The Securities Appellate Tribunal (SAT) has ruled that an investment made by a subsidiary of BSE Ltd cannot be termed a violation by BSE, as it set aside an order passed by an adjudicating officer of the Securities and Exchange Board of India (SEBI).
The tribunal in its order noted that, “SEBI has not placed on record any material such as a resolution passed by the BSE’s Board to invest/acquire stake in the said three entities or authorising the subsidiaries to acquire their stakes.”
The market regulator had passed an adjudication order against BSE on July 29, 2022, and imposed a penalty of Rs 3 lakh for violation of Stock Exchange and Clearing Corporation (SECC) Regulations. The SEBI order alleged that BSE had engaged in unrelated activities without prior approval from the market regulator and, hence, violated the SECC Regulations of 2012 and 2018.
BSE had moved SAT against the SEBI order.
Referring to the SECC Regulations, SAT noted in its order, “Both 2012 and 2018 regulations do not even remotely suggest that activities of any subsidiary can be attributed as a violation committed by its principal, the BSE, in this case”.
The issue
The matter of contention was investments by BSE subsidiaries in other companies. The exchange’s subsidiary, BSE Technology Private Ltd (BTPL) had two subsidiaries — BSE Tech Infra Pvt Ltd (BTISPL) and Marketplace EBIX Technology Service Ltd (METSPL), which is in the business of providing technology services to insurance related companies. SEBI was of the view that BSE has indirectly carried out activities unrelated to its role as a stock exchange, through BTISPL and METSPL, without seeking the regulator’s approval.
Another joint venture of BSE subsidiary BSE Institute Ltd (BIL) also caught SEBI’s attention. The JV—BIL Ryerson Futures Pvt Ltd—is in the business of setting up incubator and accelerator programs for e-commerce start-ups. SEBI termed it an unrelated business activity, conducted through BIL RFPL, without seeking SEBI's approval. A similar objection was raised against BSE for acquiring a stake in Indus Water Institute Pvt Ltd.
In its defence, BSE argued that BTPIL and BIL came into existence before the 2012 Regulations came into force. It contended that investments made in its subsidiaries BTPL and BIL were made prior to the promulgation of the 2012 Regulations and therefore did not require approval from the SEBI.
SECC Regulations restrict recognised stock exchanges from engaging in unrelated business activities. SEBI argued that the objective of the SECC Regulations is to ringfence the activities of the stock exchange to protect it from external liabilities or interference.
BSE had announced the divestment of BIL.
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