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Posted by on Mar 15, 2012 in Business, Law | 0 comments

Bombay HC: Reconsider MCX-SX application;Setback to SEBI

In a rare occasion where an action of a regulatory body is found contrary to law, Bombay High court has directed the Securities Exchange Board of India (SEBI) to reconsider within one month, the application of nation’s biggest commodities bourse, Multi Commodities Exchange (MCX) to set up an exclusive stock exchange with independent trading platform.

SEBI had earlier rejected MCX’s application to float the exchange in 2010. SEBI rejected the application on the grounds that “it wasn’t in the interest of trade and public to allow the application” and said the rules of MIMPS (Manner of Increasing and Maintaining Public Shareholding) were violated, which mandates promoters of the exchange to hold only 5% stake.

The court noted that a genuine attempt has been made by the promoters to keep the stake less than 5% and speculation cannot be used as evidence against the application. “The mere possibility of a hypothetical situation cannot result in the invalidation of the transaction which is otherwise lawful” quoted the judgment.

However the court also said that MCX was not fit and a proper person because it had not disclosed the buyback agreements with the board and reiterated that the relationship between SEBI and the stock exchange is “one based on trust and utmost faith”. MCX also acknowledged that SEBI was, is and will remain a respected regulator and that the tussle was not against the board but only against its principles.

Given the financial sensitivity the issue is associated with, legal analysts expect SEBI to move Supreme court challenging the verdict. While news@indiandragon respects the Bombay High court’s judgement, it is also of the view that as a consequence of this, the autonomous regulatory institutions should not be diluted by making their powers statutory, because these institutions are viewed as the last remaining checks of misgovernance in this country.