While rejecting applications filed by Anand Rathi Commodities Ltd and Motilal Oswal Commodities Broker Pvt Ltd, market regulator Securities and Exchange Board of India (SEBI) has restrained the brokerage from filing fresh applications seeking registration as a commodity broker.
In two separate orders, Ashwani Bhatia, whole-time member (WTM) of SEBI, says, "...reject the application filed by the noticee and also debar the noticee from making a fresh application seeking registration, before SEBI..."
Motilal Oswal Commodities
has been restrained from filing a fresh application as a commodity broker for three months and for Anand Rathi Commodities
, it is six months, or till the disposal of first information reports (FIRs) filed with economic offences wing (EOW), whichever is earlier.
Anand Rathi Commodities
On the application filed by Anand Rathi Commodities, the SEBI WTM observed that the broker had submitted its application in 2015. However, later it decided to withdraw the application to register as a commodity broker, which SEBI did not permit. Anand Rathi Commodities then approached the Bombay High Court (HC), which eventually held that SEBI was justified in refusing the withdrawal as proceedings were pending. Then on 25 February 2019, SEBI rejected the application saying the brokerage failed to satisfy 'fit and proper' criteria specified in Schedule II of SEBI regulations.
Anand Rathi Commodities filed an appeal before the Securities Appellate Tribunal (SAT), which on 9 June 2022, set aside the order passed by SEBI and asked the market regulator to decide the matter afresh.
SEBI then appointed a designated authority (DA), which after providing a hearing opportunity to the broker, submitted its report on 30 September 2022.
The DA recommended rejecting the registration application filed by Anand Rathi Commodities on 16 December 2015. It also recommended barring the brokerage from making a fresh application for registration as a commodity broker for three years or till acquittal of the brokerage by the court pursuant to the charge sheet and FIR filed by EOW.
Mr Bhatia, the WTM of SEBI, however, differed with the recommendation of the DA on the period of ban. While rejecting the application filed by Anand Rathi Commodities in 2015, the WTM debarred the brokerage from making a fresh application for six months for registration as a commodity broker.
Motilal Oswal Commodities
In his order, Mr Bhatia, the WTM, noted that SEBI had filed a criminal complaint before EOW against Motilal Oswal Commodities, which he says attracts disqualification. "Further, the act of Noticee in offering access to 'paired contracts' also seriously calls into question the integrity, honesty and lack of ethical behaviour on the part of the Noticee. These contracts, as stated earlier, were ex-facie offered in violation of the exemption notification issued by the ministry of corporate affairs (MCA) and far removed from the spot contracts in commodities which were permitted to be traded on NSEL."
"The 'paired contracts' were nothing but financing transactions masquerading as spot contracts in commodities...there were enough red flags for a reasonable person to infer that what was being offered as 'paired contracts' on NSEL was not spot contracts in commodities and that the Noticee, presumably driven by its desire to earn brokerage, provided a platform for its clients to access a product which raised serious questions on the Noticee's ability to conduct proper and effective due diligence regarding the product itself. In view of the above, I hold that the Noticee does not satisfy the 'fit and proper person' criteria specified in Schedule II of the Intermediaries Regulations," SEBI order says.
While the 'paired contracts' offered by NSEL pertained to the period from 2009 to 2013, the application for registration that is being considered in these proceedings was submitted in 2015.
Motilal Oswal Commodities also attempted to withdraw its registration application to become a commodity broker. However, withdrawal of the application was not permitted by SEBI and later, Bombay HC also held that the market regulator was justified in refusing the withdrawal pending proceedings.
In its report on 3 October 2022, the DA recommended rejecting the registration application and barring Motilal Oswal Commodities for two years from making any new application for registration as a commodity broker.
However, in this case, too, Mr Bhatia, the WTM, says he differs from the recommendations of the DA about the debarment period. "I am of the view that Motilal Oswal Commodities being debarred from making a fresh application seeking registration for a period of three months from the date of this order or till the disposal of FIR filed with EOW, whichever is earlier, would be commensurate with the findings against Motilal Oswal Commodities in this order."