Exit Order in Respect of The Spice and Oilseeds Exchange Limited, Sangli

EXIT ORDER IN RESPECT OF THE SPICE AND OILSEEDS EXCHANGE LIMITED, SANGLI

1. The Spices and Oilseeds Exchange Limited (hereinafter referred to as “SOEL/Exchange”)was granted recognition as a commodity derivatives exchange under Section 6 of the Forward Contracts(Regulation) Act, 1952 (hereinafter referred to as ‘FCRA’), vide notification S.O. No. 806 dated March 28, 1960 on a permanent basis in respect of futures trading in turmeric by the Government of India. The said recognition was granted subject to the condition that the Exchange shall comply with such directions as may be issued from time to time by erstwhile Forward Markets Commission (hereinafter referred to as “FMC”).

2. The Exchange was primarily organising futures trading in turmeric. However, trading in SOEL has remained discontinued from November 30, 2007.Further, the Exchange has made no attempts for revival of trading and has not formulated any revival plan for the purpose of resumption of trading.

3. The erstwhile FMC vide its Circular No. 9/1/2014-MKT-I (Vol-II), dated May 19, 2015, had directed all the commodity derivatives exchanges who had suspended their trading operations, to refund the clients margin money and members’ deposits and resolve all outstanding client disputes. The erstwhile FMC had also directed that failure by an exchange to revive its trading operations within 12 months from the date of suspension of trading would lead to cancellation of its registration.

4. Subsequently, the erstwhile FMC vide its letter dated July 29, 2015 had made a recommendation to the Ministry of Finance seeking withdrawal of recognition granted to SOEL under the FCRA, 1952 (now repealed).

5. As per Section 28A (1) of the Finance Act, 2015, pursuant to the merger of FMC with the Exit Order in respect of The Spice And Oilseeds Exchange Limited

Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’'), all the associations recognised under FCRA are deemed to be recognised stock exchanges under the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as ‘SCRA’) and hence SOEL is a deemed recognised stock exchange under the SCRA.

6. SEBI has issued a Circular No. CIR/CDMRD/DEA/01/2016dated January 11, 2016 (hereinafter referred to as ‘Exit Circular, 2016’) laying out the mandatory requirements/ exit policy for all the commodity derivatives exchanges who are now deemed recognised Stock Exchange under SCRA. In terms of clause 4 of the Exit Circular, 2016, if there is no trading operation on the platform of any commodity derivatives exchanges for more than twelve months, then such exchange shall be liable to exit. Additionally, in terms of clause 5 of the Exit circular, all Regional Commodity Exchanges shall have to ensure that they have at least 5% of the nation-wide market share of the commodity, which is principally traded on their platform. In case any Regional Commodity Exchange fails to meet both the above two criteria for two consecutive years, it shall be liable to exit.

7. Accordingly vide letter dated February 12, 2016, SEBI informed SOEL that since there has been no trading operation on its platform, it shall be liable to exit in terms of paragraph 4 of the Exit Circular, 2016. Further, SOEL was inter-alia, directed to comply with the provisions for valuation of assets and to provide detailed list of its assets and liabilities as on January 31, 2016.In this regard, vide resolution passed in the extra-ordinary general meeting held on June 4, 2016, the members of SOEL have conveyed their approval and acceptance of the exit policy of SEBI.

8. I have considered the facts pertaining to SOEL and the relevant documents, valuation report, submission by the Exchange placed on record for the purpose of considering the exit of SOEL in terms of the Exit Circular of January, 2016. In terms of clause 7 of Exit Circular, 2016, I note that the following conditions are, inter –alia, required to be complied with by any non-functional commodity derivative exchange before it is granted an exit.

(a) Distribution of its assets subject to certain conditions as laid down in the Exit Circular, 2016 as well as the other guidelines that may be issued by SEBI, Government or any other statutory body from time to time.

(b) For the purpose of valuation of the assets of the exchange, submission of the report of a valuation agency appointed by SEBI. All the valuation charges shall be paid by the exchange.

(c) Quantum of assets for distribution will be available after payment of the following by the exchange: (i) Statutory dues including Income Tax; (ii) Transfer of Investor Protection Fund, or any such fund available with the exchange to SEBI Investor Protection and Education Fund (hereinafter referred to as the 'IPEF'); (iii) Payment of following dues to SEBI by the concerned exchange :- • Dues outstanding to SEBI and the annual regulatory fee; • The outstanding registration fees of brokers/trading members of such de-recognised exchanges as specified in the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, till the date of such de-recognition; • In case of any shortfall in collection of dues of the brokers to SEBI, the exchange will make good the shortfall; (iv) Refund of deposit (refundable) to the stock brokers including their initial contribution/deposit to Settlement Guarantee Fund/Trade Guarantee Fund (SGF/TGF).

(d) Contribution of up to 20% of its assets (after tax) towards IPEF taking into account, inter alia, the governance standards of the exchange and estimation of future liabilities.

(e) The concerned commodity exchange to set aside sufficient funds in order to provide for settlement of any claims, pertaining to pending arbitration cases, arbitration awards, not implemented, if any, liabilities/claims of contingent nature, if any, and unresolved investor complaints/grievances lying with it.

9. In terms of condition mentioned in paragraph8(b) above, SEBI in consultation with SOEL on July 13, 2016 appointed Mr. Pravin Gavane, Partner, (M/s Patil Randive & Associates), as the valuation agency for verification and valuation of assets and liabilities of SOEL. The valuation agency submitted its final report to SEBI on January 23, 2017.

10. With respect to the compliance of conditions specified in the Exit Circular, 2016 and settlement of liabilities by SOEL, from the findings in the report submitted by the valuation agency M/s Patil Randive & Associates and also from the undertaking dated March 21, 2017 (hereinafter referred to as the “undertaking”) submitted by SOEL, it is noted as follows:

(a) With respect to 8 (c) (i) above, the valuation agency in their report has stated that there is no statutory liability pending with the Exchange.This has also been stated in the Undertaking submitted by the Exchange.

(b) With respect to condition mentioned in para 8(c)(ii) above, SOEL did not have the Investor Protection Fund or any such fund.

(c) With respect to para 8(c)(iii) above, SOEL has paid the outstanding annual regulatory fees amounting to `50,000 for the financial year 2016-17, vide NEFT, dated March 01, 2017, drawn on Bank of India. Further, there is no outstanding registration fees dues of brokers/sub-brokers.

(d) With respect to condition mentioned in para 8(c) (iv) above, SOEL has refunded deposit to the stock brokers including their initial contribution amounting to ` 2,51,000/-.

(e) With respect to condition mentioned in para 8(d) above, SOEL has contributed towards SEBI IPEF an amount of` 1,00,000vide NEFT dated March 01, 2017.

(f) With respect to condition mentioned in para 8(e) above, SOEL has submitted in its undertaking that there are no arbitration disputes/investor complaints pendingwith respect to futures trading and that it will clear all the liabilities before distribution of assets of the exchange.

(g) With respect to its other liabilities, SOEL in its undertaking has stated that it does not have any third party liabilities or undisclosed liabilities in respect of futures trading in turmeric other than available in the balance sheet and other financial records submitted to SEBI.

(h) The Exchange has stated in its undertaking that there are no claims lodged against the Exchange in respect of futures trading and the Exchange undertakes to assume complete responsibility for financial implications of any such claims against the Exchange that at any future date may arise.

(i) SOEL in its undertaking has declared that to the best of their information and knowledge there are no cases pending before various legal forum in connection with futures trading. Further, the cases LPA- 152/2013 and LPA – 153 /2013 against SOEL that are pending before Hon’ble Bombay High Court pertains to an ex-employee of the Exchange i.e. it pertains to Labour Laws and is not a Trading Liability and it does not have any impact, financial or whatsoever for the exit process of the Exchange.

11. It is observed that all the known liabilities as on date have been brought out in the valuation report. I note that SOEL has substantially complied with the conditions contained in the Exit Circular, 2016 and has further submitted a written undertaking to state that it does not have any third party liabilities or undisclosed liabilities in respect of futures trading and that it undertakes to assume complete responsibility for financial implications of any such claims against the Exchange that at any future date may arise. Therefore, I am of the view that it is a fit case to allow exit to SOEL in terms of clause 7 of the Exit Circular, 2016.

12. I, therefore, in exercise of the powers conferred upon me by virtue of Section 19 read with provisions of Section 11(1), Section 11(2) (j) of the Securities and Exchange Board of India Act, 1992 and Sections 4, 5 and 12A of the SCRA allow the exit of the Spices and Oilseeds Exchange Limited as a stock exchange and consequent withdrawal of recognition granted to SOEL.I hereby direct it to:- (a) comply with its tax obligations under Income Tax Act, 1961; (b) comply with the undertakings given by it to SEBI; (c) comply with other consequential conditions of Exit Circular, 2016; and (d) not to use the expression “Exchange” or any variant of this expression in its name and to avoid any representation of present or past affiliation with the stock exchange, in all media.

13. The order shall come into force with immediate effect. A copy of this order shall also be forwarded to the Income Tax Authorities, the Ministry of Corporate Affairs and the State Government of Maharashtra intimating the exit of the Spices and Oilseeds Exchange Limited and for appropriate action at their end as per applicable laws.

Sd/- DATE: April 12, 2017 S RAMAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA