The Supreme Court on Monday sought response from National Stock Exchange (NSE) as to why Rs 6-crore penalty should not be imposed on it for allegedly carrying out activities — investing in six firms unrelated to its stock exchange business — without Sebi’s permission.
A Bench led by Justice SA Nazeer issued notice to NSE on an appeal by Sebi against the Securities Appellate Tribunal’s decision that quashed its order of imposing Rs 6-crore penalty on the NSE for allegedly investing in six entities — CAMS, Power Exchange India, NSEIT , NSDL E-Governance Infrastructure, Market Simplified India and Receivables Exchange of India.
SAT had in January ordered that all investments were made by NSE prior to October 3, 2018, that is prior to the enforcement of the SECC Regulations 2018 and these Regulations were “prospective in nature”. Besides, “Regulation 38(2) will only apply with effect from October 3, 2018 onwards for any activity that is carried out by NSE which requires prior approval of Sebi,” the tribunal held.
It may be noted that the SECC Regulations 2012, which came into existence on June 20, 2012, were repealed and replaced by the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations 2018 on October 3, 2018.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 Securities and Exchange Board of India (Sebi).
Attorney General KK Venugopal, appearing for Sebi, told the judges that NSE had carried out activities which were unrelated/non-incidental to its activities as a stock exchange through acquisition of stake in six entities without its permission, thus violating the provision of Regulation 41(3) and Regulation 38(2) of the SECC Regulations 2012 and 2018, respectively. Considering that each investment activity constituted an independent violation and as such there being six instances of violations in respect of six companies, Sebi had imposed a total penalty of Rs 6 crore on October 2020 on NSE.
However, NSE denied any violation of rules, saying all investments were made by it prior to the enforcement of the SECC norms in 2018. Some of the investments were made by the exchange as early as in 1999, senior counsel Shyam Divan argued.
Sebi had not initiated proceedings under the 2012 Regulations for alleged violation of norms and no such proceedings were initiated till the date the SECC Regulations 2012 were repealed in October 2018, thus, 2012 Regulations was not applicable to the case, Divan argued.
After coming into force of 2012 Regulations, the NSE had in 2013 incorporated a fully-owned subsidiary, NSE Strategic Investment Corporation, and had on different dates transferred its stake in the four companies to its subsidiary and thereafter made investment in two more companies through its subsidiary directly, Sebi stated in its appeal.
The markets regulator further told the apex court that SAT was bound to consider the arguments raised by made by the regulatory body which “has a responsibility towards the investors in securities market and the actions of the exchange by not adhering to the statutory guidelines makes them vulnerable and seriously affects the NSE’s general reputation, record of fairness and integrity in the securities market”.
