Bse Limited vs Sebi

Appeal No.563 of 2022 [Along with Misc. Application No.354 of 2025]

BSE Limited 25th Floor, P.J. Towers, Dalal Street, Fort, Mumbai - 400001. .....Appellant

(BY Mr. Pesi Modi, Senior Advocate with Mr. Kunal Katariya, Mr. Vivek Shetty, Mr. Asadulla Thangal and Mr. Dhaval Vora, Advocates i/b. AZB & Partners for the Appellant.)

Securities and Exchange Board of India SEBI Bhavan, Plot No.C-4A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051. ...Respondent

(BY Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody, Mr. Yash Sutaria and Mr. Tushar Bansode, Advocates i/b. K Ashar & Co. for the Respondent.) 2

THIS APPEAL IS FILED UNDER SECTION 15T OF SEBI ACT, 1992 TO SET ASIDE ORDER DATED JULY 29, 2022 (Ex-A) PASSED BY SEBI.

THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR ORDERS ON MARCH 26, 2025, COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, THE TRIBUNAL MADE THE FOLLOWING:

ORDER

Per: Justice P.S. Dinesh Kumar, Presiding Officer

Bombay Stock Exchange1 has knocked the doors of this

Tribunal challenging order dated July 29, 2022 passed

by the AO2, SEBI3 imposing a penalty of Rs.3 Lakhs for

violation of Section 38(2) of the SECC Regulations4,

2018 read with Regulation 41(3) of SECC Regulation,

2012, holding that BSE Ltd., had engaged in unrelated

activities without the prior approval of SEBI.

1 BSE Limited 2 Adjudicating Officer 3 Securities and Exchange Board of India 4 Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 3

2. We have heard Mr. Pesi Modi, learned Senior

Advocate for the appellant and Mr. Gaurav Joshi,

learned Senior Advocate for the SEBI.

3. Brief facts necessary for disposal of this appeal

are, SEBI issued a SCN5 dated January 7, 2022 alleging

inter alia that:

 BTPL6 is a subsidiary of the Appellant. BTPL is in

the business of providing technology related

services to the appellant and other entities. BSE

did not seek SEBI‟s approval for continuing the

activities of BTPL (which was carrying on

activities not related/incidental to the business of a

stock exchange) and violated Regulation 38(2) of

the SECC Regulations, 2018 read with Regulation

41(3) of the SECC Regulations, 2012;

 BTPL had two subsidiaries. BTISPL7 and

METSPL8. METSPL is a joint venture between

5 Show Cause Notice 6 BSE Technologies Pvt. Ltd.

7 BSE Tech Infra Services Pvt. Ltd. 8 Marketplace EBIX Technology Service Pvt. Ltd. 4

BTPL and EBIX. It is in the business of providing

technology services to insurance related

companies. BSE has indirectly carried out

activities unrelated/non-incidental to its activity as

a stock exchange, through BTISPL and METSPL

without seeking SEBI‟s approval;

 BIL9 is a wholly owned subsidiary of the

appellant. BIL RFPL is a joint venture ("JV")

which was incorporated in 2014 between BIL and

Ryerson Futures Inc. (a wholly owned subsidiary

of Ryerson University, Canada) and BIL has

10.43% stake in BIL RFPL. BIL RFPL carries on

the business of setting up incubator and accelerator

programs for e-commerce startups. BSE thereby

indirectly carried out activities unrelated/non-

incidental to its activity as a stock exchange

through BIL RFPL without seeking SEBI‟s

approval;

9 BIL Ryerson Futures Pvt. Ltd.

5

 IWIPL10 is a company which provides support to

entrepreneurs in water and clean technologies. In

2019, BIL, a subsidiary of the appellant, acquired

an 8% stake in IWIPL for Rs.8,000/-. Thus, BSE

indirectly carried out activities unrelated/non-

incidental to its activity as a stock exchange,

through IWIPL without seeking SEBI‟s approval.

4. Appellant submitted its reply stating inter alia:

 that Regulation 38(2) of 2018 Regulations and

Regulation 41(3) of 2012 Regulations were never

intended to regulate the business of subsidiaries or

joint ventures in which subsidiaries have some

stake.

 Investments made by BSE in its subsidiaries BTPL

and BIL were all prior to promulgation of 2012

Regulations and therefore did not require approval

from the SEBI.

10 Indus Water Institute Pvt. Ltd.

6

5. After adjudication, the AO, SEBI has held that

the appellant has violated Regulation 38(2) of 2018

Regulations and Regulation 41(3) of 2012 Regulations

by indirectly engaging in unrelated activities without

SEBI‟s approval.

6. Shri Pesi Modi, learned Senior Advocate

vehemently contended that the two subsidiaries,

namely, BTPIL and BIL came into existence prior to

2012 Regulations coming into force. Therefore, both

Regulation 38(2) of 2018 Regulations and Regulation

41(3) of 2012 Regulations are not applicable. In

support of this contention, he placed reliance on a

judgement of this Tribunal in NSE vs. SEBI11.

7. He submitted that the impugned order holds that

investment made in following three entities violate

SECC Regulations:

(a) Marketplace EBIX Technology Services Pvt.

Ltd.

11 National Stock Exchange of India Ltd. v. SEBI, Appeal No.466 of 2020 decided on 04.01.2022 7

(b) BIL Ryerson Futures Pvt. Ltd. ("BIL RFPL")

(c) Indus Water Institute Pvt. Ltd. ("IWIPL")

8. Shri Modi submitted that METSPL is a joint

venture between BTPIL and EBIX12. In this joint

venture BPTL holds minority share of 40% and EBIX

holds 60%. In BIL Ryerson Futures Pvt. Ltd., BIL has

invested Rs.15,000 and the Company is controlled by

Ryerson Futures Inc., a subsidiary of Ryerson

University Canada. In Indus Water Institute Pvt. Ltd.,

BIL has invested Rs.8000. Indus Water Institute Pvt.

Ltd. provides support to entrepreneurs in water and

clean technologies.

9. Shri Modi, in substance, argued contended that

the investments in the three entities are made by

appellant‟s subsidiaries, namely, BTPIL and BIL.

BSE‟s investment in both BTPIL and BIL were prior to

2012 Regulations. Both Regulations restrict a

recognized Stock Exchange from engaging in unrelated

12 Ebix Fincorp Exchange PTE Ltd.

8

activities without SEBI‟s permission. In the instant

case, appellant which is a Stock Exchange has not

engaged itself in any unrelated activity. Any violation

of SECC Regulations entail penal consequences and

therefore they have to be read strictly.

10. Supporting the impugned order Shri Gaurav

Joshi, learned Senior Advocate for the SEBI, mainly

contended that the object of SECC Regulations is to

ring-fence the activities of the Stock Exchange to

protect the Exchanges from external liabilities or

interference. Both BTPIL and BIL are its subsidiaries.

It is also not denied that appellant has not taken prior

approval to make investments in the three entities in

question. Therefore, the impugned order does not suffer

from any infirmity.

11. We have carefully considered the rival

submissions and perused the records.

12. The two provisions, which the BSE is alleged to

have violated are;

9

Regulation 41(3) of SECC Regulations, 2012, which

came into effect from June 20, 2012 states that,

"The recognised Stock Exchange and recognised clearing corporation shall not engage in activities that are unrelated or not incidental to its activity as a stock exchange or clearing corporation, as the case may be, except through a separate legal entity and as permitted by the Board."

(emphasis supplied)

Securities Contracts (Regulation) (SECC) Regulations,

2012 were repealed and replaced with Securities

Contracts (Regulation) (SECC) Regulations, 2018 w.e.f.

October 03, 2018.

Regulation 38(2) of SECC Regulations, 2018 states

that:

"The recognized stock exchange or recognized clearing corporation shall not carry on any activity whether involving deployment of funds or otherwise without prior approval of the Board:

Provided that prior approval shall not be required in case of treasury investments if such investments are as per the investment policy approved by the governing board of recognized stock exchange or recognized clearing corporation;

10 Provided further, that the recognized stock exchange and recognized clearing corporation may engage in activities whether involving deployment of funds or otherwise that are unrelated or not incidental to its activity as a stock exchange or clearing corporation, as the case may be, except through a separate legal entity and subject to approval of the Board."

(emphasis supplied)

13. At the outset, we may record that both Regulation

41(3) of 2012 Regulations and Regulation 38(2) of 2018

Regulations prohibit a „recognised Stock Exchange‟

from engaging in „unrelated‟ activity except through a

separate legal entity subject to SEBI‟s approval.

14. The allegations levelled against the appellant are

that (i) BTPIL has 40% stake in METSPL; (ii) BIL has

acquired 15% stake in BIL Ryerson and 8% in Indus

Water Institute Pvt. Ltd.

15. The principal contention urged by Shri Modi is

that the aforementioned provisions do not apply to the

subsidiaries. On a plain reading of both the provisions

extracted hereinabove, we are persuaded to accept Shri

Modi‟s contention. It is an admitted position that the 11

subsidiaries of BSE have made investments and not the

BSE. We may record that SEBI has not placed on

record any material such as a resolution passed by the

BSE‟s Board to invest/acquire stake in the said three

entities or authorizing the subsidiaries to acquire their

stakes.

16. Shri Modi is also right in his contention that any

violation of SECC Regulations meets the appellant with

civil consequences and penalties. It is settled that penal

provisions must be read strictly. Both 2012 and 2018

Regulation do not even remotely suggest that activities

of any subsidiary can be attributed as violation

committed by its principal, the BSE in this case.

17. It was argued by Shri Gaurav Joshi that the

purpose and intent of the Regulations is to ring-fence

the Exchanges against any liabilities. It could be so.

But, on facts investments have been made by BSE‟s

subsidiaries. There is no material on record such as

BSE‟s board resolution authorizing the investment. 12

Therefore, Regulation 43(1) of 2012 Regulations and

Regulation 38(2) of the 2018 Regulations have no

application. Hence, the impugned order is

unsustainable. In the result the following:

ORDER

1. Appeal is allowed. Order dated July 29, 2022

passed by AO is set aside.

2. Pending interlocutory applications, if any, stand

disposed of.

3. No costs.

Justice P.S. Dinesh Kumar Presiding Officer

Ms. Meera Swarup Technical Member

Dr. Dheeraj Bhatnagar Technical Member

RAJALA Digitally signed

02.05.2025 by

KSHMI RAJALAKSHMI NAIR H

Date: 2025.05.02 RHN H NAIR 13:10:25 +05'30'