MUMBAI: The Securities Appellate Tribunal (SAT) on Monday partially set aside an order by the markets regulator Sebi that had ordered disgorgement of Rs 625 crore, plus interest, from the National Stock Exchange (NSE) in the co-location case that had rocked India’s financial space between 2016 and 2019.
SAT said the NSE will need to pay only Rs 100 crore for its various alleged lapses in implementing the bourse’s high-tech trading infrastructure that allowed brokers to place their servers next to the exchange’s trading servers, called co-location (or co-lo) in market parlance.
SAT also set aside the Sebi directive to disgorge 25% of the salary from Ravi Narain and Chitra Ramkrishna, both former MD & CEO of NSE. It was during the tenures of Narain and Ramkrishna when the co-lo scam had started and flourished.
The SAT, in a 235-page or-der by Justice Tarun Agarwala as presiding officer and Justice M T Joshi (judicial member), also censured Sebi for adopting “a casual approach”. The tribunal noted, “We must observe that when serious allegations were made against a first-level regulator, namely the NSE, Sebi should have been proactive and should have conducted the investigation seriously. We find that 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 Parliament that Sebi woke up and instituted an investigation.”
SAT added, “It is strange and it does not stand to reasonas to how Sebi directed the NSE to conduct an investigation against itself. ” Following the revelations of the co-lo scam, in 2019, Sebi had passed several orders against the NSE, Narain, Ramkrishna and some other entities.
The SAT also set aside Sebi directions prohibiting Narain and Ramkrishna from associating with any listed company or any other market intermediary for five years. It was substituted with the period they have undergone the prohibition, that is from 2019 till Monday. However, the tribunal observed that it “cannot ignore the fact” that Narain and Ramkrishna — being the MD & CEO of the exchange at the relevant moment — “can-not abdicate their responsibility by citing limited knowledge in certain spheres of the business activities”.
It said that in the corporate world, while functions may be delegated, “duty of care, due diligence, verification by top management cannot be abdicated”. The tribunal, however, agreed that it was not established that Narain or Ramkrishna had made profit or wrongful gains.
The tribunal agreed with the Sebi directive to the NSE to initiate enquiry against its employees. It also agreed with the Sebi findings about the violations committed by OPG Securities, an NSE broker that was alleged to be at the centre of the co-lo scam. However, SAT set aside the Sebi direction about disgorgement of Rs 15. 6 crore, plus interest, from OPG Securities and its directors. Sebi will now get four months to decide the quantum of disgorgement afresh. The markets regulator will also get to investigate afresh to establish the collusion between NSE employees and OPG.