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M/s. Emkay Global Financial Services Limited v/s The National Stock Exchange of India Limited Exchange Plaza & Others


Company & Directors' Information:- NATIONAL STOCK EXCHANGE OF INDIA LTD. [Active] CIN = U67120MH1992PLC069769

Company & Directors' Information:- EMKAY GLOBAL FINANCIAL SERVICES LIMITED [Active] CIN = L67120MH1995PLC084899

Company & Directors' Information:- K. M. GLOBAL FINANCIAL SERVICES PRIVATE LIMITED [Active] CIN = U65910MH2011PTC214241

Company & Directors' Information:- GLOBAL I T SERVICES PRIVATE LIMITED [Active] CIN = U72200DL2004PTC127805

Company & Directors' Information:- GLOBAL E-SERVICES PRIVATE LIMITED [Active] CIN = U17116MH1947PTC005768

Company & Directors' Information:- S G STOCK SERVICES LIMITED [Active] CIN = U67120PB1994PLC015367

Company & Directors' Information:- A R PLAZA PRIVATE LIMITED [Active] CIN = U45201DL2002PTC113870

Company & Directors' Information:- A. S. PLAZA PRIVATE LIMITED. [Active] CIN = U70100WB2008PTC122079

Company & Directors' Information:- S & K PLAZA PRIVATE LIMITED [Strike Off] CIN = U45201WB1997PTC085621

Company & Directors' Information:- R S PLAZA PRIVATE LIMITED [Active] CIN = U70109WB1998PTC086927

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- S K GLOBAL SERVICES LIMITED [Strike Off] CIN = U74140WB2008PLC130221

Company & Directors' Information:- K & S GLOBAL SERVICES PRIVATE LIMITED [Active] CIN = U93000DL1996PTC082621

Company & Directors' Information:- I - GLOBAL SERVICES PRIVATE LIMITED [Active] CIN = U72900GJ2010PTC059452

Company & Directors' Information:- GLOBAL EXCHANGE COMPANY PRIVATE LIMITED [Active] CIN = U65929KL1995PTC009556

Company & Directors' Information:- S J PLAZA PRIVATE LIMITED [Active] CIN = U70109WB1997PTC083153

Company & Directors' Information:- K V M PLAZA PRIVATE LIMITED [Active] CIN = U70101KL1986PTC004612

Company & Directors' Information:- S V PLAZA PVT LTD [Active] CIN = U45201WB1993PTC060261

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- G N PLAZA PRIVATE LIMITED [Active] CIN = U45201WB1999PTC090867

Company & Directors' Information:- PLAZA INDIA PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC055773

Company & Directors' Information:- GLOBAL SERVICES (C & F ) PRIVATE LIMITED [Active] CIN = U60300MH1982PTC027712

Company & Directors' Information:- P S PLAZA PRIVATE LIMITED [Active] CIN = U45200WB2007PTC113368

Company & Directors' Information:- N K PLAZA PRIVATE LIMITED [Active] CIN = U45203WB2006PTC108313

Company & Directors' Information:- M. K. GLOBAL SERVICES PRIVATE LIMITED [Strike Off] CIN = U72300MH2014PTC259803

Company & Directors' Information:- E-EXCHANGE SERVICES PRIVATE LIMITED [Active] CIN = U70100MH2012PTC226074

Company & Directors' Information:- GLOBAL INDIA SERVICES PRIVATE LIMITED [Strike Off] CIN = U74120MH2013PTC242295

Company & Directors' Information:- P G PLAZA PRIVATE LIMITED [Active] CIN = U45201DL2003PTC119689

Company & Directors' Information:- STOCK EXCHANGE COMPANY LIMITED [Strike Off] CIN = U99999KA1924PLC000128

    Misc. Application No. 90 of 2013 In Appeal No. 64 of 2013

    Decided On, 28 October 2013

    At, SEBI Securities Exchange Board of India Securities Appellate Tribunal

    By, THE HONOURABLE MR. JUSTICE J.P. DEVADHAR
    By, PRESIDING OFFICER
    By, THE HONOURABLE MR. JOG SINGH
    By, MEMBER & THE HONOURABLE MR. A.S. LAMBA
    By, MEMBER

    For the Appellant: Darius Khambata, Senior Advocate with Janak Dwarkadas, Shiraz Rustomjee, Pesi Modi, Senior Advocates, Ranjit Bhosle, Ravichandra Hegde, Abishek Venkataraman, Ms. Arti Raghavan, Advocates. For the Respondents: R1, Iqbal Chagla, Senior Advocate with E.P. Bharucha, Senior Advocate, Cyrus Bharucha, Rashid Boatwalla, Amit Chauhan, Ms. Deepika Singh, R2, Shashank V. Choudhary, R3, F. Devitre, Senior Advocate with Zal Andhyarujina, Ajai Achuthan, R4, Ravi Ramaiya, Chartered Accountant, R5 & R8, Ankit Lohia, Advocate with Manish Chhangani, R7, Hitesh Shah, Advocate with Sanjay Dhruva, Advocates, R6 & 9, None.



Judgment Text

J.P. Devadhar, Presiding Officer

1. By this Miscellaneous Application appellant seeks leave to amend Memorandum of Appeal dated May 6, 2013 in Appeal No. 64 of 2013 in terms of Schedule annexed to the Miscellaneous Application.

2. Appeal No. 64 of 2013 is filed to challenge decision of National Stock Exchange of India Limited (‘NSE’ for short) dated April 29, 2013 (‘impugned order’) whereby, application filed by appellant on October 7, 2012 seeking annulment of trades mentioned therein has been rejected.

3. Appellant is a leading financial services provider engaged in the business of stock broking and advisory services.

4. Appellant claims that on October 5, 2012 at 9:48:52 a.m. appellant received order from its client to sell 35 lac value of Nifty Basket and Rs. 7 lac value of Sensex Basket. Appellant decided to execute Nifty order of Rs. 35 lac in two tranches i.e. Rs. 17 lac and Rs. 18 lac respectively and execution of that work was given to Mr. Sagar Shah a dealer of the appellant.

5. At 9:50:54 a.m. Mr. Sagar Shah placed a basket order into OMNESYS trading software (used for placing orders) by punching 17 lac units ‘based on Qty’ instead of Rs. 17 lac value. As a result, order for Rs. 980 crore was entered into trading system of NSE.

6. At 9:50:58 a.m. error was identified immediately after Nifty Basket got executed. Mr. Sagar Shah tried to cancel pending orders but could not do so as orders had already hit exchange server. At 9:51:00 a.m. cash segment of NSE was halted, but by that time Nifty basket worth Rs. 650 crore got executed. However, within 15 minutes i.e. at 10:05:00 a.m. cash market of NSE resumed trading, as a result some more orders worth approximately Rs. 5 crore got executed as they were pending in the system instead of being returned by trading systems of NSE. At 11:45:00 a.m. officials of appellant approached NSE and requested for annulment of above erroneous trades. Written application was also made on October 7, 2012 before NSE seeking annulment of erroneous trades executed on October 5, 2012 in terms of Bye-law 5(a) of Chapter – VII of Bye-laws framed by NSE inter alia on ground that said trades were outcome of a material mistake.

7. As the annulment application dated October 7, 2012 has been rejected by impugned order dated April 29, 2013, Appeal No. 64 of 2013 is filed to challenge order of NSE dated April 29, 2013.

8. By present Miscellaneous Application appellant seeks to amend memorandum of appeal as per schedule annexed thereto, basically with a view to place on record show cause notice dated April 18, 2013 issued by SEBI to NSE and replies to show cause notice filed by NSE on May 8, 2013 and August 16, 2013 respectively.

9. Mr. Khambata, learned Senior Advocate appearing on behalf of appellant submitted that show cause notice dated April 18, 2013 and replies filed by NSE on May 6, 2013 and on August 16, 2013 were made available to appellant on August 22, 2013 that i.e. after filing of appeal on May 6, 2013. According to Mr. Khambata, aforesaid documents clearly support contention of appellant that trades executed on October 5, 2012 were due to material mistake of appellant as also failure of NSE to put in place a proper and effective circuit breaker system which was in contravention of SEBI Circular dated June 28, 2001 and hence NSE ought to have annulled trades executed on October 5, 2012. Mr. Khambata submitted that though show cause notice dated April 18, 2013 is yet to be adjudicated, prima facie view of SEBI contained in the aforesaid show cause notice and admission of NSE in its reply that erroneous trades were entered by appellant on October 5, 2012 is sufficient to allow annulment application filed by appellant on October 7, 2012 and therefore, appellant must be permitted to amend memo of appeal in terms of schedule annexed to Miscellaneous Application.

10. Mr. Chagla, learned Senior Advocate appearing on behalf of NSE vehemently opposed amendment application on following grounds:

(a) By amending memo of appeal, appellant seeks to introduce a new alleged cause of action which is beyond scope and ambit of existing appeal;

(b) Proposed amendments are not necessary for determining real question in controversy and/or for proper and effective adjudication of appeal;

(c) Proposed amendments sought by appellant cause irreparable harm, loss and prejudice to NSE;

(d) Proposed amendments fundamentally change nature and character of alleged case pleaded in appeal filed on May 6, 2013;

(e) Amendments sought by appellant are purely an afterthought as new allegations are sought to be added which could have been raised at the time of filing the appeal;

(f) Without prejudice to above, it is submitted that by proposed amendment appellant seeks to place on record issues pending between SEBI and NSE which is completely out of context to present appeal.

11. Mr. Chagla further submitted that show cause notice issued by SEBI on April 18, 2013 is contested by NSE and the matter is yet to be adjudicated by SEBI. In such a case, if any order is passed in this appeal expressing any opinion on charges set out in show cause notice dated April 18, 2013, then, it would seriously prejudice NSE because, firstly SEBI would be bound by the view expressed by this Tribunal and would not be in a position to take independent view on the show cause notice dated April 18, 2013 and secondly, right of appeal conferred upon appellant to challenge order of SEBI if adverse to NSE would be in jeopardy, if this Tribunal allows Miscellaneous Application and expresses its opinion on show cause notice dated April 18, 2013. Counsel for other respondents while adopting arguments advanced by Mr. Chagla, submitted that it is not a fit case for allowing amendment of Memo of Appeal.

12. We have carefully considered rival submissions.

13. Question that is to be considered in this Appeal is, whether, NSE is justified in rejecting Annulment Application filed by appellant on October 7, 2012. According to appellant, application for annulment of trades executed on October 5, 2012 ought to have been annulled basically on two grounds viz. (one) trades in question were entered into trading system of NSE on account of material mistake by representative of appellant and (two) such erroneous trades placed by appellant got executed on account of defective system of NSE.

14. By present Miscellaneous Application, appellant seeks to place reliance on show cause notice issued by SEBI on April 18, 2013 and replies filed by NSE on May 6, 2013 and August 16, 2013. In show cause notice dated April 18, 2013, SEBI on basis of its investigation report has recorded its prima facie view that trades executed on October 5, 2012 inter alia were due to failure of NSE to put in place a proper and effective circuit breaker system, which was in violation of SEBI Circular dated June 28, 2001 and accordingly called upon NSE to show cause as to why appropriate action should not be initiated against NSE. Prima facie view of SEBI set out in the aforesaid show cause notice relating to trades executed on October 5, 2012, in fact, is also the view of appellant. Therefore, if prima facie view of SEBI supports contention of appellant then appellant would be justified in taking support of that prima facie view of SEBI contained in show cause notice dated April 18, 2013.

15. Fact that NSE has refuted charges contained in show cause notice and there is a possibility that SEBI may accept the explanation given by NSE and drop proceedings initiated against NSE cannot be a ground to deny appellant to rely on prima facie view of SEBI contained in show cause notice, because such denial would amount to depriving appellant to avail prima facie view of market regulator viz. SEBI, which is subsisting as on date. Therefore, leaving the question as to how much weightage must be given to prima facie view of SEBI contained in pending show cause notice to be decided at final hearing of appeal, in our opinion, it would be just and proper to permit appellant to amend memo of appeal and make submissions on basis of prima facie view of SEBI contained in show cause notice dated April 18, 2013. Similarly whether averments made by NSE in its reply to the show cause notice amounts to admitting that trades entered into system by appellant on October 5, 2012 were on account of material mistake of appellant or not is a question that can be decided at final hearing of appeal, after allowing Miscellaneous Application.

16. Argument of NSE that by proposed amendments appellant seeks to introduce a new alleged cause of action which is beyond scope and ambit of existing appeal and that the proposed amendments are not necessary for determining real question in controversy and / or for proper and effective adjudication of appeal cannot be accepted because, one of the grounds on which appellant seeks annulment of trades is that erroneous trades were executed on October 5, 2012 on account of failure of NSE to put in place a proper and effective circuit breaker system and that is also prima facie view of SEBI as set out in show cause notice dated April 18, 2013. Therefore, it would not be correct to say that if amendments are allowed it would amount to introducing a new cause of action which is beyond scope and ambit of existing appeal or proposed amendments are not necessary for determining real question in controversy and / or proper and effective adjudication of appeal. For same reason other contentions of NSE are also liable to be rejected.

17. Apprehension of NSE that after allowing amendment if this Tribunal while deciding appeal on merits makes any observation in respect of prima facie view of SEBI, then, it would cause serious prejudice to appellant in the proceedings pending before SEBI is also without any merit. Question to be considered by SEBI while adjudicating show cause notice dated April 18, 2013 is, whether prima facie view of SEBI based on investigation

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report that NSE has failed to put in place a proper and effective circuit breaker system is correct and if so, what action is to be taken against NSE. Whereas, question to be considered in the appeal filed by appellant even after amendment would be, whether NSE is justified in rejecting annulment application of appellant dated October 7, 2012 even when SEBI is prima facie of opinion that NSE has failed to put in place a proper and effective circuit breaker system. In other words, whether NSE has failed to put in place a proper and effective circuit breaker system is not the question to be considered in the appeal filed by appellant. Thus it is evident that scope of enquiry in proceedings pending before SEBI and in the appeal filed by appellant are altogether different and therefore, it would not be correct to say that if amendments are allowed it would cause serious prejudice to NSE. 18. Accordingly, for aforesaid reasons, Miscellaneous Application is allowed with no order as to costs. Amendment to memo of appeal as per schedule to Miscellaneous Application be carried out within a period of one week from today.
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