SEBI's exit policy for stock exchanges upheld under sections 11(1) and 11(2)(j) of SEBI Act 1992

The HC upheld SEBI's exit policy for stock exchanges, finding it consonant with SCR Act provisions and within SEBI's statutory powers under sections 11(1) and 11(2)(j) of SEBI Act, 1992. The court rejected the exchange's challenge to turnover thresholds and clearing corporation requirements, holding these regulations don't infringe legal rights. However, recognizing the century-old institution's circumstances, the court granted six months for the exchange to establish or tie-up with a clearing corporation meeting SECC Regulations 2012 requirements, failing which SEBI may proceed with derecognition steps.

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Issues Involved:
1. Whether the Exit Policy of SEBI promulgated by the circular dated May 30, 2012 is in consonance with Section 5 of the SCR Act, 1965.
2. Was the CSE obliged to apply for continuance of its clearing house business in terms of the SECC Regulations, 2012.
3. Is the procedure undertaken by SEBI to close down the clearing house business of CSE vitiated by the breach of the principles of natural justice.
4. In the facts of this case, is SEBI justified in taking steps to make CSE exit the market compulsorily.

Summary:

Issue 1: Consonance of SEBI's Exit Policy with Section 5 of the SCR Act, 1965
The court upheld that SEBI's Exit Policy, requiring a turnover of Rs. 1000 crore for stock exchanges to avoid compulsory exit, is justified and based on the Bimal Jalan Committee's recommendations. The policy was deemed neither arbitrary nor capricious and was aimed at protecting investors and regulating the securities market. The policy applies to all stock exchanges in India, not just CSE.

Issue 2: Obligation of CSE under SECC Regulations, 2012
The court observed that the second proviso to Regulation 3 of the SECC Regulations required existing clearing houses to apply for continuance of their business. CSE had to comply with these regulations but failed to do so, leading SEBI to close down its clearing business.

Issue 3: Breach of Principles of Natural Justice
The court found that CSE had not applied for permission under the SECC Regulations, and SEBI's closure of CSE's clearing business was justified. There was prior correspondence between SEBI and CSE, indicating that CSE had been heard before the closure notice was issued.

Issue 4: Justification for SEBI's Steps to Make CSE Exit the Market
The court ruled that SEBI's actions were justified. SEBI provided opportunities for CSE to comply with the Exit policy or apply for voluntary exit. CSE's failure to arrange a recognized clearing house led SEBI to initiate derecognition proceedings. The court noted that SEBI's actions were not derecognition of CSE itself but were necessary regulatory measures.

Additional Observations:
- CSE was granted permanent recognition as a stock exchange in 1980 but had to comply with new regulations introduced in 2012.
- SEBI's Exit circular and SECC Regulations were upheld by other High Courts as well.
- SEBI had not been inimical to CSE and had allowed opportunities for compliance.
- The court directed CSE to establish a clearing corporation or tie up with an existing one within six months to comply with SECC Regulations, failing which SEBI could take necessary steps for derecognition.

The appeals and all connected applications were disposed of with no order as to costs.

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