause 5 of Chapter VII of the bye-laws. For facility, the said provision is extracted hereinunder:- 5. INVIOLABILITY OF ADMITTED DEALS (1) All the dealings in securities on the F O Segment of the Clearing Corporation made subject to the Bye-laws, Rules and Regulations shall be in-violable and shall be cleared and settled in accordance with the Bye-laws, Rules and Regulations. However, the Clearing Corporation may by a notice annul the deal(s) on an applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. However, in the given circumstances, we find that since bye-laws have been framed by NCL in exercise of the powers conferred under Section 9 of SCRA, 1956 therefore, in our opinion, the appropriate measure is for the appellant to approach the relevant clearing house. In our opinion, the appellant is required to file an application under Clause 5 of Chapter VII of the bye-laws of the National Securities Clearing Corporation Limited for annulment of the trades. A perusal of Clause 5 makes it clear that if there is a willful misrepresentation or material mistake or if there is fraud the relevant authority is empowered to annul the trades. 22. In so far as the freezing of the demat account is concerned, we are of the opinion that SEBI was justified in directing the appellant to approach the EOW. We do not find any error in this regard. We find that EOW has passed an order for freezing the demat account. The appellant is already pursuing the matter before the Delhi High Court. Thus, no order could be passed by SEBI in this regard. 23. In the light of the aforesaid, we dispose of the matter directing the appellant to move an appropriation application under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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