9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (1) TMI 1022 - HC - SEBITermination of petitioner as a Depository Participant of CDSL Central Depository Services - Requirement of meeting the net worth and minimum turnover - petitioners being required to have a turnover of Rs. 3 crores as not adhered - According to CDSL, the termination is in lieu of SEBI-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 - HELD THAT - We are of the opinion that respondent no. 1 itself was in some state of uncertainty as to whether the consequence of noncompliance of regulations of the SEBI would entail a consequence as foisted on the petitioners. CDSL in such regard, had infact approached the SEBI, however, the SEBI did 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 February, 2023, by which also a legitimate expectation was created in the petitioners to achieve the compliance by 24 April, 2023. CDSL could not have turned around and then shown the rule book to the petitioners, after having granted such opportunity in its letter dated 28 February, 2023 providing time to the petitioners to achieve compliance by 24 April, 2023. In our opinion, such course of action as adopted by CDSL was in fact in consonance of its bye laws which we have noted hereinabove. SEBI mandated such compliance but compliance of such a nature, namely of a turnover, in our prima facie opinion cannot amount to compliance of such fundamental nature that a participant needs to instantly lose its right to do business as permitted by a registration as granted by respondent no. 1, when it otherwise acts in accordance with all the legal requirements, this more particularly when about 700 participants of the petitioners would suddenly be in a limbo. All the aforesaid issues would require examination at the final hearing of the petition. We, accordingly, feel it appropriate to admit the petition. Hence, Rule. Respondents waive service. Pending the hearing and final disposal of the petition, the impugned order of termination dated 10 November, 2023 as confirmed by the appellate order dated 8 January, 2024 shall remain stayed.
Issues Involved:
The issues involved in this case are the termination of the petitioner as a Depository Participant by Central Depository Services (India) Ltd. (CDSL) based on the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018, specifically the amendment to Regulation 35 regarding the net worth requirement for stock brokers. Details of the Judgment: Issue 1 - Termination of Depository Participant Status: The petitioners challenged the termination of their status as a Depository Participant by CDSL, citing compliance issues with the net worth requirement under the 2018 Regulations. CDSL claimed that despite repeated notices, the petitioners failed to meet the turnover requirement of Rs. 3 crores, leading to the termination. Issue 2 - Compliance and Arbitrary Action: The petitioners contended that they had complied with the turnover requirement by submitting a "Net worth Certificate" from a Chartered Accountant certifying a turnover exceeding Rs. 3 crores. They argued that the termination was arbitrary and disproportionate, as they had fulfilled the necessary compliance within the stipulated timeline provided by CDSL. Issue 3 - Regulatory Interpretation and Due Process: The High Court observed that CDSL itself was uncertain about the consequences of non-compliance with SEBI regulations and had sought clarification from SEBI. The Court noted that the petitioners had a legitimate expectation of compliance based on CDSL's communication, creating confusion regarding the termination decision and the subsequent show cause notice issued by CDSL. Conclusion: The Court found merit in the petitioners' contentions and stayed the termination order pending final disposal of the petition. Additionally, interim relief was granted to allow the petitioners to continue their operations as a Depository Participant without restrictions. The Court directed the respondents to recall any emails sent to the petitioners' clients and allowed for further pleadings and applications as necessary in the case.
|
