Nearly seven months after the Securities and Exchange Board of India (Sebi) decided against allowing MCX Stock Exchange (MCX-SX) to operate as a full-fledged exchange, the promoters of the aggrieved bourse want an opportunity to be heard before the regulator.
Financial Technologies India (FTIL) and Multi Commodity Exchange (MCX) told the Bombay High Court on Tuesday that the capital markets regulator did not follow the principle of natural justice by making observations against them without hearing their arguments.
The Bombay High Court, while hearing a writ petition filed by MCX-SX, has given Sebi time till June 11 to file a reply on the plea that the promoters should be given an opportunity to be heard. The petition, which was filed in October last year, challenges the Sebi order banning MCX-SX from launching segments including, equity, derivatives and interest rate futures and a separate platform for small and medium enterprises (SMEs). The petition has been deferred until June 27 for further hearing.
During the course of the court proceedings, the counsel representing FTIL and MCX argued the findings on the basis of which MCX-SX was denied permission to start a full-fledged exchange were all related to the promoters, who were never given an opportunity of hearing by Sebi before the exchange’s application was rejected.
“Every finding is related to the promoters,” senior advocate C Aryama Sundaram said, while presenting his case before the high court division bench of Justice Ranjana Desai and Justice Rajesh Ketkar. “They (the promoters) need to be given an opportunity... I only felt an opportunity should be given to us,” said Ravi Kadam, appearing on behalf of MCX-SX.
This was, however, disputed by Sebi counsel Darius Khambatta who highlighted the point that the promoters had not even filed a writ petition to avail themselves of an opportunity to be heard by the regulator. “Strangely, they (the promoters) have not bothered to file (a writ petition). If they were so aggrieved, they would have filed,” he said. He said the regulator, while deciding on any application, can only “hear the applicants” and “not all the shareholders of the applicant”.
Justice Desai also questioned the counsel representing FTIL and MCX regarding the delay in filing their own petitions at a time when they were aggrieved by the Sebi order. “What prevented you from coming here?” she asked.
Sebi whole-time member K M Abraham, in September 2010, rejected the application of MCX-SX, saying that promoters FTIL and MCX were persons acting in concert and the exchange withheld material information related to buyback arrangements of its promoters with other shareholders. It further noted the exchange had not fully complied with the shareholding norms for stock exchanges.
“This is a sham...They (the promoters) have not gone below five per cent... They seek to control indirectly,” said Khambatta. “What they suppressed from Sebi were buyback agreements with three banks... something like a forward contract... They were never disclosed to Sebi,” he added.
