TMI Blog2024 (1) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... not inform the CDSL on any position it should be taking on such compliances. In such context, as informed to us by Respondent No. 2/Mr. Sancheti, learned senior counsel for SEBI that once the SEBI had prescribed the requirements under the said regulations, the compliance was an issue between the CDSL and its participants on which SEBI would not have any control. Thus prima facie we find much substance in the contentions as urged on behalf of the petitioners that petitioners being put to a notice by the CDSL for compliance to be submitted in terms of what was recorded in the letter dated 24 February, 2023 as noted by us hereinabove, which the petitioners complied by submitting a Net Worth Certificate on 20 April, 2023. Such a certificate was not rejected by CDSL even on the ground that it is not based on audited accounts. On behalf of the petitioners, it is stated that in fact it was issued only after an audit. Prima facie, we find much substance in the contentions as urged on behalf of the petitioners and wonder whether the petitioner could have been foisted with termination and more particularly considering the decision the respondent had taken in its letter dated 24 F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DSL, the termination is in lieu of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 (for short the 2018 Regulations ) and more particularly the amendment brought about to the said 2018 Regulations with effect from 23 February, 2022 to Regulation 35 by insertion of a proviso inter alia in regard to a stock broker requiring to have a net worth of Rs. 3 crores within one year from the date of notification of the 2022 amendment to the 2018 Regulations, which reads thus:- Consideration of application for grant of certificate of registration 35. For the purpose of grant of certificate of registration, the Board shall take into account all matters which are relevant to or relating to the efficient and orderly functioning of a participant and in particular, whether the applicant complies with the following requirements, namely : (a) the applicant belongs to one of the following categories, (i) a public financial institution as defined in section 2(72) of the Companies Act, 2013; (ii) a bank included for the time being in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934); (iii) a foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rement from the petitioners by 24 April, 2023: You are further advised to submit the net worth certificate (duly certified by your Statutory Auditors or a practicing Chartered Accountant) based on audited financials as on any date after 31st March, 2022 indicating the minimum required net worth by April 24, 2023 failing which we shall be constrained to take any action against the DP as may be directed by the Member Committee. (emphasis supplied) 6. Learned counsel for the petitioners would submit that the compliance of the requirements of the SEBI on the minimum turnover was thus required to be achieved by the petitioners on the CDSL s own communication on or before 24 April, 2023. It is submitted that CDSL Bye-laws are approved by the SEBI. In such Bye-laws, Clause 5.5 provide for Termination, Suspension and Withdrawal , under which Clause 5.5.1 pertains to Termination by CDSL . It is submitted that there is a specific power which is reserved with respondent no. 1-CDSL and as set out in the proviso to bye-law 5.5.1.1.18 to the effect that respondent no. 1 may consider it fit and proper in the facts and circumstances of any case, before issuing the show cause not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking on such compliances. In such context, it is informed to us by Mr. Sancheti, learned senior counsel for SEBI that once the SEBI had prescribed the requirements under the said regulations, the compliance was an issue between the CDSL and its participants on which SEBI would not have any control. 10. In the above circumstances, prima facie we find much substance in the contentions as urged on behalf of the petitioners that petitioners being put to a notice by the CDSL for compliance to be submitted in terms of what was recorded in the letter dated 24 February, 2023 as noted by us hereinabove, which the petitioners complied by submitting a Net Worth Certificate on 20 April, 2023. Such a certificate was not rejected by CDSL even on the ground that it is not based on audited accounts. On behalf of the petitioners, it is stated that in fact it was issued only after an audit. 11. Prima facie, we find much substance in the contentions as urged on behalf of the petitioners and wonder whether the petitioner could have been foisted with termination and more particularly considering the decision the respondent had taken in its letter dated 24 February, 2023, by which also a legiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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