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2015 (7) TMI 299 - AT - Companies LawDeclaration as a defaulter - Whether the Committee on declaration of Default of National Securities Clearing Corporation Limited (NSCCL) is justified in declaring the appellant to be a defaulter under Bye Laws 1(1), 1(2) & 1(4) of Chapter XI of the Bye Laws of NSCCL (F&O) Segment - Defaulter in the capital market segment - Held that - Admittedly, the appellant has not discharged that settlement shortfall obligation till date even though NSCCL has discharged that obligation by making payment to counter parties out of its own profits and its accumulated reserves in accordance the Bye-Laws, Rules and Regulations of NSCCL. Thus, the appellant who became defaulter on January 1, 2013 due to failure to make good the margin shortfall, further defaulted in making good the settlement shortage that occurred during March and June 2013 settlement, and the appellant continues to be defaulter as the appellant has failed and neglected to reimburse the settlement shortfall of ₹ 91,49,72,804.51 which is paid by NSCCL to third parties for and on behalf of the appellant. Argument of the appellant that the securities once accepted under the prevailing norms cannot be made ineligible by revising the norms is without any substance, because it is the duty of NSE/NSCCL to constantly monitor the dealings on the Exchange and take suitable steps to preserve the market integrity, if necessary, by amending the prescribed norms. In the present case, even after revising the norms, considerable time was given to the concerned parties to get acclimatized with the revised norms and in fact several meetings were also held in that behalf between the appellant and NSE/NSCCL. Although the said settlement shortfall was brought down to ₹ 3,77,79,826.89 by adjusting the cash collaterals/ adjustment of FDR s etc, it is an admitted fact that on expiry of rolled over contracts in June 2013, there was once again settlement shortfall to the tune of ₹ 91,01,08,825/-. Thus, the cumulative settlement shortfall rose to ₹ 94,78,88,651.89. As a result of further adjustments made by NSCCL the outstanding settlement shortfall stood reduced to ₹ 91,49,72,804.51. As the appellant failed to discharge that liability, NSCCL was obliged to discharge that liability by paying ₹ 91,49,72,804.51 to third parties from its own profits and the accumulated reserves and settle the trades of the appellant. Admittedly, the appellant has failed to reimburse that amount to NSCCL till date. In these circumstances, no fault can be found with the decision of the Committee in declaring the appellant to be a defaulter under the Bye Laws framed by NSCCL in the F&O Segment. - Decided against the appellant.
Issues Involved:
1. Whether the Committee on Declaration of Default of NSCCL is justified in declaring the appellant a defaulter under Bye Laws 1(1), 1(2), and 1(4) of Chapter XI of the Bye Laws of NSCCL (F&O Segment). Detailed Analysis: 1. Justification of Declaration of Default: The basic dispute is whether the Committee on Declaration of Default of NSCCL is justified in declaring the appellant to be a defaulter under Bye Laws 1(1), 1(2), and 1(4) of Chapter XI of the Bye Laws of NSCCL (F&O Segment). The relevant Bye Laws state that a clearing member may be declared a defaulter if they are unable to fulfill their clearing, settlement, or obligations, admit or disclose their inability to fulfill or discharge their duties, obligations, and liabilities, or fail to pay any sum due to the Clearing Corporation as prescribed. 2. Margin Shortfall and Settlement Shortfall: The appellant admitted to a margin shortfall of Rs. 92,08,16,556.95 as on January 1, 2013, due to ineligible securities. The settlement shortfall as of March 2013 was Rs. 158.04 crore, which was reduced to Rs. 3,77,79,826.89 by adjusting the appellant's fixed and cash deposits. By June 2013, the cumulative settlement shortage was Rs. 94,78,88,651.89, which was later reduced to Rs. 91,49,72,804.51. The appellant failed to discharge this settlement shortfall obligation, which NSCCL had to cover from its own profits and reserves. 3. NSCCL's Obligation to Sell Pledged Shares: The appellant argued that NSCCL's failure to sell all 20 lac pledged shares of Gitanjali between March 19, 2013, and March 22, 2013, led to continued margin shortfall. However, the Tribunal found no merit in this argument, stating that NSCCL was not legally bound to sell the shares within a specific time frame and had the discretion to decide the timing of the sale. Additionally, selling a large quantity of shares could have adversely affected the market price. 4. Complaints and EOW Investigation: On March 18, 2013, NSCCL received complaints from Sarvin and Trusha alleging that the appellant had illegally parked 20 lac shares of Gitanjali with NSE. Despite these complaints, NSCCL sold some shares but stopped abruptly on March 22, 2013, possibly anticipating follow-up action by EOW. The EOW later requested NSCCL to withhold the shares, and the Bombay High Court and Apex Court intervened, restraining NSCCL from dealing with the shares until the criminal complaints were investigated. 5. Revised Prudential Norms: The appellant's argument that securities once accepted under prevailing norms cannot be made ineligible by revising the norms was rejected. The Tribunal noted that NSE/NSCCL has the duty to monitor dealings and preserve market integrity, which may necessitate revising norms. The revised norms were communicated well in advance, and sufficient time was given for compliance. 6. Fiduciary Responsibility and Communication: The appellant contended that NSCCL acted in disregard of its fiduciary responsibility by not keeping the appellant informed about the developments with EOW. The Tribunal found this argument devoid of merit, noting that the appellant was aware of the complaints and did not address NSCCL to ignore them and sell the shares immediately. 7. Pending Suit for Damages: The appellant's pending suit in the Bombay High Court claiming damages from NSE/NSCCL does not affect the Committee's decision to declare the appellant a defaulter. The Tribunal emphasized that actionable claims against NSCCL would only arise if the suit is decreed in the appellant's favor. 8. Procedural Fairness: The appellant's claim that the impugned order was based on statements of facts not put to them was dismissed. The Tribunal noted that the appellant had admitted to the margin and settlement shortfalls in various letters and had failed to discharge the settlement shortfall obligation. Conclusion: The Tribunal found no merit in the appeal and dismissed it, upholding the decision of the Committee on Declaration of Default of NSCCL in declaring the appellant a defaulter under the Bye Laws of NSCCL (F&O Segment). The Miscellaneous Application No. 117 of 2013 was also disposed of accordingly.
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