Guj HC upholds SEBI's networth, turnover criteria for RSEs

A division bench observed that SEBI had all the powers to issue circulars and notifications in interest of the investors

Gujarat High Court on Wednesday upheld the notification issued by Securities and Exchange Board Of India (SEBI) with regard to net worth and turnover criteria for regional stock exchanges (RSE), while dismissing a couple of petitions challenging its validity and legality.

A division bench of Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala observed that SEBI had all the powers to issue circulars and notifications in interest of the investors. The court was hearing a public interest litigation (PIL) filed by a member of Ahmedabad Stock Exchange (ASE) and as special civil application filed by brokers of the Vadodara Stock Exchange (VSE).

It further observed that the notification did not violate fundamental rights of the brokers as they have not been restricted from trading on other stock exchanges. The petitioners had alleged that SEBI notification was infringed upon their fundamental rights.

The petitions had challenged the SEBI notification, which made it mandatory for RSE to have minimum net worth of Rs 100 crore and annual turnover of Rs 1000 crore. They had challenged the SEBI's order, claiming it to be 'illegal'. They had also argued that SEBI was not statutory body and cannot issue such notifications for derecognition of RSEs.

The petitioners had further claimed that SEBI did not consult the regional stock exchanges before taking the decision. RSEs were not given opportunity for hearing, they added. In its notification issued on June 20, 2012, SEBI had announced that all the stock exchanges which do not have net worth of Rs 100 crore and annual turnover of 1000 crore, would be derecognised.

Another claim of the petitioner was that the SEBI's decision would severely affect the RSEs and their shareholders. And such a decision by the regulator may even force some of the exchanges to close their operations, thereby creating a threat on their existence.

The petition further noted that the logic behind fixing net worth and turnover to this tune was not disclosed by SEBI. It had also claimed that the decision was taken with a malafide intention and was to benefit only the big stock exchanges like Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

A similar case has been filed by the promoters and members of the Uttar Pradesh Stock Exchange (UPSE) in the Allahabad High Court against the same SEBI notification. Hearing in that matter was still on.