SEBI order of Executive Director Anand R Baiwar allowed 63 moons to provide STP services. Mr. Baiwar judgement was in the light of Forward Market Commission judgement against Jignesh Shah declairing him ‘unfit and improper person’. Why R. Baiwar has ordered to 300 brokers, 15 custodians and 170 fund houses as claimed by 63 moons to look out for other option for STP services (STP means Straight-through Processing (“STP”) is a mechanism that automates the end-to-end processing of transactions of the financial instruments. It involves use of a single system to process or control all elements of the work-flow of a financial transaction, including what is commonly known as the Front, Middle, and Back office, and General Ledger. In other words, STP can be defined as electronically capturing and processing transactions in one pass, from the point of first ‘deal’ to final settlement.)
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER IN THE MATTER OF APPLICATION OF 63 MOONS TECHNOLOGIES LIMITED (ERSTWHILE FINANCIAL TECHNOLOGIES (INDIA) LIMITED) SEEKING RENEWAL OF APPROVAL AS A STP SERVICE PROVIDER
UNDER CLAUSE 6(1)(i) OF SECURITIES AND EXCHANGE BOARD OF INDIA (STP CENTRALISED HUB AND STP SERVICE PROVIDERS) GUIDELINES, 2004
- M/s 63 Moons Technologies Limited, formerly known as Financial Technologies (India) Limited (FTIL) (hereinafter referred to as FTIL/ 63 Moons/ applicant/ noticee) submitted an application for renewal of approval to act as STP Service Provider vide letter dated April 25, 2016 for a period of three years from June 30, 2016 to June 29, 2019.
- 63 Moons was granted initial approval to act as STP service provider under the Securities and Exchange Board of India (STP Centralised Hub and STP Service Providers) Guidelines, 2004 vide SEBI letter dated June 30, 2004 for a period of 3 years from June 30, 2004 to June 29, 2007. Thereafter, renewal of approval was granted vide SEBI letters dated May 08, 2008, June 23, 2010 and May 23, 2013 respectively. Last approval was granted for a period of 3 years w.e.f. June 30, 2013 to June 29, 2016. The present order deals with the application filed by M/s 63 Moons vide letter dated April 25, 2016 for renewal of approval for the period from June 30, 2016 to June 29, 2019.
- Securities and Exchange Board of India (‘SEBI”) observed the following while processing the application of 63 Moons for renewal of approval to act as STP Service Provider:
- In the order of erstwhile Forward Markets Commission (FMC) dated December 17, 2013 (hereinafter referred to as FMC order) against Financial Technologies (India) Limited, it was held that:
“15.1.4 ——–FTIL, as the anchor investor in the Multi-Commodity Exchange Ltd., (MCX) does not carry a good reputation and character, record of fairness, integrity or honesty to continue to be a shareholder of the aforesaid regulated exchange. Therefore, in the public interest and in the interest of the Commodities Derivatives
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Market which is regulated under FCRA, 1952, the commission holds that that Financial Technologies (India) Ltd (FTIL) is not a ‘fit and proper person’ to continue to be a shareholder of 2% or more of the paid-up equity capital of MCX as prescribed under the guidelines issued by the Government of India for capital structure of commodity exchanges post 5-years of operation—-”.
The FMC order was challenged by the applicant by a writ petition and is pending before the Hon’ble Bombay High Court. However, there is no stay on the order passed by erstwhile FMC.
- Further, as per the aforementioned FMC order, it was held that Shri Jignesh P. Shah (Promoter, Founder and Chairman Emeritus of applicant) is not a ‘fit and proper’ person to hold any position in the management and the Board of any Exchange recognized or registered by the Government of India / Forward Markets Commission under FCRA, 1952.
iii. Shri Jignesh P Shah was arrested by the Enforcement Directorate (ED) on July 12, 2016 for suspected money laundering and the Economic Offences Wing of the Mumbai Police attached Rs. 2000 crores worth of assets of FTIL, as per newspaper reports.
- SEBI, relying on the FMC order, vide its order (hereinafter referred to as SEBI order) dated March 19, 2014 held that Financial Technologies (India) Limited (‘FTIL’) (now known as 63 Moons Technologies Limited) is not a “fit and proper person” [as specified under Regulation 20(1)(b)(v) read with regulation 19 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012.] to hold any equity shares or any instrument that provides for entitlement for equity shares or rights over equity shares at any future date, in a recognized stock exchange or clearing corporation, either directly or indirectly. The said SEBI order was upheld by the Hon’ble Securities Appellate Tribunal (SAT) vide its order dated July 09, 2014.
- In view of above facts, prima facie the applicant did not appear to be a fit and proper person in terms of Schedule II of the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (hereinafter referred to as “Intermediaries Regulations”) and the application for renewal of approval to act as STP Service Provider was liable to be rejected in terms of Clause 3(2)(iii) and Clause 5(1)(i) of the Securities and Exchange Board of India (STP Centralised Hub and STP Service
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Providers) Guidelines, 2004 (hereinafter referred to as “STP Guidelines”) read with the aforesaid Schedule of Intermediaries Regulations.
- Therefore, the applicant was issued a show cause notice vide letter no. MIRSD/DoP/STP/016962/2018 dated June 12, 2018 (hereinafter referred to as “SCN”) and called upon to show cause in view of the facts mentioned in para 3 above as to why its application for renewal of approval as STP Service Provider should not be rejected.
REPLY TO SHOW CAUSE NOTICE, PERSONAL HEARING AND WRITTEN SUBMISSIONS PURSUANT TO THE PERSONAL HEARING
- Applicant replied vide letter dated July 30, 2018 to the show cause notice. In its reply, it was submitted that the litigations listed in SCN are “Unconnected Litigation” for purposes of the STP services. The contents of the notice deal with whether applicant is fit and proper to render STP services whereas the unconnected litigations are related to holding of shares in stock exchanges and commodity exchanges. The applicant made following submissions: –
- The order dated December 17, 2013 of FMC and order dated March 19, 2014 of SEBI dealt with litigations having no connection with its services as STP service provider. The ‘unconnected’ litigations are related to holding of shares in stock exchanges and commodity exchanges and have resulted out of events at National Spot Exchange Ltd (hereinafter “NSEL”).
- Even through the course of the unconnected litigations, no regulator had ever questioned or raised any grievance about FTIL’s capacities and abilities as a service provider of software systems. On the contrary, FTIL had continued to provide STP software solutions across the securities market with an impeccable track record for 14 years and reputed ODIN trading Software for over 20 years. It was also stated in detail that FTIL is a pioneer and market leader in providing unblemished STP Services and other software solutions.
- It has been proposed by the state agencies that they desire NSEL to be merged into FTIL because that would help generate resources which shows the regulatory agencies belief in its capacity to provide excellent software solutions.
- In any case, the unconnected litigations are sub-judice and none have attained finality. Besides, they relate to a very different “fit and proper” context. Therefore, acting on them without waiting for the judicial process to run its course, is untenable.
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- It is noteworthy that SEBI amended the STP Guidelines to add the criteria of “fit and proper” person only two months prior to the SCN, on April 17, 2018
- Mr. Jignesh Shah has resigned from all executive posts and even from the directorship of FTIL and its subsidiaries in November 2014. He was granted bail vide an order dated 6th August, 2016 by the Special Court in connection with the complaint filed by ED and attachment order of the EOW against FTIL has been challenged and is sub-judice.
- The notice notes that ED had arrested Shri Jignesh Shah for suspected money laundering and suspicion cannot be a substitute for evidence. The Hon’ble High Court in its order dated August 22, 2014 while granting bail to Shri Jignesh Shah in connection with NSEL issue had observed that there was no connection between him and the defaulting borrowers.
- Any finding or order that FTIL is unfit or improper for any software service would kill FTIL fully and would also disrupt work for many market intermediaries.
- The undersigned was appointed on August 10, 2020 to grant hearing and decide upon the SCN. In the interest of natural justice, vide hearing Notice dated August 14, 2020, the noticee was granted an opportunity of personal hearing on September 10, 2020. The noticee vide its letter dated September 04, 2020 sought extension of hearing for 3 months. Vide letter dated September 09, 2020 next date of hearing was fixed as October 09, 2020. The noticee again vide its letter dated October 05, 2020 requested to reschedule the hearing to second week of November 2020. Vide letter dated October 08, 2020 the hearing was adjourned to October 29, 2020. The noticee vide letter dated October 23, 2020 requested to conduct hearing through video conference to maintain social distancing in light of the pandemic caused by spread of Covid-19 virus. The Authorised Representatives of the noticee, inter-alia, Shri Somasekhar Sundaresan, Advocate, Nooruddin Dhilla, Advocate and Zubin Narielwala, Advocate attended the hearing on the appointed date. The matter was mainly argued by Shri Somasekhar Sundaresan. They also requested permission to submit written submissions in the matter on or before November 17, 2020.
- The note of submissions dated November 17, 2020 pursuant to the personal hearing was furnished on the same date by email. A hard copy of the submissions was received on November 18, 2020. A summary of the noticee’s submissions is reproduced as under:
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- The SEBI Order was passed under the specific and peculiar provisions contained in the SEBI (Stock Exchange and Clearing Corporations) Regulations, 2012 (“2012 SECC Regulations”), which are distinct and different from the STP Guidelines;
- This distinction is evident from the specific criteria stipulated in the 2012 SECC Regulations, which regulate ownership interests in market infrastructure institutions viz. stock exchanges and clearing corporations, as opposed to the specific criteria applicable to a market intermediary under the Securities and Exchange Board of India (Intermediaries) Regulations, 2008 (“Intermediaries Regulations”) which has been made applicable to STP service providers;
- The role of a market infrastructure institution is fundamentally distinct from the role of a market intermediary, let alone a software service provider like the Noticee, who is not even a market intermediary under Section 12 of the SEBI Act for being governed by special regulations notified under Section 30 of the SEBI Act;
- Besides, the STP Services rendered by the Noticee have given no cause of complaint either to its clients or to SEBI whatsoever. SEBI’s case is predicated on the erstwhile Forward Markets Commission Order dated December 17, 2013 (“FMC Order”) relating to ownership interests in commodity derivatives exchanges, and the consequential SEBI Order passed nearly 6-7 years ago under the SECC Regulations, neither of which has any bearing on the Noticee’s STP Services;
- In applying the ‘fit and proper’ criteria to the Noticee’s activity as a software service provider i.e. rendering of STP services (who is not an intermediary), regard must be had to the fit and proper criteria in the Intermediaries Regulations and not the 2012 SECC Regulations. Besides, relevant facts – matters that have a reasonable or logical co-relation with the Noticee’s ability to render a software service must be taken into account, and not irrelevant ones – the standards stipulated in 2012 SECC Regulations to ownership interests in a market infrastructure institution;
- Even under the 2012 SECC Regulations, an order in the nature of the FMC Order and SEBI Order would have a statutory shelf-life of three years, in the context of “fit and proper criteria” – please see Regulation 20(1)(b)(v) of the 2012 SECC Regulations. The Intermediaries Regulations were applied by reference in Clause 2 of the SEBI Circular dated April 17, 2018, and even under this regime it is noteworthy that the FMC Order and the SEBI Order do not count towards any finding of being ineligible – the period of three years has long expired;
- In fact, these orders cannot even come in the way of the Noticee acquiring ownership interests in a market infrastructure institution, as on date. It logically follows that these orders can have no bearing let alone a reasonable or proximate nexus with the Noticee’s activity of rendering of a software service;
- Further, and in any event, the Board of Directors of the Noticee has undergone a complete change in 2014, i.e after the passing of the SEBI Order, and the Board of Directors is manned by respectable and reputed former government servants and judges and there ought not be any regulatory concern in this regard.
- It is of relevance to note that after the FMC and SEBI Orders were passed, MCX and Metropolitan Stock Exchange of India (the exchanges from which the Noticee exited as a shareholder) continue to run using the software of the Noticee without any impediment, clearly depicting thereby that the FMC and SEBI Order have no bearing on the Noticee providing software services;
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- As regards the ED Probe, the old arrest of Mr. Jignesh Shah, the Noticee’s promoter, under the PMLA law, over four years ago, will have no bearing whatsoever on the Noticee’s eligibility of being a fit and proper person. In fact, the “fit and proper” criteria in Schedule II of the Intermediaries Regulations provides for absence of convictions, and not the presence of suspicion leading to arrest. The PMLA is any case a legislation that deals with “predicate” offences i.e they are based on the primary offences listed in the schedule thereto. In any case, the bail order granting liberty to Mr. Shah contains extensive prima facie findings that would show that nothing in the ED Probe is of a nature that would cause regulatory concern for the Noticee to provide STP services;
- In any event, Mr. Shah resigned from the Board of Directors of the Noticee in November, 2014 and is no longer associated with the Noticee in any executive capacity; and
- The EOW order passed in July 2016, securing the real estate and financial assets of the Noticee for attachment, can also have no bearing whatsoever. The EOW order itself has been set aside by the Hon’ble Bombay High Court vide its order dated August 28, 2019 and in any event, there is no doubt or cloud over solvency and financial position of the Noticee.
- The noticee has pointed out that its software business constitutes over 95% of its revenue and the noticee services over 300 brokers, 15 custodians and 170 fund houses. Any declaration by SEBI that the noticee is ineligible to render software services, would materially impact the noticee, its clients who are institutional clients and its 48,000 public shareholders who own 54% of the shares of the noticee.
- I am of the view that principles of natural justice have been followed in the matter by granting the noticee opportunity for replying to the SCN and of being heard. Therefore, I deem it appropriate to decide the matter on the basis of facts/material available on record and replies/ submissions by the noticee.
CONSIDERATION OF ISSUES, EVIDENCE AND FINDINGS
11.1 It is essential to decide a preliminary issue before considering the application for renewal in the light of the SCN. The applicant has pointed out that the “fit and proper” criteria were inserted in the STP Guidelines by way of circular dated April 17, 2018 issued after the application for renewal of approval was filed and cannot be applied retrospectively to its application filed earlier in April 2016.
11.2 By way of an amendment to the SEBI (STP Centralized Hub and STP Service Providers) Guidelines, 2004 (referred to as STP Guidelines) brought in vide Circular dated April 17, 2018, satisfaction of an additional condition was introduced in the eligibility criteria specified under Clause 3 (2) of the STP Guidelines. The said
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amendment effective April 17, 2018 stipulates that an applicant shall satisfy that it is a fit and proper person on the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008.
11.3 The Circular dated April 17, 2018 has come into force with immediate effect; hence any grant of a certificate of approval by SEBI for a period subsequent to the date of circular shall be upon satisfaction, inter alia, of the fit and proper criteria specified under the Intermediaries Regulations. The applicant, in this regard, has submitted that the new eligibility conditions specified in the aforesaid circular would not be applicable for considering the application submitted by it prior to coming into force of the said circular. The aforementioned submissions made by the applicant are analyzed and discussed as follows;
11.4 The circular dated April 17, 2018 was issued by SEBI in exercise of powers conferred under section 11 (1) of the SEBI Act, with an objective of ensuring that STP Service Providers meet the criteria for fit and proper person as specified by SEBI.
11.5 A certificate of approval for an STP Service Provider is granted for enabling and regulating such entity in providing the relevant services during a particular period. Consequently, an applicant shall satisfy the eligibility conditions laid down in the provisions of law relevant for the period for which such approval is granted.
11.6 I find that application is for renewal of approval for the period from June 30, 2016 to June 29, 2019 which can be divided into two periods; June 3, 2016 to April 16, 2018 and April 17, 2018 (Date of circular by which ‘fit and proper’ criteria were inserted in Clause 2 of STP Guidelines) to June 29, 2019
11.7 Further, Clause 5(1)(i) lays down that STP Service provider shall at times comply with the requirements of eligibility criteria, specified by SEBI. Accordingly, an applicant seeking a certificate of approval under the STP Guidelines is required to satisfy the eligibility criteria specified under Clause 3 (2) of the said Guidelines as amended by the Circular dated April 17, 2018, which includes whether an applicant is a fit and proper person in terms of the criteria laid down in Schedule II of the SEBI (Intermediaries) Regulations, 2008 with effect from April 17, 2018
11.8 As regards the period from June 30, 2016 to April 16, 2018, the new condition inserted by the circular dated April 17, 2018 is not applicable, as the circular is neither declared to be clarificatory nor retrospective. It is only stated that the amendment shall come into force with immediate effect. The SCN issued to the applicant is on the basis of said new condition inserted as clause 3(2) (iii) in the STP Guidelines. Hence, the application for renewal of approval, insofar as the period from June 30, 2016 to April 16, 2018 is concerned cannot be rejected on the basis of SCN. Hence, in this order,
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the application for renewal of approval is examined in the light of the SCN only to the extent it relates to the period from April 17, 2018 to June 29, 2019.
11.9 Although the application was filed before the amendment, it was not decided upon before April 17, 2018, when the amendment became effective. The fact that the application filed by the applicant was not decided prior to coming into force of the circular specifying additional eligibility conditions, would not entitle the applicant to claim that such additional eligibility conditions would not be applicable to it for the period from April 17, 2018 to June 29, 2019.
- Coming to the main issue for consideration, I, after perusal of the material available on record, the SCN and the applicant’s reply/ submissions, have the following issue for consideration:
- Whether the applicant is a fit and proper person as mentioned in the Schedule II to Intermediaries Regulations, 2008 as prescribed in Clause 3(2)(iii) of STP Guidelines.
- Before moving forward, it is pertinent to refer to the relevant provisions governing the approval and renewal norms to STP Service Providers. The eligibility criteria for grant of approval to STP Service Providers are governed by Securities and Exchange Board of India (STP Centralised Hub and STP Service Providers) Guidelines, 2004 issued by SEBI vide circular No. DNPD/Cir-24/04 dated May 26, 2004. The said Guidelines were amended vide SEBI circular dated April 17, 2018. The relevant provisions are as under:
(i) Clause 3 of STP Guidelines prescribes the eligibility criteria for STP Centralised Hub and STP Service Providers and Clause 5(1)(i) of the STP Guidelines states that the STP Service provider shall at all times comply with the requirement of the eligibility criteria, as specified by SEBI. Further, clause 6(1)(i) of the Guidelines lays down that the approval by SEBI shall be for an initial period of three years and must be renewed periodically.
(ii) In terms of Clause 3 (2)(iii) of the STP Guidelines, the eligibility criteria require the applicant to be a ‘fit and proper person’ as specified in the Schedule II of Intermediaries Regulations which is reproduced below for ready reference:-
“For the purpose of determining as to whether an applicant or the intermediary is a ‘fit and proper person’ the Board may take account of any consideration as it deems fit, including but not limited to the following criteria in relation to the
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applicant or the intermediary, the principal officer, the director, the promoter and the key management persons by whatever name called –
(a) integrity, reputation and character;
(b) absence of convictions and restraint orders;
(c) competence including financial solvency and networth.”
(d) absence of categorization as a wilful defaulter.
- The SCN has alleged that the noticee and Mr. Jignesh Shah allegedly do not satisfy the criteria of being “fit and proper person” as per Schedule II to Intermediaries Regulations (as laid down in the eligibility criteria under clause 3(2)(iii) of the STP Guidelines) based on the following:-
- The FMC Order declaring that the noticee is not a “fit and proper person’ to continue to be a shareholder of 2% or more of the paid-up equity capital of the Multi-Commodity Exchange of India Limited (“MCX”); and that Shri Jignesh Shah is not a ‘fit and proper’ person to hold any position in the management and the Board of any Exchange.
- The SEBI Order declaring that the noticee is not a ‘fit and proper person’ as specified under Regulation 20 (1)(b)(v) read with Regulation 19 of the SECC Regulations, which was upheld by an order of the Hon’ble SAT vide order dated July 9, 2014 (“SAT Order”);
iii. Mr. Jignesh Shah, the noticee’s promoter, allegedly does not satisfy the criteria of ‘integrity, reputation and character’ for being a fit and proper person, due to his arrest by the ED on July 12, 2016, for suspected money laundering in the matter of NSEL; and
- on July 18, 2016, the Economic Offences Wing of the Mumbai Police (“EOW”) secured real estate and financial assets of the applicant, worth Rs. 2000 crore for attachment;
15.1 The applicant has stated that while judging whether the applicant is “fit and proper” to render STP Services, SECC Regulations of 2012 on which SEBI Order was based cannot be relied on. Instead, the issue must be decided having regard to the Intermediaries Regulations. Further, a plain reading of Schedule II of the Intermediaries Regulations reveals that while the criteria in Clause (a) of Schedule II to the Intermediaries Regulations are general (honesty, reputation and character), they are succeeded by specific criteria in clauses (b) absence of convictions and restraint orders, (c) competence including solvency and networth and (d) absence of categorization as a willful defaulter. It is a well settled rule of interpretation that when
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general words are preceded or succeeded by specific words, the general words must take colour from the specific words. Therefore, clause (a) must necessarily be read and construed in light of the clauses that follow it.
15.2 While I agree with the applicant that its eligibility as a “fit and proper person” should be decided in accordance with the Intermediaries Regulations as per Clause 3(2)(iii) of STP Guidelines and not SECC Regulations, 2012, I do not agree with its contention that the terms “integrity, reputation and character” should take meaning from the clauses following it which prescribe absence of convictions and restraint orders, competence and absence of categorization as willful defaulter respectively. The applicant is wrongly trying to rely upon the “Ejusdem genesis” rule of interpretation. In plain words, it means, where particular words have a common characteristic (i.e belong to a class), any general words that follow should be construed as referring generally to that class. No wider construction should be afforded. Here, the words “integrity, reputation and character” are not general words, have specific meaning and are not following the other three clauses, which in any case, do not belong to a class of words. The words “integrity, reputation and character have a clear meaning and there is different and definite intent behind use of those words, which will be discussed later in this order.
16.1 It has also been argued that the “fit and proper’ criteria in the Intermediaries Regulations are common across all intermediaries but their application in a given case would vary depending on the nature of the activity in question which is necessarily a question of fact. There cannot be a one-size-fits-all approach in ascertaining whether an applicant is fit and proper. Therefore, in ascertaining whether the noticee is fit and proper to continue to render STP Services, regard must be had to only those facts that could reasonably be said to have a bearing on its ability to render STP Services and not facts that have no logical or proximate nexus with the activity in question. The law requires a quasi-judicial authority to take into account relevant facts and disregard irrelevant ones.
16.2 Thus, according to the applicant, it is clear that each of the events relied upon in the SCN pertain to a distinct and unrelated facet of the noticee’s activity i.e. ownership interests in market infrastructure institutions which cannot and do not impinge on the noticee’s ability to render STP services, as explained below. If these events are taken into account, while discarding relevant facts, it would amount to taking into account irrelevant facts which is untenable. The FMC order, inter alia, declared that the noticee is not fit and proper to hold shares in a commodity–derivatives exchange i.e in relation
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to MCX, where it was an anchor investor. The SEBI order declared that the noticee was not fit and proper to have ownership interests in recognized stock exchanges and clearing corporations. Both orders, pertained to ownership interests of the noticee in market infrastructure institutions. The standards that apply to ascertaining whether an applicant is fit and proper to acquire ownership interests in a market infrastructure institution, cannot be simply applied, without regard to context and the type of activity in question, to ascertain whether the noticee is fit and proper person. Running a market infrastructure institution is very different from providing a software service. The standards that one uses to ascertain eligibility for the former cannot be applied to the latter. The two are distinct and unconnected and lack a rational and proximate nexus. Hence, the applicant has urged that FMC order and SEBI order cannot be relied upon.
16.3 It has been emphasized in detail that the STP Services have been rendered by the applicant for a long time and have not given any cause for complaint to the extent that it has been proposed by Government to merge NSEL into the applicant because it would help generate resources.
16.4 I find that the applicant has interchangeably used the words ‘software services’ and ‘STP Services’ and emphasized on its technical competence and its long experience and expertise in the said field of providing services of high standards. Be that as it may, what has been alleged in the SCN is that the applicant is not ‘fit and proper’ when judged on the criteria laid down in Schedule II of Intermediaries Regulations. As regards ‘absence of convictions and restraint orders’ as mentioned by the applicant, the matters against the applicant and promoter are sub-judice. There is no mention of the applicant having being categorized as a wilful defaulter in the SCN. The SCN has also not alleged against the competence including solvency and net worth of the applicant. However, taking into account the findings given in the FMC order (on which the SEBI order is based), the arrest of Jignesh Shah and attachment of the assets of the applicant by EOW, it has been alleged that the applicant is not ‘fit and proper’. The remark of FMC in its order that FTIL does not carry a good reputation and character, record of fairness, integrity or honesty was highlighted in the SCN. Therefore, what remains to be examined is whether the applicant is ‘fit and proper’ after taking into account the criteria of integrity, reputation and character in relation to the applicant and its promoter.
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16.5 The FMC order in the context of a fraud and mismanagement at NSEL 99.9% owned, promoted and controlled by the applicant concluded that the applicant does not carry a good reputation and character, record of fairness, integrity or honesty as follows:
The facts of the case and the manner in which the business affairs of NSEL were conducted leaves no doubt in our minds that FTIL, notwithstanding its contentions that it was ignorant of the affairs and conduct of NSEL, exerted a dominant influence on the management, and directed, controlled and supervised the governance of NSEL. In the face of a fraud of such a magnitude involving settlement crises of Rs.5,500 crores owed to over 13,000 sellers / investors on the trading platform of NSEL, FTIL, cannot seek to take refuge behind the corporate veil so as to unjustifiably isolate itself from the fraudulent actions that took place at NSEL resulting in such a huge payment crisis.
Keeping in view the foregoing observations and the facts which reveal misconduct, lack of integrity and unfair practices on the part of FTIL in planning, directing and controlling the activities of its subsidiary company, NSEL, we conclude that FTIL, as the anchor investor in the Multi-Commodity Exchange Ltd., (MCX) does not carry a good reputation and character, record of fairness, integrity or honesty to continue to be a shareholder of the aforesaid regulated exchange. Therefore, in the public interest and in the interest of the Commodities Derivatives Market which is regulated under FCRA, 1952, the Commission holds that Financial Technologies (India) Ltd (FTIL) is not a ‘fit and proper person’ to continue to be a shareholder of 2% or more of the paid-up equity capital of MCX as prescribed under the guidelines issued by the Government of India for capital structure of commodity exchanges post 5-years of operation. It is further ordered that neither FTIL, nor any company/entity controlled by it, either directly or indirectly, shall hold any shares in any association / Exchange recognised by the Government or registered by the FMC in excess of the threshold limit of the total paid-up equity capital of such Association / Exchange as prescribed under the commodity exchange guidelines and post 5-year guidelines.
16.6 As regards reputation, integrity and character of Shri Jignesh Shah, it was concluded in the FMC order as under:
It is also pertinent to mention here that Shri Jignesh Shah was practically the highest beneficiary of the fraud perpetrated at the NSEL Exchange. It is because of the huge profit of Rs.125 crores (approx.) earned by NSEL during FY 2012-13 that the value of the shares of Shri Jignesh Shah in FTIL shot up manifold giving him the benefit of a spectacular market capitalization of his investment in FTIL running into thousands of crores of rupees. Shri Jignesh Shah, as the promoter of FTIL and NSEL has misused his position to create a confidence in the minds of the participants regarding the legitimacy of the business and its operations in the exchange platform of NSEL. Shri Shah consciously used his position to represent to the public at large about the attractive features of the contracts being traded on NSEL platform while taking no steps to introduce any effective governance mechanism including risk management, due diligence, assured collaterals etc., to ensure the legitimacy of his claims and to prevent frauds.
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Keeping the foregoing discussions and observations in view including the discussions made in the context of FTIL at para No.15.1, the Commission is of the view that the general reputation and character, record of fairness, honesty and integrity of Shri Jignesh Shah has been substantially eroded in view of his role in the affairs of NSEL as its Vice-Chairman & Director and also as the Chairman of the holding company of NSEL. Therefore, in the public interest, the Commission holds that Shri Jignesh P. Shah, former Director of MCX is not a ‘fit and proper person’ in terms of the directions issued under the Board Composition Guidelines issued by the Commission and as amended from time to time. Accordingly, it is ordered that Shri Jignesh P. Shah is not a ‘fit and proper’ person to hold any position in the management and the Board of any Exchange recognised or registered by the Government of India / Forward Markets Commission under FCRA, 1952. It is further ordered that neither Shri Jignesh P. Shah individually, nor any company/entity controlled by him, either directly or indirectly, shall hold any shares in any association / Exchange recognised by the Government or registered by the FMC in excess of the threshold limit of the total paid-up equity capital of such Association / Exchange as prescribed under the commodity exchange guidelines and post 5-year guidelines.
17.1 The question to be answered is whether the facts mentioned in the FMC order can be considered and lead to the conclusion that the applicant and its promoter Shri Jignesh Shah do not enjoy good reputation, integrity or character so as to be ineligible to provide STP Services.
17.2 The applicant has stated that the FMC order among other litigations, is sub-judice. The SEBI order was passed based on the conclusion arrived at in the FMC order and was challenged before SAT, which in its order dated July 9, 2014 upheld the SEBI order. The SAT order was in turn challenged by the applicant before the Hon’ble Supreme Court. The Hon’ble Apex court disposed of the applicant’s appeal by its order dated October 25, 2018 observing that the appeal is based on another order passed by FMC which is pending before the Hon’ble Bombay High Court and allowed the appellant to move the Supreme Court in the event such necessity arises in the future. As mentioned earlier, the applicant and its promoter Mr Jignesh Shah were held not to be fit and proper persons in the FMC order. The said order has been challenged before Bombay High Court. The writ petition has been admitted but no final order has been passed yet by the Bombay High Court. Hon’ble Bombay High Court in its order dated February 28, 2014 in W.P. No. 337/2014 has refused the prayer of FTIL to grant stay on operation of the FMC order and has observed the following – “After having perused the impugned order, we find that elaborate enquiry has been made by the Commission. Findings of fact of serious nature have been recorded against the Petitioners. The fraud perpetrated is to the tune of Rs. 5,500 crores. Criminal investigations are in progress. Considering the gravity of the allegations which have been found to be established against the Petitioners this is not a fit case where prayer for stay can be granted in exercise of writ jurisdiction under Article 226 of the Constitution of India. Accordingly, prayer for interim relief is rejected. Hearing of the Petition is expedited”.
Therefore, the findings given in FMC order are relevant and can be taken into account for deciding whether the applicant and its promoter carry good reputation, integrity and character.
17.3 The applicant has submitted that under regulation 20 of the SECC Regulations, the disqualification arising from the order dated December 17, 2013 passed by FMC shall cease on expiry of 3 years from the date of passing of the order and that consequently, the applicant cannot be considered as not fit and proper on the basis of the FMC order. Regulation 20 (2) (b) (v) of the SECC Regulations provides that an order passed by SEBI or any other regulatory authority against the person, or any of its whole time directors or managing partners, which has a bearing on the securities market, shall be a disqualification from such person being considered as fit and proper and that such disqualification would continue until lapse of period of three years from the date of the order. On a plain reading of the said provision, it becomes abundantly clear that a previous order passed by a regulatory authority against a person shall act as an automatic disqualification on such person from being considered as fit and proper, provided that such order has a bearing on securities market. The provision eliminates the requirement, while considering an application under the SECC Regulations, of independently establishing the grounds upon which the previous order was passed. In contrast, the factor under consideration while examining the present application is not whether the order passed by FMC/ SEBI acts as a disqualification of the applicant, rather the consideration is limited to the findings in the FMC order on the facts relating to reputation, integrity and character of the applicant affecting its ‘fit and proper’ status and whether such facts are relevant considerations in the present matter under Schedule II of the Intermediaries Regulations.
Schedule II of Intermediaries Regulations independently prescribes criteria to be taken into account for determining whether a person is fit and proper reproduced in para 13. Therefore, lapse of three years from the date of passing of the order would not be of any consequence, as contended by the applicant. As stated by the Hon’ble Bombay High Court in its aforesaid order dated February 28, 2014 “findings of fact of serious nature have been recorded” against the applicant and its promoter in the FMC order which are still relevant for deciding upon their reputation, integrity and character.
17.4 The applicant has contended that Clause (ii)(e) of Note 2 of the Guidelines on the Equity Structure of the Nationwide Commodity Exchanges (“FMC Guidelines”) itself states that such orders would have a validity of 3 years, after which the applicant would be eligible to own shares of a Commodities Derivative Exchange. Thus, the FMC order cannot be relied upon according to the applicant for determining eligibility under STP Guidelines. This contention is misconceived. Clause (ii)(e) of the aforesaid Note 2 refers to a disqualification which should not have been incurred for being held as a “fit and proper” person under the FMC Guidelines.
The clause reads as under:
For the purpose of these guidelines, a person shall be deemed to be a fit and proper person if
(ii) Such person has not incurred any of the following disqualifications-
(e) any other order against the person or any of its whole time directors or managing partners which has a bearing on the commodities market, has been passed by any regulatory authority and a period of three years from the date of the order has not elapsed;
Thus, order passed by any other regulatory authority could have been considered under FMC Guidelines for holding a person as not ‘fit and proper’ only if a period of three years from the date of order had not elapsed. This does not mean that an order passed by FMC declaring a person as not ‘fit and proper’ would have a validity period of three years only.
17.5 The applicant has raised doubts about the FMC order by passingly mentioning that the Hon’ble Madras High Court in its order dated July 26, 2018 had restrained the use of the report of Grant Thornton on which the content of FMC order is based. The applicant has submitted that the Hon’ble Madras High Court has restrained usage of the report submitted by Grant Thornton, which was relied on in the FMC order and hence the FMC order cannot form a basis for considering the fit and proper status of the applicant. In this regard, it is observed that the order referred to by the applicant is an order passed by Hon’ble Madras High Court in Commercial Suit No. 501 of 2018 (63 Moons Technologies Ltd. vs. Grant Thornton India Ltd. and NSEL) granting interim injunction restraining only the first respondent in the said proceedings (Grant Thornton India Ltd.) with respect to usage of the report dated September 21, 2013. The said order, being in the nature of an interim injunction granted only against Grant Thornton India Ltd., would not have an implication on the reliance placed on the facts mentioned in the FMC order. Further, the applicant has not argued this in detail and not explained the context in which this order was made. In any case, as mentioned above the Hon’ble Bombay High Court has noted the serious nature of findings in the FMC order and refused to stay its operations.
17.6 The applicant has argued strongly that running a market infrastructure institution is different from providing software/ STP Service and the standards that one uses to ascertain eligibility for the former cannot be applied to the latter. The instant SCN is limited to the question whether the applicant is ‘fit and proper’ person under the STP Guidelines read with Schedule II of the SEBI (Intermediaries) Regulations, 2008 which, inter alia, specifies integrity, reputation and character as criteria for assessing the fit and proper status of an applicant. As discussed above, the aforesaid order passed by FMC is relevant while considering the present application. Since the said order declares the legal status of the applicant and its promoter as not fit and proper, inter alia, by adopting similar criteria including integrity, reputation and character of the applicant as laid down in the STP Guidelines, albeit resulting in a prohibition of a different nature, the facts discussed in that order can be taken into account while deciding the instant matter. The meaning given to the word ‘reputation’ in Cambridge Dictionary is; the opinion that people in general have about someone or something, or how much respect or admiration someone or something receives, based on past behaviour or character. Therefore, past behaviour can be taken into account. Further, once reputation of a person is tarnished on the basis of findings/ allegations against it in a particular field of activity, it would be permissible to consider such reputation in a different field of activity. Here it is pertinent to note that the Hon’ble SAT in Appeal No. 53 of 2007 by Mukesh Babu Securities Limited, in its order dated 10.12.2007 did not agree with the appellant’s argument that a criminal case filed by CBI against the appellant has no concern with the securities markets. Also, while observing that only allegations had been made in the charge-sheet which were yet to be established in a court of law, Hon’ble SAT found that the charges were serious and if established, they involved moral turpitude. In such circumstances, the conclusion by SEBI that the appellant was not a ‘fit and proper’ person as it did not enjoy good reputation was held by the Hon’ble SAT to be a possible view which could not be said to be perverse. It was held that SEBI had not erred in holding that the company was not a ‘fit and proper’ person.
17.7 The applicability and the ambit of the expression integrity, reputation and character had been examined by Hon’ble Securities Appellate Tribunal in the matter of Jermyn Capital LLC vs. SEBI (order dated September 06, 2006) as follows “A reading of the aforesaid provisions of the Regulations makes it abundantly clear that the concept of a fit and proper person has a very wide amplitude as the name fit and proper person itself suggests. The Board can take into account any consideration as it deems fit for the purpose of determining whether an applicant or an intermediary seeking registration is a fit and proper person or not. The framers of the Regulations have consciously given such wide powers because of their concern to keep the market clean and free from undesirable elements. It can take into account the financial integrity of the applicant and its competence. Absence of convictions or civil liabilities would be another relevant consideration which could weigh with the Board. Good reputation and character of the applicant is a very material consideration which must necessarily weigh in the mind of the Board in this regard. Reputation is what others perceive of you. In other words, it is the subjective opinion or impression of others about a person and that, according to the Regulations, has to be good. This impression or opinion is generally formed on the basis of the association he has with others and/or on the basis of his past conduct. A person is known by the company he keeps. In the very nature of things, there cannot be any direct evidence in regard to the reputation of a person whether he be an individual or a body corporate. In the case of a body corporate or a firm, the reputation of its whole time director(s) or managing partner(s) would come into focus. The Board as a regulator has been assigned a statutory duty to protect the integrity of the securities market and also interest of investors in securities apart from promoting the development of and regulating the market by such measures as it may think fit. It is in the discharge of this statutory obligation that the Board has framed the Regulations with a view to keep the market place safe for the investors to invest by keeping the undesirable elements out. The Regulations apply across to all sets of regulations and all intermediaries of the securities market including those who associate themselves with the market and they all have to satisfy the criteria of fit and proper person before they could be registered under any of the relevant regulations and this criteria they must continue to satisfy throughout the period of validity of their registration and throughout the period they associate with the market. The purpose of the Regulations is to achieve the aforesaid objects and make the securities market a safe place to invest. One bad element can, not only pollute the market but can play havoc with it which could be detrimental to the interests of the innocent investors. In this background, the Board may, in a given case, be justified in keeping a doubtful character or an undesirable element out from the market rather than running the risk of allowing the market to be polluted. We may hasten to add here that when the Board decides to debar an entity from accessing the capital market on the ground that he/it is not a fit and proper person it must have some reasonable basis for saying so. The Board cannot give the entity a bad name and debar it. When such an action of the Board is brought to challenge, it (the Board) will have to show the material on the basis of which it concluded that the entity concerned was not a fit and proper person or that it did not enjoy a good reputation in the securities market. The basis of the action will have to be judged from the point of view of a reasonable and prudent man. In other words, the test would be what a prudent man concerned with the securities market thinks of the entity”.
17.8 Thus, the concept of good reputation, character and integrity is very wide and very relevant for deciding whether an entity can be allowed to operate in securities market. The applicant is seeking renewal of approval for acting as STP Service Provider in securities market and, therefore, on the above principle and in view of the eligibility criteria laid down in the STP Guidelines, it has to be examined whether it has good reputation, character and integrity to qualify as a ‘fit and proper’ person. For this purpose, SEBI can take into account any consideration as it deems fit including its past conduct as described in detail in the FMC order. However, the conclusion should have a reasonable basis from the point of view of a reasonable and prudent man. It also should be added that reputation, integrity and character of close associates, including promoters, can also be weighed while arriving at a conclusion in respect of an applicant. At the risk of repetition, it needs to be stressed that Schedule II of the Intermediaries Regulation codifies this principle insofar as promoters are concerned. The criteria specified therein have to be taken into account in relation to the applicant or, inter-alia, the promoter.
17.9 The facts relating to NSEL mismanagement have been discussed in detail in the FMC order. It was found that the entire governance of the company including planning, directing and controlling of its activities was utterly lacking in transparency, integrity, competence, compliance with law and most importantly an honesty of intent to meet its stated objectives of offering a platform for genuine trading in commodities. The applicant, FTIL which held controlling stake of 99.9% in NSEL deliberately allowed NSEL Board to admit, nurture and incentivize unworthy members to continuously trade and default on its platform thereby circumventing NSEL’s bye-laws, risk management system and canons of corporate governance. At the same time, short-selling and forward contracts having long term settlement periods in contravention of the conditions stipulated in the notification dated 05.06.2007 issued by the Central Government were allowed. NSEL was granted exemption under Section 27 of the FCRA, 1952 to trade on one day forward contract in commodities. However, from the year 2009 onwards, it started trading in paired contracts generating 13% to 18% per annum, akin to financial transactions under the garb of commodities trading. Such contracts were neither backed by actual physical delivery of commodities nor were discovering the market price of the commodity. In fact, they were financial transactions under the garb of spot trading. It was observed that NSEL’s Board,
Management and its prominent borrowers continuously acted in complicity whereby borrowers were allowed to default and roll over their outstanding debts dragging investors into high-risk exposures. Caution was not exercised even after issue of show-cause notice by Government in 2012 and exposure of borrowing members was allowed to increase. Some other specific findings were:
- The Directorate of Marketing, Government of Maharashtra passed an Order on 26.12.2012 suspending the private market licence issued to NSEL with directions to them to ensure transparency in the transactions on the electronic platform.
- NSEL suspended abruptly its trading in all the contracts (except e-Series contract) leaving thereby an outstanding default of Rs 5,500 crores (approx..) from a group of 24 borrowers with poor credentials who owed the money to large multitude of over 13,000 investors.
iii. The management of NSEL provided inconsistent figures about the fund availability in Settlement Guarantee Fund which, from a stated position of Rs 738.55 crores on 01.08.2013 came down to a figure of only Rs 62 crores on 04.08.2013.
- Within a few weeks, 19 out of 24 borrowers were declared defaulters and the management had no risk management tools at their disposal to recover any money from them.
- The NSEL engaged a collateral management firm, named SGS to make a detailed assessment of the stock of commodities lying in their accredited warehouses. SGS has pointed out in their interim report that from their inspection of 16 warehouses, physical verification revealed that as against stock of Rs 2389.36 crores supposed to be lying in these warehouses as per the records, stock worth only Rs 358 crores was found.
- From the report of the forensic auditor and other information collected by the Commission in course of dealing with NSEL, various facts came to light of lack of due diligence and control over warehouses, gross irregularities in risk management by allowing repeated defaulters to trade without margin money or collaterals, poor clearing and settlement system, mis-utilisation of margin utilisation account, financing of defaulters by NSEL, allowing related party like IBMA (a group company) to trade on the platform of NSEL and MCX etc.
vii. The Board of NSEL failed to constitute 9 out of 10 committees mandated under the rules and bye-laws of the Company which included important Committees such as Vigilance Committee, the Clearing House Committee and the Trading Committee etc., as a result of which there was absolutely no oversight over the risk management system in place at NSEL.
17.10 As regards the financing transactions under the garb of spot trading, it was specifically stated that a large volume of NSEL exchange trades were carried out with paired back-to-back contracts. Investors simultaneously entered into a ‘short-term buy contract’ (e.g. T+2 i.e 2 day settlement) and a ‘long-term sell contract” (e.g T+25 i.e 25 day settlement). The contracts were taken by the same parties at a pre-determined price and always registering a profit on the long-term position. Thus there existed a financing business where a fixed rate of return was guaranteed which was in contravention of notification dated 05.06.2007 granting NSEL exemption from the operation of FCRA, 1952 with regard to one-day forward contracts to be traded on its exchange platform. The conditions prescribing ‘no short-sell’ and ‘compulsory delivery of outstanding position at the end of the day’ stipulated in the notification were clearly violated by NSEL controlled by FTIL and its promoters/ directors/ KMPs (Key Management Persons) including Mr Jignesh Shah who was also functioning as Vice Chairman and KMP of NSEL since its inception. The deliberate non-transparent functioning and mismanagement of NSEL flouting legal requirements led to the default by borrowers to the tune of Rs 5500 crores. The conclusion by FMC in its order reproduced in para 16.5 above is based on these facts. The facts described above would certainly make a prudent person believe that FTIL and Shri Jignesh Shah were deliberately allowing NSEL to indulge in bogus trading transactions not backed by physical stocks in a fraudulent and unfair manner having scant regard to law of the land, interest of investors, corporate governance and risk management practices. The inescapable conclusion arrived at on the basis of these facts is that the applicant, 63 Moons/ FTIL does not carry good reputation, integrity and character within the meaning of Schedule II of Intermediaries Regulations.
17.11 As already mentioned above, FMC in its order has found that Shri Jignesh Shah was the main promoter of FTIL and NSEL. His active involvement in the huge default and settlement crisis at NSEL has been discussed at length in the FMC order. During the period of default and settlement crisis, Shri Jignesh Shah was serving as Chairman-cum-Managing Director of FTIL and Vice-Chairman on the Board of NSEL. He was the public face, both of FTIL and NSEL. He was named as one of the KMPs in the annual reports until financial year 2011-12. He was not shown as KMP in the annual report, when curiously, according to FMC, his maternal uncle, Shri Mukesh Shah was introduced as statutory auditor of NSEL. It was concluded by FMC on the aforesaid facts, as reproduced above in para 16.6, that general reputation and character, record of fairness, honesty and integrity of Shri Jignesh Shah had eroded. These facts, therefore, inevitably imply that he does not have a good reputation, integrity within the meaning of Schedule II of Intermediaries Regulations.
17.12 In the matter of arrest, the allegation against Shri Jignesh Shah by ED is that he assisted in the money laundering activities of the defaulting members and the management of NSEL which are in line with the finding in the FMC order regarding complicity among Shri Jignesh Shah, FTIL, NSEL and the defaulting borrowers. Though bail has been granted to Shri Jignesh Shah, the case has not assumed finality and the allegations are serious. According to the applicant, if the arrest of Jignesh Shah is the basis for a prima facie case of reputation of the noticee and its promoter being tainted, one must also take into account the order of the Hon’ble Bombay High Court, which, while granting bail to Shri Jignesh Shah in connection with his alleged role in the NSEL payment default, vide its order dated August 22, 2014, observed the following:
“………There is no allegation that the applicant [Jignesh Shah] has acquired from the borrowers any part of the ill-gotten money earned by them, as consideration for making it possible for them to commit such frauds, or, that, any part of the money earned by the borrowers in such a dishonest manner, has been from them by the applicant.
It is almost conceded that there has been no material to show any direct connection or link between the defaulting borrowers and the applicant……”
In this regard, it has already been concluded above that Shri Jignesh Shah does not enjoy good reputation, integrity and character on the facts mentioned in the FMC order. Suffice it to say that order of Hon’ble Bombay High Court relied upon by the applicant was in connection with his application for bail and his right to personal liberty. It has only been observed in the above extract of the said order, in that context, that it was almost conceded by the State there was no material to show any direct connection between him and the defaulting borrowers and there was no allegation that Shri Jignesh Shah had acquired any money dishonestly from the said borrowers. This does not amount to giving a clean chit to him in respect of his role in the mismanagement, default and settlement crisis at NSEL. This is clear from the fact, for example, that it has been stated in para 19 of the same order that Shri Jignesh Shah’s “contention that he was not aware of the illegalities, or that he being a Non-Executive Director of NSEL was not concerned with the illegal activities cannot be accepted”.
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Thus, the applicant and its promoter do not carry good reputation, integrity and character in terms of Schedule II to Intermediaries Regulations. The applicant has contended that its Board has been reconstituted and Shri Jignesh Shah is not associated with it in any executive capacity. However, it is noted that Shri Jignesh Shah continues to be Promoter and Chairman Emeritus of the applicant. Even now, he is described as such and as founder and driving force of the applicant company on its website. The reconstitution of the Board does not change the effect on the reputation, integrity and character of the applicant judged on the basis of the facts and conduct/ role of the applicant and its promoter in the crisis at NSEL described in the FMC order.
- The SCN, as mentioned in para 14 above had referred to the SEBI order. I do not consider any further discussions necessary on the same in view of the conclusions already drawn above and the fact that it was based on the FMC order having regard to SECC Regulations and not Intermediaries Regulations. Further, according to the applicant, the attachment notice dated July 18, 2016 securing assets of the applicant has been set aside by the Hon’ble Bombay High Court vide an order dated August 18, 2019. Hence, the said notice is also not taken into account for the purpose of this order.
- The applicant has pleaded that its business of providing software services and the clients/ intermediaries who avail of such services will be seriously affected if its application for renewal of approval is rejected. Here, it needs to be stated that the application is being examined in the light of the allegations made in the SCN that the applicant is not ‘fit and proper’ to provide STP Services under the STP Guidelines read with Schedule II of Intermediaries Regulations. Consideration of these submissions of the applicant is beyond the scope of the examination of the criteria specified under Schedule II of Intermediaries Regulations.
- In view of above, I find that the allegation levelled against the noticee in the SCN dated June 12, 2018 that the noticee does not satisfy the criteria of “Integrity, reputation and character” for being fit and proper person as per provisions of Intermediaries Regulations read with clause 3 (2)(iii) of STP Guidelines, is established for the period from April 17, 2018 to June 29, 2019.
- Accordingly, the application for renewal of approval is rejected to the extent it relates to period from April 17, 2018 to June 29, 2019. Clause 3(1) of the STP Guidelines stipulates that no person shall act as a STP Service provider unless it obtains approval
from SEBI to provide such service. However, as mentioned in para 9 earlier in this order, the noticee has claimed that it is giving STP services to 300 brokers, 15 custodians and 170 fund houses. These services are being provided without approval of SEBI. The activities of these market participants may get disrupted in case of sudden stoppage of such services which will not be in the interest of securities markets and investors in securities market. Therefore, without prejudice to action that may be taken by SEBI against the applicant for acting as STP Service provider without approval of SEBI, and to protect the interests of investors in securities markets, the applicant may provide necessary services for a period not exceeding three months from date of receipt of this order with a view to avoiding any disruption and enabling the users of such services to make alternative arrangements.
- A copy of this order shall be served upon the noticee immediately. A copy shall also be served on the STP Centralized Hub for necessary action.
Date: December 03, 2020 Anand R Baiwar
Place: Mumbai Executive Director Securities and Exchange Board of India