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TMI Blog2024 (1) TMI 1022X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard Mr. Dastur, learned counsel for the petitioners, Mr. Kunal Dwarkadas, learned counsel for respondent no. 1 and Mr. Sancheti, learned senior counsel for respondent no. 2. 2. The petitioners have filed the present petition primarily being aggrieved by an order dated 10 November, 2023 passed by respondent No. 1/ Central Depository Services (India) Ltd. (for short "CDSL") whereby CDSL has terminated the petitioner as a Depository Participant of CDSL in exercise of its powers under its bye laws. 3. According to CDSL, the termination is in lieu of the Securities and Exchange Board of India (Depositories and Participants) Regulations, 2018 (for short "the 2018 Regulations") and more particularly the amendment brought about to the said 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a clearing corporation or a clearing house of a stock exchange; (viii) a stock broker who has been granted a certificate of registration by the Board under sub-section (1) of section 12 of the Act : [Provided that the stock broker shall have a networth of rupees three crores {within one year of the date of notification of the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2022}, which shall be increased to rupees five crores {within two years of the date of notification of the Securities and Exchange Board of India (Depositories and Participants) (Amendment) Regulations, 2022}: Provided further that a self-clearing member fulfilling the net-worth requirements as provided under the Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmittee." (emphasis supplied) 6. Learned counsel for the petitioners would submit that the compliance of the requirements of the SEBI on the minimum turnover was thus required to be achieved by the petitioners on the CDSL's own communication on or before 24 April, 2023. It is submitted that CDSL Bye-laws are approved by the SEBI. In such Bye-laws, Clause 5.5 provide for "Termination, Suspension and Withdrawal", under which Clause 5.5.1 pertains to "Termination by CDSL". It is submitted that there is a specific power which is reserved with respondent no. 1-CDSL and as set out in the proviso to bye-law 5.5.1.1.18 to the effect that respondent no. 1 may consider it fit and proper in the facts and circumstances of any case, before issuing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is the petitioners submission that the regulations of the SEBI cannot be interpreted in a manner that they are intended to have such a draconian effect on non-compliance. It is submitted that in fact the bye-laws of respondent no. 1 which are approved by SEBI, its terms and conditions keep open a window to have compliances and/or for rectification of situations of such nature. 9. Having heard learned counsel for the parties and having perused the record and more particularly, the show cause, the impugned termination order and the appellate order, prima facie 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 conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own 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. 12. It may be that 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X
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