TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1672
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.... Ravi Vijay Ramaiya, Chartered Accountant with Ms. Tanvi Gaitonde, Advocate i/b Zerick Dastur for Respondent Tarun Agarwala 1. The appellant is a clearing member empanelled with NSE Clearing Limited (hereinafter referred to as "NCL"). The appellant is a subsidiary of Infrastructure Leasing and Financial Services Limited (hereinafter referred to as "IF&FS). The Board of IL&FS has been superseded by members appointed by National Company Law Tribunal (hereinafter referred to as "NCLT"). Allied Financial Services Private Limited (hereinafter referred to as "Allied") is the stock broker and a member of National Stock Exchange of India Limited (hereinafter referred to as "NSE"). 2. The appellant and Allied executed a 'Clearing MemberTrading Member Agreement' dated November 14, 2017 and, in this agreement, Allied was obligated to place the margin with the appellant. Pursuant to this agreement, Allied provided margins to the appellant by way of mutual fund unit's apart from some cash, as collateral on the basis of which the appellant was clearing the trades of Allied in Futures & Options (F&O) Segment of the NSE. The mutual funds provided by Allied was transferred t....
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....rotect the interests of the appellant as it is a victim of fraud perpetuated by Allied and also prayed that the ex-parte interim order be modified. It was contended that in view of the freezing of the securities it would be unjust to meet the obligations arising out of the Options Contracts with Allied. It was further contended that the settlement of trades have been entered into based on fraudulently transferred collateral which is not in the interests of the securities market and, therefore, prayed that the trades made by Allied be annulled. It was further prayed that pending annulment, SEBI may exempt the appellant from the said options which is required to be squared off before March 29, 2019 and that the appellant may also be permitted to utilize the collateral in accordance with the agreement entered with Allied. 8. SEBI by an order dated March 29, 2019 held that the exparte interim order was passed against 11 noticees in which the appellant is not a noticee and, therefore, the appellant has no locus standi to apply for modification of the ex-parte interim order. With regard to the request of the appellant from being exempted from providing mark to market margin money....
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....isfied and contended that the relevant authority is none other than SEBI. It was also urged that, in any case, as per the directions issued by SEBI vide its Circular dated July 16, 2015 only material mistakes or erroneous orders could be annulled but where fraud or misrepresentation has been made the annulment can only be made by SEBI. It was also urged that because of the ex-parte interim order, the appellant was vitally affected and, therefore, the finding of the SEBI that the appellant had no locus standi was manifestly erroneous in law. It was contended that the Options Contracts of Allied which was expiring on March 28, 2019 have been squared off by the appellant and that the second Options Contracts will expire on June 27, 2019 and therefore proactive measures are required to be considered immediately otherwise the appellant would become bankrupt. It was, thus, urged that SEBI is required to be proactive and take appropriate measures immediately as it is not only affecting the appellant but the scam made by Allied will affect the securities market. 12. Shri Dada the learned senior counsel, on the other hand, contended that the plea of the appellant for annulment of th....
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....n or material mistake in the trade. (b) Notwithstanding anything contained in clause (a) above, the Exchange may, to protect the interest of investors in securities and for proper regulation of the securities market, suo motu annul deal(s) at any time if the relevant authority is satisfied for reasons to be recorded in writing that such deal(s) is/are vitiated by fraud, material mistake, misrepresentation or market or price manipulation and the like. (c) Any annulment made pursuant to clauses (a) and (b) above, shall be final and binding upon the parties to trade(s). In such an event, the trading member shall be entitled to cancel the relevant contracts with its constituents." From a perusal of aforesaid provision it is clear that annulment of a trade can either be done suo motu by the relevant authority or on an application by a trading member. The appellant is not a trading member and, therefore, cannot apply under the byelaws of the Stock Exchange. The direction of SEBI is that the Stock Exchange deals with the annulment of the trades is incorrect in so far as it relates to the appellant since he is a clearing member and is not a trading member. 17. The appellan....
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....l also include trades done on the Exchange platform. The relevant authority to decide the annulment of the deal would be the Board of Directors of National Securities Clearing Corporation Limited (now, NCL) and SEBI. Thus, the contention of SEBI in the impugned order that it is not within its purview to consider the request for annulment of trades is erroneous. SEBI in exercise of powers under Section 11, 11B of SEBI Act, 1992 read with 12A of the SCRA, 1956 has wide powers to consider a complaint with regard to annulment of the trades. 21. However, in the given circumstances, we find that since bye-laws have been framed by NCL in exercise of the powers conferred under Section 9 of SCRA, 1956 therefore, in our opinion, the appropriate measure is for the appellant to approach the relevant clearing house. In our opinion, the appellant is required to file an application under Clause 5 of Chapter VII of the bye-laws of the National Securities Clearing Corporation Limited for annulment of the trades. A perusal of Clause 5 makes it clear that if there is a willful misrepresentation or material mistake or if there is fraud the relevant authority is empowered to annul the trades. ....