NSE co-location case: SC to take up SEBI's plea against SAT order in March 2024

SC to hear co-location cases in March 2024

The Supreme Court, on November 20, deferred to March 2024, the hearing of market regulator SEBI's appeal against the Securities Appellate Tribunal (SAT), setting aside set aside its April 2019 order directing the National Stock Exchange (NSE) disgorge Rs 1,000 crore for committing violations of stock exchanges and clearing corporation regulations.

The apex court directed the parties to complete filing the pleadings by then.

In March 2023, the SC directed the market regulator to refund the NSE Rs 300 crore deposited under disgorgement orders. The SC refused to stay the January SAT order in the NSE co-location case. It also issued notice to NSE on a plea by the market regulator.

The apex court noted that it is issuing notice in SEBI's plea as there are some questions of law that need to be answered. The court asked SEBI to refund Rs 300 crore back to the NSE on receiving an undertaking from which the money will be returned if SEBI succeeds in the appeal. Senior Counsels Arvind P Datar and Niranjan Reddy appeared for SEBI, while Senior Counsel Neeraj Kishan Kaul appeared for NSE.

In its order delivered on April 30, 2019, the market regulator had directed NSE to disgorge Rs 624.89 crore at 12 percent interest per annum from April 2014 onwards.

In its order delivered in late January, the SAT bench, comprising Justices Tarun Agarwala and MT Joshi, took SEBI to task and skewered it for failing in the investigation.

“We must observe that when serious allegations were made against a first-level regulator, namely, NSE, Sebi should have been proactive and should have conducted the investigation seriously.” the bench observed. “Sebi had adopted a slow approach and, in fact, was placing a protective cover over NSE's alleged misdeeds. It is only when questions were placed on the floor of the Parliament that Sebi woke up and instituted an investigation. The scope of the investigation was limited.”

The tribunal bench didn't stop at this. “In our opinion, considering the gravity of the alleged charges, Sebi should have itself conducted an investigation/enquiry, instead of delegating it to NSE to conduct an investigation. It is strange and it does not stand to reason as to how Sebi directed NSE to conduct an investigation against itself. It is clear that a casual approach was adopted.”

In the co-location scam, traders had placed their servers in close proximity to that of the exchange thereby giving them an undue advantage in terms of accessing data faster and benefiting from it.