TMI Blog2019 (9) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... orporation has been recognized under Section 4 read with Section 8-A(4) which provision is to recognize a stock exchange. Thus if an order of a recognized stock exchange is appealable under Section 23L, the functions and duties of a recognized stock exchange which have been transferred to a clearing corporation would also be appealable under Section 23L. A clearing corporation cannot stand on a better footing or cannot stand outside the provisions of the SCRA Act especially when a superior body, namely, the recognized stock exchange s orders are appealable under Section 23L. In the light of the aforesaid, we hold that the appeal filed by the ISSL is appealable under Section 23L against a decision of the NCL. The objection raised by SEBI is, thus, rejected. ISSL has questioned the legality and validity of the order of NCL dated 24th June, 2019 whereby their application for annulment of the trade was rejected. NCL was of the opinion that since parallel investigation in relation to fraud is being conducted by SEBI and EOW, the said corporation was not willing to start a parallel investigation. We find that the issue as to whether the trades have to be annulled on account of frau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, Mr. Piyush Raheja, Advocate with Ms. Shruti Rajan, Ms. Garima Joshi, Mr. Aditya Sikha, Mr. Rushin Kapadia, Advocates i/b. Cyril Amarchand Mangaldas For The Respondent : Mr. P.N. Modi, Senior Advocate with Mr. Nihar Mody, Mr. Ashish Prasad, Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates i/b. ELP, Mr. Mustafa Doctor, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocate i/b. K. Ashar Co, Mr. Shyam Mehta, Senior Advocate with Mr. Sachin Chandarana, Advocate with Mr. Rashid Boatwalla, Mr. Rahul Jain and Mr. Pruthvi, Advocates i/b. Manilal Kher Ambalal, Mr. Robin Shah, Advocate, Mr. Somasekhar Sundaresan, Advocate with Mr. Tomu Francis, Mr. Manish Chhangani and Mr. Arka Saha, Advocates i/b. Khaitan Co., Mr. Kunal Katariya, Advocate with Mr. Kunal Kothary, Advocates i/b. Mr. Zerick Dastur, Advocates Solicitors Mr. Pulkit Sukhramani and Ms. Stuti Shah, Advocates i/b. J. Sagar Associates, Mr. Janak Dwarkadas, Senior Advocate with Ms. Anuja Bhansali, Advocate i/b. Raval Shah Co. JUDGEMENT Per : Justice Tarun Agarwala 1. This group of appeals are connected with each other in one way or the other an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trade was the Stock Exchange in terms of SEBI circular dated 16th July, 2016. 7. ISSL being aggrieved by the said order filed Appeal no.138 of 2019 which was disposed of by the Tribunal s order dated 15th May, 2019 directing ISSL to move an appropriate application under Clause 5 of Chapter VII of the Bye Laws of NCL for annulment of trades. This Tribunal directed that if such an application was filed, the Clearing Corporation would decide the matter at the earliest after hearing the parties. 8. The Clearing Corporation NCL by an order dated 24th June, 2019 rejected the application of ISSL for annulment of trade on the ground that appropriate orders can only be passed after investigation on all allegations of fraud is completed by SEBI and Economic Offence Wing (hereinafter referred to as EOW ). The Clearing Corporation was of the view that it is not an appropriate case where NCL should start a parallel investigation and exercise its powers under Clause 5 of Chapter VII of the Bye Laws of NCL or pass any interim order. 9. Against the order of the Tribunal dated 15th May, 2019, ISSL filed a Special Leave Petition before the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rades. The appellant made a formal complaint to SEBI on 31st December, 2019 praying that the units which were transferred illegally to ISSL by Allied should be restored to their demat account. Further, a complaint was made to SEBI on 21st January, 2019 requesting that a personal hearing be granted. Emails dated 30th January, 2019 and 4th February, 2019 was sent seeking return of their securities. Since no action was taken nor any opportunity of hearing was given at the time of passing the exparte interim order by SEBI on 27th February, 2019 nor any opportunity was given to them by SEBI when the exparte interim order was confirmed on 17th May, 2019 nor any opportunity was given to the appellant when SEBI passed an order dated 20th June, 2019 modifying its earlier orders, the appellant has approached this Tribunal praying that they are vitally affected by the order dated 20th June, 2019 and, therefore, the said order should be set aside. 10. Dalmia Cement (Bharat) Limited has filed Appeal Lodging No.358 of 2019. Dalmia cement also alleged that certain shares and units kept in their demat account was illegally transferred by Allied to ISSL. Complaints were made to SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period. ( 3) On receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may, after giving the parties to the appeal, an opportunity of being heard, pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against. ( 4) The Securities Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned adjudicating officer. ( 5) The appeal filed before the Securities Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within six months from the date of receipt of the appeal. From a perusal of the aforesaid it is clear that, an appeal can be filed against an order or decision of a recognized stock exchange or the Adjudicating Officer or any order made by SEBI. 17. Section 2(J) defines stock e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Securities and Exchange Board of India for its approval. ( 3) The Securities and Exchange Board of India may, on being satisfied that it is in the interest of the trade and also in the public interest to transfer the duties and functions of a clearing house to a clearing corporation, grant approval to the bye-laws submitted to it under sub-section (2) and approve the transfer of the duties and functions of a clearing house to a clearing corporation referred to in sub-section (1). ( 4) The provisions of sections 4, 5, 6, 7, 8, 9, 10, 11 and 12 shall, as far as may be, apply to a clearing corporation referred to in sub-section (1) as they apply in relation to a recognized stock exchange. From the aforesaid it is clear that, some of the duties and functions of a recognized stock exchange as a clearing house namely, the periodical settlement of contracts and differences thereunder, delivery of, and payment for, securities, and any other matter incidental to, or connected with was transferred to a clearing corporation. Sub-Section (4) of Section 8-A provides that the provisions of Sections 4, 5, 6, 7, 8, 9, 10, 11 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir securities which have been illegally used by Allied. 27. Similarly a complaint was made by Novjoy to SEBI that their securities have been illegally transferred by Allied to ISSL which needs to be returned. Similar, Dalmia and Novjoy are aggrieved by the modification of the confirmatory order dated 17.5.2019 passed by SEBI. The confirmatory order relates to the prima facie fraudulent activities being found against Allied in relation to the utilization of shares and mutual funds of other entities. 28. In the light of the aforesaid, we find that the NCL under its bye-laws can only hear an application for annulment of the trade by a clearing member, which NCL refused to do so on the application filed by ISSL on the ground that parallel investigation of fraud is being conducted by SEBI and EOW. Further, the appellants Keshav Prasad Mishra and others, Novjoy and Dalmia are not clearing members and thus cannot apply for annulment of a trade / deal under clause 5 of the Byelaws of the clearing corporation. 29. We find that Section 11 and 11B of the SEBI Act gives wide powers to the SEBI (Board) to protect the interest of investors in sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Nifty Option contract on the F O segment of NSE on 27/6/2019. It was urged that the delay in the squaring off the contract is not only putting the counter parties to a huge loss, but will also have a cascading effect downstream which the counter parties will have to settle with other parties. In addition to the aforesaid NCL contends that any annulment will deny the protection bought by the option buyers and will shake the confidence in the risk management products even though in the instant case, it is a small amount. 33. Considering the aforesaid, we are of the opinion that a fraud, if any, should be crystalized and decided and should not percolate the entire securities market. Whether there has been a fraudulent transfer of mutual funds units by Allied to ISSL is a question which is required to be decided by some authority. Whether fraud has been perpetuated or whether a trade should be cancelled on a preponderance of probability that a fraud has been perpetuated, is again a question which is required to be decided by an authority. It is not appropriate for this Appellate Tribunal to go into the question at this stage. We are of the opinion that such matter is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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