Photo: Mint
Photo: Mint

Bombay HC rejects withdrawal pleas of top brokers in commodity F&O

Bombay High Court observed that the Sebi has jurisdiction to look into the matter

Mumbai: The Bombay High Court has rejected the pleas of four brokerage houses seeking to withdraw their applications for registrations with regards to trading in commodity derivatives to the Securities & Exchange Board of India (Sebi) for their alleged role in the scam at the National Spot Exchange Ltd.

On Thursday, the division bench of Justice B.R. Gavai and Justice M.S. Karnik, while rejecting the petitions filed by brokerage houses of Motilal Oswal Commodities Broker Pvt Ltd, Anand Rathi Commodities Ltd, IIFL Commodities Ltd and Geofin Commtrade Ltd, observed in an oral order that the regulator has jurisdiction to look into the matter.

“The Sebi had appointed a chartered accountant firm which has some adverse findings, but we are not going into it since the matter is under the consideration of the whole time member of the Sebi," said the court further adding that the court can’t allow firms to escape the adverse finding by withdrawing the registration application.

The brokerage firms— Motilal Oswal Commodities Broker Pvt Ltd, Anand Rathi Commodities Ltd, IIFL Commodities Ltd and Geofin Commtrade Ltd— are named in the list of over 100 brokers which are being investigated related to the scam.

The genesis of the dispute dates back to 2015 when the brokers had sought approval to trade in commodities derivative market from the Sebi. The former commodities regulator Forward Markets Commission was merged with SEBI in 2015 itself. Around that time whoever wanted to operate in the segment had to get approval from the Sebi within three months of the merger of regulators.

During the registration process, SEBI conducted an inquiry as to whether those who are applied were qualified the “fit and proper" criteria under the norms. The markets regulator issued two show cause notices to the broking firms alleging violations of unfair trading practices norms, forwards contract norms and code of conduct regulations.

“We had applied for the license and now we have decided to withdraw it, but the Sebi is saying that now you can’t withdraw it but you have to answer the show-cause notice as why the regulator should not reject it," argued Pradeep Sancheti, Senior Counsel who was appearing for the Anand Rathi Commodities. “SEBI has already referred the case to the Economic Offences Wing of the Mumbai Police to initiate probe under the criminal law so if there will be any findings the petitioners will abide by that too and hence the regulator should allow us to withdraw the applications," Sancheti further added.

While countering this, Fredun De Vitre, senior counsel who was appearing for the Sebi asked that can the petitioners take away the rights of the regulator to investigate by just withdrawing their applications.

“The findings of the inquiry can impact the other businesses of intermediaries (brokerage houses) as well. We feel that there will be serious fallout and actions after the logical end of the inquiry and hence pending action of the show-cause notice can’t go away because parties want to withdraw the case," added De Vitre.

An email query to Geofin Cmtrade Ltd, Anand Rathi Commodities Ltd and Motilal Oswal Commodities Broker Pvt Ltd did not elicit any response till the time of filing the report.

“We are waiting for the order. We will discuss with the lawyers and take appropriate legal remedies," said IIFL spokesperson. “The writ application was filed by India Infoline Commodities. However, from July onwards our commodity business is being carried under IIFL Securities Ltd as per the unified licence norms and hence servicing of commodity customers will continue."

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