Delhi High Court declares NSE a public authority under RTI Act

Mumbai: In a ruling that brings India’s largest stock exchange under the ambit of the Right to Information (RTI) Act, the Delhi High Court on Wednesday held that the National Stock Exchange (NSE) is a “public authority” under the law.

Ending a 16-year long legal battle, a division bench headed by Justice C. Hari Shankar and Justice Om Prakash Shukla upheld the 2010 ruling by a single bench of Justice Sanjiv Khanna. The bench in its judgement stated: “The justification provided by the learned Single Judge ... is eloquent and reasoned, and we see no cause to disturb the findings.”

The court held that NSE satisfies the definition of a public authority under Section 2(h) of the RTI Act. The order states that “not only the Central Government but also a statutory authority exercises deep and pervasive control over the Stock Exchange.”

NSE had argued that it is a private entity, which is neither owned nor controlled by the government. It said that regulatory oversight by the Securities Exchange Board of India (Sebi) does not amount to NSE coming under the ambit of RTI Act.

While NSE was incorporated as a private company, the court noted that it could not function as a stock exchange without recognition under Section 4 of the Securities Contracts (Regulation) Act, 1956. That recognition was granted by Sebi under powers delegated by the central government.

Rejecting NSE’s arguments that it is neither government owned nor government funded, the court held that ownership and financing are not the only tests under the law. The court relied on the earlier ruling in K.C. Sharma vs Delhi Stock Exchange, which had held that stock exchanges function under extensive oversight of the central government and Sebi.

Lawyers said the ruling does not mean courts will interfere with exchanges' commercial or policy decisions. For instance, in the case of MCX negative pricing of crude, the Bombay HC recently refused to give relief to several traders who pleaded for an annulment of trades on 24 June.

There the court ruled that it would not intervene in the pricing mechanism adopted by the exchange to arrive at a negative settlement rate, which was an established practice per its bylaws and that the traders could not have been oblivious to that fact.

According to senior securities lawyer Chirag Shah, NSE and other stock and commodity derivatives exchanges come under the purview of Article 12 of the constitution for writ jurisdiction.

This means a person can file a writ petition against NSE or BSE, unlike in the case of a private company, where the person can file a writ against a regulatory authority that has given permission to a private company to operate under its remit.

Shah added that while NSE will now come under the purview of RTI per the latest ruling, “it will not have any material impact on NSE”.

“The ruling is likely to improve transparency around governance and regulatory functioning, strengthen investor confidence, and could prompt similar RTI scrutiny of other market institutions that qualify as public authorities under the Act,” said Raheel Patel, partner at Gandhi Law Associates.

The ruling comes as NSE awaits regulatory approval for what could be India’s biggest initial public offering. The exchange has filed its draft red herring prospectus with the market regulator, according to which the IPO will have an offer for sale of up to 149 million equity shares by existing institutional shareholders.