Sebi orders quasi-judicial,can be appealed in the legal process, say experts

In the co-location matter and related issues, this was the latest among other orders that Sebi whole-time members and adjudicating officers have passed since April 2019. Five orders have been passed under Sections 11 and 11B of the SEBI Act — which empower Sebi to issue directions in order to protect investor interest — taking action against 47 entities. Adjudication proceedings have been initiated in respect of 65 entities.

The cases relate to preferential access to tick-by-tick (TBT) data feed to certain trading members, peer-to-peer (P2P) connectivity through dark fibre, and alleged lapses in corporate governance.

According to sources, the orders are quasi-judicial in nature and can be appealed in the legal process. But several of them are pending with the  Securities Appellate Tribunal (SAT) since May 2019.

In the matter of NSE co-location:

○ Sebi order, April 30, 2019:

The order directed NSE to disgorge Rs 624.89 crore along with interest at the rate of 12 per cent from April 2014 onwards. It also directed Ramkrishna and Ravi Narain, her predecessor as NSE CEO, to disgorge 25 per cent of the salary drawn for relevant years to Sebi’s Investor Protection and Education Fund (IPEF), and prohibited them from associating with a listed company or market infrastructure institution or intermediary for five years.

○ SAT order, May 22, 2019: SAT directed NSE to deposit Rs 624.89 crore with Sebi, which NSE did. On May 17, 2021, SAT passed another order where it continued with the 2019 interim order on account of pendency of investigation being conducted by the respondents. SAT also allowed NSE to close the escrow account, subject to deposit of Rs 420 crore with Sebi.

○ Present status: Reserved for order.

In the matter of dark fibre/ leased line connectivity allowed to certain stock brokers by NSE:

○ Sebi order, April 30, 2019: NSE was directed to deposit Rs 62.58 crore. Ramkrishna and Subramanian were barred from holding any position in management or board, or to be associated with any stock exchange or any intermediary registered with Sebi for three years. Some key NSE officials, including Ravi Varanasi, were barred from holding any position in any Sebi registered intermediary for two years. Way2Wealth brokers and GKN Securities were ordered to disgorge Rs 15.34 crore and Rs 4.9 crore, respectively.

○ SAT order, May 22, 2019:

NSE was directed to transfer Rs 62.58 crore from escrow account to Sebi. Stay was granted vide SAT orders dated May 6, 2019 and June 6, 2019 in orders relating to Way2Wealth and GKN securities.

○ Next date of hearing: April 18, 2022.

In the case of NSE-corporate governance in respect of Ajay Shah and others:

○ Sebi order, April 30, 2019:

Sebi directed Ajay Shah, who was named in the co-location scam, to not hold any position in the management or board of any stock exchange, depository, or Sebi registered intermediary for two years. Similar curbs were put on Infotech Financial Services, Sunita Thomas, and Suprabhat Lala, among others.

○ SAT order, May 7, 2019:

The order stayed operation of the Sebi order.

○ Next date of hearing: April 18, 2022.

In the matter of NSE corporate governance:

○ Sebi order, April 30, 2019: NSE was directed to take necessary legal action against Ajay Shah, Infotech Financial Services, and Sunita Thomas among others for violating the ‘Professional Service Agreement’, and for misusing data available to them. NSE was also directed to review all third party agreements having a data sharing component from 2009 onwards, and take legal action where warranted. Sebi also barred Narain and Ramkrishna from board or management positions for three years.

○ SAT orders, June 6, June 14, and July 9, 2019: Operation of Sebi order stayed.

○ Next date of hearing: April 18, 2022.

In the matter of OPG Securities:

○ Sebi order, April 30, 2019: Sebi prohibited OPG Securities from accessing the securities market and from buying, selling or dealing in securities in its proprietary accounts for five years, and directed it to not take new clients for a year, and to disgorge Rs 15.57 crore. The order also prohibited Sanjay Gupta and other individuals from accessing the securities market and dealing in it for 5 years.

○ SAT order, May 6, 2019: Stayed operation of Sebi order.

○ Present Status: Reserved for order.

Adjudication orders:

○ On February 10, 2021, matter of NSE co-location: Sebi imposed a penalty of Rs 1 crore on NSE and Rs 20 lakh each on Narain and Ramkrishna. On April 21, 2021, SAT stayed the operation of Sebi’s order. The next date of hearing is April 18, 2022.

○ On February 11, 2021, matter of NSE co-location: Sebi imposed penalty of Rs 5 crore jointly on OPG Securities, Sanjay Gupta, O P Gupta, and Sangeeta Gupta. On May 19, 2021, SAT stayed operation of the order if the appellants deposited Rs 2.5 crore. The next hearing is on April 18, 2022.

Legal options

Legal experts say, orders that have been passed by Sebi can be appealed and challenged at SAT and then in the Supreme Court. “Other enforcement agencies are also investigating the matter and they too can take action in the matter as per their mandate. CBI has been investigating the case since 2018 too and it remains to be seen as to what comes out of their investigation,” said a legal expert closely following the case.