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TMI Blog2016 (6) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals. Since common order is challenged in these three appeals, all three appeals are heard together and disposed of by this common decision. 2. By the impugned order dated March 02, 2016, 16 entities including the appellants herein are called upon to file their objections to the exparte order, if any, within twenty one days from the date of the said order and also indicate as to whether the said entities want an opportunity of hearing in the matter. 3. Instead of filing their objections to the impugned ex-parte order, the appellants have chosen to challenge the said order before this Tribunal, basically on ground that the appellants are not defaulters and there were no circumstances which warranted SEBI to pass ex-parte adinterim order against the appellants. 4. Counsel for SEBI submitted that in the present case, in respect of the entities which have filed their objections to the ex-parte order, personal hearing is fixed on May 10, 2016 and if the appellants file their objections, the appellants would also be heard on May 10, 2016 and appropriate order would be passed thereafter. 5. Appellant in Appeal No. 81 of 2016 viz. UKS Oils Pvt. Ltd. ('UKS' for convenience) and Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entering the securities market in any manner whatsoever until further orders. Challenging the said order dated March 02, 2016, these three appeals are filed. 11. Mr. Kadam and Mr. Sancheti, Learned Senior Advocates appearing on behalf of UKS and SOL respectively submitted as follows:- a) Impugned order is passed in haste without elucidating the reasons for an ex-parte ad-interim order of such grave consequence. b) UKS and SOL had never defaulted in paying the Margins and Mark to Market ("MTM" for short) settlement obligation. c) In the impugned order it is recorded that in December 2015 and January 2016 four CTMs including LEO had repeatedly delayed in making payments that became due in respect of the Castor Seed Contracts entered into on behalf of their clients. In case of LEO it is recorded that there were 10 counts of 'first run' shortages between 05.01.2016 to 28.06.2016. It is further recorded that on January 27, 2016, LEO and two other CTMs had expressed inability to collect MTM pay in obligation from their clients and requested NCDEX to square off their clients positions. Counsel for UKS and SOL submitted that there is nothing on record to suggest that the aforesaid 'fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their stop loss policy to curb further losses in a falling market and accordingly requested LEO to square off their positions for reasons beyond their control, cannot be treated as manipulation or fraud by UKS and SOL. g) UKS and SOL had not taken any position beyond their financial recourses and had maintained the requisite margins with LEO in respect of total positions at all times. Moreover, as on 27.01.2016, NCDEX was holding margin of 14.90% which was more than sufficient to take care of any possibility of default situation. Apart from the above, as regards 'pay-in' obligations based on MTM loss for 27.01.2016, it appears that NCDEX had confirmed that it was possible to meet the respective 'pay-in' obligations from the margin money. In these circumstances, restraining the appellants from entering the securities market by passing an ex-parte ad-interim order is wholly unjustified. h) There is no allegation in the impugned order that the 16 entities referred to in the impugned order, who purportedly held 62.48% of February 16 Contract are in any way related or that they were acting in concert or that there was a case of cartelization. Moreover, picking only February 2016 Cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not stated in the impugned order as to how the investor protection and safe-guarding the market integrity is achieved by the impugned order especially when the clients of LEO have incurred losses in the trade and the said clients were not defaulters. e) Relying on the decisions of this Tribunal in case of Pan Card Clubs Ltd. vs SEBI (Appeal No. 254 of 2014 decided on 17.09.2014) and Kasat Securities Pvt. Ltd. vs. SEBI (Appeal No. 27 of 2006, decided on 20.06.2006) it is submitted that although, SEBI does have the power to pass ex-parte interim orders in certain cases, it must do so only upon showing the existence of circumstances which warrant such a drastic measure. In the present case, no such circumstances are shown to be in existence. Therefore, it is just and proper that the impugned order be quashed and set aside. 13. Mr. Sen Learned Senior Advocate appearing on behalf of SEBI, on the other hand, submitted that the reason set out in the impugned order clearly demonstrate that repeated failure to discharge MTM obligation on part of four CTMs whose clients set out therein were collectively holding 62.48% open interest of February 2016 contract led to prima facie belief that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o far as LEO (Appellant in Appeal No. 83 of 2016) is concerned it is a matter of fact that on 27.01.2016, LEO failed to meet the 'first run' obligation. 20. Clause 9 of Annexure 1 to SEBI circular dated 01.10.2015 reads thus:- " 9. Mark to Market (MTM) Settlement: All open positions of a futures contract would be settled daily, only in cash, based on the Daily Settlement Price (DSP). DSP shall be reckoned and disseminated by the Exchange at the end of every trading day. The mark to market gains and losses shall be settled in cash before the start of trading on T+1 day. If mark to market obligations are not collected before start of the next day's trading, the exchange shall collect correspondingly higher initial margin (scaling up by a factor of square root of two) to cover the potential losses over the time elapsed in the collection of margins." 21. From the aforesaid clause it is evident that based on the Daily Settlement Price ("DSP" for short) fixed by NCDEX, LEO was bound and liable to settle the MTM obligation in cash before the start of trading on T+1 day. In the present case, LEO failed to meet that obligation on 10 different dates in January 2016. Even on 27.01.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In such a case, the proper course for the appellants is to satisfy the WTM of SEBI that inspite of repeated failure to meet the MTM payin obligation on time, the said failure has not contributed to the disturbance of the market equilibrium on 27.01.2016. 25. Fact that the SEBI Circular dated 01.10.2015 permits the CTM to collect MTM margin from the clients till T+2 working days does not mean that the mandatory requirement of settling the MTM pay-in obligation in cash before the start of trading on T+1 day can be dispensed with. It is not the case of UKS and SOL that they had put in funds with LEO for settling the 'first run' obligation and it is the broker who has failed to do the needful. In fact it is the specific case of LEO that it is constantly working with its clients to facilitate the pay-in on time. Thus, in the facts of present case, it is evident that the brokers and obviously their clients including UKS and SOL have repeatedly failed to comply with the pay-in obligation in relation to Castor Seed Contracts which is in gross violation of SEBI Circular dated 01.10.2015. Since such violations took place during the period when the prices of Castor Seed Contracts were fallin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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