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Sebi plans Supreme Court move against tribunal order in co-location matter

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On Monday, SAT set aside Sebi’s Rs 624 crore disgorgement order against the National Stock Exchange (NSE).

The Securities and Exchange Board of India (Sebi) is likely to appeal against the order by the Securities Appellate Tribunal (SAT) in the co-location matter in the Supreme Court.

The regulator may seek expungement of remarks against it such as “slow approach”, “placing a protective cover”, according to people in the know. “The judgment may nudge the regulator to introspect and put its house in order,” said Sumit Agrawal, founder, Regstreet Law Advisors.

On Monday, SAT set aside Sebi’s Rs 624 crore disgorgement order against the National Stock Exchange (NSE). SAT said the allegations against NSE were serious and the market regulator should have been more proactive in its approach. It said Sebi had adopted a slow approach and was placing a protective cover over NSE’s alleged misdeeds. “It is only when questions were placed on the floor of the Parliament that Sebi woke up and instituted an investigation,” the tribunal observed in its 235-page order.

“SAT has frowned upon Sebi for not conducting its own investigation, considering the gravity of charges involved in this case. Going forward, Sebi would be expected to carry out its own investigations as opposed to relying on the investigation or finding of third parties, especially in a case where the investigation is being carried out by the very party that is alleged to be the wrong doer,” said Nirav Shah, partner, DSK Legal.

SAT also set aside the direction to disgorge 25% salary of Ravi Narain and Chitra Ramkrishna, founder members and former chiefs of the NSE. The tribunal found contradictions in two separate orders passed by the same whole time member on the same date: one against NSE, Narain and Ramkrishna, and the other against OPG Securities.

According to Agrawal, SAT has in the past consistently held that not every erring entity could be held liable for disgorgement. Only those who have made illegal gains could be asked to disgorge their ill-gotten profits.

“Since the Sebi order does not compute the ill-gotten profits, SAT considered disgorgement from salary not in accordance with law. The disgorgement was set aside recently in many instances including the Kirloskar matter and Pia Johnson of Indiabulls,” said Agrawal.

This is not the first time that Sebi has attracted strong remarks from the SAT.

SAT recently pulled up the regulator for a delay of 12 years in issuing a show-cause notice to an alleged offender and termed the same as ‘judicial dishonesty’.

“Going by the statistics, the majority of Sebi’s orders have been upheld by SAT. At the same time, SAT does not shy away from reprimanding Sebi and has, on various occasions, displayed dissatisfaction due to gross negligence and judicial dishonesty shown by Sebi. There have been instances where SAT has called it “callous attitude on Sebi’s part”. In the present case too, SAT’s observation about Sebi passing orders without application of mind is evident,” said Shivani Bhushan, senior associate at TAS Law. The number of new appeals filed against Sebi before SAT stood at 780 at the end of FY22, 43% higher than the previous year and 138 of these appeals were ruled against Sebi.