SEBI Order Against 5 Brokers Set Aside By Securities Appellate Tribunal In NSEL Case

Setting aside a Securities and Exchange Board of India (SEBI) order that declared five brokerage houses as not a "fit and proper person" in the NSEL case, the Securities Appellate Tribunal (SAT) has directed the regulator to decide the matter afresh within six months..The five brokers are - IIFL Commodities, Geofin Comtrade, Anand Rathi Commodities, Philip Commodities India and Motilal Oswal Commodities Broker..The appeals were filed by the brokers whereby their applications for registration as commodity brokers were rejected on the ground that they were not a "fit and proper person" to hold registration certificates..The brokers challenged SEBI orders before the SAT, which was also approached by the NSEL (National Spot Exchange Ltd) which called itself an affected party and alleged that the regulator had failed to consider all the allegations and material in its complaint against brokers..In 2019, the capital markets regulator passed orders against these brokers in the NSEL case, declaring they were "not fit and proper" to continue as a commodity brokers..The brokers faced SEBI's action for trading in so-called prohibited paired contracts. These orders followed a report from the EOW (Economic Offences Wing )and complaints filed by NSEL against the brokers..In its order passed on June 9, the appellate tribunal said "the impugned orders passed by the WTM (whole time member) against the brokers cannot be sustained and are quashed. The appeals of the brokers are allowed".."The adverse observations or findings against the appellants in the impugned orders are expunged and will not be utilised against NSEL in any court of law or before any authority," SAT noted..It, further, directed SEBI to decide the matter afresh within six months after giving an opportunity of hearing to the brokers..In addition, SAT allowed the appeals of NSEL..It, further, said observations and findings given by SEBI which is adverse to NSEL cannot be sustained especially when no notice or opportunity of hearing was provided..The tribunal noted that adverse observations have been made ex-parte against NSEL's reputation and character. These adverse observations have been made against NSEL in which NSEL is not a party to these proceedings..SEBI, in its orders passed in 2019, observed that the brokerage firms were indulged in the so-called illegal paired contracts on the NSEL trading platform, which violated the norms of the Forward Contract Regulation Act (FCRA)..It was also alleged that the five brokers had indulged in illegal activities such as funding of clients by way of PAN lending, name lending through their NBFC and other related entities and that funding was totally disproportionate to the networth and income level of these clients..Also, it was alleged that the brokers have misused their in- house NBFC and have funded clients who have no capacity to take such exposure..In July 2013, NSEL was barred from launching any fresh contracts after it was found that it allowed paired contact on its platform, which were violating FCRA and the terms on which NSEL was granted registration as a spot exchange. As a result, the exchange was unable to meet its settlement obligations of around Rs 5,600 crore to nearly 13,000 investors.

SEBI Order Against 5 Brokers Set Aside By Securities Appellate Tribunal In NSEL Case

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