2019 (8) TMI 1307 - SC - SEBI

Conversion/sale/ encashment of the mutual funds - Interim protection with regard to payment under the option contract may be granted till the first hearing by the Appellate Authority - HELD THAT - The National Security Clearing Corporation Limited will honour F O Segment contract which had matured on 27th June, 2019 and has not been paid in view of the interim order passed by this Court 2019 (6) TMI 1388 - SUPREME COURT The interim order is vacated, clarifying that the payments would be without prejudice to the rights and contentions of all the parties and subject to the final outcome and directions that this Court would pass. Option is given to Novjoy Emporium Private Limited, OCL India Limited and Dalmia Cement East Limited to ask for conversion/sale/ encashment of the mutual funds which were purportedly furnished as a security by Allied Financial Services Private Limited. Similar option is also given to 44 parties who had preferred Appeal 2019 (6) TMI 1386 - SECURITIES APPELLATE before the Securities Appellate Tribunal, Mumbai. On the option being exercised, IL FS Securities Services Limited shall convert/encash the mutual funds, and the amount realised would be deposited in a fixed deposit in a Nationalised Bank for a period of six months to earn maximum interest. The deposit would be in the name of IL FS Securities Services Limited and abide by further orders/directions of this Court. The question of jurisdiction of Securities and Exchange Board of India, Securities Appellate Tribunal and the plea of IL FS Securities Services Limited relying upon clause(5) of Chapter VII of the Bye-Laws framed by the National Security Clearing Corporation Limited are left open and would be decided at the time of final hearing.

Summary

Issues:
1. Honoring of F & O Segment contract payment
2. Conversion/sale/encashment of mutual funds as security
3. Deposit of realized amount in a fixed deposit
4. Jurisdiction of regulatory bodies and interpretation of bye-laws

Analysis:
1. The Supreme Court granted permission to file an appeal and issued interim directions regarding the payment of a matured F & O Segment contract. The National Security Clearing Corporation Limited was directed to honor the contract that had matured on a specific date and had not been paid due to an interim order. The Court clarified that the payments should be made without prejudice to the rights of the parties involved and subject to the final outcome of the case.

2. The Court provided an option to certain entities to convert/sell/encash mutual funds that were provided as security by a specific party. This option was extended to additional parties who had appealed before the Securities Appellate Tribunal in a related matter. Upon exercising the option, IL & FS Securities Services Limited was directed to convert/encash the mutual funds, with the realized amount to be deposited in a fixed deposit in a Nationalized Bank for a specified period to earn maximum interest.

3. Regarding the deposit of the realized amount, the Court mandated that the deposit be made in the name of IL & FS Securities Services Limited and be subject to further orders or directions from the Court. The fixed deposit was to be held for a period of six months, ensuring that the amount earned maximum interest during this time.

4. The judgment left open the question of the jurisdiction of regulatory bodies such as the Securities and Exchange Board of India and the Securities Appellate Tribunal. Additionally, the plea of IL & FS Securities Services Limited, based on a specific clause of the Bye-Laws framed by the National Security Clearing Corporation Limited, was also left to be decided at the final hearing. The matters were scheduled to be listed after four weeks for further proceedings and clarification on these issues.