National Stock Exchange Of India ... vs The Calcutta Stock Exchange ...
2023 Latest Caselaw 7367 Cal

16.11.2023
Item No.03
 RP/AN
Ct. No.1
                                   MAT 1854 of 2023
                                          +
                                  IA No.CAN 1 of 2023
                National Stock Exchange of India Limited & Anr.
                                     Vs.
                 The Calcutta Stock Exchange Limited & Ors.

               Mr. Abhrajit Mitra, Sr. adv.
               Mr. Satadeep Bhattacharya
               Mr. P. Kamesh
               Mr. Taruj Kakrania
               Mr. Ishan Agarwal
                       .....for the Appellants/NSE

               Mr. Deepan Kumar Sarkar
               Mr. Saptarshi Banerjee
               Ms. Ashika Daga
               Mr. Jishnu Roy
                       ..for the respondent/CSE

Mr. Tilak Bose, Sr. adv.

Mr. Rupak Ghosh Mr. P.K. Dutt Mr. S.K. Dutt Mr. S. Banerjee ..... for SEBI

1. This intra-Court appeal by the National Stock

Exchange of India Limited (in short "NSE") & Anr. is

directed against the impugned order granted in WP

19816 of 2023 filed by the Calcutta Stock Exchange

Limited (in short "CSE") & Ors. In this judgment

and order the parties shall be referred to as per the

rank in the writ petition.

2. The CSE had filed the writ petition challenging the

communication dated 18th July, 2023 issued by

NSE, which is in the form of a notice of withdrawal

of arrangement made pursuant to Section 13 of the

Securities Contracts (Regulation) Act, 1956

(hereinafter referred to as the said "Act"). This

agreement was entered into between NSE and the

writ petitioner/CSE. The learned Single Bench has

granted an order of stay of the notice impugned in

the writ petition dated 18th July, 2023 and aggrieved

by such order NSE has filed the present intra-Court

appeal.

3. We have elaborately heard the learned advocates

appearing for the parties.

4. The agreement between NSE and CSE was entered

on 28th September, 2011. In preamble portion of the

said agreement, namely, Clause 3, it is stated that

the proviso to Section 13 of the said Act enables

contracts in securities to be entered into between

members of two or more stock exchanges subject to

such terms and conditions as may be stipulated by

respective stock exchanges with prior approval of

SEBI. Clause 4 states that NSE and CSE intend to

enter into an arrangement pursuant to Section 13 of

the said Act to enable CSE members to trade on

NSE platform in the securities listed and permitted

on NSE and to provide nationwide access to CSE

listed securities. Clause 20 of the agreement states

that this agreement will be subject to the prior

approval of SEBI and any modification to the

agreement shall be carried out with prior approval of

SEBI only. Sub-Clause (b) of Clause 20 states that

NSE and CSE agree to comply with all the

conditions stipulated by SEBI from time to time.

Clause 22 deals with terms of termination and it

states that the agreement only represents a basis of

understanding between NSE and CSE subject to

necessary approvals. This agreement shall remain

in force for a period of five years from the date of

signing and will then be automatically renewed for

another period of five years unless terminated by

either party by giving six months notice to the other

party in writing before the expiry. It is not in

dispute that the agreement came to an end on

October 2021. On the expiry of second five year

period, admittedly no renewal had been granted or

no fresh agreement has been entered into between

NSE and CSE.

5. The writ petitioner/CSE had filed a writ petition

challenging the regulation dated 20th July, 2012.

The said writ petition was dismissed by the learned

Single Bench and an intra-Court appeal, being MAT

772 of 2016, has been filed and the same is pending.

In the said appeal there is an interim order to the

effect that even if the valuation process is completed

in terms of the letter dated 6th June, 2016 SEBI

shall not take any decision till the next date of

hearing. We are informed that the appeal is set

down for hearing on 30th November, 2023.

6. The learned Single Bench had considered the

objections raised by the appellant/NSE with regard

to the maintainability of the writ petition on the

ground that there is an arbitration clause in the

agreement between the parties and apart from that

the agreement between the parties is not a statutory

contract and no writ petition is maintainable. The

learned Single Bench had considered the said

submission and has recorded a finding in page 8 of

its order holding that the arbitration clause does not

operate as an absolute bar to entertain a writ

petition. In the preceding paragraph in page 8 the

learned writ Court has opined that the allegations

pertain to the alleged arbitrary and mala fide action

of the NSE in issuing the impugned notice and, as

such, the nature of allegations levelled against a

public body, that is NSE, empowers the Court to

entertain the writ petition and exercise its judicial

review, if found to be a fit case otherwise.

7. After we have heard the submissions of the learned

senior advocate for the appellants/NSE, we are of

the view that the observations made by the learned

writ Court in page 8 of the impugned order are

prima facie in character. The allegations of alleged

arbitrariness and malafide action has to be decided

in the writ petition. Therefore, the observations

made in page 8 of the impugned order can at best be

construed to be prima facie observations in aid of

the conclusion that the Court has arrived at.

Therefore, the findings rendered by the learned writ

Court that the arbitration clause in the agreement

does not operate as an absolute bar to entertain a

writ petition cannot be construed to be a final

finding on fact and law which can be done only after

affidavits are filed and the parties are heard in the

matter. The larger issue would be as to whether by

virtue of an interim order the writ petitioner/CSE

can continue to operate when the rights of the

parties under an agreement, which, admittedly, had

expired in October 2021 and has not been renewed

thereafter. In fact, request for renewal has also been

rejected by NSE as could be seen from the

communication/email dated 26th July, 2023. The

writ petitioner/CSE without accepting the

allegations made against them in the email dated

25th July, 2023 requested the NSE to continue the

trading arrangement under Section 13 of the act till

28th September, 2023 for squaring off or closing off

the outstanding derivatives done under Section 13 of

the agreement. The reply has been sent by the NSE

to the CSE on 31st July, 2023 expressing their

inability to grant extension as requested by them in

the email dated 26th July, 2023. The writ

petitioner/CSE was once again requested to ensure

that all open position are closed out/squared off on

or before August 18, 2023 as mentioned in NSE's

communication dated July 18, 2023 which is

impugned in the writ petition.

8. The larger question would be as to whether an

interim order can be granted which has an effect of

nullifying the statutory provisions. Before

considering the said issue we may refer to the

prayers sought for in the writ petition. Essentially,

the prayer sought for in the writ petition is to

declare the letter dated 18th July, 2023 issued by

NSE as illegal, discriminatory and unconstitutional.

The interim order sought for in the writ petition is to

stay the said letter/notice dated 18th July, 2023. As

pointed out earlier the parties, namely, the writ

petitioner/CSE as well as NSE were fully aware of

the agreement/arrangement dated 28th September,

2011. Section 13 of the said Act deals with

contracts in notified areas illegal in certain

circumstances. Section 13 states that if the Central

Government is satisfied, having regard to the nature

or the volume of transactions in securities in any

State or States or area that it is necessary so to do,

it may, by notification in the Official Gazette, declare

this section to apply to such State or States or area

and thereupon every contract in such State or

States or area, which is entered into after the date of

the notification otherwise than between the

members of a recognized stock exchange or

recognized stock exchanges in such State or States

or area or through or with such member shall be

illegal. The proviso in Section 13 assumes

importance in the case on hand. It states that any

contract entered into between the members of two or

more recognized stock exchanges in such State or

States or area shall be subject to such terms and

conditions as may be stipulated by the respective

stock exchanges with prior approval of SEBI.

Clause (ii) of Section 13 of the said act deals with

prior approval of SEBI. This aspect of the matter is

beyond doubt and the writ petitioner/CSE was fully

aware of the of the same as it is clearly stated in the

agreement that they intend to enter into the

arrangement pursuant to Section 13 of the said Act

to enable contracts in securities to trade on NSE

platform in securities listed and permitted on NSE

and to provide nationwide access to CSE listed

securities. Admittedly, after October 2021 the

agreement has not been renewed and the question of

taking prior approval in the facts of the case does

not arise. Furthermore, the learned Single Bench

opined that SEBI has acquiesced to the acts of the

NSE as well as the writ petitioners, treating the

agreement to be a continuing one, for quite a long

period, at least for about two years after the year

2021 when it last expired, without taking any action

in that regard. In view of such, the concept of

acquiescence cannot be brought in, more

particularly, when there is a clear statutory mandate

that prior approval of SEBI is required for carrying

on such agreement. Therefore, we do not agree with

the said finding rendered by the learned Single

Bench in the impugned order. The apprehension of

the writ petitioner/CSE is that if the interim granted

in favour of the writ petitioner/CSE is vacated the

appeal filed by them, being MAT 772/2016, will be

rendered virtually infructuous. The writ

petitioner/CSE need not have apprehension as

admittedly the agreement, which is the subject

matter of controversy in the present case, was

entered into much prior to the communication dated

20th July, 2012 which was the subject matter of

challenge in the writ petition, which was dismissed

and the appeal, being MAT 772 of 2016 is pending.

Therefore, by way of abundant caution we clarify

that observations made in this judgment and order

can have no impact on the proceeding, which is

pending before the Hon'ble Division Bench in MAT

772 of 2016.

9. As observed earlier, the question of maintainability

has to be heard on merit, especially, when the stand

of the NSE is that the agreement between the parties

is not a statutory contract though there may be a

statute enabling such contact. Apart from that it is

submitted that several decisions on the said point

which held that in such cases a writ petition could

not be maintainable. As observed by us earlier, at

best the finding rendered by the learned writ Court

in the impugned order stating that arbitration

clause does not operate as an absolute bar for

entertaining a writ petition can only be a prima facie

finding and cannot be taken to be a final conclusion

on the finally concluded issue. Therefore, we are of

the view that granting an interim order in the

present case would tantamount to allowing a writ

petition at an interlocutory stage, more particularly

when it falls foul of the statutory mandate under

proviso (i) to Section 13 of the said Act.

10. For the above reasons, we are inclined to vacate

the interim order granted by the learned Single

Bench. Accordingly, the appeal is allowed and the

interim order passed by the learned Single Bench

dated 18th August, 2023 is set aside. The respective

parties in the writ petition are directed to file

affidavit-in-opposition not later than 4th December,

2023 and reply, if any, to be filed not later than 8th

December, 2023. The registry is directed to list the

writ petition before the concerned Single Bench in

the week commencing on and from 11th

December,2023 with a request to the learned writ

court to assign an early date for hearing of the writ

petition subject to cooperation of the learned

advocates for the parties.

11. Considering the difficulty pleaded, the time to

square off the transactions on derivatives by NSE by

their communication dated 31st July, 2023 stands

extended till 28th November, 2023. This order and

direction shall be made known to the members of

CSE by posting the same in its official website.

12. In the result, the appeal and the application are

disposed of.

(T. S. SIVAGNANAM) CHIEF JUSTICE

(HIRANMAY BHATTACHARYYA, J.)