Supreme Court To Hear SEBI Plea Against SAT Order In Allied Financial Options Dispute
SEBI says it doesn’t have the jurisdiction to look into the dispute between Allied Financial Services and Dalmia Bharat.
The Supreme Court of India today agreed to hear the Securities and Exchange Board of India’s appeal against the Securities Appellate Tribunal order which had asked the regulator to look into the transactions of options trading conducted by Allied Financial Services Pvt. Ltd. and the alleged illegal use of securities of mutual funds of the Dalmia Bharat Group.
The regulator was represented by Senior Advocate Arvind Datar who argued that SEBI’s jurisdiction bars it from looking into the matter. Datar said that SEBI’s powers relate to violations of regulations or regulating brokers but not in civil disputes between parties. It is a grave problem for the market regulator as it doesn’t have the manpower or the jurisdiction to look in this matter, Datar argued in the apex court. “Day in and day out there are disputes. If the broker indulges in insider trading, I will debar him. But we will not go downstream. We will deal with the broker but not their individual disputes.”
Datar said while the SAT claims that the underlying players did the fraud, Dalmia Bharat, on the other hand, claims there has been theft of their mutual funds which were used as securities. “Should I now investigate the theft?” he asked.
SEBI was supported by Solicitor General Tushar Mehta who said that a direction to SEBI to investigate this matter will have wider ramifications and the court should hear its side before passing any orders in the case. The top court bench headed by Justice Mohan Shantanagoudar fixed the case for hearing on Aug. 13.
What Is The Dispute?
Allied Financial Services, through its clearing member IL&FS Securities Services Ltd., sold Nifty 5000 call options in December expiring in June. As a collateral, it offered mutual fund units and received a premium of Rs 380 crore. But Dalmia Bharat group alleged that the units of its companies were fraudulently transferred to be used as a security, and filed complaints with the police and SEBI, according to exchange filings. The regulator froze the mutual fund units, forcing IL&FS Securities to replace mutual fund units with cash since, being the counterparty, it was required to maintain the margin.
SEBI’s interim order found Allied Financial Services guilty and barred it from the securities market. IL&FS Securities approached the regulator to annul the options contracts, claiming that it was a victim of the fraud. SEBI, however, rejected the demand.
When IL&FS Securities approached the NSE Clearing Ltd. on the direction of the SAT, the clearing corporation said it can’t take parallel action when the regulator and the economic offences wing of the police are investigating the matter.
IL&FS Securities moved the Supreme Court, which granted a stay on settlement and asked the SAT to decide. The appellate tribunal asked the market regulator to hear all parties afresh. But the market regulator deferred the July 10 hearing and filed an appeal in the Supreme Court.