The Securities Appellate Tribunal (SAT) has quashed a Sebi order that had imposed a Rs 6 crore penalty on the NSE for allegedly investing in firms unrelated to the stock exchange business. Dismissing the Sebi order, the tribunal said all investments were made by NSE prior to the enforcement of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) or SECC norms in 2018. It further said the National Stock Exchange (NSE) did not commit any violation of rules.
The Securities and Exchange Board of India (Sebi) had in October 2020 levied a fine of Rs 6 crore on NSE for allegedly investing in six companies unrelated or non-incidental to the stock exchange business. The six entities were — CAMS, Power Exchange India Ltd (PXIL), NSEIT Ltd, NSDL E-Governance Infrastructure Ltd (NEIL), Market Simplified India Ltd (MSIL) and Receivables Exchange of India Ltd (RXIL). Through such acts, Sebi alleged that NSE violated the provisions of the SECC norms. Following Sebi’s order, the exchange approached the tribunal on the grounds that the SECC Regulations, 2012 cannot be applied retrospectively.
According to the tribunal order passed on January 4, some of the investments were made by the exchange during 1999, 2008, 2011, 2012 and 2016. The SECC Regulations 2012, which came into existence on June 20, 2012, were repealed and replaced by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 on October 3, 2018. The SECC Regulations, 2018 also contained a similar provision, which provided that a stock exchange shall not carry out any activity, whether involving deployment of funds or otherwise, without prior approval of Sebi. The tribunal said all investments were made by the appellant (NSE) prior to October 3, 2018, that is prior to the enforcement of the SECC Regulations, 2018. “The SECC Regulations, 2018 is prospective in nature and is not retrospective. Regulation 38(2) will only apply with effect from October 3, 2018 onwards for any activity that is carried out by the appellant which requires prior approval of the Board (Sebi),” it said.
Prior to June 2012, four investments had already been made which were subsequently transferred in 2013 to a subsidiary of the appellant, it added. It was open to Sebi to initiate proceedings under the SECC Regulations, 2012 for violation of norms if any, but no such proceedings were initiated till the date the SECC Regulations, 2012 were repealed on October 3, 2018. Thus, SECC Regulations, 2012 is not applicable to the case of the appellant, the tribunal noted. In fact, a show cause notice was issued to the exchange by Sebi in July 2020 in the matter. “The SECC Regulations, 2012 was not applicable and no violation was committed by the appellant of the SECC Regulations, 2018 since the investments were made prior to October 3, 2018,” it added. Accordingly, the tribunal has quashed the order passed by Sebi. Earlier in December 2020, SAT had stayed the Rs 6 crore penalty imposed by Sebi in the matter.