The capital market watchdog has also observed that activities of DSE were "carried out in a manner contrary to the interest of the investors."
"...Hereby withdraw the recognition granted to Delhi Stock Exchange," Sebi Whole Time Member Prashant Saran said in a 19-page order.
The regulator will take all necessary steps consequential to the derecognition.
"I note that serious irregularities have been found in the functioning of DSE at the time when DSE was taking steps for demutualisation," Saran said.
"It is seen that for completing the demutualisation process the erstwhile board of DSE had overlooked the due transfer of shares in the demat accounts and receipt of the funds by the 'appointed date'," he added.
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Among others, Sebi rules pertaining to demutualisation requires every stock exchange to sell brokers' 51 per cent equity to separate their trading and ownership rights.
Present governing board of DSE admitted that a false certificate of completion of demutualisation process has been submitted by the erstwhile management of the exchange.
"It is seen that the present management, even after getting to know about the irregularities committed by the erstwhile management, has not initiated any action," the Securities and Exchange Board of India (Sebi) said.
Therefore, the recognition granted to DSE was withdrawn, it added.