The big five brokers caught up in the NSEL spot exchange fiasco have won major relief from the Securities and Appellate Tribunal (SAT).

SAT on Wednesday set aside an order by SEBI, which had declared Motilal Oswal Commodities, Anand Rathi Commodities, IIFL Commodities, Phillip Commodities and Geofin Comtrade as ‘not fit and proper’ for their role in luring clients to trade on NSEL. In an oral order, the SAT said it was remanding the matter back to SEBI and asked the regulator to have a fresh look at it, sources witness to the proceedings told BusinessLine.

A detailed written order by SAT is expected by early next week, the sources said. The appeals of the five brokers were clubbed together in SAT since they had common grounds. Commodity arms of leading brokerage houses were declared ‘not fit and proper’ by SEBI in March 2019, but the fact that similar strictures were not passed by the regulator against key management persons responsible for the company’s action has raised eyebrows.

A company on its own may not be ‘dishonest’ or carry an adverse reputation, but it is the responsibility of the key management or board that needs to be assessed, especially when they are part of another company handling client money in the capital market, experts told BusinessLine .

Past reference

In the past, when SEBI declared entities ‘not fit and proper’ in high-profile cases involving Sahara India and Financial Technologies, the regulator further studied the role of its management and board to accord them a similar tag, securities lawyers said. Sahara’s billionaire-promoter Subrata Roy was called the ‘mastermind’ for raising ₹24,000 crore from investors and was forced to exit the mutual fund business.

Anticipating adverse SEBI orders, most large brokers had themselves applied to cancel their commodity registration certificate.

SEBI found these brokers guilty of violating provisions of the erstwhile Forward Contract and Regulation Act 1972 (FCRA). After merger of the commodity markets regulator, the Forward Markets Commission (FMC) with SEBI in September 2015, the regulator had issued show-cause notices to these brokers asking why they should not be declared “not fit and proper” for their involvement in the NSEL scam.

SEBI had observed that the brokers had made false representation in respect of assured/risk-free return, arbitrage opportunity in spot market by way of paired contracts, making assurances with risk-free returns on assured collateral of commodities. Also, these noticees had done client code modifications with manipulative artifice.