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When the Bombay high court ruled against the National Stock Exchange (NSE) in a defamation case it filed against financial news website Moneylife and its founders, the court noted that the NSE had failed to respond to enquiries the defendents made before publishing an article on alleged wrongdoing at the bourse.

“When a person, having made some enquiries, and herself having something of an established track record, makes a politely worded and pointed enquiry, not to respond to it seems to me either to be an example of the most egregious hubris and arrogance or, alternatively, an admission that there is an element of truth in what was being said," the court order read.

“There is no third alternative," justice G.S. Patel said in the order, which was uploaded on the court’s website on Thursday.

The court asked the NSE to pay 1.5 lakh each to journalists Debashis Basu and Sucheta Dalal. Besides this, it imposed a penalty of 47 lakh on NSE to be paid in the form of a donation to Masina Hospital and Tata Memorial Hospital in Mumbai.

On 8 July, Dalal wrote an article on the Moneylife website alleging that some NSE staffers were leaking sensitive data related to high-frequency trading or co-location to a select set of market participants so that they could trade faster than their competitors. The NSE didn’t respond to Dalal’s questions before she wrote the story.

Dalal’s article was based on an alleged complaint made to the Securities and Exchange Board of India (Sebi) in January by an official of a Singapore-based hedge fund.

“I wish to draw your attention to a sophisticated market manipulation done at NSE for several years at NSE co-location. The most shocking aspect is that when the matter came to the knowledge of NSE management team, they have chosen to hush up the matter under the carpet rather than coming out in open against the same," said the letter addressed to B.K. Gupta, deputy general manager, Sebi.

“The market manipulation that I am referring to has been occurring by enabling certain vested brokers to get market price information ahead of the rest of the market and thus enabling them to front-run the rest of the market," it added.

Co-location refers to bourses allowing members to set up automated trading systems on their premises to reduce the time required for orders to flow between the exchange and the broker’s trading system.

In response to the Moneylife article, NSE filed a defamation suit claiming damages of 100 crore in the Bombay high court.

Patel pointed that Dalal had made three attempts to reach out to NSE, but was met with no response. The HC also slammed the NSE, saying the suit and the exchange’s conduct seem as attempts at deflection and evasion.

“I also believe this entire action to be a gross abuse of the process of this court. The NSE seems to have taken it more or less for granted that our courts are too easily cowed by self-congratulatory assertions and overblown claims of rectitude to even consider refusing their claim," Patel said in the order. “This is an approach that must be deprecated, and there is only one way to do that when dealing with an institution like the NSE."

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