Order in the matter of Phillip Commodities India Pvt. Ltd.

WTM/MPB/EFD-1-DRA-II/17 /2018 SECURITIES AND EXCHANGE BOARD OF INDIA MS. MADHABI PURI BUCH, WHOLE TIME MEMBER Order Under Regulation 28 of Securities and Exchange Board of India (Intermediaries) Regulations, 2008 In respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.) (PAN: AACCR6675H) In Re Inspection of Documents.

1. Phillip Commodities India Pvt. Ltd. (Formerly known as “MF Global SIFY Securities India Ltd.”) (hereinafter referred to as “PCIPL” / “ the Noticee”) a commodity broker / member of National Spot Exchange Limited (hereinafter referred to as “NSEL”), Multi Commodity Exchange of India Ltd (hereinafter referred to as “MCX”), National Commodity & Derivatives Exchange Limited (hereinafter referred to as “NCDEX”), Indian Energy Exchange Limited (hereinafter referred to as “IEX”) and NCDEX e-Markets Limited (formerly known as NCDEX Spot Exchange-NSPOT) (hereinafter referred to as “NeML”).

2. Pursuant to the default at NSEL in 2012 and Economic Offences Wing’s (hereinafter referred to as “EOW”) initial investigations / arrests / complaints received from investors against the members / brokers of NSEL (including the Noticee), NSEL vide complaint letters dated March 17, 2015 and March 24, 2015 and EOW via report dated April 04, 2015 had requested Securities and Exchange Board of India (hereinafter referred to as “SEBI”) to take appropriate/necessary action.

3. It is noted that on September 28, 2015, Forward Market Commission (hereinafter referred to as “FMC”) got merged with SEBI and pursuant to this merger, Noticee on December 16, 2015 had made an application to SEBI for registration as a commodity broker. Further, it is noted that as per Finance Act 2015, an intermediary may continue to buy, sell or deal in a commodity derivatives as a commodity broker, if it has made an application for such registration within a period of 3 months till the disposal of such application.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

4. Further, pursuant to merger of FMC with SEBI, the regulation and supervision of the commodity derivatives brokers has been entrusted to SEBI. Therefore, in view of the abovementioned NSEL complaint letters and EOW report, SEBI had appointed J. Singh & Associates, Chartered Accountant (hereinafter referred to as “the auditor”), to carry out performance audit/inspection of the Noticee.

5. A report along with Annexures was submitted by the auditor to SEBI, which was received on July 07, 2016. Based on the findings of the auditor and further analysis of the same by SEBI, it was decided by SEBI to initiate enquiry proceedings against the Noticee in terms of the SEBI (Intermediaries) Regulations, 2008 (hereinafter referred to as “Intermediaries Regulations”).

6. SEBI vide order dated October 06, 2016 had appointed a Bench of Designated Authorities to enquire into the alleged violations of various provisions of the SEBI (Stock Brokers & Sub Brokers) Regulations, 1992, (hereinafter referred to as the “Brokers Regulations”), SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (hereinafter referred to as “PFUTP Regulations”), Forward Contracts (Regulation) Act, 1952, (hereinafter referred to as “FCRA”), Prevention of Money Laundering Act, 2002 (hereinafter referred to as “PMLA”), Central Government Notifications and various Circulars / Code of Conduct, Guidelines, Bye Laws, Business Rules etc. of FMC / SEBI / NSEL / NCDEX / MCX.

7. In terms of regulation 27 of the Intermediaries Regulations, the Designated Authorities vide Enquiry Report dated April 11, 2017 recommended inter alia, that the application of the Noticee submitted for registration as a commodity broker may not be considered in the interest of securities market and the application of the Noticee may be rejected. Subsequently, SEBI issued a Show Cause Notice dated April 24, 2017 enclosing a copy of Enquiry Report dated April 11, 2017 (hereinafter referred to as “SCN” / “Enquiry Report”) to the Noticee, wherein the Noticee was advised to reply to the SCN within 21 days from the receipt thereof.

8. The Noticee vide letter dated May 11, 2017 had acknowledgment the receipt of SCN and stated that in the Enquiry Report, the Designated Authorities had relied upon some new Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

documents, of which neither inspection nor copies of such documents were provided to the Noticee.

9. The Noticee vide various letters/emails dated May 11, 2017, June 23, 2017, September 15, 2017, September 18, 2017, November 20, 2017, January 07, 2018 and January 22, 2018 etc. had sought inspection of documents as well as copies of documents and submitted that SEBI has not provided complete inspection of all relevant documents to them. However, SEBI submitted that it had granted inspection to the Noticee on June 20, 2017 and copies of all relied upon documents were also provided to PCIPL by SEBI through various letters dated August 28, 2017, November 08, 2017 and January 05, 2018.

10. In the interest of natural justice and as per regulation 28(2) of Intermediaries Regulations, the Noticee was granted an opportunity of personal hearing on January 30, 2018 at SEBI, Head Office, Mumbai vide notice of hearing dated December 26, 2017. Subsequently, vide notice of hearing dated January 05, 2018, the hearing was re-scheduled on February 06, 2018 at SEBI, Head Office, Mumbai.

11. Meanwhile, vide letters dated January 07, 2018 and January 22, 2018 the Noticee stated that they have not received all documents sought by them vide their emails dated June 23, 2017, September 18, 2017 and November 21, 2017. The Noticee further stated that the said documents were required by them to finalize their reply and hence requested to grant an opportunity of hearing only after receipt of their detailed reply in the matter. In this regard, the Noticee had also cited the Order of Hon’ble Supreme Court in the matter of SEBI v. Price Waterhouse (Civil Appeal No. 6001 – 6002 and 6003-6004 of 2012 decided on 10.01.2017) wherein Supreme Court had held that a party before SEBI is entitled to get all the material on SEBI’s record.

12. In view of the stand of SEBI that it has granted inspection of all relied upon documents and the stand of the Noticee that it is entitled to get additional documents and its request that a hearing be fixed only after it files a detailed reply based on all the requested documents, in order to overcome the impasse resulting from the conflicting stands, SEBI vide email dated January 24, 2018 informed the Noticee that the hearing scheduled on February 06, 2018 would be in respect of inspection of documents.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

13. On February 06. 2018, Mr. Pesi Modi, Senior Counsel and Mr. Neville Lashkari, Advocate along with Mr. Sandeep Gupta, Mr. Rajendra Bhambhani and Mr. Nikunj Modi from PCIPL, Authorized Representatives (hereinafter referred to as “ARs”) of PCIPL appeared for the hearing. During the course of hearing, I confirmed to the ARs of PCIPL that the hearing before me was with respect to the issue of inspection of documents between SEBI and PCIPL. ARs made their oral submission with respect to inspection of documents. The matter was heard at length.

14. During the hearing, ARs of PCIL stated that PCIPL has sought for inspection of documents as well as copies of documents by their various letters/emails and submitted that SEBI has not provided complete inspection of all relevant documents to them, whereas SEBI stated that all relied upon documents were provided to PCIPL vide inspection granted on June 20, 2017 and copies of documents were also provided to PCIPL through various letters dated August 28, 2017, November 08, 2017 and January 05, 2018.

15. During the course of hearing ARs were advised to submit their rationale for seeking various additional documents in the matter. ARs submitted that the rationale for seeking the documents is based on three categories viz., (A) Documents necessary for dealing with the issue of jurisdiction (B) Documents necessary for dealing with the issue of discrimination and (C) Documents relating to the merits of the case referred to or relied upon in the Enquiry Report. ARs once again submitted the list of below mentioned documents which was already submitted by the Noticee vide letter dated November 20, 2017 and requested for inspection of the said documents. The ARs explained the relevance of seeking inspection of each of the below mentioned documents. ARs further stated that complete inspection of all documents as well as copies of the same are required to make a comprehensive reply to SCN as the said documents relate to the specific averments/allegations made in the SCN. Detailed item by item discussion held during the hearing was as follows:

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

“………… Table No. 1 Sl. No. Documents/information sought Observations and Conclusion 1 In paragraph no. 25 of Enquiry Report it is SEBI replied that SGS Report was mentioned that “It was also observed that the long provided on November 08, 2017 to the term contracts………………….were not backed by Noticee. actual physical delivery………” In this context, please give us the full and complete The Noticee contended that SGS report details of all evidence in support of this observation. is not legible. SEBI is advised to provide legible copies of documents sought by the Noticee. 2 In paragraph no. 30 of Enquiry Report it is SEBI replied that Annexure VII to copy mentioned that “…The SCN issued by MCA – GOI to of FMC Order which contains the copy NSEL was available in the public domain ……”. of SCN issued by MCA is given to the In this context, please give us the full and complete Noticee. details of the public domain where the said SCN During hearing SEBI explained that the dated 27.4.2012 was available at the relevant time. SCN issued to NSEL was not in public domain, however the news about the same was in public domain. SEBI’s stand on the same stands confirmed/clarified. 3 In paragraph no. 35 of Enquiry Report it is SEBI replied that all the annexures to mentioned that “… the illegalities of the transactions FMC order have been provided on carried out at NSEL by the brokers were time and August 28, 2017 to the Noticee. again pointed out by both FMC and the Ministry of Consumer Affairs… ”. The Noticee contended that none of the In this context, please give us the full and complete Annexures has any details of about details of such communications issued to members of where and when FMC and Ministry of NSEL, including the mode of communication/s, the Consumer Affairs pointed out the number of times, the dates of the said communication illegalities of the transactions to NSEL and the complete content of all such members like the Noticee. communications.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

During the hearing SEBI stated that all the communication was to NSEL and not to any members of NSEL.

SEBI’s stand on the same stands confirmed / clarified. 4 A copy of the Audit Report as prepared by M/s. SGS SEBI had already provided SGS Report along with all the annexures thereto, if any, as to the Noticee. referred to and relied upon in paragraph 38 of the said Enquiry Report. Noticee contended that the said SGS report is not legible. SEBI is advised to provide legible copies of documents sought by the Noticee. 5 The complete papers and proceedings, and the Order SEBI replied that copy of the order was dated August 22, 2014 passed by the Hon’ble provided to the Noticee on August 28, Bombay High Court in the matter of Criminal Bail 2017. Application No. 1263 of 2014, as referred to in During the hearing SEBI communicated paragraph 46 of the said Enquiry Report. to the Noticee that pleadings before the Court proceedings are not relied upon in the SCN and the same are not available.

SEBI’s stand on the same stands confirmed / clarified. 6 As per para 6.2 and 6.2.1 of FMC order dated SEBI replied that they had provided the 17.12.2013, FMC used to call for trade data from copy of letter/email of FMC calling spot NSEL in prescribed formats which was on fortnightly exchanges including NSEL for basis. Please give the trade data received by FMC submission of trade data in prescribed from NSEL for the fortnight 1.7.2013 to 15.7.2013 reporting format and Trade data and for the fortnight 16.7.2013 to 31.7.2013. submitted by NSEL to FMC on August 28, 2017 and November 08, 2017 to the Noticee.

The Noticee contended that the data was not available in the CD. Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

SEBI explained during the hearing that only the communication between FMC and NSEL was given to the Noticee and not the trade data. The said trade data was not relied upon in the Enquiry Report.

SEBI’s stand on the same stands confirmed / clarified. 7 In paragraph no. 53 of Enquiry Report it is SEBI replied that copies of Auditor mentioned that “…. there are several other evidences Report including the PPT and relevant which indicates that the Noticee has indeed induced analysis made by SEBI on the same was its investors / clients by making false provided on August 28, 2017 and representations…”. November 08, 2017 to the Noticee. In this context, please give us the full and complete details of the all evidences in support of the said The Noticee contended they do not have allegation. any PPT.

SEBI states that a copy of email communication dated December 13, 2012 to evidence the Noticee attaching and thereby endorsing the PPT prepared by NSEL to one of its clients and email dated May 30, 2012 forwarding a computation giving annualized yield to a client based on a paired contract have been already given to the Noticee. It is also stated by SEBI that the said e-mails and PPT are part of the copy of Auditor Report. The same was provided on August 28, 2017 and November 08, 2017 to the Noticee.

SEBI’s stand on the same stands confirmed / clarified.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

8 In paragraph no. 59 of Enquiry Report, it is The Noticee contended that they did not mentioned that, “the Noticee has also forwarded make any PPT to mislead the clients. various communications pertaining to new contracts launched …..” SEBI states that a copy of email In this context, please give us the full and complete communication dated December 13, details of all such various communications being 2012 to evidence the Noticee attaching relied upon by SEBI in support of the said allegation. and thereby endorsing the PPT Further, in paragraph no. 59 of Enquiry Report, it is prepared by NSEL to one of its clients mentioned that, “hence, Noticee’s confirmation to its and email dated May 30, 2012 clients that the paired contracts were settled on forwarding a computation giving Trade for Trade basis……..” annualized yield to a client based on a In this context, please give us the full and complete paired contract have been already given details of all such confirmations being relied upon by to the Noticee. It is also stated by SEBI SEBI in support of the said allegation. that the said e-mails and PPT are part of the copy of Auditor Report. The same was provided on August 28, 2017 and November 08, 2017 to the Noticee.

SEBI’s stand on the same stands confirmed / clarified. 9 In paragraph no. 60 of Enquiry Report, it is SEBI replied that copy of Auditor mentioned that, “However, the material available Report including the PPT and analysis indicated that the Noticee was acting as accomplice made by SEBI relying upon documents of NSEL………” including Auditor Report and the PPT In this context, please give us the full and complete on the same was provided on August 28, details of all such “material available” which is 2017 and November 08, 2017 to the being relied upon by SEBI in support of the said Noticee. allegation. The Noticee contended that they did not make any PPT to mislead the clients.

SEBI states that a copy of email communication dated December 13, 2012 to evidence the Noticee attaching and thereby endorsing the PPT prepared by NSEL to one of its clients Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

and email dated May 30, 2012 forwarding a computation giving annualized yield to a client based on a paired contract have been already given to the Noticee. It is also stated by SEBI that the said e-mails and PPT are part of the copy of Auditor Report. The same was provided on August 28, 2017 and November 08, 2017 to the Noticee.

SEBI’s stand on the same stands confirmed / clarified. 10 The complete papers and proceedings, and the Order SEBI replied that copy of the order was passed in the matter of M/s. Lohia Securities Ltd. Vs. provided to the Noticee on August 28, DCIT, Circle – 6, Kolkatta (in appeal No. ITA No. 2017. 487/Kol/2012 A.Y. 2008-09) as referred to and relied The said case law has been quoted to upon in paragraph 62 of the said Enquiry Report. support the definition of arbitrage. In Please also give us full details and particulars of any proceedings, various case laws Appeal/s, if any, filed against the said Order. would be quoted to support the position of law. If the Noticee disputes the position of law, he is at liberty to counter the same making submission on this point.

SEBI’s stand on the same stands confirmed / clarified.

11 In paragraph no. 85 of Enquiry Report, it is SEBI replied that copy of PPT and other mentioned that, “…It is on record that Noticee was relevant documents was provided to the guaranteeing assured returns……”. Noticee. In this context, please give us the full and complete details of all evidence in support of the said The Noticee contended that they did not allegation. make any PPT to mislead the clients.

SEBI states that a copy of email communication dated December 13, Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

2012 to evidence the Noticee attaching and thereby endorsing the PPT prepared by NSEL to one of its clients and email dated May 30, 2012 forwarding a computation giving annualized yield to a client based on a paired contract have been already given to the Noticee. It is also stated by SEBI that the said e-mails and PPT are part of the copy of Auditor Report. The same was provided on August 28, 2017 and November 08, 2017 to the Noticee.

SEBI’s stand on the same stands confirmed / clarified. 12 a) Copy of complaint letter received by FMC on Noticee states that NSEL letter dated 4.7.2012 (as mentioned in FMC order dated 24.7.2012 and 17.11.2012 and copy of 17.12.2013 on page No. 7, Para 6.4) and NSEL complaint letter dated 4.7.2012 was reply on the same dated 24.7.2012 and received by them. They have not 17.11.2012 and any other correspondence received the copy of FMC’s reply to between FMC and NSEL during this period. complainant. b) Copy of FMC’s reply to complaint letter dated SEBI states that the Enquiry report / 4.7.2012 SCN does not rely upon any such reply.

SEBI’s stand on the same stands confirmed / clarified. 13 In paragraph no. 45 of Enquiry Report page no. 58 Request for document mentioned in this it is mentioned that “The Noticee has also violated Point No. 13 is not pressed by the the provisions of the Code of Conduct (prescribed Noticee during the hearing. under Bye Laws 14.2.2, 14.2.3 and 14.2.5) Please give comment of auditor (page no.) or any document or evidence relied upon in making this allegation that we had violated the code of conduct 14.2.2, 14.2.3 and 14.2.5 of NSEL.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

14 In paragraph no. 61 of Enquiry Report, it is SEBI replied that copy of PPT and other mentioned that “the Noticee had indulged in making relevant documents was provided to the false / misleading presentation to the investors at Noticee. large” but there is no mention of which “presentation” is being relied upon in making this The Noticee contended that they did not allegation. make any PPT to mislead the clients. Please give the copy of such “presentation” or page number being relied upon for the allegation under SEBI states that a copy of email this para so as to enable us to suitably give our communication dated December 13, response on the same. 2012 to evidence the Noticee attaching and thereby endorsing the PPT prepared by NSEL to one of its clients and email dated May 30, 2012 forwarding a computation giving annualized yield to a client based on a paired contract have been already given to the Noticee. It is also stated by SEBI that the said e-mails and PPT are part of the copy of Auditor Report. The same was provided on August 28, 2017 and November 08, 2017 to the Noticee.

SEBI’s stand on the same stands confirmed / clarified.

In addition to the above, during the hearing, the Noticee has also further sought the following additional documents from SEBI:

Table No. 2 Sl. No. Documents/information sought Observations and Conclusion 1. A list of the names of all the other erstwhile member The Noticee contended that the brokers of the NSEL to whom Show Cause Notices rationale for seeking the same is to verify why they (5 brokers) have been Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

have to be issued by SEBI in respect of trading in pair singled out for regulatory action by contracts. SEBI as the allegations in the SCN are equally applicable to about 500 brokers also.

SEBI clarified to the Noticee that the selection of these 5 brokers was on the basis of objective criteria viz., based on 2 documents i.e. EOW report and NSEL complaint, copies of which were already provided to the Noticee.

SEBI’s stand on the same stands confirmed / clarified. 2. On what basis was it decided to conduct a forensic The Noticee submitted that the rationale audit against us? is the same as Sr. no. 1 above of this table. SEBI’s clarification is same as Sr. no. 1 above of this table. 3. A list of all erstwhile NSEL brokers who have been The Noticee submitted that the rationale granted registration as commodities brokers by SEBI is the same as Sr. no. 1 above of this together with details of the extent of pair contracts table. trading done by each of them in the NSEL. SEBI’s clarification is same as Sr. no. 1 above of this table. 4. A list of the names of erstwhile NSEL members who The Noticee submitted that the rationale have applied to SEBI for registration as is the same as Sr. no. 1 above of this commodities brokers, but whose application for table. registration is either kept in abeyance or has been SEBI’s clarification is same as Sr. no. 1 denied by SEBI and the reasons for the same. above of this table. 5. A list of the names of all the erstwhile NSEL member The Noticee submitted that the rationale brokers who had traded in pair contracts on the is the same as Sr. no. 1 above of this NSEL and their respective annual turnovers in such table. pair contracts from FY 2009-10 till FY 2013-14. SEBI’s clarification is same as Sr. no. 1 above of this table.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

6. a) A list of the clients / constituents against whom The Noticee submitted that the rationale proceedings have been initiated by SEBI for trading is the same as Sr. no. 1 above of this in pair contracts on NSEL. table. b) A list of clearing banks who cleared and settled the pair contracts transactions and against whom SEBI’s clarification is same as Sr. no. 1 proceedings have been initiated by SEBI for clearing above of this table. the trades in pair contracts on NSEL. c) Proceedings initiated against the statutory auditors of NSEL, if any. 7. A list of the defaulter brokers and clients of the NSEL The Noticee submitted that the rationale against whom proceedings have been initiated by is the same as Sr. no. 1 above of this SEBI for trading in pair contracts on the NSEL. table. SEBI’s clarification is same as Sr. no. 1 above of this table.

8. File notings and Inter office Memo / Note / Report SEBI is instructed to convey their stand relating to proposal and approval for Forensic audit with respect to the same. and issue of SCN to us. SEBI explained that file notings are for internal purpose and the cyrstalised decision to do audit and appointment of auditor and issue of SCN is already shared with the noticee in the form of SCN and communication of audit.

SEBI’s stand on the same stands confirmed / clarified. 9. Copies of replies/affidavits filed by SEBI in any High Noticee submitted that the said Court(s) in the context of any case related to NSEL. document is required to argue on the issue of Jurisdiction. SEBI is instructed to convey their stand with respect to the same. SEBI explained that the replies/affidavits filed by SEBI in any High Court have not been relied upon by the SEBI in the SCN.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

SEBI further states that the existence or absence of jurisdiction is determined only by statute.

SEBI’s stand on the same stands confirmed / clarified. 10. Annual Report of NSEL for the period from 2005-06 The Noticee submitted that the same is to 2012-13 required to see any mentioning by the Auditor with respect to the illegality of trading in paired contracts.

Noticee may obtain the copy of annual reports from ROC. Further, SEBI may give the document if available.

SEBI’s stand on the same stands confirmed / clarified. 11. A list of the complaints filed by investors / clients and The same goes to the issue of names of brokers against whom these complaints discrimination hence SEBI’s were made. clarification is same as Sr. no. 1 above of this table. 12. Names of the insurance companies and insured The Noticee contended that nobody amount under the insurance policies obtained by checked whether any goods are lying in NSEL in respect of its various accredited the warehouses. warehouses, as well as the amounts recovered from SEBI states that these facts are not such insurance companies. relied upon in the SCN against the Kindly also provide the reports of these insurance Noticee. companies before issuing the respective insurance policies and the subsequent survey reports made SEBI’s stand on the same stands when claims were lodged. confirmed / clarified. 13. Point 7.1.1 of FMC order refers to some alleged The Noticee contended that the same is Offer letter being given to the NSEL by the sellers in referred to in the FMC order which is the short term contracts. relied upon in the Enquiry Report. Further, the alleged offer letter refers to whether the goods are available in warehouses. Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

SEBI states that the said document was attached as exhibit-40 of Grant Thornton report. Further, Grant Thornton report and all exhibits attached to it was already provided to the Noticee.

SEBI’s stand on the same stands confirmed / clarified. 14. Minutes of meetings of the Board of Directors of SEBI may give the document if NSEL held on 19th December, 2009, July 18, 2011, available. 25th May, 2011, and 30th March, 2012.

………..”

16. With respect to the issue of jurisdiction, on the basis of documents available on record, it is observed that since the Noticee has applied to SEBI, for the purpose of granting registration to the Noticee to act as a commodity broker, SEBI has jurisdiction, inter alia, to determine whether the Noticee is a fit and proper person to act as a commodity broker. Further, the existence or absence of jurisdiction is determined by statute as the statute can vest or oust the jurisdiction and any representations or statements made by any party are not material to the arguments on jurisdiction. Thus, I am of the view that the Noticee is not disadvantaged in any way without access to additional documents/information in this regard.

17. With respect to the issue of discrimination, I note that, the following observations of the Hon’ble Supreme Court in the context of argument of discrimination to claim negative equality in Union of India and anr. vs. International Trading Co. and anr. (AIR 2003 SC 3983) dated May 07, 2003, would be squarely applicable to the facts of this case.

“……two wrongs do not make one right. A party cannot claim that since something wrong has been done in another case directions should be given for doing another wrong. It would not be setting a wrong right, but would be perpetuating another wrong. In such matters there is no discrimination involved. The concept of equal treatment on the logic of Article 14 of Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

the Constitution of India, 1950 (in short ‘the Constitution’) cannot be pressed into service in such cases. What the concept of equal treatment presupposes is existence of similar legal foothold. It does not countenance, repetition of a wrong action to bring both wrongs on a par. Even if hypothetically it is accepted that a wrong has been committed in some other case by introducing a concept of negative equality the respondents cannot strengthen their case. They have to establish the strength of their case on some other basis and not by claiming negative equality……”

18. While Hon’be Supreme Court has clearly laid down the non-availability of the above ground of discrimination to establish the strength of one’s case, even otherwise, when an argument of discrimination is advanced on the ground of violation of Article 14 of the Constitution of India, the same is in effect challenging the decision taken by SEBI in its administrative capacity to launch action against the Noticee. I consider that this quasi-judicial forum is not the right forum to test the decision, already taken by SEBI in its administrative capacity on this ground. Needless to say, Noticee has other appropriate forum for judicial review of administrative action of SEBI on the ground of perceived discrimination.

19. Without prejudice to paragraphs 17 & 18 above, with respect to the issue of discrimination, on the basis of documents available on record, it is noted that the stand taken by SEBI in selection of the 5 brokers (including Noticee) for initiating proceedings against them is that the selection was on the basis of two documents i.e. EOW report and NSEL complaints; and admittedly copies of both documents have been provided to the Noticee. It is also noted that, at the moment, qua the NSEL matter, no proceedings have been initiated against any other brokers (other than the 5 brokers) or any investors; however, needless to say, SEBI has the power to initiate any proceedings as it deems fit, if warranted at any point of time. Thus, I am of the view that given this unequivocal stand by SEBI, the Noticee has all the information it needs to make its representations qua the issue of discrimination and would not be disadvantaged in any way without access to additional documents/information in this regard.

20. During the hearing, the Noticee was advised to submit a revised list of documents required for inspection. In view of the same, the Noticee vide letter dated February 14, 2018 had submitted the revised list of documents and requested for inspection as well as the copies of said documents. It is noted that the Noticee was granted another opportunity of inspection of Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

documents on March 05, 2018. The Noticee had appeared for inspection scheduled on March 05, 2018. From the proceedings of inspection of documents dated March 05, 2018 and Table No. 1 & 2 mentioned above at paragraph 15, followings are noted:

(a) Copies of documents mentioned at Sr. No. 1 to 5 of Table no. 1 and Sr. No. 10, 14 of Table no. 2 were provided to the Noticee at the time of inspection held on March 05, 2018. (b) The stand of SEBI in respect to the documents mentioned at Sr. No. 6 to 14 of Table No. 1 and Sr. No. 8,9,12,13 of Table No. 2 is confirmed. (c) The documents mentioned at Sr. No. 1 to 7 & 11 of Table No. 2 leads to the issue of discrimination. The stand of SEBI on the issue of discrimination is discussed at paragraph 19 above. Accordingly the stand of SEBI in respect of said documents stands confirmed. (d) I note that yet again Noticee sought some more additional documents during the inspection on March 05, 2018. The additional documents which were not relied upon in the SCN were not provided to the Noticee by SEBI.

21. While discussing on the scope of right of fair hearing, in Kanwar Natwar Singh vs Directorate of Enforcement & Anr (MANU/SC/0795/2010), the Hon’ble Supreme court in its order dated October 05, 2010 reiterated that “…the right to fair hearing is a guaranteed right. Every person before an Authority exercising the adjudicatory powers has a right to know the evidence to be used against him. This principle is firmly established and recognized by this Court in Dhakeswari Cotton Mills Ltd. Vs. Commissioner of Income Tax, West Bengal [(1955) 1 SCR 941, MANU/SC/0073/1954]……”

22. The Hon’ble Supreme Court further held in its order dated October 05, 2010 passed in Kanwar Natwar Singh vs Directorate 0f Enforcement & Anr (MANU/SC/0795/2010) that “…even the principles of natural justice do not require supply of documents upon which no reliance has been placed by the Authority to set the law into motion. Supply of relied on documents based on which the law has been set into motion would meet the requirements of principles of natural justice”. “…Concept of fairness is not a one way street. The principles of natural justice are not intended to operate as roadblocks to obstruct statutory inquiries.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

Duty of adequate disclosure is only an additional procedural safeguard in order to ensure the attainment of the fairness and it has its own limitation.

23. I also note that Hon’ble Securities Appellate Tribunal (hereinafter referred to as “SAT”) made the observations of in the matter of Shri B. Ramalinga Raju v. SEBI (SAT order dated May 12, 2017, MANU/SB/0057/2017) …. “There can be no dispute that while determining the rights and obligations of the parties the quasi judicial authority must adhere to the principles of natural justice which inter alia, includes the obligation to furnish requisite documents on the basis of which charges are framed and permit cross-examination of the persons whose statements are relied upon ….”

24. I also note that the Noticee has placed reliance on the decision of the Hon’ble Supreme Court in case of SEBI v. Price Waterhouse (Civil Appeal No. 6003-6004 of 2012 decided on 10.01.2017). However, as regards the applicability of the said decision of Hon’ble Supreme Court to other cases in general, the following observations of Hon’ble SAT in the matter of Shri B. Ramalinga Raju v. SEBI (SAT order dated May 12, 2017, MANU/SB/0057/2017) are noteworthy:

“… Apex Court in case of Price Waterhouse has specifically recorded that the directions given in that case are general directions given as and by way of clarifications without going into the merits of the case. Therefore, directions given in the facts of Price Waterhouse cannot be said to be the ratio laid down by the Apex Court applicable to all other cases. In these circumstances, appellants are not justified in contending that the directions given by the Apex Court in case of Price Waterhouse must be applied to the case of the appellants.”

Thus, the observations of Hon’ble Supreme Court in the matter of SEBI v. Price Waterhouse being case specific in nature, cannot be applied to the facts of the present case. In view of the above facts, circumstances and observations of Hon’ble SAT, I am not inclined to accede to the request of Noticee for grant of inspection of all the documents collected during examination as the relied upon documents have already been granted in consonance with the principles of natural justice.

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

25. Thus, upon consideration of the submissions of the Noticee, I note that Noticee has availed various opportunities of inspection of documents and has already obtained the copies of various documents from SEBI as outlined above and hence I am of the view that a fair opportunity to defend the case has thereby been granted to the Noticee by way of granting inspection of documents. However, it is noted that till date Noticee has not submitted any reply on merits of the allegations specified in the SCN relying on those documents of which they have already taken inspection.

26. I note that till now approximately 13 months have lapsed since the issuance of SCN and approximately 8 weeks have passed since the last inspection, the Noticee has neither submitted its reply on merit nor attended any hearing on merit. I am of the view that, if the Noticee does not submit its reply on merits in the matter within the time limit specified at paragraph 30 of this order or requests additional time to submit its reply on merits or if the Noticee does not appear on the date of hearing mentioned at paragraph 30 of this order or requests continuously for adjournment of hearing, then from now onwards such requests of time and adjournment can only be seen as dilatory tactics of the Noticee.

27. I note that the issue of jurisdiction and discrimination is discussed at paragraphs 16 and 19 above respectively. From paragraph 20, I note that pursuant to the hearing, SEBI had granted another opportunity of inspection to the Noticee and at the time of inspection copies of documents mentioned at para 20(a) were provided to the Noticee. I also note that SEBI had confirmed its stand in respect of documents mentioned at para 20(b) and 20(c). I am of the view that Noticee is not disadvantaged in any way without access to additional documents / information.

28. In summary, I am of the view that the Noticee has already been provided with all the relevant documents and clarifications which enable the Noticee to submit its defence in the present proceedings.

29. As a normal practice, the outcome on the issues of inspection is addressed by way of administrative notices/letters sent by SEBI. If formal orders are to be passed on every objection/issues raised by each Noticee in every proceeding, it will ultimately result in a multiplicity of orders in one and the same proceeding and further result in delay of dispensation of justice and also clog-up the quasi-judicial and appellate forum with Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)

unwarranted litigations. This will become a tool in the hands of entities who may not have substantive submissions to make on merit and seek to delay and wriggle out of rigors of timely enforcement action by raising such pleas with the intention of delaying final adjudication of the case on merits. Thus, I am of the opinion that this order should not be cited as a precedent in every matter where inspection is sought by parties. This order is passed to clarify expressly the stand in this matter.

30. Thus, in the interest of conclusion of the proceedings initiated vide SCN dated April 24, 2017, I direct the Noticee to submit its reply on merit within a period of 4 weeks from the date of this order and to appear for a personal hearing on merits on July 12, 2018 at 11:00 A.M., Head Office, Mumbai. If the Noticee opts not to submit a reply on merits or appear for the personal hearing on merits on the scheduled date or do both, then, in the interest of justice and to avoid any further delay in bringing the present quasi-judicial proceedings to its logical conclusion, the proceedings on merits shall proceed ex-parte on the basis of material available with SEBI.

31. A copy of this order may be served on the Noticee by e-mail/ speed-post/hand-delivery immediately.

Date: JUNE 06, 2018 MADHABI PURI BUCH Place: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

Order in respect of Phillip Commodities India Pvt. Ltd. (Formerly known as MF Global SIFY Securities India Ltd.)