Refund ₹300 cr to NSE: SC tells Sebi
2 min read 20 Mar 2023, 11:37 PM ISTThe direction to disgorge cannot be sustained, a bench led by Justice Tarun Agarwala and Justice M.T. Joshi said
PremiumThe Supreme Court on Monday directed the Securities and Exchange Board of India (Sebi) to refund ₹300 crore deposited by the National Stock Exchange (NSE) as part of a disgorgement order. However, the refund is contingent on the exchange agreeing to return the amount with interest if Sebi wins the appeal in the co-location scam case.
The court also served notice to NSE on a plea filed by Sebi challenging the Securities Appellate Tribunal’s (SAT) 23 January order. Questioning Sebi’s pace of the investigation, the apex court asked if it was asleep all this while. The case will now be taken up in September.
Under co-location services, some brokers trading from the same premises where NSE’s algorithmic trading servers were located could get faster access to the trading systems, thereby gaining an unfair advantage over others.
On 23 January, SAT set aside Sebi’s 2019 order ordering NSE to disgorge ₹624.89 crore in the alleged co-location scam. In fact, slashing the penalty to a sixth, the appellate tribunal asked NSE to pay ₹100 crore towards Sebi’s investor protection and education fund for its lapses pertaining to the secondary server.
“Even though NSE has not indulged in any unethical act or has unjustly enriched itself, the direction to disgorge, in our opinion, cannot be sustained," a bench led by Justice Tarun Agarwala and Justice M.T. Joshi of the appellate tribunal had said in its order.
Following the appellate court’s order, Sebi approached the Supreme Court against the SAT order.
In April 2019, Sebi ordered NSE to forfeit approximately ₹1,044 crore, which meant the disgorgement of ₹624 crore at 12% interest from 2014.
Sebi also barred the exchange from accessing the market for funds for the following six months due to alleged lapses in high-frequency trading made available through its co-location facility. Moreover, the markets regulator directed Chitra Ramakrishna, former managing director and chief executive; and Ravi Narain, a former vice-chairman, to disgorge 25% of their salary, but the order was later set aside by SAT.
After a three-year investigation, on 10 February 2021, the stock market
regulator imposed a penalty of ₹25 lakh each on Ramakrishna and Narain and ₹1 crore on NSE.
Meanwhile, in its judgement on 23 January, SAT was particularly critical of the market regulator’s conduct.
“We find that Sebi adopted a slow approach and, in fact, was placing a protective cover over NSE’s alleged misdeeds. It is only when questions were placed on the floor of the Parliament that Sebi woke up and instituted an investigation," the SAT order said.
The appellate tribunal said that considering the gravity of the alleged charges, Sebi should have conducted an investigation instead of delegating it to NSE.
“It is strange, and it does not stand to reason as to how Sebi directed NSE to conduct an investigation against itself. It is clear that a casual approach was adopted", a 235-page order by the tribunal said.
Besides, SAT also said that when serious allegations were made against a first-level regulator – NSE -- Sebi should have been proactive and should have conducted the investigation seriously.
The alleged scam came to light in 2015 after three written complaints by a whistleblower who alleged that some traders got preferential access to NSE’s co-location facility.
