SAT cancels Sebi’s order against 5 brokers in NSEL case; request to place a new order in 6 months


Overturning an order by Sebi that declared five brokerages not to be a “fit and proper person” in the NSEL case, the Securities Appeals Tribunal (SAT) ordered the regulator to re-rule the issue within six months.

The five brokers are – IIFL Commodities, Geofin Comtrade, Anand Rathi Commodities, Philip Commodities India and Motilal Oswal Commodities Broker.
The appeals were brought by the brokers and their applications to register as commodity brokers were dismissed on the basis that they were not a “fit and proper person” to hold certificates of registration.

The brokers challenged the Sebi orders before the SAT, which was also approached by the NSEL (National Spot Exchange Ltd) who called themselves an affected party and alleged that the regulator had failed to consider all the allegations. and the elements contained in its complaint against the brokers.

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In 2019, the capital markets regulator issued orders against these brokers in the NSEL case, saying they were “not fit and proper” to continue as commodity brokers.

Brokers have faced action from Sebi for trading so-called prohibited paired contracts. These orders followed a report by the EOW (Economic Offenses Wing) and complaints filed by NSEL against the brokers.

In its order issued on June 9, the appeals tribunal said that “the contested orders made by the WTM (full-time member) against the brokers cannot stand and are set aside. Remedies by brokers are allowed.

“Adverse submissions/findings against appellants in contested orders are deleted and will not be used against NSEL in any court or authority,” the SAT noted.

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He further ordered Sebi to re-decide the case within six months after giving the brokers an opportunity to hear.
In addition, the SAT upheld NSEL’s appeals.

He further stated that submissions and conclusions by Sebi that are adverse to NSEL cannot be sustained, particularly where no notice or opportunity for a hearing has been provided.

The court noted that adverse representations were made ex parte against NSEL’s reputation and character. These adverse observations were made against NSEL in which NSEL is not a party to these proceedings.

Sebi, in his past orders in 2019, observed that brokerage firms were engaging in the so-called illegal paired contracts on the NSEL trading platform, which violated the standards of the Futures Regulation Act (FCRA).

It was also alleged that the five brokers had engaged in illegal activities such as funding clients through PAN loans, lending names through their NBFC and other related entities and that the funding was grossly disproportionate to the net worth and income level of these clients.

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Further, it has been alleged that the brokers abused their internal NBFC and funded clients who do not have the capacity to take on such exposure.
In July 2013, NSEL was barred from initiating new contracts after discovering that it was allowing matchmaking contacts on its platform, which violated the FCRA and the terms under which NSEL had obtained registration as a cash exchange. As a result, the exchange was unable to meet its settlement obligations of around Rs 5,600 crore to nearly 13,000 investors.



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