IL&FS Securities case: SEBI wants to step aside citing lack of jurisdiction, approaches SC

The Securities and Exchange Board of India (SEBI) has moved the Supreme Court seeking that it not be asked to adjudge the Rs 460-crore ILand FS Securities case on grounds that the matter is the domain of the clearing corporation. The move comes a few days after the Securities Appellate Tribunal (SAT) asked SEBI to pass an order in the case. The case pertains to a default by a broker Allied Financial Services, which carried out alleged rogue trades on behalf of its client Dalmia Bharat – trades that resulted in a loss of about Rs 4600000000. While Dalmia has sued Allied Financial separately on grounds that it did not authorise the trades, the responsibility of bearing the losses fell to ILand FS Securities (ISSL), the clearing member, whose job is to guarantee and settle all trades conducted by its broker members. ISSL maintains that it is in no financial position to honour the trades and has requested NSE Clearing, the clearing corporation of the NSE, to annul the trade and absorb the loss, as it has the power to do so under law. NSE Clearing has refused to do so. The decision on which party bears the losses has been transferred between a number of judicial and quasi-judicial authorities. First, SEBI ordered a forensic audit of Allied Financial and barred it from the securities market but did not take a position on whether the trade should be annulled. SEBI’s view is that the decision rests with the clearing corporation. ISSL then approached the SAT, which referred the matter to NSE Clearing. After NSE Clearing refused to annul the trade, the ISSL approached the Supreme Court, which directed the company back to a “competent court”, after which the matter landed back in the SAT. The SAT on July 4 directed SEBI to hear the matter on a personal hearing and pass an order within 10 days, after which SEBI has now approached the SC. The first of the hearing was scheduled to take place today but was cancelled at the last moment by SEBI. The hearing in the Supreme Court is on July 12. Meanwhile, a source in ISSL told Moneycontrol that the company is also planning to move Supreme Court against SEBI on grounds of contempt of court. “SEBI is not conducting a personal hearing as directed by SAT, which is the competent court, as directed the apex court.”