The Securities Appellate Tribunal (SAT) has set aside a 2019 order passed by markets regulator – the Securities and Exchange Board of India (Sebi) – declaring five brokerages not ‘fit and proper’ for their alleged involvement in the National Spot Exchange (NSEL) fiasco.

“The impugned orders passed by the whole-time member (WTM) against the brokers cannot be sustained and are quashed. The appeals of the brokers are allowed,” said SAT in a 44-page order dated June 9.

The five brokers are IIFL Commodities, Geofin Comtrade, Anand Rathi Commodities, Phillip Commodities India, and Motilal Oswal Commodities Broker.

SAT decision, however, is more of an interim relief as the tribunal has directed Sebi to conduct a fresh investigation into the matter and pass an order within six months.

In 2019, NSEL was unable to settle the so-called paired contracts, committing defaults and causing huge losses to the trading clients.

Sebi had passed orders against the five brokers based on various inputs received from agencies, including the Economic Offences Wing.

Paired contracts involved buying and selling the same commodity through two different contracts at two different prices on the exchange platform.

NSEL allowed investors to buy a short duration settlement contract and sell a long duration settlement contract and vice versa at the same time.

The reason SAT set aside the orders against the brokers was mainly because Sebi primarily relied upon inputs received from various regulatory agencies, along with investor complaints to arrive at the conclusion that the five brokerages were close to NSEL.

“The WTM is required to consider these aspects and not close the issue on the presumption that the appellant, while acting as a facilitator to carry out the trades on behalf of his clients, is closely connected to NSEL,” read the SAT order.

“All brokers facilitate trades on behalf of their clients on the exchange platform. It does not mean that all brokers are closely connected to the exchange. Such findings given by the WTM appear to be farfetched and arbitrary,” it said.

SAT has said Sebi, if necessary, can conduct an independent enquiry proceeding against the connected entities and persons associated with the brokers against whom evidence is available.

SAT has also asked Sebi to give a chance to the brokers to examine the evidence weighed in by the regulator and also give them a hearing before passing the orders.

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