Co-location case: SAT sets Sebi’s payback order aside

In its order, SAT pulled up the market regulator, asking, “how SEBI directed NSE to conduct an investigation against itself.”

The tribunal also directed NSE to deposit Rs 100 crore to the Investor Protection and Education Fund (IPEF) created by the SEBI. The amount will be adjusted by the capital markets regulator from the deposits already made by NSE in 2019 and 2021, the order read.

“The excess amount along with interest accrued shall be refunded by the SEBI within six weeks,” the tribunal said.

“The direction to disgorge 25 per cent of the salary from Ravi Narain and Chitra Ramkrishna is set aside. The direction prohibiting Narain and Ramkrishna from associating with any listed company or a market infrastructure institution or any other market intermediary for a period of five years is set aside and substituted for the period undergone by them,” SAT said.

“In our opinion, considering the gravity of the alleged charges, SEBI should have itself conducted an investigation/enquiry instead of delegating it to NSE to conduct an investigation,” SAT said. “It is strange and it does not stand to reason as to how SEBI directed NSE to conduct an investigation against itself. It is clear that a casual approach was adopted,” SAT said.

The co-location scam refers to giving preferential access to NSE’s trading platform to high-frequency traders and brokers.

In April 2019, Sebi had directed NSE to disgorge Rs 624.89 crore along with interest at the rate of 12 per cent per annum from April 1, 2014 onwards to IPEF. SAT further said quashed the SEBI’s direction of prohibiting Narain and Ramkrishna from associating with any listed company or a market infrastructure institution or any other market intermediary for a period of five years is set aside and substituted for the period undergone by them. The order upheld the SEBI’s direction to NSE for initiating inquiry against its employees.

The tribunal said violations committed by OPG as found by SEBI is affirmed. However, the direction of the markets regulator directing OPG and its directors to disgorge Rs.15.57 crore along with interest at the rate of 12 per cent from April 7, 2014 onwards is set aside.

The matter, SAT order said, is remitted to SEBI to decide the quantum of disgorgement afresh. It gave four months’ time to the market regulator for calculation.

“We find that all the charges levelled in the show cause notice has not been proved. Many of the charges were dropped by the WTM (Sebi Whole-time Member) himself while passing the impugned order. The WTM held that the charge of fraud and unfair trade practice by NSE under PFUTP Regulation is not made out,” SAT said.
The charge that NSE and its employees have colluded with TMs, especially OPG has not been made out. The allegation of suppression of material facts and non-cooperation by NSE with the investigating authorities has not been made by the WTM, it said.

“Even though NSE has not indulged in any unethical act or has unjustly enriched itself, the direction to disgorge, in our opinion, cannot be sustained,” SAT said.
However, NSE has not adhered to its own norms and guidelines and has not followed the circular. The SCRA Act confers a large responsibility upon the exchange to ensure that undesirable transactions do not take place, it said.