SAT Upholds NSE Clearing Order on Client Securities Liquidation

New Delhi, Dec 15 (PTI) The Securities Appellate Tribunal (SAT) on Friday upheld an NSE Clearing Ltd order in a matter related to the return of clients' securities that were liquidated by four entities in contravention of rules.

The order was challenged by Edelweiss Custodial Services Ltd (now known as Nuvama Clearing Services), Anugrah Stock & Broking, SMC Global Securities and Yes Bank.

The SAT ruling came after four appeals were filed against different orders passed by the Member and Core Settlement Guarantee Fund Committee of NSE Clearing Ltd in 2020-2021, directing the appellants to reinstate the securities, which were disposed of in contravention of the rules or alternatively provide and retain an appropriate security cover.

NSE Clearing is a subsidiary of the National Stock Exchange (NSE).

Dismissing the appeals of four entities, SAT said, "We find that the directions in the impugned orders are not barred by any law, rule, regulations, bye-law or circular. We are of the opinion that the Committee has the power for restitution, to reverse the damage wrongfully caused. The appellants having committed a wrongful act cannot be permitted to take advantage of its own wrong".

"Where restitution can be directed, it would be totally contrary to the cause of justice to deny the same. It would be a travesty of justice and totally undermine the regulation of the markets if any intermediary is permitted to misuse/misappropriate clients' securities by selling off the same unilaterally when the concerned investor has no outstanding obligation or liability, and then permitting the intermediary to benefit from the same at the cost of the expense of the investors," the order noted.

As per the tribunal order, the appellants have liquidated clients' securities of the trading member worth Rs 462.32 crore in the case of Anugrah, Rs 22 crore in the case of VRise Securities by Edelweiss Custodial Service, Rs 75.74 lakh in the case of Yuvraj Securities by SMC Global and Rs 1.95 crore in the case of Action Financial by Yes Bank.

They liquidated the securities of the clients of the trading members for recovery of the dues of the trading members because of their increasing debit balance, the order noted.