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Madras High Court Dismisses Writ Petition Against National Stock Exchange For Lack Of Merit

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In the case of A. Kumar v. Financial Intelligence Unit & Ors., A. Kumar filed a writ petition under Article 226 of the Constitution against the respondents. It sought that the court issues a Writ of Mandamus, directing the respondents to dispose of the representation of the petitioner dated 21.08.2018. The case was heard by Madras HC Judge Justice Pushpa Sathyanarayana.

Facts of the Case:

The petitioner alleged that some NSE (National Stock Exchange) officials conspired with Software Vendor and OPG Securities by running illegal co-location service.  This led to manipulative price discovery and preferential access opportunities to few brokers. This, in turn, led these brokers to wrongfully gain several crore rupees.

The petitioner further complained that the then Managing Director & Chief Executive Officer of NSE had launched its co-location facility, which allowed the members to rent rack space with low latency connectivity to the exchange. To investigate the alleged misconduct, SEBI constituted a Technical Advisory Committee. 

Arguments Before the Court

The petitioner alleged that there was another attempt by the then Managing Director of NSE to sabotage the regulatory enforcement action by SEBI. An independent professional entity was pressed into service to investigate if norms of fair access were breached. If so, were some brokers unduly benefitted by it. If they were benefitted, did that have to do with the collusion/misconduct of any NSE officials? 

The reports from both the investigations confirmed and further ingrained the allegations of misconduct on the part of the concerned NSE officials. 

The Financial Intelligence Unit – India, has the power to take action under Section 12 and 12A of the Prevention of Money Laundering Act, 2002. The petitioner pointed out that the Central Government has passed an order in the case of NSEL scam constituting the Serious Fraud Investigation Office (in short SFIO) to investigate the matter under Section 212(1)(c) of the Companies Act, 2013. Therefore, the same power ought to be exercised in the present case as well. 

NSE contended that in both the writ petitions by the petitioner has no locus standi. It is because at the relevant time 2010-14, the said petitioner has never availed the co-location services nor is he aggrieved as a broker or an investor or even as the user of the NSE service. 

NSE further submitted that the petitions were filed in the welfare of the public. But, trading in stocks is only private interest. Thus, the petitioner not being an aggrieved party, or related to the organization in any way cannot maintain the writ petitions. 

The first respondent, the Ministry of Corporate Affairs submitted that issues raised in the petition are monitored and regulated by SEBI. Therefore, SEBI not being added as a party to the petition makes the petition non-maintainable for non-joinder of parties. 

The Assistant Solicitor General also mentioned that copy of the report of the investigations taken by the authorities could be presented only to the Court and not to the public at large. 

Court’s Observations: 

The Court noted that the interest of the individual in the present writ petitions seem private. The petitioner is a complete stranger as he has never had contact with these agencies incapacity of trading or has suffered any losses due to their misconduct.  

Section 6(3) of the Securities Contracts (Regulation) Act, 1956, mentions the power of the Central Government to call for periodical reports or direct enquiries to be made. The show-cause notice was issued under Section 11 of the Securities Contracts (Regulation) Act. The prayer in both writ petitions was to reconsider the representation of the petitioner dated 21.08.2018. The action had already been taken and the SAT had considered the matter. The petitioner had himself filed an independent appeal besides impleading himself in the other appeal. 

Court’s Decision:

The Writ Petitions were dismissed.

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