Dalmia Cement (Bharat) Group vs Sebi

IL&FS Securities Services Ltd. IL&FS House, Raheja Vihar, Chandivili, Andheri (East), Mumbai -400072 Maharashtra. ..... Appellant

Versus

1.

NSE Clearing Ltd.

Exchange Plaza, Plot No.C/1, G Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra - 400051.

2. Securities and Exchange Board of India SEBI Bhawan, Plot No.C4-A, 'G' Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051.

3. National Stock Exchange of India Ltd. Exchange Plaza, Plot No.C/1, G-Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra - 400051.

4. Allied Financial Services Pvt. Ltd. 304-305, Vikas Deep Laxmi, District Center, Vikas Marg, New Delhi-110092.

5. Dalmia Cement (Bharat) Group 11th & 12th Floor, Hansalaya Building, 15, Barakhamba Road, New Delhi - 110001.

6. Novjoy Emporium Private Limited 2

2, Rupchand Mukherjee Lane, Kolkata - 700025.

7. National Securities Depository Ltd. Trade World, A Wing, 4th Floor, Kamala Mills Compound, Lower Parel, Mumbai - 400 013. ... Respondents

Mr. J.J. Bhatt, Senior Advocate with Mr. Venkatesh Thond, 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 Appellant.

Mr. P.N. Modi, Senior Advocate with Mr. Nihar Mody, Mr. Ashish Prasad, Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates i/b. ELP for the Respondent no.1.

Mr. Mustafa Doctor, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocate i/b. K. Ashar & Co. for the Respondent No.2.

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 & Co. for the Respondent no.3.

Mr. Robin Shah, Advocate for the Respondent no.4. Mr. Somasekhar Sundaresan, Advocate with Mr. Tomu Francis, Mr. Manish Chhangani and Mr. Arka Saha, Advocates i/b. Khaitan & Co. for the Respondent no.5. Mr. Kunal Katariya, Advocate with Mr. Kunal Kothary, Advocates i/b. Mr. Zerick Dastur, Advocates & Solicitors for the Respondent no.6.

Mr. Pulkit Sukhramani and Ms. Stuti Shah, Advocates i/b. J. Sagar & Associates for the Respondent no.7. Mr. Janak Dwarkadas, Senior Advocate with Ms. Anuja Bhansali, Advocate i/b. Raval Shah & Co. for Citi Bank.

With Appeal No.257 of 2019

1. Keshav Prasad Misra Flat No.1204, B-Wing, 12th Floor, Shah Arcade 2, Rani Sati Marg, Malad (East), Mumbai - 400097.

3

2. Adhirath B-10, Jwalaji Apartments, 26-Mohini Road, Dalanwala, Dehradun-248001.

3. Ahipal Singh 19/771, Indira Nagar Lucknow - 226016.

4. Ajeet Kumar Singh House No.227A, Rai Colony, Miyanpur, Jaunpur-222002.

5. Amit Kumar Singh House No.227A, Rai Colony, Miyanpur Jaunpur-222002.

6. Asha Rani Sekhri House No.C-3/157, Sector 36, Noida - 201301.

7. Ashutosh Narain Rai Village & Post-Pandah Ballia-277303.

8. Bethika Partap Singh Guru Hari Farm, Sultanpur Village, Mehrauli Gadaipur, Delhi-110030.

9. Celeste Towers Social Welfare Society D-194, Sector 10, Noida-201301.

10. Chandra Shekhar Rai 5/802, C2, Shakti Kunj Apartment, Sector 62, Noida.

11. Dal Chandra Rastogi House No.B-53, Sarvodya Enclave, Delhi-110017.

12. Dinesh Kumar Rai 19112 ATS Green Paradiso 4

Sector CHI 4, Greater Noida-201310.

13. Ennar Portfolio LLP 5th Floor, SB Tower, Sector 16A, Noida-201301.

14. Gita Sikand House No.8, Kasturba Gandhi Marg, GPO, Delhi-110001.

15. Indira Sikand House No.8, Kasturba Gandhi Marg, GPO, Delhi-110001.

16. JJ Tradelinks Pvt. Ltd.

A-70, Sector 58, Noida-201301.

17. Joydeep Nayar J 202, Pearl Gateway Towers, Sector 44, Noida-201301.

18. Kamaljit Kaur Virdi House No.212, Akashganga Apartment, Pocket -4, Sector 24, Rohini, Delhi-110085.

19. Kesar Singh House No.A-101, Mansara Apartment, Vasundhara Enclave, New Delhi- 110096.

20. Kirpal Singh Virdi House No.212, Akashganga Apartment Pocket-4, Sector 24, Rohini, Delhi-110085.

21. Kusum Sanduja A 91, Ground Floor, Sector 26, Noida - 201301.

5

22. Mridula Rai 5/802, C2, Shakti Kunj Apartment, Sector 62, Noida.

23. Nakul Marwah H-37A, Kalkaji, Delhi-110019.

24. Neelam Rai 19112 ATS Green Paradiso Sector CHI 4, Greater Noida-201310.

25. Niharika Rai House No.200, Sector 29, Noida-201303.

26. Onkar Nath Singh P2-04, Silver City Apartment, Sector 93, Noida - 201304.

27. Padmeshwari Prasad Rai Village & Post-Pandah Ballia, U.P.-277303.

28. Parul Sinha A-602, Rohtas Presidential Tower, Vibhuti Khand, Gomti Nagar, Lucknow - 226010.

29. Prakash Chandra Rai A-92, Meenal Residency, J.K. Road, Bhopal-462023.

30. Prem Kumar Sekhri House No.C-3/157, Sector 36, Noida - 201301.

31. Pushpa Rai House No.2, Sector 14, Kharagpur, Indira Nagar, Lucknow- 226016.

32. Rajeev Rai 6

House No.200, Sector 29, Noida-201303.

33. Ravi Sanduja HUF A 91, Sector 26, Noida-201301.

34. Ravinder Kaur E 254, Ground Floor, Greater Kailash Part 2, Delhi-110048.

35. Saroj Kumar Jha BH-499, East Shalimar Bagh, New Delhi - 110088.

36. Sarrthak Sanduja A 91, Sector 26, Noida - 201301.

37. Shakuntla Rastogi 332 Dhruva Apartment I P Extension, Delhi-110092.

38. Siddharth Sanduja A 91, Sector 26, Noida - 201301.

39. Smita Singh 16 NER Colony Bandariyabagh, Igartan Road, Lucknow - 226001.

40. Swarnim B-10, Jwalaji Apartments, 26-Mohini Road, Dalanwala, Dehradun-248001.

41. Urmila Rai 19/771, Indira Nagar, Lucknow-226016.

42. Vaishali Goyal 7

27A, Old Vijay Nagar Colony, Vijay Nagar, Agra-282004.

43. Vedangana Rai House No.200, Sector 29, Noida-201303.

44. Vinita Singh D 901, Sunshine Helios, Sector 78, Noida-201301. ..... Appellants

Versus

1. Securities and Exchange Board of India SEBI Bhawan, Plot No.C4-A, 'G' Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051.

2. National Stock Exchange of India Ltd. Exchange Plaza, Block G, C 1, Bandra Kurla Complex, G Block BKC, Banra Kurla Complex, Bandra East, Mumbai, Maharashtra - 400051.

3. National Securities Depository Ltd. Trade World, A Wing, 4th Floor, Kamala Mills Compound, Lower Parel, Mumbai - 400 013.

4. Dalmia Bharat Group (Dalmia Bharat Limited) Dalmiapuram, Thiruchirapalli Tamil Nadu-621651.

5. Allied Financial Services Pvt. Ltd. Flat No.1206, 12th Floor, Vijaya Building, 17 Barakhamaba Road, New Delhi-110 001.

6. Mr. Awanish Kumar Mishra Flat No.1807, Mahagun Maple, Sector 50, Noida - 201301.

8

7. Money Mishra Financial Services Flat No.1807, Mahagun Maple, Sector 50, Noida - 201301.

8. Money Mishra Overseas Pvt. Ltd. C-1/32, 3rd Floor, Old Village Jasola Okhla, New Delhi - 110025.

9. IL&FS Securities Services Ltd. IL&FS House, Raheja Vihar, Chandivili, Andheri (East), Mumbai -400072 Maharashtra ... Respondents

Mr. Kevic Setalvad, Senior Advocate with Mr. L.S. Shetty, Ms. Sanika Lalit and Mr. Amey Kulkarni, Advocates i/b. Shetty Malhotra & Associates for the Appellants.

Mr. Mustafa Doctor, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocate i/b. K. Ashar & Co. for the Respondent No.1.

Mr. Sachin Chandarana, Advocate with Mr. Rashid Boatwalla, Mr. Rahul Jain and Mr. Pruthvi, Advocates i/b. Manilal Kher Ambalal & Co. for the Respondent no.2. Mr. Vikram Nankani, Senior Advocate with Mr. Pulkit Sukhramani and Ms. Stuti Shah, Advocates i/b. J. Sagar & Associates for the Respondent no.3. Mr. Somasekhar Sundaresan, Advocate with Mr. Tomu Francis, Mr. Manish Chhangani and Mr. Arka Saha, Advocates i/b. Khaitan & Co. for the Respondent no.4. Mr. Robin Shah, Advocate for the Respondent nos.5 to 8. 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 no.9.

With Appeal No.260 of 2019

Novjoy Emporium Private Limited 2, Rupchand Mukherjee Lane, Kolkata - 700025. ..... Appellant 9

Versus

1. Securities and Exchange Board of India SEBI Bhawan, Plot No.C4-A, 'G' Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051.

2. IL&FS Securities Services Ltd. IL&FS House, Raheja Vihar, Chandivili, Andheri (East), Mumbai -400072 Maharashtra.

3. Allied Financial Services Pvt. Ltd. 304-305, Vikas Deep Laxmi, District Centre, Vikas Marg, New Delhi-110092.

4. NSE Clearing Ltd.

Exchange Plaza, Block G, C 1, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra - 400051.

5. National Stock Exchange of India Ltd. Exchange Plaza, Block G, C 1, Bandra Kurla Complex, G Block BKC, Banra Kurla Complex, Bandra East, Mumbai, Maharashtra - 400051.

6. Dalmia Cement (Bharat) Group 11th & 12th Floor, Hansalaya Building, 15, Barakhamba Road, New Delhi - 110001.

7. National Securities Depository Ltd. Trade World, A Wing, 4th Floor, Kamala Mills Compound, Lower Parel, Mumbai - 400 013. ... Respondents 10

Mr. Kunal Katariya, Advocate with Mr. Kunal Kothary, Advocates i/b. Mr. Zerick Dastur, Advocates & Solicitors for the Appellant.

Mr. Mustafa Doctor, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocate i/b. K. Ashar & Co. for the Respondent No.1.

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 no.2.

Mr. Robin Shah, Advocate for the Respondent no.3. Mr. P.N. Modi, Senior Advocate with Mr. Nihar Mody, Mr. Ashish Prasad, Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates i/b. ELP for the Respondent no.4.

Mr. Sachin Chandarana, Advocate with Mr. Rashid Boatwalla, Mr. Rahul Jain and Mr. Pruthvi, Advocates i/b. Manilal Kher Ambalal & Co. for the Respondent no.5. Mr. Somasekhar Sundaresan, Advocate with Mr. Tomu Francis, Mr. Manish Chhangani and Mr. Arka Saha, Advocates i/b. Khaitan & Co. for the Respondent no.6. Mr. Pulkit Sukhramani and Ms. Stuti Shah, Advocates i/b. J. Sagar & Associates for the Respondent no.7.

With Appeal No.261 of 2019

Dalmia Cement (Bharat) Group 11th & 12th Floor, Hansalaya Building, 15, Barakhamba Road, New Delhi - 110001. ..... Appellant

Versus

1. Securities and Exchange Board of India SEBI Bhawan, Plot No.C4-A, 'G' Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051.

2. IL&FS Securities Services Ltd. IL&FS House, Raheja Vihar, Chandivili, Andheri (East), 11

Mumbai -400072 Maharashtra.

3. Allied Financial Services Pvt. Ltd. 304-305, Vikas Deep Laxmi, District Center, Vikas Marg, New Delhi- 110092.

4. NSE Clearing Ltd.

Exchange Plaza, Block G, C 1, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra - 400051.

5. National Stock Exchange of India Ltd. Exchange Plaza, Block G, C 1, Bandra Kurla Complex, G Block BKC, Banra Kurla Complex, Bandra East, Mumbai, Maharashtra - 400051.

6. Novjoy Emporium Private Limited 2, Rupchand Mukherjee Lane, Kolkata - 700025.

7. National Securities Depository Ltd. Trade World, A Wing, 4th Floor, Kamala Mills Compound, Lower Parel, Mumbai - 400 013. ... Respondents

Mr. Somasekhar Sundaresan, Advocate with Mr. Tomu Francis, Mr. Manish Chhangani and Mr. Arka Saha, Advocates i/b. Khaitan & Co. for the Appellant.

Mr. Mustafa Doctor, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocate i/b. K. Ashar & Co. for the Respondent No.1.

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 no.2.

Mr. Robin Shah, Advocate for the Respondent no.3. 12

Mr. P.N. Modi, Senior Advocate with Mr. Nihar Mody, Mr. Ashish Prasad, Mr. Abhiraj Arora, Mr. Vivek Shah, Advocates i/b. ELP for the Respondent no.4.

Mr. Sachin Chandarana, Advocate with Mr. Rashid Boatwalla, Mr. Rahul Jain and Mr. Pruthvi, Advocates i/b. Manilal Kher Ambalal & Co. for the Respondent no.5. Mr. Kunal Katariya, Advocate with Mr. Kunal Kothary, Advocates i/b. Mr. Zerick Dastur, Advocates & Solicitors for the Respondent no.6.

Mr. Pulkit Sukhramani and Ms. Stuti Shah, Advocates i/b. J. Sagar & Associates for the Respondent no.7.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per : Justice Tarun Agarwala

1. This group of appeals are connected with each other in

one way or the other and revolves around an issue with regard

to an annulment of a trade. Thus all these appeals are being

decided together.

2. We have heard the learned senior counsel for the parties at

some length.

3. IL&FS Securities Services Limited (hereinafter referred

to as 'ISSL') is a clearing member empanelled with NSE

Clearing Limited (hereinafter referred to as 'NCL'). ISSL

entered into a 'Clearing Member-Trading Member Agreement'

dated 14th November, 2017 with Allied Financial Services

Private Limited (hereinafter referred to as 'Allied') as a result 13

of which, ISSL acted as a clearing member for Allied on the

F&O Segment of NCL. Under this agreement Allied was

obligated to place the margin with ISSL. In case of non-

payment of margins, ISSL as a clearing member was entitled

to close out/liquidate open positions or disable trading facility

of the trading member.

4. On 26th and 27th December, 2018, Allied sold NIFTY

options contract on the F&O Segment of National Stock

Exchange of India Ltd. (referred to hereinafter as 'NSE') which

was to expire on 28th March, 2019 and 27th June, 2019 on the

basis of mutual fund units that were placed as collateral by

Allied to ISSL. These NIFTY option contracts were purchased

by investors on NSE and Allied received an upfront premium

of around Rs.380 crore from ISSL.

5. The NIFTY options contract which has now expired on

27th June, 2019 is the subject matter of the present appeal of

ISSL wherein the appellant has prayed for annulment of the

trades. ISSL filed an application dated 20th March, 2019 before

SEBI praying that it has become a victim of fraud perpetrated

by Allied and, therefore, SEBI should protect the interest of the

appellant. It was contended that the option contract entered

into by Allied were based on fraudulently transferred collaterals 14

which was not in the interest of the securities market and,

therefore, the trades made by Allied should be annulled.

6. Securities and Exchange Board of India (hereinafter

referred to as 'SEBI') passed an ex-parte interim order dated

27th February, 2019 against Allied and other noticees and

rejected the contention of ISSL that it had no locus standi to

apply for modification of the ex-parte interim order. SEBI

further held in its order of 29th March, 2019 that the appropriate

authority for annulment of the 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 15

'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 Court

of India which was disposed of by an order dated 26th June,

2019 directing ISSL to file an appropriate appeal/petition

before the appropriate forum questioning the veracity and

legality of the order dated 24th June, 2019 passed by the

Clearing Corporation. Based on the aforesaid direction, ISSL

has filed the present appeal.

10. Appeal no.257 of 2019 Keshav Prasad Misra and 43

others have filed the appeal praying for a variety of reliefs, and

one of them is, that NIFTY contract which was expiring on 27th

June, 2019 should be annulled. The said appellants contended

that they are innocent investors and victims of fraud

perpetuated by Allied and that Allied have illegally diverted

their investments for fraudulent trades. It was contended that

the appellants had invested in monies in M/s. Allied Financial

Services Private Limited which was transferred illegally by one

Awanish Kumar Misra into his own firm Money Misra 16

Financial Services Ltd. which in turn were used in creating

assets in pool account or were transferred to other entities by

Awanish Kumar Misra. It was contended that the appellants

individually sent emails during the period 12th May, 2019 to

17th May, 2019 and requested for a personal hearing but the

same was not granted. Instead SEBI issued a confirmatory

order dated 17th May, 2019. The complainant had again sent

email on 2nd June, 2019 and 3rd June, 2019 requesting for

annulment of the alleged trades and also lodged a formal

complaint thereafter. Since no action was taken by SEBI nor

there was any opportunity of hearing was granted the present

appeal was filed praying for annulment of trades and further

directed SEBI to pass appropriate orders on their complaints.

11. Navjoy Emporium Private Limited has filed Appeal

Lodging No.353 of 2019 questioning the validity of the order

dated 20th June, 2019 wherein SEBI modified the exparte

interim order dated 27th February, 2019 which was

subsequently confirmed on 17th May, 2019. The said appellant

contends that they had opened a demat account with Allied and,

without their authorization, certain units of mutual funds from

their demat account was debited and was credited to another

account. The appellant alleged that Awanish Kumar Misra who 17

was the Managing Director of Allied had illegally transferred

its mutual fund units and placed as collateral for the NIFTY

option trades. 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 18

to SEBI as well as to EOW. SEBI did not act on their

complaint. On the other hand EOW passed an order directing

ISSL not to deal with the securities till further orders.

12. This appellant (Dalmia) contends that SEBI should have

protected their interest while passing the exparte order and

confirmatory order and should have heard them before

modifying the confirmatory order. It was contended that since

they are affected parties, the appellants have a right to be heard

and since they were not given as appropriate hearing the order

of 20th June, 2019 modifying the confirmatory order on the

application of ISSL was in violation of the principles of natural

justice.

13. One of the counterparties to the option contract, namely

CITI Bank has requested that they may be heard. Though no

impleadment application was filed, we, permitted the learned

senior counsel Shri Dwarkadas to make his submissions.

14. Various submissions were made by the learned senior

counsel for ISSL, SEBI and others and we proceed to decide

this matter.

15. An objection was raised by the learned Senior Counsel for

SEBI namely, that the present appeal filed by ISSL is not

maintainable inasmuch as no appeal lies under Section 23L of 19

the Securities Contract (Regulation) Act, 1956 (hereinafter

referred to as SCRA Act) against an order passed by the NCL.

In this regard, we have heard the learned counsels for the

parties at some length.

16. The appeal has been filed under Section 23L of the

SCRA Act. For facility, the said provision is extracted

hereunder:-

"23L. Appeal to Securities Appellate Tribunal.--

(1) Any person aggrieved, by the order or decision of the recognized stock exchange or the adjudicating officer or any order made by the Securities and Exchange Board of India under section 4B, may prefer an appeal before the Securities Appellate Tribunal and the provisions of sections 22B, 22C, 22D and 22E of this Act, shall apply, as far as may be, to such appeals.

(2) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order or decision is received by the appellant and it shall be in such form and be accompanied by such fee as may be prescribed: Provided that the Securities Appellate 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 20

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 exchange as under:-

"(j) "stock exchange" means--

(a) any body of individuals, whether incorporated or not, constituted before corporatisation and demutualisation under sections 4-A and 4-B, or

(b) a body corporate incorporated under the Companies Act, 1956 (1 of 1956), whether under a scheme of corporatisation and demutualisation or otherwise, for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities."

The purpose of a stock exchange is to assist, regulate or control

the business of buying, selling or dealing in securities.

18. Section 2(f) defines recognized stock exchange as under:-

"recognised stock exchange" means a stock exchange which is for the time being recognised by the Central Government under section 4."

19. Section 4 of the Act gives power to the Central

Government to recognize a stock exchange. Such recognition

is required to be published in the Gazette of India and in the

Official Gazette of the State under Section 4(3) of the Act. 21

20. From the aforesaid it is clear that, any decision made by a

stock exchange which is recognized under Section 4 by the

Central Government is appealable under Section 23L of the

Act.

21. Section 8-A was inserted in the Act by Act 1 of 2005

with effect from 12/10/2004. The said provision is extracted

hereunder:-

"8A. Clearing corporation.--

(1) A recognized stock exchange may, with the prior approval of the Securities and Exchange Board of India, transfer the duties and functions of a clearing house to a clearing corporation, being a company incorporated under the Companies Act, 1956 (1 of 1956), for the purpose of--

(a) the periodical settlement of contracts and differences thereunder;

(b) the delivery of, and payment for, securities;

(c) any other matter incidental to, or connected with, such transfer.

(2) Every clearing corporation shall, for the purpose of transfer of the duties and functions of a clearing house to a clearing corporation referred to in sub-section (1), make bye-laws and submit the same to 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).

22 (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 and 12 of

the Act will apply to a clearing corporation as it applies to a

recognized stock exchange.

22. Pursuant thereto, the NSE Clearing Limited (NCL) came

into existence as a clearing corporation under Section 8-A of

the SCRA Act by a notification dated 26th September, 2017.

The SEBI renewed the recognition for a period of three years

under Section 4 read with Section 8-A of the SCRA Act. As a

result of this notification, NCL is a recognized clearing

corporation under the SCRA Act.

23. The limited question is, whether the respondent-NSE

Clearing Ltd. being a recognized clearing corporation is akin to 23

a recognized stock exchange or not? We find that an order of

the recognized stock exchange is appealable under Section 23L

of the Act. Some of the duties and functions of a recognized

stock exchange has been transferred to a clearing corporation

namely, NSE Clearing Ltd. This clearing corporation 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.

24. 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.

25. 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 24

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 fraud

has not as yet been decided by the clearing corporation on

merits.

26. In the appeal of Keshav Prasad Mishra and others, the

said appellants have also complained before SEBI for annulling

the trades and for return of their 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 25

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 Bye-

laws 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 securities and to promote the development and

regulate the securities market. Under Section 12A of the SCRA

Act, SEBI (Board) has power to issue directions to any stock

exchange, clearing corporation or an agency associated with the

securities market. By our earlier Order dated 15/5/2019 in

Appeal No.138 of 2019, IL&FS Securities Services Ltd. vs.

SEBI and others, we held that SEBI has wide powers to

consider the complaint with regard to an annulment of a trade.

30. We had also held in the said order held that even where a

person is affected either directly or indirectly, the said person

would have a right to apply for modification of the order and if

such a person applies for being heard for protection of its

interest, SEBI could not deny the opportunity of being heard.

In the light of the aforesaid, we find that Novjoy and Dalmia

made a specific request to SEBI for being heard because of 26

which they were kept outside the hearing room and were not

heard leading to an order being passed by SEBI dated

20.6.2019 modifying the confirmatory order dated 17.5.2019.

In our opinion, SEBI violated the principles of natural justice in

denying Navjoy and Dalmia right to be heard inspite of specific

directions given by this Tribunal in its order of 15/5/2019.

31. We find that SEBI after considering the complaints of

Dalmia and Novjoy and others, investigated the matter and

passed an ex-parte interim order which was subsequently

confirmed and thereafter modified. The assets of Allied have

been frozen and Allied have been debarred from accessing the

securities market. Such interim arrangement is not sufficient by

itself as the appellants before us are making specific claims

namely, for annulment of a trade / trades, for return of their

securities which have been illegally transferred by Allied to

ISSL. Such issues for return of the securities, for annulment of

the trades are not being considered by any authority till today

and these entity/entities are running around in circle. These

questions are required to be addressed at the earliest.

32. On the other hand, counter parties to the Nifty contracts

and one such entity being Citi Bank has contended that a valid

trade which has been executed in which they have paid a 27

premium upfront to Allied and which is required to be

honoured on the expiry of the 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 required to be decided by an 28

authority. Since NCL has refused to decide the application for

annulment of trade on the ground that parallel investigation is

being conducted by SEBI, we dispose of all the aforesaid

appeals with the following directions:-

(i) All the appellants will file an appropriate application

for redressal of their grievances before SEBI by 8th

July, 2019 annexing their earlier applications /

complaints / emails and praying for specific relief /

reliefs.

(ii) Counter-parties like Citi Bank and similarly

connected entities may appear before SEBI and

place their objections, if they so desire.

(iii) SEBI will consider all the complaints and

applications and provide an opportunity of hearing

to the appellants, to all interested parties and take a

conscious decision by reasoned and speaking order;

(iv) All the parties will appear before SEBI on 10th July,

2019 at 3 p.m. on which date SEBI will hear and

decide the matter, and if for some reason, the

hearing is not concluded on that day, SEBI will hear

the same on a day to day basis till it is concluded. 29

SEBI would thereafter pass an order on or before

17th July, 2019.

(v) Since an interim direction had been granted by the

Supreme Court of India by its order dated

26.6.2019, we direct that the Nifty Option Contract

on the F&O Segment of NSE which was to expire

on 27th June, 2019 will remain in abeyance till 22nd

July, 2019.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

3.7.2019 Prepared and compared by RHN/DDG