Appellate securities body remands case of five NSEL brokers back to Sebi

The Securities Appellate Tribunal has remanded the matter pertaining to the ‘not fit and proper’ status of five National Spot Exchange Ltd (NSEL) brokers back to the Securities and Exchange Board of India (Sebi) and asked it to decide the matter afresh within six months.

This comes after Sebi in a order passed in 2019 declared Motilal Oswal Commodities, Anand Rathi Commodities, IIFL Commodities, Philip Commodities and Geofin Comtrade as ‘not fit and proper’ because of their association with scam-hit NSEL, which had defaulted on its settlement obligations of ₹5,600 crore in July 2013. “The matters are remitted to the Sebi whole-time member (WTM) to decide the matter afresh in the light of the observations made aforesaid in accordance with law after giving an opportunity of hearing to the brokers,” said a bench headed by Justice Tarun Agarwala.

The order was passed on 9 June, but the full order came into the public domain on Tuesday. “It will also be open to Sebi, if it considers necessary, to conduct an independent inquiry proceeding against the connected entities and persons associated with the brokers against whom evidence is available. Sebi to decide the matter afresh,” SAT said. It added that it will also be open to the Sebi’s whole-time member to “rely upon other material such as the complaint letters of NSEL, EOW (economic offences wing) report, and EOW charge sheet, provided such copies are provided to the brokers and opportunity is given to rebut the allegations”.

The premise of the case lies in Sebi stating that the five brokers were closely connected with NSEL. The question of whether the appellant is a close associate of NSEL has not been properly explored because there is no evidence in the current case to suggest that the appellants have any control, either directly or indirectly, over NSEL, the court said in the order.

According to the appeal, the five brokerage houses said that their application for registration as a commodity broker under Sebi regulations had been rejected on the grounds that the brokerages were not fit and proper to hold registration certificates.

Justice Agarwala held that rejection of such application cannot be continued indefinitely and Sebi needs to prescribe the time within which the broker can apply for a fresh registration certificate.

NSEL, which was also a party to the case in its appeal, told SAT that certain findings in the Sebi order had directly affected its reputation, character and integrity, which in turn could affect the other proceedings against the exchange.