The Securities and Exchange Board of India (Sebi) has moved the Supreme Court (SC), challenging the Bombay High Court’s verdict in the MCX-SX case. The market regulator has also sought more time from the SC to consider the MCX-SX application for operating as a full scale stock exchange, as directed by the Bombay HC.
However, an email query to Sebi went unanswered.
Last month, the HC had quashed Sebi’s view that a buyback arrangement entered into by promoters of MCX-SX with other shareholders of the company was illegal. The HC had also dismissed most arguments of the regulator such as interpretation of rules regarding persons-acting-in-concert and shareholding norms.
Attorney general Goolam Vahanvati had advised Sebi to file a special leave petition in the SC on the HC verdict.
In 2010, MCX had moved the Bombay HC, seeking directions to force Sebi to respond to its application to trade equities, since it had not heard anything from the regulator even after several months. The court had directed Sebi to decide on the issue.
In September 2010, Sebi whole-time member, K Abraham, had passed an order rejecting the exchange application, citing irregularities in divesting stake and dishonesty in disclosures, following which MCX-SX dragged Sebi to court. Sebi had concluded MCX-SX had failed to make certain disclosures, which was illegal.
Multi Commodity Exchange and Financial Technologies, the two promoters previously held 51 per cent and 46 per cent in MCX-SX, respectively. They reduced their holding to fulfil regulatory criteria, by divesting to financial institutions and issuing convertible warrants. Sebi ad ruled when these warrants were issued, the promoters entered into buyback agreements with certain buyers. This was in violation of the Securities Contracts (Regulations) Act, 1956.
During the course of the hearings in the HC, the MCX-SX promoters had filed undertakings “to hold together, jointly and severally, no more than five per cent of the equity capital.” Based on this the HC observed there was “no reasonable basis (for Sebi) to reject the undertak-ings which have been filed.”
Though the court did not view the non-disclosure of the buyback agreement with favour, it did not agree on its being a forward contract and therefore, illegal.