Market regulator Securities and Exchange Board of India (SEBI) has disposed proceedings in the National Stock Exchange (NSE) co-location (Colo) matter against Ravi Narain and Chitra Ramkrishna, both former managing directors and chief executive officers (MD&CEOs) of NSE, Anand Subramanian (former group operating officer -GOO), Ravindra Apte and Umesh Jain (former chief technical officers -CTOs), Mahesh Soparkar (former senior vice president – special projects) and Devi Prasad Singh (former head of the IT operations), all top executives associated with the Exchange. In a separate order, SEBI directed OPG Securities Pvt Ltd, Sanjay Gupta, Sangeeta Gupta and Om Prakash Gupta, to disgorge Rs85.25 crore with an interest of 12%pa (per annum).
In
an order, Kamlesh C Varshney, whole time member (WTM) of SEBI, says, "...there is no dispute to the fact that NSE did not have a detailed defined policy for the use of colo facility. It even failed to monitor the use of the secondary server by trading members (TMs) without having sufficient reason. The defence put forward by NSE about the issuance of a welcome email in the form of 'registration enablement mail' at the time of providing the colo facility to TMs, can't be said to be justifying its role as a first-level regulator. Issuance of guidelines without its monitoring showed a lack of due diligence. These findings are also contained in the 2023 securities appellate tribunal (SAT) order qua NSE. However, this fact on its own does not help in deciding the issue of collusion or connivance of OPG and its directors with noticees (NSE and seven top executives)."
"The fact that OPG was logging on to the secondary server till May 2015, even after the warning in the first half of June 2012 does indicate indirect consent by NSE to OPG. However, the fact that 93 TMs were logging to the secondary server during this period reduces the probability of collusion or connivance. Further, it is seen that in spite of multiple reports of Deloitte, EY, and SEBI external committee where external experts have examined email dumps communication record for a reasonable period of time, still, no direct or indirect evidence, material, and objective facts of collusion and connivance have been reported. This has further reduced the probability of collusion or connivance between OPG and its directors, along with NSE and the former seven top executives," SEBI says.
Further, the above possible determination of no collusion or connivance is strengthened by the fact that there is no new evidence in the current proceeding from the earlier proceeding other than ISB Report 2023, which is not relevant to the issue at hand, and the finding of Deloitte which further reduces the possibility of collusion or connivance, the WTM observed.
Mr Varshney says, "All the evidence, material and objective facts, which have formed the basis of current show cause notice (SCN) were also part of the earlier SCN and were examined by the SAT and based on such examination, it was held that there was no evidence to suggest violation of PFUTP Regulations or SECC Regulations by NSE and its employees. When these evidence, material and objective facts did not lead to violation of PFUTP Regulations or SECC Regulations, they cannot lead to determination of collusion or connivance where the establishment of violation would additionally require the presence of 'conspiracy' or 'secret or indirect consent or permission' making such establishment of violation more difficult."
"Based on the above discussion, it is held that due to the absence of sufficient material, evidence and objective facts on record in this case, the test of 'preponderance of probability' fails to produce enough justification for the establishment of collusion or connivance between OPG and its directors with NSE and the former top executives," the WTM says.
In a
separate order against OPG Securities and the Guptas, Mr Varshney, the SEBI WTM, says, in an order in 2019, OPG Securities and the Guptas were directed to disgorge Rs15.57 crore, apart from being debarred for five years from buying, selling or dealing in securities in any manner. The operation of directions issued
vide the 2019 SEBI OPG order was stayed by SAT on 6 May 2019, subject to payment of Rs7.5 crore, which was duly deposited by OPG and the Guptas. The stay was vacated with the disposal of the appeal by passing of the 2023 SAT order on 23 January 2023, and directions issued in the 2019 SEBI order came into force.
"Since the Supreme Court on 5 April 2023 declined to grant any stay, directions of the 2019 SEBI order are in operation as on date, i.e., the debarment period of five years is to be counted from 30 April 2019 to the date of the stay order by SAT, i.e., 6 May 2019 and then from 23 January 2023 onwards," SEBI order says.
SEBI sent an email on 1 November 2023 to ISB, seeking certain data for crowding out by OPG. ISB, in its response on 17 November 2023, stated that the results showed that the average daily profit of OPG on crowding-out days was lower than the average daily profit on non-crowding-out days.
Mr Varshney, the WTM, observed that if the daily average profits on non-secondary days represent a normal and legal profit of OPG, then the difference between the daily average profit made on 'secondary day' and the daily average profit made on 'non-secondary day' can reasonably be termed to represent the daily average unlawful gains made by OPG by connecting to the secondary server. "If this is multiplied by the number of secondary days, the total amount of unlawful gains can be arrived at. This method, in my opinion, is more appropriate than the method used in the ISB Report, 2023, as it is not impacted by variables like different trading strategies, different trading infrastructure, different number of dealers, different capital employed."
"Therefore, I hold that the total amount of unlawful gains of Rs82.25 crore, including Rs40.41 crore intra-day and Rs44.84 crore overnight, is held to be the unlawful gains that OPG earned by virtue of consistently connecting to the secondary server of the NSE colocation facility," he added.
Sanjay Gupta has been barred from the markets for a further six months after the debarment of five years. SEBI says that his existing holding of securities, including mutual funds, will remain frozen during this period.
According to SBI, by consistently connecting to the secondary server of the NSE Colocation facility, OPG earned unlawful gains worth Rs82.25 crore, including Rs40.41 crore intr-aday and Rs44.84 crore overnight.
In December 2023, terming the adjudication orders passed by SEBI as arbitrary and violative of the principles of natural justice, the SAT had quashed and drastically reduced penalties imposed against 19 entities. The case is related to the SEBI investigation into dark fibre connectivity provided by Sampark Infotainment Pvt Ltd in collusion with employees of NSE, with the stockbrokers and the role of the stockbrokers who allegedly benefited from the preferential access to colocation (colo) facility by way of point-to-point (P2P) connectivity from an unauthorised service provider. (
Read: NSE Colo Scam: SAT Quashes, Drastically Reduces Penalties Slapped by SEBI on 19 Entities, Including NSE's Top Executives)
Earlier in August last year, SAT directed asked the regulator to refund Rs72.58 crore with interest deposited by NSE, Way2wealth Brokers Pvt Ltd and GKN Securities. SAT also dismissed SEBI's prohibitory orders against Chitra Ramkrishna, former managing director and chief executive officer (MD&CEO) of NSE, Ravi Varanasi, Nagendra Kumar and Devi Prasad Singh, all top executives of the Exchange and MR Shashibhushan, Sonali Gupta, Omprakash Gupta and Rahul Gupta. (
Read: NSE Colo Case: SAT Asks SEBI To Refund Rs72.58 Core to NSE, Way2wealth Brokers & GKN Securities)
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