Securities And Exchange Board Of India (S) v. Il And Fs Securities Services Ltd. And Others (S)., Supreme Court Of India, Judgment, Law, casemine.com

Factual and Procedural Background

This interim order arises in a group of civil appeals (Civil Appeal Nos. 5395-5398/2019 and connected matters) filed by the Securities and Exchange Board of India (SEBI) against IL & FS Securities Services Ltd. and others. On 26 June 2019, this Court had passed an interim order that effectively withheld payment of an F&O Segment contract which matured on 27 June 2019. The present order, dated 27 August 2019, considers urgent requests for relief pending final adjudication and issues directions affecting the treatment of those payments and certain mutual funds furnished as security by Allied Financial Services Pvt. Ltd.

Legal Issues Presented

Whether the National Security Clearing Corporation Limited (NSCCL) should honour the F&O Segment contract that matured on 27 June 2019 notwithstanding the earlier interim order dated 26 June 2019.

The scope of the jurisdiction of SEBI and the Securities Appellate Tribunal (SAT), and the relevance of Clause (5) of Chapter VII of the NSCCL Bye-Laws—issues expressly left open for final hearing.

Court's Reasoning and Analysis

The Court noted the “urgency and consequences” explained by counsel and considered it appropriate to modify its earlier interim arrangement. The reasoning can be distilled as follows:

Vacating the earlier interim order: The Court found it necessary to allow financial obligations arising from the F&O contract to be settled promptly. Therefore, the interim order of 26 June 2019 was vacated to permit NSCCL to honour the contract, while expressly preserving all parties’ rights until final resolution.

Safeguarding disputed assets: Recognising that certain mutual funds had been supplied as security by Allied Financial Services Pvt. Ltd., the Court granted specified parties—including Novjoy Emporium Pvt. Ltd., OCL India Ltd., Dalmia Cement East Ltd., and 44 appellants before SAT—the option to request conversion, sale, or encashment of those funds.

Protective custody of proceeds: Should the option be exercised, IL & FS Securities Services Ltd. must encash the mutual funds and place the proceeds in a six-month fixed deposit with a nationalised bank. This ensures accrual of interest and preserves the corpus pending further orders.

Reservation of larger jurisdictional questions: The Court explicitly left unresolved the questions concerning the jurisdiction of SEBI, the SAT, and the applicability of Clause (5) of Chapter VII of the NSCCL Bye-Laws, indicating that these substantive issues will be addressed at final hearing.

Holding and Implications

Interim Order: The Court vacated its order dated 26 June 2019, directed NSCCL to honour the matured F&O contract, allowed specified parties to seek encashment of mutual funds furnished as security, mandated IL & FS Securities Services Ltd. to deposit the proceeds in a fixed deposit for six months, and listed the matters for final hearing after four weeks.

Implications: Immediate settlement of the F&O contract is permitted, subject to the rights of all parties. Funds realised from encashed mutual funds are protected in an interest-bearing account, ensuring their availability for any eventual directions. The substantive jurisdictional questions remain open; no new legal precedent is established at this stage.

Securities And Exchange Board Of India (S) v. Il And Fs Securities Services Ltd. And Others (S).

Non-reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No(s). 5395-5398/2019

SECURITIES AND EXCHANGE BOARD OF INDIA APPELLANT(S)

VERSUS

IL AND FS SECURITIES SERVICES LTD. & ORS. RESPONDENT(S)

WITH

C.A. No. 6241-6244/2019, Diary No(s). 27426/2019,Diary No(s). 27604/2019 & Diary No(s). 27624/2019.

O R D E R

Permission to file appeal is granted. We have heard learned counsel for the parties and in view of the urgency and consequences explained, we are inclined to pass the following interim directions:

1. The National Security Clearing Corporation Limited will honour F & O Segment contract which had matured on 27^th June, 2019 and has not been paid in view of the interim order passed by this Court on 26^th June, 2019 in I.A. No. 91268/2019 in Civil Appeal No. 5104- 5105/2019. The interim order is vacated, clarifying that the payments would be without prejudice to the rights and contentions of all the parties and subject to the final outcome and directions that this Court would pass.

2. Option is given to Novjoy Emporium Private Limited, OCL India

Limited and Dalmia Cement East Limited to ask for conversion/sale/ encashment of the mutual funds which were purportedly furnished as a security by Allied Financial Services Private Limited. Similar option is also given to 44 parties who had preferred Appeal No. 257/2019 before the Securities Appellate Tribunal, Mumbai.

3. On the option being exercised, IL & FS Securities Services Limited shall convert/encash the mutual funds, and the amount realised would be deposited in a fixed deposit in a Nationalised Bank for a period of six months to earn maximum interest. The deposit would be in the name of IL & FS Securities Services Limited and abide by further orders/directions of this Court.

4. The question of jurisdiction of Securities and Exchange Board of India, Securities Appellate Tribunal and the plea of IL & FS Securities Services Limited relying upon clause(5) of Chapter VII of the Bye-Laws framed by the National Security Clearing Corporation Limited are left open and would be decided at the time of final hearing.

List the matters after four weeks.

......................J.

[MOHAN M. SHANTANAGOUDAR]

......................J.

[SANJIV KHANNA]

NEW DELHI;

AUGUST 27, 2019.

Civil Appeal No(s). 5395-5398/2019,C.A. No. 6241-6244/2019, Diary No(s). 27426/2019, Diary No(s). 27604/2019 & Diary No(s). 27624/2019

Securities And Exchange Board Of India (S) v. Il And Fs Securities Services Ltd. And Others (S).

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Securities And Exchange Board Of India (S) v. Il And Fs Securities Services Ltd. And Others (S).

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