Sebi orders quasi-judicially, can be appealed in court proceedings, experts say

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Late Thursday night, the The Central Bureau of Investigation (CBI) arrested Anand Subramanianformer Group COO at NSE, from Chennai in connection with the National Stock Exchange (NSE) co-location case which broke more than seven years ago in January 2015.

In its February 11 order against former CEO and CEO of NSE, Chitra Ramkrishna, the Securities and Exchange Board of India (Sebi) noted that a unknown person had influenced Ramkrishna’s decision making. In addition, the market regulator imposed sanctions and restrictions on Ramkrishna, Subramanian, NSE and two others.

With respect to collocation and related matters, this was the latest among other ordinances that Sebi full-time members and contracting officers have passed since April 2019. Five ordinances have been passed under Articles 11 and 11B of the SEBI Act — which empower Sebi to issue directives to protect the interests of investors — take action against 47 entities. Arbitration proceedings have been initiated with respect to 65 entities.

The cases relate to preferential access to tick-by-tick (TBT) data streams for certain business members, peer-to-peer (P2P) connectivity via dark fiber and alleged breaches of corporate governance.

According to sources, the orders are quasi-judicial in nature and can be appealed through the court process. But several of them have been pending before the Securities Appellate Tribunal (SAT) since May 2019.

In terms of NSE colocation:

○ Sebi Order, April 30, 2019:

The order ordered NSE to return Rs 624.89 crore along with interest at the rate of 12% from April 2014. It also ordered Ramkrishna and Ravi Narain, his predecessor as CEO of NSE, to donate 25% of salary paid for the relevant years to Sebi’s Investor Protection and Education Fund (IPEF), and prohibited them from associating with any listed company or market infrastructure institution. or intermediate for five years.

○ SAT Order, 22 May 2019: SAT ordered NSE to deposit Rs 624.89 crore with Sebi, which NSE did. On May 17, 2021, the SAT passed another order in which it continued the 2019 interim order due to the pending investigation by the respondents. SAT also authorized NSE to close the escrow account, subject to depositing Rs 420 crore with Sebi.

○ Current status: Reserved for order.

In terms of dark fiber/leased line connectivity authorized to certain brokerage firms by NSE:

○ Sebi order, April 30, 2019: NSE was ordered to deposit Rs 62.58 crore. Ramkrishna and Subramanian were banned from holding executive or board positions, or being associated with any stock exchange or registered intermediary with Sebi for three years. Some key NSE officials, including Ravi Varanasi, have been banned from holding a position with a Sebi registered intermediary for two years. Brokers Way2Wealth and GKN Securities were ordered to return Rs 15.34 crore and Rs 4.9 crore respectively.

○ SAT command, May 22, 2019:

NSE was instructed to transfer Rs 62.58 crore from the escrow account to Sebi. The stay was granted by SAT orders dated May 6, 2019 and June 6, 2019 in Way2Wealth and GKN securities orders.

○ Next court date: April 18, 2022.

In the case of NSE’s corporate governance relating to Ajay Shah and others:

○ Sebi Order, April 30, 2019:

Sebi ordered Ajay Shah, who was named in the roommate scam, not to hold any position in the management or board of directors of any stock exchange, depository or registered intermediary of Sebi during two years. Similar restrictions have been imposed on Infotech Financial Services, Sunita Thomas and Suprabhat Lala, among others.

○ SAT command, May 7, 2019:

The order suspended the operation of the Sebi order.

○ Next court date: April 18, 2022.

In terms of NSE corporate governance:

○ Sebi Order, April 30, 2019: NSE was ordered to take necessary legal action against Ajay Shah, Infotech Financial Services and Sunita Thomas, among others, for breaching the “Professional Service Agreement” and for abusing data available to them. NSE has also been tasked with reviewing all third-party agreements with a data-sharing element from 2009 and taking legal action if necessary. Sebi also barred Narain and Ramkrishna from board or management positions for three years.

○ SAT orders, June 6, June 14 and July 9, 2019: suspension of the execution of the Sebi order.

○ Next court date: April 18, 2022.

With respect to OPG Securities:

○ Sebi Order, April 30, 2019: Sebi prohibited OPG Securities from accessing the securities market and buying, selling or trading securities in its proprietary accounts for five years, and ordered it not to take new customers for one year and to return 15.57 million rupees. The order also banned Sanjay Gupta and others from entering and trading in the securities market for 5 years.

○ SAT command, May 6, 2019: Sebi command suspended operation.

○ Current status: reserved for order.

Arbitration orders:

○ Feb 10, 2021, NSE co-location case: Sebi imposed a penalty of Rs 1 crore on NSE and Rs 20 lakh each on Narain and Ramkrishna. On April 21, 2021, SAT suspended fulfillment of Sebi’s order. The next court date is April 18, 2022.

○ Feb 11, 2021, NSE collocation issue: Sebi imposed a fine of Rs 5 crore jointly on OPG Securities, Sanjay Gupta, OP Gupta and Sangeeta Gupta. On May 19, 2021, SAT suspended execution of the order if callers deposited Rs 2.5 crore. The next hearing will take place on April 18, 2022.

Legal options

According to legal experts, orders made by Sebi can be appealed and challenged before the SAT and then before the Supreme Court. “Other law enforcement agencies are also investigating the matter and they too may take action on the matter in accordance with their mandate. CBI has also been investigating the case since 2018 and it remains to be seen what will come out of their investigation,” said a legal expert who is following the case closely.

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