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2024 (2) TMI 1028 - HC - SEBIExit Policy of SEBI - letter issued by SEBI calling upon CSE Calcutta Stock Exchange to apply for voluntary exit - Exit policy of SEBI in consonance with the provisions of the SCR Act Securities Contracts (Regulation) Act or not? - Was the CSE obliged to apply for continuance of its clearing house business in terms of the SECC Regulations, 2012 ? - Whether steps towards compulsory withdrawal of recognition of CSE suffer from a jurisdictional error and violation of the principles of natural justice HELD THAT - In the circular issued by the SEBI, it has been stated that the same has been issued in exercise of powers conferred under Section 11(1) and 11(2) (j) of the SEBI Act, 1992 read with Section 5 of the SCR Act to protect the interest of investors in securities and to promote the development of and to regulate the securities market. Thus, it is clear that the circular has been issued with a particular object and in exercise of the statutory power conferred on the SEBI as a statutory authority. It has a force of law and is binding to all the stock exchanges in the country. In the said conspectus, we are unable to accede to Appellants s argument that Exit policy of SEBI is not in consonance with the provisions of the SCR Act. Regulations such as those which have been framed by the SECC Regulations, insofar as they define the conditions for recognition, of minimum net worth, composition of the board of directors, dispersal of ownership and norms for governance, do not infringe any legal right of the stock exchange. The challenge is, therefore, lacking in substance. Nothing has been indicated before the Court to establish that the determination of the threshold or the manner of its computation is untenable and is so disproportionately high so as to constitute the very negation of the right to carry on business. CSE cannot be accused of any offence or wrongdoing. It is a question of existence of an institution which had operated for more than a century and thereafter it was not being able to conduct its business due to mandatory imposition of a condition towards having a turnover of Rs. 1000/- crore on continuous basis and to set up a separate clearing corporation or tie with an existing recognized clearing corporation. Such circumstances may not warrant a zero-tolerance approach moreso when the terms and conditions for compulsory derecognition are yet to be specified by SEBI. Judiciary has a strong sense of justice and it works to maintain social justice and fairness as distinguished from misplaced sympathy. In the peculiar facts and circumstances of the case and though we are not inclined to interfere with the order impugned, we are left with an avenue to issue necessary direction on the basis of the findings of the learned Single Judge as regards the fourth issue which has been answered in the affirmative, in favour of SEBI and against CSE. Disengaging ourselves from the logjam, we direct that CSE would be at liberty to establish a clearing corporation in compliance with the provisions of SECC Regulations, 2012 or to tie up with another clearing corporation eligible to clear trades as per SECC Regulations, 2012 to achieve the prescribed net worth within a period of six months from date. In the event CSE fails to do so, SEBI would be free to take necessary steps thereafter, in accordance with law. With the above observations and directions, the appeals and all connected applications are disposed of.
Issues Involved:
1. Whether the Exit Policy of SEBI promulgated by the circular dated May 30, 2012 is in consonance with Section 5 of the SCR Act, 1965. 2. Was the CSE obliged to apply for continuance of its clearing house business in terms of the SECC Regulations, 2012. 3. Is the procedure undertaken by SEBI to close down the clearing house business of CSE vitiated by the breach of the principles of natural justice. 4. In the facts of this case, is SEBI justified in taking steps to make CSE exit the market compulsorily. Summary: Issue 1: Consonance of SEBI's Exit Policy with Section 5 of the SCR Act, 1965 The court upheld that SEBI's Exit Policy, requiring a turnover of Rs. 1000 crore for stock exchanges to avoid compulsory exit, is justified and based on the Bimal Jalan Committee's recommendations. The policy was deemed neither arbitrary nor capricious and was aimed at protecting investors and regulating the securities market. The policy applies to all stock exchanges in India, not just CSE. Issue 2: Obligation of CSE under SECC Regulations, 2012 The court observed that the second proviso to Regulation 3 of the SECC Regulations required existing clearing houses to apply for continuance of their business. CSE had to comply with these regulations but failed to do so, leading SEBI to close down its clearing business. Issue 3: Breach of Principles of Natural Justice The court found that CSE had not applied for permission under the SECC Regulations, and SEBI's closure of CSE's clearing business was justified. There was prior correspondence between SEBI and CSE, indicating that CSE had been heard before the closure notice was issued. Issue 4: Justification for SEBI's Steps to Make CSE Exit the Market The court ruled that SEBI's actions were justified. SEBI provided opportunities for CSE to comply with the Exit policy or apply for voluntary exit. CSE's failure to arrange a recognized clearing house led SEBI to initiate derecognition proceedings. The court noted that SEBI's actions were not derecognition of CSE itself but were necessary regulatory measures. Additional Observations: - CSE was granted permanent recognition as a stock exchange in 1980 but had to comply with new regulations introduced in 2012. - SEBI's Exit circular and SECC Regulations were upheld by other High Courts as well. - SEBI had not been inimical to CSE and had allowed opportunities for compliance. - The court directed CSE to establish a clearing corporation or tie up with an existing one within six months to comply with SECC Regulations, failing which SEBI could take necessary steps for derecognition. The appeals and all connected applications were disposed of with no order as to costs.
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