The main legal point established in the judgment is the validation of SEBI's Exit Policy and SECC Regulations, finding them in consonance with the SCR Act, and the court's direction for CSE to comply with the regulations within a specified timeframe.

JUDGMENT :

Tapabrata Chakraborty, J.

1. The present appeals have been preferred challenging the judgment dated 12th April, 2016 delivered in two writ petitions being W.P. No. 31846 (W) of 2014 and W.P. No. 27340 (W) of 2015 preferred by Calcutta Stock Exchange Limited (hereinafter referred to as CSE). The first writ petition was preferred challenging inter alia a letter dated 3rd November, 2014 issued by Securities and Exchange Board of India (hereinafter referred to as SEBI) calling upon CSE to apply for voluntary exit and aggrieved by the further steps taken by SEBI under the Exit circular, the second writ petition being WP No. 27340 (W) of 2015 was preferred.

2. Upon hearing the parties, the learned Single Judge framed the following issues:

‘(i) Whether the Exit Policy of SEBI promulgated by the circular dated May 30, 2012 is in consonance with Section 5 of the SCR Act, 1965 ?

(ii) Was the CSE obliged to apply for continuance of its clearing house business in terms of the SECC Regulations, 2012 ?

(iii) Is the procedure undertaken by SEBI to close down the clearing house business CSE vitiated by the breach of the principles of natural justice ?

(iv) In the facts of this case, is SEBI justified in taking steps to make CSE exit the market compulsorily ?’

3. The writ petitions were finally disposed of answering the first and second issues in the affirmative and the third issue in the negative. The fourth issue was answered in the affirmative, in favour of SEBI and against the CSE.

4. The finding returned on the first issue was that SEBI acting under Section 5 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as the SCR Act) had justified the prescription of Rs.1000/- crore on the basis of the recommendations of the Bimal Jalan Committee and its experience as the market regulator and that such prescription was neither arbitrary nor capricious exercise of power by SEBI and the same had been issued to protect the investors in securities and to promote the development of and to regulate the securities market and that the same related to all stock exchanges in India and not restricted to CSE alone.

5. The second issue was answered observing that the second proviso to Regulation 3 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (hereinafter referred to as the SECC Regulations) required an existing clearing house of a recognized stock exchange or any person who clears and settles trades of a recognized stock exchange as on the date of commencement of the said Regulations to make an application for continuance of its clearing house business in terms of the said Regulations.

6. The finding returned on the third issue was that CSE had never applied for such permission under the SECC Regulations and as such SEBI closed down the clearing business of CSE by a letter dated 3rd April, 2013 after expiry of the prescribed period of three months from the coming into effect of the SECC Regulations invoking the provisions of Section 12A of the SCR Act and that such action cannot be faulted moreso when the letter itself spoke of earlier correspondence between the parties and that it could not have been contended that CSE had not been heard prior to issuance of the closure notice.

7. The fourth issue was answered observing that closure of the clearing house business of CSE is not derecognition of CSE itself and that even as late on 3rd November, 2014, SEBI did not want to utilize its powers under the Exit policy and was still providing opportunities to the CSE to either conform to the Exit policy or to apply for voluntary exit but even as on that date CSE failed to arrange any recognized clearing house to continue with its business and that in such circumstances SEBI as the regulator has little option than to enforce the various provisions of law for initiating the process for derecognition of CSE negating the explanation given by CSE that for stopping its clearing house