The Securities Appellate Tribunal (SAT) has set aside Sebi's direction that derecognised Indian Commodity Exchange Limited (ICEX) as a bourse on certain conditions, including raising requisite funds within one year. The appellate tribunal said that "ship may be sinking, but the leaks could be plugged and could be kept afloat" and every effort must be made to revive the exchange.
In its order passed on Monday, the appellate tribunal has given relief to ICEX on certain conditions. This included all trading operations on ICEX would remain suspended until it raises the requisite funds and complete all compliances to the satisfaction of Sebi within one year. Among other conditions, SAT said the money available in the Investor Protection Fund and Investor Services Fund of ICEX will only be utilised for settlement of any claims, if any, and will not be utilised for any other purposes.
If ICEX raises the requisite funds and completes all compliances within one year, it can approach Sebi for resuming trading operations. In case it fails, the regulator would be open to pass an order for withdrawal of the recognition of ICEX's commodity derivative exchange after giving an opportunity of hearing. The tribunal directions came after ICEX challenged an order passed by Sebi on May 10, whereby the recognition granted to the bourse as a commodity derivative exchange was withdrawn.
The recognition was withdrawn by Sebi after it found that the bourse was non-compliant on several grounds like net worth requirement, the regulator's inspection observations and infrastructure. In its order, Sebi noted that net worth of ICEX was Rs 93.43 crore as on November 2021, which further reduced to Rs 86.45 crore as on January 2022.
According to the rules, every recognised stock exchange is required to have a minimum net worth of Rs 100 crore at all times. Further directions were passed by Sebi asking ICEX to deposit the money lying in the Investor Protection Fund and Investor Services Fund of the exchange to the Investor Protection and Education Fund of Sebi.
Also, ICEX challenged its derecognition which was notified by Sebi in the official Gazette on May 18 following the order. Setting aside Sebi's order, SAT said the approach of the capital markets regulator was "harsh and arbitrary" as ICEX all along had requested for certain concessions.
"The request of the appellant (ICEX) should have been considered sympathetically and cannot be brushed aside with a one line observation that the appellant is only seeking concessions and are not complying with the other requirements. All the compliances to be made are based on funds which the appellant is facing financial crunch," the tribunal noted. On the exchange's request for one year's time to bring in the funds, SAT said such request should have been considered and accepted and should not have been rejected on the ground that no plan has been given.
Sebi's finding that the MD and CEO has resigned from the exchange and that it is unlikely that ICEX will find suitable Key Managerial Personnel (KMP) and that two out of three Public Interest Directors (PIDs) have resigned are not such drastic matters which could lead to a conclusion that the recognition of exchange should be withdrawn, the tribunal said. "The rats leave a sinking ship, MDs, CEOs and PIDs see their own interest and leave for greener pastures but this does not deter the company and its shareholders from making continuous efforts to revive its company.
"Thus, merely because MD, CEO and PID have left the company, it does not mean that exchange cannot revive itself. The ship may be sinking, but the leaks could be plugged and could be kept afloat. Every effort must be made to revive the exchange," SAT noted. The tribunal noted that COVID-19-induced lockdown completely stopped physical trading in the commodity sector especially the appellant exchange which was doing delivery based contracts.
"In this hour of crises when every effort is being made to revive the economy of this country, it is also the duty of the regulator to take steps as far as possible to ensure that the exchange revive itself for which at least an opportunity should be given by the regulator to the appellant to revive itself," SAT said. It noted that ICEX had voluntarily suspended all its operations on March 28, 2022. Thus, investors' interest was protected.
"Heavens are not falling requiring the regulator to withdraw the recognition of the appellant as a recognised exchange. Some latitude, as prayed by the appellant, to raise funds, and become compliant ought to have been granted," SAT said. It further said the findings of Sebi, that it would be difficult for ICEX to raise funds and complete all compliances, is purely based on speculative basis and cannot be sustained.
Consequently, SAT said that the regulator's order "cannot be sustained and is quashed, as a result of which, the direction of Sebi notifying permanent withdrawal of recognition granted to the appellant is also set aside subject to certain conditions".
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