NSE V SEBI

BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing: 26.11.2021

Date of Decision: 23.01.2023
Misc. Application No.257 of 2019

And
Appeal No.333 of 2019
National Stock Exchange of India Limited

Exchange Plaza Block G, C 1,
Bandra Kurla Complex,
G Block, BKC, Bandra Kurla Complex,
Bandra East, Mumbai,
Maharashtra 40005. ...Appellant
Versus
Securities and Exchange Board of India

SEBI Bhavan,
Bandra-Kurla Complex,
Mumbai – 400021. …Respondent
Mr. Darius Khambata, Senior Advocate with Mr.

Somasekhar Sundaresan, Mr. Abishek Venkataraman, Ms.
Sonali Mathur, Mr. Prabhav Shroff and Mr. Harshit Jaiswal,
Advocates i/b. AZB & Partners for the Appellant.
2
Mr. Rafique Dada, Senior Advocate with Dr. Poornima

Advani, Mr. Manish Chhangani, Mr. Ravishekhar Pandey,
Ms. Prerna Sharma and Ms. Samreen Fatima, Advocates i/b.
The Law Point for the Respondent.
Mr. Nithyaesh Natrajan, Advocate for the Intervener.
With
And
1. OPG Securities Pvt. Ltd.

LGF-27, C Block,
Sushant Shopping Arcade,
Sushant Lok, Gurgaon,
Haryana Pin Code – 122002.
2. Mr. Sanjay Gupta

3. Ms. Sangeeta Gupta
4. Mr. Om Prakash Gupta
4/10, 1st Floor,
Asaf Ali Road,
New Delhi – 110002. ...Appellants
Versus

SEBI Bhavan, Plot No.C-4A,
G Block, Bandra-Kurla Complex,
Mumbai – 400051. …Respondent
3
Mr. Gaurav Joshi, Senior Advocate with Mr. Ravichandra

Hegde and Ms. Mitravinda Chunduru, Advocate i/b.
Parinam Law Associates for the Appellant.

With
And
Mr. Ravi Narain

B-3, Diwan Shree Apartments,
30-, Firoz Shah Road,
New Delhi – 110001. ...Appellant
Versus

Plot No.C-4A, G Block,
Near Bank of India,
Bandra-Kurla Complex, Bandra East, …Respondent
Mumbai – 400051.
Mr. Pesi Modi, Senior Advocate with Mr. Neville Lashkari,

Mr. Rashid Boatwalla, Mr. Aditya Vyas and Mr. Dhruv
Jadhav, Advocates i/b. MKA & Co. for the Appellant.

4

With
And
Ms. Chitra Ramkrishna

201, Laxmi Habitat,
7th Cross Raod,
Chembur – 400 071. ...Appellant
Versus

SEBI Bhawan, Plot No.C-4A,
G Block, Bandra-Kurla Complex,
Mumbai. …Respondent
Mr. Prashant S. Pratap, Senior Advocate with Mr. Piyush

Raheja and Ms. S. Priya, Advocates for the Appellant.

With
5
Mr. A. Kumar
4/131, 7th Main Road,
Valmiki Nagar, Swamnathan Nagar,
Chennai-600 041, Tamil Nadu. ...Appellant
Versus

Plot No.C-4A, G Block,
BKC, Bandra (East),
Mumbai -400051, India. …Respondent
Mr. Nithyaesh Natrajan, Advocate for the Appellant.

CORAM: Justice Tarun Agarwala, Presiding Officer

Justice M.T. Joshi, Judicial Member
Per: Justice Tarun Agarwala, Presiding Officer
1. The Whole Time Member („WTM‟ for short) passed
an order dated 30th April, 2019 directing:

6
a. National Stock Exchange of India Ltd.
(hereinafter referred to as „NSE‟), noticee no.1 to
disgorge an amount of Rs.624.89 crores
alongwith interest at the rate of 12% per annum
with effect from 1st April, 2014 onwards to the
Investor Protection and Education Fund („IPEF‟
for short).
b. NSE is prohibited from accessing the securities
market directly or indirectly for a period of 6
months from the date of the impugned order.
c. NSE to carry out System Audit at frequent
intervals, after taking into consideration the
changes in the technology.
d. NSE to reconstitute its Standing Committee on
Technology at regular intervals.
e. NSE to frame a clear policy on administering
whistle blower complaints.

7
f. Mr. Ravi Narain, noticee no.2 to disgorge 25% of
the salary drawn for Financial Years 2010-11 to
2012-13 to the IPEF.
g. Mr. Ravi Narain shall not associate with any
listed company or a Market Infrastructure
Institution or any other market intermediary for a
period of five years.
h. Ms. Chitra Ramkrishna, noticee no.3 to disgorge
25% of the salary for Financial Year 2013-14.
i. Ms. Chitra Ramkrishna shall not associate with
any listed company or a Market Infrastructure
Institution or any other market intermediary for a
period of five years.
j. NSE shall initiate an enquiry under its Employees
Regulations against Mr. Mahesh Soparkar
(Noticee No. 10) and Mr. Deviprasad Singh
(Noticee No. 11) with respect to the findings

8
contained in paragraph 8.4.7.6 of the impugned
order and submit a report within 6 months.
k. Mr. Anand Subramanian (noticee no.4), Mr. Ravi
Apte (noticee no.8), Mr. Umesh Jain (noticee
no.9), Mr. R. Nandakumar (noticee no.5), Mr.
Mayur Sindhwad (noticee no.6), Mr. Ravi
Varanasi (noticee no.7), Mr. Sankarson Banerjee
(noticee no.12), Mr. G. Shenoy (noticee no.13),
Mr. Suprabhat Lala (noticee no.14), Mr.
Nagendra Kumar SRVS (noticee no.15), Mr. N.
Murlidaran (noticee no.16) and Mr. Jagdish Joshi
(noticee no.17) are discharged.
2. Out of 17 noticees, 14 of them were discharged and
three noticees, NSE, Mr. Ravi Narain and Ms. Chitra
Ramkrishna have been indicted.
3. Against the aforesaid order of the WTM dated 30th
April, 2019, four appeals have been filed, namely, Appeal
nos.333 of 2019 NSE vs. SEBI, Appeal no.331 of 2019

9
Mr. Ravi Narain vs. SEBI, Appeal no.336 of 2019 Ms.
Chitra Ramkrishna vs. SEBI and Appeal no.433 of 2019
Mr. A. Kumar vs. SEBI, has not only filed intervention
application in the above appeals but has also filed a
separate Appeal No.433 of 2019.
In addition to the above, the WTM has passed another
order dated 30th April, 2019 prohibiting OPG Securities
Pvt. Ltd. (hereinafter referred to as „OPG‟) and other
noticees from accessing the securities market for a period
of five years and restraining OPG from taking any new
clients for a period of one year. The WTM further
directed OPG and its Directors to disgorge jointly and
severally a sum of Rs.15.57 crores alongwith interest at
the rate of 12% p.a. w.e.f. 7th April, 2014 onwards.
Against the order of 30th April, 2019, OPG has filed
Appeal no.184 of 2019.
4. Since the aforesaid two orders are based on the same
show cause notice and the issues are common as well as

10
interlinked, as such all the appeals are being decided
together.
5. We have heard Mr. Darius Khambata, Senior
Advocate assisted by Mr. Somasekhar Sundaresan, Mr.
Abishek Venkataraman, Ms. Sonali Mathur, Mr. Prabhav
Shroff and Mr. Harshit Jaiswal, Advocates for the
appellant in appeal no.333 of 2019, Mr. Gaurav Joshi,
Senior Advocate assisted by Mr. Ravichandra Hegde and
Ms. Mitravinda Chunduru, Advocates for the appellant in
appeal no.184 of 2019, Mr. Pesi Modi, Senior Advocate
assisted by Mr. Neville Lashkari, Mr. Rashid Boatwalla,
Mr. Aditya Vyas and Mr. Dhruv Jadhav, Advocates for
the appellant in appeal no.331 of 2019, Mr. Prashant S.
Pratap, Senior Advocate assisted by Mr. Piyush Raheja
and Ms. S. Priya, Advocates for the appellant in appeal
no.336 of 2019 and Mr. Nithyaesh Natrajan, Advocate in
appeal no.433 of 2019 and Mr. Rafique Dada, Senior
Advocate assisted by Dr. Poornima Advani, Mr. Manish

11
Chhangani, Mr. Ravishekhar Pandey, Ms. Prerna Sharma
and Ms. Samreen Fatima, Advocates the respondent and
Mr. Nithyaesh Natrajan, Advocate for the Intervener in
appeal nos.333 of 2019, 331 of 2019 and 336 of 2019.
6. Before we deal with the rival submissions of the
parties, it is necessary to deal with the intervention
application and the appeal filed by Mr. A. Kumar. Mr.
A. Kumar is an advocate practicing in the Madras High
Court and has filed an appeal praying that the order of the
WTM dated 30th April, 2019 be set aside and that the
respondents should be directed to undertake a
comprehensive investigation into the NSE Colocation
scam and initiate appropriate proceedings against the
NSE management who intentionally did not cooperate
and provided false and misleading information to the
Technical Advisory Committee (hereinafter referred to as
„TAC‟) and Deloitte Touche Tohmatsu LLP (hereinafter
referred to as „Deloitte‟) and to take appropriate

12
proceedings against the directors, principal officers, key
managerial persons of NSE and further pass appropriate
orders for disgorgement under Section 11B. The
appellant prayed for other directions which are spelt out
in the memo of appeal. In addition to the aforesaid, the
appellant has also filed an intervention application in the
appeals filed by NSE, Mr. Ravi Narain and Ms. Chitra
Ramkrishna praying that he may be allowed to intervene
and be impleaded as a party in the appeals.
7. The contention of Mr. A. Kumar is, that being
aggrieved by the impugned order he filed a complaint
dated 6th July, 2019 before SEBI complaining about the
NSE Colocation scandal. According to him, the scandal
runs into Rs.50,000 crores which has tarnished the
reputation of the major market infrastructure institution
and severely dented the integrity of the securities market.
As a result of the scam, millions of investors have
incurred huge losses due to delayed dissemination of the

13
„Tick–By–Tick‟ (hereinafter referred to as TBT)‟ data. It
was contended that in the Colocation scam the NSE had
violated the fundamental objective of ensuring equal
access to all market participants and that certain TMs
with vested interests were given preferential access to the
data. It was alleged that certain TMs with prior access to
the data indulged in front running and abused the market
and committed fraud not only to the detriment of the
securities market but also to the whole nation. It was
alleged that no action was taken by SEBI on the
complaint letter filed by appellant and, therefore, he filed
a writ petition before the Madras High Court in which he
prayed for a direction to SEBI to decide his
representation and reinvestigate the matter. This writ
petition is still pending.
8. It was urged that during the time of Mr. Ravi Narain,
NSE had launched its Colocation facility in January, 2010
which was unauthorized and did not have approval from

14
SEBI and, therefore, such unauthorized activity was
wholly illegal which SEBI should investigate. It was
alleged that selected brokers were allowed to misuse the
Colocation facility by giving them advantage over other
market participants. It was alleged that the role of Mr.
Ravi Narain and Ms. Chitra Ramkrishna should be
investigated. It was contended that Omnesys
Technologies Pvt. Ltd. (hereinafter referred to as
„Omnesys‟) provided technology for trading on NSE. It
was alleged that Ms. Chitra Ramkrishna was also a
Director of Omnesys and was also the MD & CEO of
NSE and, therefore, there was a clear conflict of interest
and, therefore, investigation should also be made by SEBI
with regard to the role of the IT Company which had a
business relationship with NSE.
9. It was also alleged that Mr. Sanjay Gupta, owner and
promoter of OPG abused the TBT architecture in
connivance with the officials of NSE on the basis of

15
which it allowed OPG to be the first one to log in the
exchange server of NSE and, which resulted in unlawful
gain to OPG and loss to other brokers. It was also alleged
that Mr. Ajay Shah alongwith his wife Ms. Susan Thomas
had collected NSE trade data which was subsequently
passed on to private unknown persons and was used to
develop algo software called „Chanakya‟. It was alleged
that this software was sold to brokers including OPG,
who in turn benefitted it by exploiting the TBT
architecture of NSE.
10. It was also urged that SEBI should also examine the
relationship of Ms. Susan Thomas‟ sister with former
Head of Surveillance, NSE and the role played by Ms.
Susan Thomas and Mr. Ajay Shah. It was also alleged
that OPG had various vested interest and had some
connection with Mr. Ajay Shah and all these facts were
available with SEBI which forms part of the appellant‟s
representation as well as the writ petition. It was, thus,

16
urged that directions should be issued to SEBI to conduct
a fresh comprehensive investigation into the Colo scam
and the impugned order should be set aside. Similar
relief was claimed in the intervention application.
11. In addition to the above, it was contended that when
NSE was involved in the Colo scam it was inappropriate
for SEBI to direct NSE to conduct an investigation. It
was contended that SEBI should have conducted its own
investigation instead of outsourcing the investigation to
NSE. It was also urged that the TAC report as well as the
Deloitte report gave a categorical finding regarding non-
cooperation by NSE inspite of which no action was taken
by SEBI under Section 11C of the SEBI Act and,
therefore, suitable directions should be given by this
Tribunal. It was also contended that the TAC report and
Deloitte report made scathing observations against NSE
regarding manipulation of the TBT architecture on
account of which select brokers benefitted. Further,

17
preferential treatment was given to OPG in connivance
with certain staff of NSE. It was also contended that the
WTM committed an error in giving a finding that
violation of PFUTP Regulations have not been proved. It
was contended that PFUTP Regulations is applicable in
the present case. The circumstantial evidence and
inference can be drawn to invoke the PFUTP Regulations
and if the said Regulations are applied it would clearly
reveal that there was a devious ploy to hide and suppress
material facts, which was a ground by itself to invoke the
PFUTP Regulations against NSE. It was further urged
that SEBI should be directed to exercise its powers under
Section 24 of the SEBI Act and launch criminal
prosecution against the erring officers.
12. It was also urged that misuse of secondary server by
unscrupulous brokers manipulated the market as a result
of which the purity and sanctity of the securities market
was compromised. It was urged that the economic fraud

18
of this magnitude and nature deserves no leniency or
sympathy and that the wrong doers must be punished by
this Tribunal. It was also urged that the WTM has passed
two contradictory orders, namely, the order passed in
NSE matter and in OPG matter. On account of these
contradictions and inconsistency in the two impugned
orders, it was urged that the two impugned orders should
be set aside and a fresh direction should be issued to
SEBI to reinvestigate the matter and pass fresh orders
thereafter. It was, thus, contended that the appellant
should be permitted to interfere and should be impleaded
as a party.
13. The appeal and the intervention application was
vehemently opposed by the appellants contending that the
interveners are not necessary parties nor are interested
parties and are unnecessarily poking their nose in which
they have no stake in the matter. The respondent urged
that Mr. A. Kumar has no locus standi to file the

19
intervention application or to file an appeal as he is not a
person aggrieved under Section 15T of the SEBI Act.
The applicant Mr. A. Kumar is neither a proper or a
necessary party for adjudication in the appeal and,
consequently, has no locus standi to file the appeal.
14. Insofar as SEBI is concerned, it was urged that they
would abide by the decision of this Tribunal and in the
event the Tribunal directs reinvestigation in the matter
they would comply with the said directions.
15. Considering the submissions made by the parties, we
are of the opinion that Mr. A. Kumar is neither a
necessary party nor is an interested party.
16. Section 15T of the SEBI Act provides as under:
“15T.Appeal to the Securities Appellate Tribunal.
(1) Save as provided in sub-section (2), any

person aggrieved,-
(a) by an order of the Board made, on and

after the commencement of the Securities Laws
20
(Second Amendment) Act, 1999, under this Act,

or the rules or regulations made thereunder;
or
(b) by an order made by an adjudicating
officer under this Act: or
(c) by an order of the Insurance Regulatory

and Development Authority or the Pension
Fund Regulatory and Development Authority,
may prefer an appeal to a Securities Appellate
Tribunal having jurisdiction in the matter.
[***]
(3) Every appeal under sub-section (1) shall be

filed within a period of forty-five days from the
date on which a copy of the order made by the
Board or the adjudicating officer or the
Insurance Regulatory and Development Authority
or the Pension Fund Regulatory and
Development Authority, as the case may be, is
received by him and it shall be in such form and
be accompanied by such fee as may be
prescribed:
Provided that the Securities Appellate Tribunal
may entertain an appeal after the expiry of the
said period of forty-five days if it is satisfied that
there was sufficient cause for not filing it within
that period.
(4) On receipt of an appeal under sub-section (1),
the Securities Appellate Tribunal may, after
giving the parties to the appeal, an opportunity of
21
being heard, pass such orders thereon as it thinks

fit, confirming, modifying or setting aside the
order appealed against.
(5) The Securities Appellate Tribunal shall send a
copy of every order made by it to the Board of the
Insurance Regulatory and Development Authority
or the Pension Fund Regulatory and
Development Authority, as the case may be, the
parties to the appeal and to the concerned
adjudicating officer.
(6) The appeal filed before the Securities
Appellate Tribunal under sub-section (1) shall be
dealt with by it as expeditiously as possible
and endeavour shall be made by it to dispose of
the appeal finally within six months from the date
of receipt of the appeal.‖
17. A perusal of the aforesaid provisions indicates that
any person aggrieved by an order of the Board may prefer
an appeal to the Tribunal. Admittedly, the appellant is an
advocate practicing in the Madras High Court. The
impugned order does not affect him in any way nor is he
concerned with the securities market. Nothing has been
stated as to how the appellant is aggrieved by any finding
of the WTM in the impugned order. Shri A. Kumar has

22
not produced any new material or evidence which would
necessitate an intervention by the applicant in the present
appeal. Mr. A. Kumar admittedly had not availed any
Colocation service and, therefore, he is not an aggrieved
person as an investor or user of NSE services. The
applicant has no connection with NSE nor is otherwise
interested in the functioning of NSE and, therefore, we
are of the opinion that the applicant Mr. A. Kumar is not
aggrieved by any action of NSE let alone Colocation
facilities.
18. A perusal of the memo of appeal and the intervention
application indicates that he is espousing a public cause,
namely, to ensure that the market is transparent, fair and
equal access is given to all participants. In this regard,
the applicant has already made a complaint to SEBI
which is pending consideration and has also filed a writ
petition before the Madras High Court seeking a direction
to SEBI to pass appropriate orders on his complaint. The

23
complaint and the writ petition filed before the Madras
High Court by Mr. A. Kumar is in the nature of a public
interest litigation. Since the ground raised in the memo
of appeal and in the intervention application are pending
consideration before the Madras High Court which
directions has been sought to SEBI to decide its
representation, it is not open to Mr. A. Kumar to make the
same prayer before this Tribunal. Once the appellant has
chosen a particular forum for redressal of his grievance it
is no longer open to the applicant Mr. A. Kumar to
choose another forum.
19. In any case, since the impugned order does not affect
the interest of the appellant, we are of the opinion that the
applicant is not a person aggrieved and is therefore
neither a proper or a necessary party.
20. Further, the contention raised in the memo of appeal
directing SEBI to conduct certain investigation cannot be
taken into consideration for the purpose of deciding the

24
present appeal. We are of the opinion that the applicant
Mr. A. Kumar has no locus standi to file an appeal or to
intervene as he is not a necessary or an interested party
and even though we had heard the applicant at length the
intervention application cannot be entertained. We are of
the opinion that the intervener has no locus to intervene
as he is not a necessary or interested party. Accordingly,
the appeal and the intervention applications filed by Mr.
A. Kumar are rejected.
21. On April 3, 2008, Securities and Exchange Board of
India (hereinafter referred to as „SEBI‟) allowed Direct
Market Access („DMA‟ for short) facility which allowed
clients to access the market directly i.e. without human
intervention, using the software of a trading member and
routing the orders through the trading member‟s
infrastructure. This paved the way for algorithmic („algo‟
for short) trading where the decisions on the trades are
executed by computer software. The orders are executed

25
using automated preprogrammed trading instructions. The
absence of human intervention steps up the frequency and
the speed of the reactions to market movements, and is
called “High Frequency Trading” („HFT‟ for short), using
algorithms in trading.
22. Co-location services i.e. (Colo) is a facility
provided by Stock Exchanges across the globe for all
trading members for a reasonable fee. Interested member-
brokers who are engaged in HFT, can avail Colo facility.
Access to Colo is fairly and equitably available to all
member-brokers. In HFT, faster access to data and price
feed helps in swifter execution of a trade (which results in
a high daily turnover and high order-to-trade ratio). When
a member-broker avails Colo, trading or data vending
systems of the broker are allowed to be “co-located” i.e.
physically located within the very premises of the stock
exchange.
26
23. In 2009-10, in line with international best practices,
NSE decided to provide its Colo facility. This service was
available to any desirous member-broker, for a fee. The
member-broker would rent a physical rack space within
the Colo facility in the premises of NSE, and place their
servers therein.
24. The technology for dissemination of data in the
Colo facility is through the „Tick–By–Tick (TBT)‟
mechanism. TBT comprises dissemination of „ticks‟. A
„tick‟ is a fundamental unit of data dissemination in the
TBT architecture. In other words, ticks comprise order
entries, order modifications, order cancellations, trades
arising from the orders, and every other piece of data
related to the market, on a real-time basis. The
dissemination of such data builds for the trading
members, their order book (the list of orders that indicates
the interest of buyers and sellers in a particular security at
any point of time).

27
25. The ticks have to be received by the computer
system of the member-broker, for the order book to get
compiled and is made available to the trading system of
the member to enable him to trade.
26. TBT data feed result in members receiving every
single tick, and thereby compiles the order book. If one
tick is lost, the entire order book would be out of sync
with that of the exchange, and members could suffer huge
losses with the data integrity not being completely
assured.
27. Transmission Control Protocol/Internet Protocol
(„TCP/IP‟ for short) has an inbuilt flag system that
acknowledges the receipt of each single TBT data packet
at the receiving end, and even identifies lost ticks. If
even one packet of data is lost, the network itself attempts
to recoup the lost data packet, and transmit it again. It
therefore ensures the integrity of market data and safe
delivery of all ticks to the member.

28
28. On account of the growth of the Colo facility and an
increase in its demand, in 2013, NSE reviewed the TBT
architecture and planned the introduction of Multi-cast
Tick-By-Tick („MTBT‟ for short) because MTBT could
handle higher volumes and users, more efficiently.
29. Thus, in keeping with the development of technology
and the advancement of the market, NSE began
upgrading its system architecture to MTBT in April 2014.
The architecture was migrated from the TCP/IP-based
TBT system architecture to the MTBT system, in a
phased transition, and with effect from December 3, 2016
it had completely migrated to the MTBT architecture. In
the intervening period, NSE continued to provide TCP/IP
TBT feed as well while the market adapted to MTBT.
Thereafter, from December 2016, NSE discontinued the
TCP/IP feed, which, since then, is been used as a back-up
owing to the integrity of dissemination and receipt
assured by MTBT.
29
Brief description of the TCP/IP TBT System Architecture
30. NSE operates independent trading systems which
match, buy and sell orders to discover price. From the
trading system of the exchange, data is communicated/
disseminated to the members availing the Colo facility
using the TCP/IP TBT system architecture in the nature
of ticks. As stated above, each tick denotes a change in
the order book i.e. order entries, order modifications,
order cancellations, trades, and other data related to the
market that can change the order book as they happen.
The member-brokers‟ trading systems which are co-
located in the exchange premises connect to the Ports (as
defined hereinafter) through IPs, for the receipt of
disseminated data from NSE‟s trading systems.
31. A diagrammatic representation of the TCP/IP system
architecture in the Cash Market segment, with the
Secondary Server shown as „POP 4 Receiver‟ in the
diagram, is produced herein below for easy reference:

30
The data comes from the trading system of NSE.

31
Primary Data Source (“PDC”)
32. The first part or tier of the TCP/IP architecture is the
Primary Data Source („PDC‟) which is connected to the
trading system and receives the TBT data from the
trading system. The „Epsilon script‟ (a type of software)
automatically starts the TBT application in the PDC as
the first step.
33. The three Receivers i.e. Receiver 1, Receiver 2 and
Receiver 3 receives the information which comes from
the trading system. The information which is received in
these three Receivers is received randomly and not in a
chronological order that is to say „Tick 1‟ which is sent
from trading system may be received by „Receiver 1‟
whereas „Tick 2‟ may be received by „Receiver 2‟ and
„Tick 3‟ may be received by „Receiver 3‟ and „Tick 4‟
may be received by „Receiver 4‟. The aforesaid
information from three Receivers percolates to the
“Sequencer” which sequences this information in the

32
order of the “Ticks”. Thereafter, the information goes to
the “Processor”. The “Receivers”, the “Sequencer” and
the “Processor” together makes the „PDC‟.
Pop Servers
34. From the Processor, the information goes to the
“Point of Presence Servers” (POP Servers) which is the
second layer of dissemination of the tick. A POP Server
comprises of a POP Receiver and three POP Senders.
The POP Receiver receives the data from the PDC and
sends it to the POP Server. The order of dissemination
from PDC to POP Servers during any given day was
sequential in nature, and depended on the order in which
the POP Servers got connected to the PDC in the morning
for the first time. All the POP Servers starts
automatically almost at the same time using the Epsilon
script, after the PDC is started. However, the order in
which the POP Servers actually connect to the PDC
varies due to random variations in the TBT application

33
start up time within each POP Server. The information
that goes to the POP servers from the Processor is in a
sequence, namely, that the information is received in POP
Receiver 1, then POP Receiver 2 and then POP Receiver
3 and then POP Receiver 4 which is the secondary server.
According to SEBI, the sequence in which the POP
Receivers receives the information is dependent on which
POP Receiver is switched on first manually.
Ports
35. From the POP server, the information is transmitted
to the three Ports. Every POP Server also has three POP
Senders, also known as „Ports‟. Data which is received
by the POP Receiver is in turn, disseminated onwards
through the „Ports‟ to the servers of member-brokers
sitting on the Colo-rack.
36. Each trading member is connected to a particular Port
and cannot shift without the express permission of NSE.
Member-brokers were allotted specific ports & IP

34
addresses on the POP Servers, and could only access the
POP server through their respectively assigned IP address
and port. Member-brokers were also given access to the
secondary server.
37. The information is transmitted out of the Port on the
basis of „first connection‟ and the order of dissemination
remains the same throughout the day in the same
chronology.
Secondary Server
38. The term “Secondary Server” is a nomenclature used
for an additional/alternate/backup POP Server provided
by NSE. The secondary server was meant to act as a
back-up server in the event of a primary POP Server
failure in which case the Secondary Server would allow
continuous access without disruption to the TBT market
feed. Each trading member was also given an IP address
for connecting to the Secondary Server, and it was
expected and indeed instructed that members must only

35
connect to the Secondary Server only when they were
unable to connect to the primary POP Servers. The
purpose was to ensure that trading members could easily
connect to the Secondary Server in case of primary POP
Server failure.
39. Much after the „TBT architecture‟ was upgraded to
MTBT in April, 2014 which system was adopted in a
phased transition, and entirely with effect from December
3, 2016 that SEBI received certain complaints dated
January 8, 2015, August 10, 2015 and October 3, 2015
from Mr. Ken Fong against NSE with regard to its Co-
location facilities alleging:
a. TBT data feed, which provides information
regarding every change in the order book, was
disseminated over TCP/IP. Under this protocol,
the information is delivered one-by-one unlike
broadcast, where everyone gets the price
information at the same time. TBT data feed was

36
disseminated sequentially in the sequence trading
members („TM‟) connected/logged-in to the server.
b. The first one to connect to the lowest load server
would get advantage in terms of receiving the data
faster than others.
c. Some people had figured out that the way to game
the system by being the first one to connect to the
server and preferably a server which was the
fastest. A server could be the fastest due to lesser
load or it could be hardware of the server which
was slightly powerful.
d. NSE was the second largest shareholder of
Omnesys and Omnesys had the knowledge that
connecting faster would put the server ahead in the
queue.
e. One TM namely, OPG used the NSE system to its
advantage by (a) hiring Mr. Nagbhusan Bhat, who
was working with Omnesys to figure out which

37
server was working better; (b) having certain
arrangements with NSE‟s datacenter staff named
Mr. Jagdish Joshi who would inform the TM(s) the
time when the servers would start, and therefore
could be the first to connect; (c) switching on to
the fastest servers or accessing least crowded
servers with the help of NSE staff members. It was
alleged that OPG indulged in front-running in
collusion with NSE employees.
f. In addition to the above, the back-up servers that
were installed for the purpose of business
continuity, whose access should ideally be
permitted in case the primary servers went down,
were allowed to be accessed by OPG as load on
such server was low.
g. Once NSE started MTBT at its co-location facility,
the market share of OPG fell off the chart.

38
40. Upon receipt of the complaint, SEBI constituted a
Cross Functional Team („CFT‟ for short) to conduct a
preliminary fact finding on the veracity of the complaints.
A report dated 30th November, 2015 was submitted by
CFT to the Technical Advisory Committee („TAC‟ for
short). On examination of the preliminary report of the
CFT, TAC recommended that a detailed analysis be
carried out by an Expert Committee. The
recommendation of the TAC was accepted by SEBI and
an Expert Committee was constituted which submitted its
report on 2nd March, 2016 contending that:
a. NSE TBT architecture was prone to market abuse
thereby compromising market fairness and integrity;
in that it provided quicker order dissemination to
those who managed to login early, i.e, if one entity
is ahead of the other while logging in the morning, it
gets information ahead of the other throughout the
day. Further, it is not important to be absolutely the

39
first one to login. It simply gives you probabilistic
advantage to log-in as early as possible.
b. OPG tried to exploit this architecture by not only
logging in first on select servers but it even tried to
crowd out others by occupying 2nd, and 3rd
positions on those servers.
c. OPG was always consistently logging in first on
servers with better hardware in terms of Memory/
Front Side Bus (FSB) speeds.
d. It also appears plausible that OPG and some other
brokers were given preferential access to backup
servers of NSE TBT system.
e. OPG gained materially from the exploitation of TBT
architecture, in that, once MTBT was introduced,
OPG‟s success in getting Unique Multi-Leg Option
(„UMLO‟) trades executed reduced dramatically,
while it did not fundamentally change for other
brokers. Thus, OPG‟s earlier success in UMLO

40
trades can be causally attributed to its exploitation of
the weaknesses in the TBT architecture.
41. The findings of the Expert Committee alongwith
TAC report was forwarded to NSE who in response
refuted the findings of the Expert Committee. The TAC
considered the response of NSE and issued directions
dated September 9, 2016 directing NSE to initiate an
independent enquiry including forensic investigation by
an external agency as highlighted in the Expert
Committee‟s report including lack of processes and
collusion, if any, and fix accountability for the aforesaid
breaches covering NSE and stock brokers, vendors and
outsourced entities who were involved allegedly in the
issue. Directions were also issued to complete the
investigation within three months.
42. Based on the aforesaid, NSE appointed Deloitte
Touche Tohmatsu India LLP („Deloitte‟) to conduct the

41
forensic investigation. Deloitte submitted its report on
December 23, 2016 making the following observations:
a. ―Review of TBT system architecture indicated data

was disseminated to members in a sequential
manner whereby the member who connected first to
the POP server received the ticks (market feed)
before the members who connected later. Hence,
the system architecture of the TCP based TBT
system was prone to manipulation;
b. Due to the sequential dissemination of information,

ticks were disseminated faster to members
connected on less crowded servers, thereby giving
an advantage to such members.
c. In order to ensure that the norms of ‗fair access‘

were not breached, it was possible for NSE to
negate the advantage of connecting first by
implementing a ‗randomizer‘ which would randomly
pick a connection to begin dissemination of data,
rather than starting with the first connection each
time. However, though NSE developed a
randomizer in 2011 that was implemented only for
Bucket POP servers. This was not replicated on the
broader TBT systems.‖
43. Subsequently, vide letter dated 28th February, 2017,
SEBI advised NSE to undertake a forensic audit in the
Cash Market („CM‟) segment, Currency Derivatives

42
(„CD‟) segment and Interest Rate Futures („IRF‟)
segment for the period 2010-15 and to examine the
benefits/profits made by the TMs through the TBT
mechanism. Based on the directions, NSE appointed
M/s. Ernst & Young LLP (hereinafter referred to as „EY‟)
to carry out forensic audit of CM, CD and IRF segments.
NSE also appointed Indian School of Business („ISB‟) to
undertake examination to estimate the benefits/ profits to
the TMs who logged in first. EY submitted its report on
May 18, 2018 and ISB submitted its report on November
14, 2017. TAC after considering the EY report
recommended:
a. ―The architecture of NSE with respect to

dissemination of TBT through TCP/IP was prone to
manipulation/market abuse.
b. Some trading members were given preferential

access to backup servers at NSE.
c. Brokers having an access to backup servers were

having a potential access advantage over other
trading members.
43
d. Trading members having multiple IPs have a

potential access advantage over other trading
members.
e. As the IPs were manually allocated and given the

fact that the servers were not equally loaded and
configured, selective manual distribution/allocation
of IPs could present potential access advantage over
other trading members.
f. TAC agreed with the conclusion of EY that

randomization was not implemented in TCP/IP TBT
architecture and in absence of a randomizer,
dissemination on each Port of a TBT server was
sequential based on login time of a member.
Therefore, such sequential dissemination could
result in a potential advantage to preferred trading
members.
g. TAC mentioned that from the email evidences and

observations in EY report regarding reprimanding
selected members for making connections to
Secondary Server and not all, it can be concluded
that preferential treatment was given to few brokers
in terms of selective information.”
44. In this manner, seven reports were furnished by
various agencies over a period of time, namely, the CFT
report in November 30, 2015, the TAC Expert Committee
report in March 2, 2016, Deloitte report dated December,

44
2016, ISB report in November, 2017, EY report dated
May 18, 2018 in CM segment, EY report dated June,
2018 in CD segment and IRF and Deloitte report dated
July, 2018 with regard to first/early connect and
connection to secondary server.
45. Based on the findings of the TAC report and Deloitte
report, a show cause notice dated May 22, 2017 was
issued to 15 noticees. The show cause notice mainly
contained allegations regarding:
i. the issue of preferential access given to certain TMs
while disseminating the TBT data feed.
ii. the issue of access to Non-ISPs for laying of Dark
fiber within the exchange premises.
iii. non-cooperation by NSE and its Officers

iv. not acting on complaints forwarded to the
exchange.
v. NSE failed to ensure trading in a transparent, fair
and open manner and, consequently, failed to fulfil

45
the objects envisaged in its MoA and the conditions
of recognition.
46. Subsequently, issue relating to access to Non-ISPs for
laying of Dark fiber within the exchange premises was
split into different show cause notices in 2018. One set of
show cause notice was issued on July 3, 2018.
Supplementary show cause notice was issued on July 31,
2018 and, in this way, notices initially issued to 15
noticees increased to 17 noticees.
47. Summary of allegations contained in 2017 show cause
notice, 2018 show cause notice and supplementary show
cause notice are as under:
a. TCP/IP based TBT architecture was allegedly prone
to manipulation which compromised market fairness
and integrity. NSE did not consider the principles of
fair and equitable access while taking a decision
regarding the system architecture;

46
b. NSE allegedly failed to implement a 'randomizer' in
its TBT architecture. Although, NSE had developed
a randomizer in 2011 and implemented it for the
Bucket POP servers, this was not implemented on
TBT servers;
c. NSE allegedly failed to implement a load balancer
and did not adhere to its policy for allocation of IPs,
and more than 30 IPs were allocated on some ports
in breach of the NSE‟s policies. This put members
who were on more crowded ports at a disadvantage
and provided an unfair advantage to members on
less crowded ports;
d. NSE allegedly did not have defined policies and
procedures with regard to Secondary Server access,
and the guidelines were not issued as a circular. By
selectively reprimanding some brokers connecting
to the Secondary Servers (and not others), and
allowing some brokers to continue connecting

47
regularly to the Secondary Servers, NSE allegedly
showed differential treatment to brokers;
e. NSE allegedly failed to maintain backups or records
for:
(i) The configuration file (which captured
parameters like IP address, Port number and
vendor file, and sequence in which ports would
receive TBT data); or
(ii) Requests for change of the configuration file
by members.
f. There were allegedly no policies and procedures for
allocation/mapping of the IPs of members to the
dissemination servers, nor was there a Standard
Operating Procedure („SOP‟) to deal with requests
for change in IP mapping to a particular server. Such
requests were left to the discretion of the NSE's
Project Support and Management (“PSM”) Team,

48
which has shown differential treatment / responses
to members for such requests;
g. The Noticee has allegedly violated the provisions of
Section 4 of the Securities Contracts (Regulation),
Act 1956 (“SCRA”), by failing to fulfil its main
object of ensuring fair dealing;
h. The Noticee has allegedly failed to comply with
Regulation 48 of the Securities Contracts
(Regulation) (Stock Exchanges and Clearing
Corporations) Regulations, 2012 (“SECC
Regulations”) in view of its alleged failure to
cooperate with SEBI, the SEBI External Committee
appointed by SEBI, and the forensic auditor
appointed by the Noticee on SEBI's direction, and to
provide requisite information as sought by SEBI;
and
i. The Noticee has allegedly failed to comply with
Regulation 41(2) of the SECC Regulations by

49
giving preferential access to certain trading
members.
48. In addition to the above, 2018 show cause notice
alleged
a. NSE failed to comply with Regulation 42(2) of the
SECC Regulations and Clause 3 of SEBI circular
CIR/MRD/DP/07/2015 dated May 13, 2015 by
failing to ensure fair, transparent and equitable
access to all trading members in respect of the co-
location facility;
b. NSE failed to comply with clause 4(i) of SEBI
circular CIR/MRD/DP/09/2012 dated March 30,
2012 by failing to have adequate controls and
policies in respect of the Co-location facility,
thereby making the system prone to manipulation;
and
c. NSE and its employees allegedly violated Section
12A(a), (b) and (c) of the Securities and Exchange

50
Board of India Act, 1992 (hereinafter referred to as
„SEBI Act‟), Regulations 3(a), 3(b), 3(c), 3(d) and
4(1) of the Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair Trade
Practices relating to Securities Market) Regulations,
2003 (hereinafter referred to as „PFUTP
Regulations‟) by colluding with OPG to provide
preferential access to OPG, and thereby indulged in
fraudulent and unfair trade practices.
d. It was alleged that OPG was constantly logging in
across servers and OPG was aware of the weakness
of the system architecture and the advantage of
having first access in terms of trade. Further, OPG
had designed the software in such a way that OPF
could connect first and gain advantage.
e. It was also alleged that by assigning multiple IPs to
OPG to a single Port by NSE allowed crowding by
OPG enabling OPG to establish first, second, third

51
and even fourth connection to the server and thereby
in this regard OPG gained advantage over other
stock brokers and, therefore, alleged NSE has acted
in a fraudulent manner and had indulged in fraud
and unfair trade practices in the securities market.
f. It was further alleged that the manner in which OPG
gained preferential access day after day on select
servers indicate complete laxity and dereliction of
duty on the part of NSE officials and employees and
failed to prevent manipulation of the system and
failed to ensure equal, fair and transparent access. It
was alleged that by not taking preventive as well as
curative measures proactively Mr. Ravi Narain and
Ms. Chitra Ramkrishna facilitated fraud and
manipulation by OPG.
49. The supplementary show cause notice further alleged
a. that NSE gave inconsistent replies to Deloitte with
respect to the identification of Primary and

52
Secondary Servers and the data relating to the same;
and
b. that in view of absence of proper documentation and
recording, NSE and its officials had given varied
response.
50. Based on the above, the WTM framed the following
issues:
“Issues on Merit:
Issue I: Whether the TCP-IP architecture for TBT

data feed provided fair and equitable access to all
the TMs;
Issue II: Whether access to Secondary Server had

advantage of receiving information early and what
was the mechanism in NSE to monitor the
Secondary Server misuse?
Issue III: Whether NSE can be held liable for

PFUTP violation under PFUTP Regulations, in the
given circumstances?
Issue IV: If yes, (i) whether there was any role of

employees of NSE in the violation and (ii) whether
there was any non-cooperation on the part of NSE
and its employees?‖
53
51. Before we proceed to consider the issues on merit as
framed by the WTM, we feel it necessary to look into the
choice of the architecture selected by NSE.
52. From the documents/evidence that has come on
record, we cull out the following, namely,
53. At the time of launching of the Colo facility there were
two kinds of technology available for implementing the
TBT system, namely, (i) Transmission Control
Protocol/Internet Protocol („TCP/IP‟) and (ii) Multi-cast
TBT („MTBT‟). NSE made a bona fide choice of using
the TCP/IP protocol for its TBT architecture, for sound
and valid reasons, as explained in detail below.
54. The Colo facility was being introduced for the first
time. It was critical to lay a sound foundation. Choices of
technology were primarily driven by the need to have
complete and fully assured high integrity of
dissemination and receipt of the ticks. TCP/IP was seen
as an appropriate choice of technology for a nascent

54
market. At the relevant time, the F&O segment volume
was only 3,000 to 5,000 messages/ second, which TCP/IP
could effectively handle, while even guaranteeing
absolute market safety and integrity.
55. On the other hand, MTBT is akin to a broadcast, and
can simultaneously transmit large volumes of data to a
large number of persons, with the potential downside of
loss of some data packets. In MTBT, delivery of data is
on a „best effort‟ basis, i.e., the network does not
guarantee or confirm data delivery, and this can result in
loss of packets or the sequence in which packets are
delivered. In MTBT, the onus of ensuring the receipt of
data packets is on the members (and not the system),
wherein members‟ infrastructure would have to be more
sophisticated as opposed to in the TCP/IP system.
56. At the relevant time, TCP/IP technology was the
standard protocol that the market was familiar with. On

55
the other hand, MTBT was a more complex technology,
and its implementation needed extensive programming.
57. At the relevant time, TCP/IP was used by exchanges
across the world (such as Chi-XJapan, BATS, NYSE
LIFFE and NSE).
58. Therefore, the MTBT architecture was not chosen
simply because it would not provide assurance of every
single tick disseminated actually being received. It is
pertinent to note that a key element of the MTBT system
was that it could handle large volumes of data (several
tens of thousands of ticks per second), which at a
fledgling/nascent stage was considered less important
than assuring integrity of data receipt.
59. Additionally, there was no regulatory guidance issued
by SEBI as to what technology should be adopted. We
find that SEBI has not raised any issue with regard to the
choice of the TBT architecture over MTBT architecture.
No fault has been found either by SEBI or in any of the

56
forensic report with regard to the choice of the
architecture.
Issue No.1
60. Whether TCP-IP architecture for TBT data feed
provided a fair and equitable access to all TM. This issue
has been further sub-divided into:
a. First connect/Early login
b. Absence of randomiser
c. IP allocation and load balancer
a) First connect/Early login
61. The show cause notice is based on the TAC report,
Deloitte report and EY report, alleging that the
dissemination of the data form a Port to its members is
sequential based on their login ranks on a Port.
Therefore, it is alleged that a member who connects first
to a particular Port will receive TBT data first before all
other members connecting to that Port on that server.
The expression “first connect/early login” has been

57
analysed from two levels, i.e., number of first connects
across POP server and number of first connects on the
POP server which was connected first to the PDC.
62. It was further alleged that data was disseminated to
the members in a sequential manner whereby the member
who connected first to the POP server received the ticks
before the members who connected later. It was, thus,
alleged that a member who received the first tick would
have an advantage by early login into the system.
63. It was, thus, alleged that the TBT architecture was
prone to manipulation in the absence of automation,
random function at POP servers and load balancers, as
well as allocation to servers with fewer occupants giving
them an added advantage.
64. The above charge was denied vehemently. It was
contended that the TCP/IP architecture was not prone to
manipulation. The sequential dissemination of TBT data
did not offer any advantage to the members who logged

58
in first nor there is anything on record to support as to
what advantage was conferred to the members logging in
first nor any analysis has been done on this aspect. It was
also urged that the architecture had an inbuilt randomizer
in the dissemination of the data and that no member could
be sure of receiving TBT data earlier than others even if
they connect first to the POP server since it could not be
ascertained whether their particular POP server was
connected first. Further, each POP server had three Ports
and, therefore, members could not be sure which data
disseminated first on a particular Port.
65. The WTM after weighing the evidence:
a. Accepted the process of dissemination of data with
respect to data flow from PDC to POP server level
as explained by NSE and forensic auditors.
b. Accepted that there was some randomness in the
sequence of the POP servers connecting to the PDC,
namely, that the sequence of dissemination of data

59
from PDC to the POP servers was not
predetermined. The flow of data from PDC to the
POP server is in a random sequence.
c. However, dissemination of information at the sender
Port level of a particular POP server was in a
defined sequence, i.e. Port 1, then Port 2, then Port
3. Thus, a trading member who logs in first to Port
1 would be the first to get the disseminated data at
the start of the day. The dissemination order would
remain static throughout the day and a TM who
received the data first would continue to receive the
data packet first from the rest of the day.
d. There was no mechanism to shuffle the order of
ranking of a TM in front of a Port in which he has
logged in first and, thus, that TM gained an
advantage as the first connect against other TMs
who logged in late.

60
e. A software script known as Epsilon was used to start
the TBT application every morning. The POP
servers connect randomly depending upon the time
sequence in which the TBT application processes
get started in each server. Therefore, POP servers
get connected to the PDC in a random manner.
There is some randomness in the sequence of the
POP servers connecting to the PDC.
f. On IP allocation, the WTM found that there was no
laid down policies and procedure for allocation/
mapping of the IPs to the dissemination servers.
Further, there was no Standard Operating Procedure
(SOPs) to deal with the request for change in IP
mapped to a particular server. That the shifting of
IP from one server to another was left at the
discretion of the PSM team and that different/
preferential treatment was given to different TMs,
especially OPG. Since there was no defined policy

61
there was a significant variation in terms of total
number of IPs allotted to each POP server. The
limit of 30 connections for each Port of POP server
exceeded 30 and, therefore, IPs were not allotted
equally on each Port of POP server.
g. Since there was inequitable distribution of IPs on a
POP server, the load on the Ports on a particular
server and the load across servers varied
significantly.
h. NSE should have installed a load balancer which
would have taken care of overcrowding on a
particular Port.
i. The WTM found that absence of load balancer had
created an advantage to certain TMs in receiving
ticks first who logged in first before those IPs that
are connected later in time.

62
j. Had there been a load balancer, each Port across
each server would get the same/similar number of
connections without crowding any out.
k. Had there been a randomiser, the order of TMs
connectivity to each Port would be randomized
thereby negating the effect of first connect/early
login.
l. NSE had implemented a randomiser in Bucker POP
but no clear reason was given for not implementing
a randomiser in the TBT architecture.
m. Absence of randomiser on the TBT dissemination
servers created an inherent advantage in receiving
TBT data by members connecting first.
66. Contention of NSE is, that the sequential data
dissemination or early login did not confer any benefit or
advantage for a variety of reasons. It was urged that:
i. There was variation in the sequence in which POP
servers connected to PDC. The EY Reports have

63
found that every individual POP server (including
the secondary server) logged on first at least 25% of
the time. Further, the investigation report itself
notes similar variations in the F&O segment.
ii. NSE had also tendered sample data for the months of
August 2012, October 2013, November 2014, and
October 2015 to show that the time gap between the
various POP servers connecting to the PDC was in
fact minimal, and often far less than 60 seconds.
This is relevant because it demonstrates that there is
no manual intervention or interference in this
process, and that the server process did not afford
individuals any opportunity to give preference to
particular members or pass on information regarding
the order of servers start up to allow particular
members to connect ahead of others.
iii. In any event, the sequence of connect of various
POP servers to the PDC did not affect the time for
64
dissemination of ticks to any member. The absolute
time for dissemination of ticks (absolute latency)
would always be in terms of microseconds to all
members. The sequence or order in which the POP
servers connect to the PDC would impact the
sequence or order of dissemination of ticks. No
other dissemination or receipt of ticks is impacted
by the sequence or connect of the various POP
servers to the PDC.
iv. Moreover, even the order of dissemination of ticks
did not determine the sequence/order in which ticks
were received by the POP/Port/member from PDC.
v. There was variability in order of receipt of data at
the POP level from the PDC – the POP that was
disseminated data first did not necessarily receive all
the data first.
vi. There was variability in order of receipt of data at
the Port level from the POP server/receiver. Even

65
the Port that disseminated data first did not
necessarily receive all the data first.
vii. There was also variability in order of receipt of data
at the member level from the port, depending on the
order of login. Even if a TM logged in first to all
ports, he may still not necessarily receive the ticks
first. This variability was due to inter alia network
factors and number of network devices
viii. The EY Reports clearly demonstrated that the order
of receipt was not the same as the order of
dissemination, and confirmed that “a member
logging in first on a Port may not receive all batches
first on that Port.”
ix. Deloitte, on whose reports SEBI places heavy
reliance, has confirmed that they did not examine
the receipt of ticks.
x. There were multiple queues for dissemination of
data (9 in F&O and CM, 6 in CD/IRF). A member

66
would need to log in first on all queues/Ports (across
all 3 POP servers) to be sure of first dissemination
of ticks. A TM would have no knowledge of his
connection on all queues (including the order of
connections of the POP servers to the PDC). No
instances of a member logging in first on all queues
occurred.
xi. TMs were not aware either of the order in which
POP serves would connect to the PDC or whether
they were on the first Port of a particular server, or
were first on a particular Port. TMs also did not
know the order of connection of each Member to a
Port.
xii. Therefore no one could gain from first connect. Even
NSE did not know the order of connections and
could only check this post facto by review of
connection logs.
67
xiii. Findings in EY Reports and ISB Report also
demonstrate that no advantage was conferred by
first/early login (technologically or financially).
xiv. The Impugned Order has not been able to identify
any specific advantage (technologically or
financially) that was allegedly conferred by
first/early login.
xv. The Impugned Order, has failed to consider the cross
examination of the experts in this regard.
xvi. All brokers had fair and equitable chance of
connecting first. In any event, first/early connect
required overt action by the broker and could not be
manipulated by NSE.
xvii. Annexure 20 of the 2018 SCN (at page 708, Volume
IV of the Appeal), showed that the top 5 brokers for
first/early connect in each segment varied only 1
overlap among 15 names. The EY Reports shows

68
that a very high proportion of members logged in
first on at least 1 day.
xviii. This shows that everyone had a fair and equitable
opportunity to connect first/early.
xix. NSE equitably allowed all members to take multiple
IPs and there was no prohibition even by SEBI in
this regard. Members took multiple IPs for their
own business/strategic reasons, and were often
distributed across servers.
xx. EY found that more than 50% of members had
accessed multiple servers/Ports, indicating that NSE
treated all brokers fairly and equitably.
67. The undisputed facts, as held in the impugned order
itself, are as follows:
i. The flow of data from the PDC to the POP
servers follows a random sequence. The
Impugned Order has noted that there is no

69
dispute on this fact of random login
sequence of POP servers to the PDC in any
of the expert reports of the SEBI
Investigation Report.
ii. Data dissemination from POP Receiver/
Server to Ports did not wait for completion
of circulation of data to all the IPs arrayed
on one Port but goes from one Port to the
other and the third immediately; the time
difference between the first Port to the
second and then the third Port was very
little.
iii. The order of sequence of connection of the
Ports to the POP Receiver/Server was
sequential as per the order specified in the
„config file‟ of the system application.
iv. There was variability in the order of receipt
of data at the Port level and even the Port

70
that was disseminated data first did not
necessarily receive all the data first.
v. At each Port level, there is an array of
members‟ IPs formed in the sequence of
login time.
68. The contention of the respondent SEBI is, that the
sequence of the dissemination at the PDC and the POP
Server level is not disputed. The charge in the show
cause notice is not in respect to the order of dissemination
at these levels, i.e. PDC level or the POP Server level.
The charge is confined to the dissemination of the tick at
the Port level. It was urged that the TBT architecture was
prone to market abuse thereby compromising market
fairness and integrity. The order of dissemination
connected to the same Port in a server, is on a first come
first serve basis, meaning thereby a member connecting
first to a specific Port in a dissemination server will

71
receive the tick before all other members connected to
that Port on that server. It was urged that the data was
disseminated in a sequential manner meaning thereby that
a member who connected first to the POP Server received
the ticks before the member who connected later. It was
urged that a member who was aware of the sequential
nature of dissemination of TBT data would derive an
advantage by early login into the system. Hence, the
TBT architecture was prone to manipulation.
69. On the issue of first connect/early login, what we find
is, that the respondent SEBI has no quarrel with the
dissemination of tick/data from the trading system to the
Receiver to the Sequencer to the Processor to the POP
Receiver and to the Port Servers. The contention of SEBI
is, that a member who logs in first from his Colo rack to
the Port gets the first tick before other members who logs
in after the first member. Further, the sequence of
receiving the data remains the same throughout the day,

72
meaning thereby, the member who logs in first receives
the data first and continues to receive subsequent
ticks/data/feed before other TMs during the course of the
day. This is on account of sequential dissemination of
data.
70. Before we look into the dissemination of data from
the Port Server to the Colo rack server of a TM, it would
be necessary and essential to trace the path of the
ticks/data that is disseminated from the trading system.
71. On the basis of the statement made by NSE and the
analysis made by Deloitte and EY in their reports, it is
clear that the data comes from the trading system of NSE
and is received by the PDC. The Epsilon script starts the
three receivers in the PDC. As per Deloitte report, the
TBT application is started manually by a member of the
Production Support and Management Team (PSM) at
around 7.30 a.m. on trading days followed by the
application at POP Servers. There are no logs or records

73
to show the process or sequence in which the three
receivers and the POP Servers were started, namely,
whether it started simultaneously or sequentially one after
another. EY in its report stated that on 96% of the trading
days the three POP Servers started within 60 seconds of
each other.
72. It is also not clear whether the Epsilon Script was
activated manually or whether it was automated.
According to NSE it was automated. Deloitte says
manually and EY report states automation. However, one
thing is clear, namely, that the Epsilon script when
activated starts the three receivers and the three POP
Servers within 60 seconds.
73. We also find that the information which is received in
the three receivers at the PDC level is received randomly
and not in a chronological manner, namely, Tick 1 sent
from the trading system may be received by Receiver 1,
whereas Tick 2 may be received by Receiver 2 and Tick 3

74
may be received by Receiver 3. The receiving of the Tick
1, 2 and 3 is also dependent as to which receiver was
activated first through the Epsilon script. The Ticks
received by the Receivers percolates to the Sequencer
which sequences this information in the order of the
Ticks. Thereafter, this information goes to the Processor.
74. From the Processor, the information goes to the POP
Server. The order in which the POP Server gets
connected to the PDC through Epsilon script is random
due to the variation in the TBT application start up time
within each POP Server. According to EY, the
dissemination sequence from PDC Processor to POP
Server could be different on each trading day. According
to SEBI, the sequence in which the POP Receiver
receives the information is dependent on which POP
Receiver starts or gets connected first to PDC.
75. We also find that the information sent from the
Processor to the POP Server is in a sequence, namely,

75
that information is received in POP 1 Receiver, then POP
2 Receiver and POP 3 Receiver and then POP 4 Receiver
(Secondary Server). On another trading day, the
information transmitted by the Processor could be
received first by POP 2 Server, and, thereafter POP 3
Server, POP 4 Server and POP 1 Server. This order of
receiving information would change on every trading day
as per EY‟s report.
76. Thereafter, POP Server transmits the information to
the three Ports. Every POP Server has three POP Sender
known as Ports. Information sent by the POP Receiver
could reach first on any of the three Ports and it is not
necessary that information disseminated from POP 1
Receiver would always reach Port 1. It would be
received by Port 2 or Port 3 which are all connected to
POP 1 Receiver.
77. From the above, it is clear that the sequence of
dissemination of data from PDC to the POP Server is not

76
predetermined. The flow of data from PDC to the layer
of POP Server is in a random sequence. The finding of
the WTM that such randomness was not on the basis of a
system characteristic or a built in design but was a matter
of chance based on unpredictable circumstances is based
on surmises and conjectures. In fact, the process of
dissemination indicated by NSE and anlaysed by EY in
its report clearly indicates that the TBT architecture had
an inbuilt randomiser in the dissemination of the
Ticks/Data/feed starting from the Trading system and
disseminating upto the POP Server. There was no
predetermined sequence as to which tick would be
received first by Receiver 1, Receiver 2 or Receiver 3 at
the PDC level. Further, the information disseminated
from the Processor to the POP Receiver was also random.
The information packet disseminated from the Processor
could be received first by POP 1 Receiver, then POP 2
Receiver, POP 3 Receiver and then POP 4 Receiver on a

77
particular trading day and this sequence could change on
the next trading day. This randomiser was dependent on
the starting of the TBT application by the Epsilon script.
Any Receiver at the PDC level and any POP Receiver at
the POP level could get activated first before the other.
The architecture was such that it had an inbuilt
randomiser in the dissemination of data at the PDC level
as well as at the POP Server level. This random login
sequence was also observed in the Experts report and
SEBI Investigation Report.
78. The WTM accepted this randomness in the impugned
order holding:
―In light of the aforesaid and having regard to the

Technical Document made available by NSE, I am
inclined to accept the process of dissemination of
data as explained by the Forensic Auditors and
NSE, with respect to data flow from PDC to POP
server level. I am also inclined to accept that there
was some randomness in the sequence of the POP
servers connecting to the PDC as brought out in
para 8.1.1.9 (b) earlier.‖
78
79. The WTM has held that the dissemination of
information at the Port level was in a predefined
sequence, i.e., first to Port 1, then to Port 2 and then to
Port 3. The WTM held that since the dissemination of
information at the Port level was in a defined sequence,
the TM who logs in first to Port 1 of the POP Server
would get the data first at the start of the trading day and
thereafter the sequence of the IPs in a Port would
continue to remain the same throughout the day. The
information dissemination order from a Port would
remain static throughout the day depending upon the
ranks established on the strength of log in timings. It was
thus held that equal access of information was not
possible to all the TMs logged into the TB data feed
system at a given point of time and, therefore, the system
conferred an advantage on early loggers in a Port
compared to others.
79
80. The aforesaid conclusion drawn by the WTM was
primarily based on the fact that the dissemination of
information at the Sender Port level of a particular server
was in a predefined sequence, i.e. first to Port A, then
Port 2 and then to Port 3. In our opinion, this finding is
not based on any evidence for the reasons stated
hereunder:
a. EY (CM) Report analysed the dissemination of
information from POP Server to Members‟ IP
and analysed as under:
i. “Each POP had three Ports (Port numbers
were 10980, 10981 and 10982) since
December, 2011. Prior to this, there was
one POP with one Port (for most of the
period). As per source code, dissemination
after a batch was received from PDC to
each Port was sequential (i.e. dissemination
first to Port 10980, followed by Port 10981

80
and Port 10982). The source code defined
the order of dissemination of batches but
not that of their receipt at each Port within
the same POP. For example, batch 1 may
be received first by Port 10980 while batch
2 may be received first by Port 10981.
ii. There are nine independent dissemination
queues and dissemination on each Port is
sequential based on login time of a
member.
iii. NSE provided members access credentials
to a Port of a POP which could then be
used to access TBT market data feed.
Based on our review of source code of
POP, each Port was an independent
dissemination queue and dissemination
from a Port to members was sequential
based on their login ranks on a port (login

81
rank was determined based on the login
time of members on that Port). Such
sequential dissemination on the Port was on
account of an array that was designed based
on login time of member‟s IP. The reason
for designing the array based on a login
time of a member‟s IP could not be
ascertained.
iv. Also, a member may not have knowledge
of his rank in an array as the login
acknowledgment message sent by the
exchange did not have this information.
v. The login rank on the different ports and
not the absolute time of login defined the
order of dissemination. For e.g. if member
A and B log in at 8:45 a.m. and 8:50 a.m.
respectively on Port 10980 and member C
and D at 7:30 a.m. and 7:40 a.m. on Port

82
10981, each of them will be ranked 1 and 2
on their respective Ports. However, if Port
10980 is disseminated the tick first, then
member A and B who have logged in later
than member C and D may still be
disseminated the batch earlier.
vi. A member ranked first in the array on a
particular Port would always be
disseminated a batch before others on that
Port for that trading day. Similarly a
member ranked last on the array on a Port
would always be disseminated a batch last
on that Port for that trading day.
vii. Further, there were three POP servers
(including secondary) with three Ports each
and consequently nine independent
dissemination queues. A member would
need to be first on all the nine Ports (across

83
three POPs) to be disseminated all the
batches first on that trading day.
viii. Each POP had a receiver and three senders
(also termed as Ports) since December
2011. The Port numbers assigned in CM
were 10980, 10981 and 10982.
ix. The Ports would start in the sequence of
Port 10980, 10981 and 10982.
x. POP receiver receives a batch from PDC
and disseminates it to the respective queue
of each Port sequentially.
xi. Each Port will read the batch from its
respective queue. Source code did not
define the order of the receipt of batch at
each Port.
xii. An array (dissemination sequence) is
maintained by each Port which is created
based on the time of login by a member on

84
that Port, i.e. earliest login is ranked first.
Dissemination from a Port to members is
sequential based on their login ranks on a
Port.
xiii. When a member‟s connects to a TBT
server (on a Port), the member application
sends a login request and transmits the
login credentials. The TBT application
processes the login request and sends a
login response message to the member
application.
xiv. Based on the information in the above login
message details, it appears that a member
may not have knowledge about their rank
in the array.”
b. Deloitte in its report has confirmed that they did
not examine the receipt of ticks.

85
c. The analysis of the EY Report clearly indicates
that there was variability in order of receipt of
data at the Port level from the POP Receiver.
Thus the Port that disseminated the data first did
not receive all the data first. EY report indicates
that dissemination of a batch of information was
received from PDC to each Port sequentially, i.e.
dissemination first to Port 10980, followed by
Port 10981 and Port 10982. The source code
defined the order of dissemination of batches but
not that of their receipt at each Port within the
same POP. For example batch 1 may be
received first by Port 10980, while batch 2 may
be received first by Port 10981.
d. EY in its report further found that TM Mr. A
even if he logs in at 8:45 a.m. and TM Mr. B
logs in at 8:50 a.m. respectively on Port 10980
and TM Mr. C and Mr. D logs in at 7:30 a.m.

86
and 7:40 a.m. on Port 10981, each one of them
will be ranked first and second in their respective
Ports. If Port 10980 disseminates the first tick
then member Mr. A and Mr. B who have logged
in later than member Mr. C and Mr. D will
receive the tick first. The EY report further
analysed that there were three POP Servers.
Each POP Server had three Ports. Therefore,
there were nine Ports from which ticks were
disseminated. The report found that a TM would
need to be first to log in all the nine Ports in
order to receive the first batch of information on
a trading day.
e. From the aforesaid, it is clear that even though
information is disseminated from the POP Server
sequentially, it is not necessary that the Port
Server receives it sequentially. The Port may
receive a batch of information first and the

87
second batch may be received first by another
Port. Further, a TM who logs in first on a
particular Port may not receive the information
first as another TM who logged in at a later point
of time on another Port may receive the
information/tick first.
f. EY in its report states that the source code
defined the order of dissemination of batches but
not that of their receipt at each Port within the
same POP. For example, batch 1 may be
received first by Port 10980, while batch 2 may
be received first by Port 10981. There are nine
independent dissemination queues and
dissemination on each Port is sequential based
on login time of a TM.
g. Thus again, we find that there is some
randomness in the dissemination of data from
POP Server to Port. The dissemination from the

88
POP Server is sequential but receipt of the
information at the Port level may not be
sequential. One batch of information may be
received first by one Port and another batch of
information may be received by another Port
first.
h. Each Port was an independent dissemination
queue and dissemination from a Port to TM was
sequential based on their ranks on a Port. Such
sequential dissemination on the Port was on
account of an array that was designed based on
login time of a TM IP.
i. A TM logging in first on a particular Port may
not receive the information first. EY in its report
finds that if TM Mr. A and Mr. B logs in at 8:45
a.m. and 8:50 a.m. respectively on Port 10980
and TM Mr. C and Mr. D logs in at 7:30 a.m.
and 7:40 a.m. respectively on Port 10981, each

89
of them will be ranked 1 and 2 on that respective
Ports. However, if the information/tick is
disseminated first on Port 10980, then TM Mr. A
and Mr. B who have logged in later than TM Mr.
C and Mr. D will receive the information first.
j. Once a TM Mr. A receives the information first
as he was ranked first in that Port will always
receive the batch of information first before
other TMs on that Port for that trading day.
Thus, TM Mr. A would receive the information
first and TM Mr. B would receive the
information thereafter. The time difference
appears to be a fraction of a microsecond to a
nano second. Thus, a TM who is ranked last on
a particular Port would always be disseminated a
batch of information last on that Port for that
trading day.
90
k. EY in its report further found that a member
would need to be first on all the nine Ports to
receive the first batch of information on that
trading day.
l. There were nine Ports on which data/information
was disseminated. A TM would get the
information first if he logged in first in all the
nine Ports on that trading day. No such
instances were found in any of the reports.
m. A TM had no knowledge of his rank in the
queue on a particular Port. A TM was also not
aware of the order in which POP Server would
connect to the PDC on a particular trading day
nor was he aware whether he was logged in on
the first Port of a particular server or was first on
a particular Port. A TM also did not know the
order of connection of each TM to a Port.

91
n. Thus, we find that the flow of data from the PDC
to the POP Server followed a random sequence.
Till this point, there is no dispute. The WTM
also accepts this randomness till this stage. We,
however, find that dissemination of data from
POP Servers is sequential to the Port. But we
find that receipt of information at the Sender
Port is not sequential, namely that batch 1 of
information may be received first by Port 1, but
batch 2 may be received by Port 2. Thus, till the
stage of Port, there is some randomness in the
dissemination of data right from PDC level to
the Port level. We further find there was
variability in the order of receipt of data at the
Port level and even the Port that was
disseminated data first did not necessarily
receive all the data first. A TM who logged in
first would receive the data first on the Port

92
ahead of the TM who logged in after him. The
TM who logged in first would continue to
receive the batches of information ahead of the
TM who logged later from the rest of that
trading day. We also observe that the TM who
logs in first may get a probabilistic advantage of
receiving the data first ahead of other TM who
logged in later on that particular Port.
b) Absence of Randomiser
81. The show cause notice alleged that absence of
randomiser on the TBT dissemination server created an
inherent advantage in receiving TBT data by members
connecting first. It was also alleged that a randomiser
was developed by NSE in 2011 and was implemented for
the bucket POP Server in 2012 but the same was not
implemented in the normal TBT segment server and that
NSE was unable to explain the reason for not

93
implementing the randomiser in the normal TBT segment
server. It was also alleged that the development of the
randomiser and its implementation in the bucket POP
Server was not disclosed to the forensic auditor by the
NSE team until it was identified during the forensic
analysis by the forensic auditor.
82. The WTM after considering the material evidence on
record came to the conclusion that the TCP IP
architecture of TBT data feed was inadequate as the
inherent early log in advantage was not sought to be
addressed by introduction of a randomiser. The WTM
concluded that a TM who logged in to the Sender Port of
a POP Server which had connected first to the PDC on a
trading day would be disseminated data first on that Port
throughout the day and that a randomiser after the Ports
would have ensured that even when a TM consistently
logged in first in a Port of a POP Server which connected
first to the PDC it would not guarantee that such TM

94
would receive the data first. The WTM concluded that
the employment of a randomiser in the normal data feed
dissemination would have upset the pre-determined
sequence of IPs based on early logins and would have
brought in much needed element of unpredictability in the
sequence of data packet (dissemination).
83. As we have concluded earlier that the flow of data
from the PDC to the POP Server is in a random sequence.
The dissemination of data from POP Server to the Port is
sequential but the receipt of the information at the Sender
Port is not sequential, namely, that batch 1 of information
may be received first by Port 1 but batch 2 may be
received by Port 2. Thus, we find that till the stage of
Port there is some randomness in the dissemination of
data already from PDC level to Port level. We further
found that there was variability in the order of receipt of
data on the Port and even the Port that disseminated the
data first did not necessarily receive all the data first.
95
84. In view of the aforesaid finding given by us, the
WTM has erred in coming to the conclusion that a TM
who logged in first to the Sender Port of a Pop Receiver
which was first on a trading day would get the
disseminated data first on that Port. This is incorrect as
we have held that even if a TM is connected first to a Port
it is not necessary that he would receive the data first. A
TM who logs in later on another Port may receive the
data first before the TM who logged in first on Port 1.
85. A randomiser is a function which is Sender Port
specific and which would randomly pick a connection to
begin dissemination of data. The purpose of a randomiser
is that it would randomly send the data either to Port 1 or
to Port 2 or to Port 3 and that there would be
unpredictability with regard to dissemination of the data
on a particular Port. As we have found that the
dissemination of data from the Sender Port to the TM was
not sequential but there was a randomness and that the

96
receipt of information at the Sender Port was not
sequential, namely, that batch 1 of the information may
be received by Port 1 and that batch 2 may be received
first by Port 2 and, therefore, till the stage of Port there
was some randomness in the dissemination of the data.
Thus, introducing a randomiser after the Port level would
have created a randomness of dissemination of data in
which randomness was already existing. In our opinion,
once there was randomness in dissemination of data from
the Sender Port level there was no requirement of having
an additional randomiser for further randomness of
dissemination of data.
86. The finding that absence of randomiser created an
inherited advantage in receiving TBT data who connected
first is erroneous as a TM connecting first does not give it
a guarantee that it would receive the data first when it is
disseminated from the Port.

97
c) IP Allocation and load balancer
87. The show cause notice alleged that there was no laid
down policies and procedure for allocation/mapping of
IPs to dissemination servers and that there was no SOPs.
It was also alleged that many TMs made a request for
change in IP mapped to a particular server and such
request for shifting IPs from one server to another was
left at the discretion of the PSM Team and, consequently,
differential treatment was given by PSM Team to
different TMs. As a result, some TMs were given
preferential treatment.
88. Deloitte in its report has provided data with regard to
allocation of IPs across TBT Servers which has been
tabulated in table XI of the impugned order. The show
cause notice further contended that the limit of 30
connections for each Port of POP Server exceeded 30 IPs
and, consequently, there was significant variation in
terms of total number of IPs allocated to each POP

98
Server. This variation in the allocation of IPs across each
POP Server was known to the PSM Team. This fact is on
the basis of an analysis of emails of the members of PSM
Team.
89. EY in its report made the following observation:
a. ―A Port of a POP server was prescribed a

limit of 30 connections.
b. For configuring a new member IP for TBT

access, the operator used to manually
configure an IP to a Port based on availability.
Availability was decided based on number of
active connections made on that Port on that
particular day.
c. Member TBT IP was given access on the Port

that had less than 30 connections.
d. Each TBT IP was then configured on the same

Port of Secondary Server as well.
e. On multiple trading days, connections on the

ports of the primary servers of CM segment
had exceeded 30. Based on the login logs, it is
observed that on 275 trading days, all the six
ports of primary servers had more than 30
connections (maximum of 53 connections were
noted on one of the Port of primary server).‖
90. From the aforesaid, the show cause notice alleged:

99
a. There were significant variations in terms of

number of IPs allotted to each Port within a
particular POP Server.
b. There were significant variations in terms of

total number of IPs allotted to each POP
Server.
c. The variations in IP allocation numbers are

more pronounced on the days for the year
2012.
d. In terms of number of IPs actually connected,

the variation is even more pronounced.
e. Though there was a limit of 30 connections for

each Port of POP Server, the actual number of
IPs allocated exceeded 30.
f. It is observed that the manual load balancing of

members across servers did not seem to have
been performed equitably.
91. It was, thus, alleged that in the absence of a load
balancer, variation of load on each Port have resulted in
an inequitable access to the TMs in as much as variation
of load at each Port had/or would have resulted in varied

100
lagged time for distribution of data under sequential data
distribution process.
92. The WTM upon consideration of the evidence and
submissions made by the parties found that there was no
SOPs for allocation of the IPs but a limitation of 30
connections per Port of POP Server i.e. a total of 90 per
POP Server was fixed. The WTM found that there was a
significant variation in terms of number of IPs allotted to
each Port within a Port Server and the total number of IPs
allotted to each POP Server. It was found that though
there was a limit of 30 servers on each Port of POP
Server, actual number of IPs allocated exceeded more
than 30 connections of a Port of a POP Server. The
WTM further found that the allocation of the IPs to the
POP Server was done manually. Thus, IPs connected
ahead would receive data packets before those IPs that
were connected later in time in the same array. Such
allocation of IPs done manually exceeded 30 connections

101
per Port on a POP Servers which was not in line with the
recommendations of the NSE Development Team. The
WTM further found that in view of exceeding 30
connections on each Port of POP Server the variation of
load at a particular Port level would significantly impact
the data dissemination time in other Ports of the same
POP Server and across the other POP Servers. The WTM
found that implementation of the load balancer would
have resulted in the IPs being mapped to the load
balancer which would then equitably distribute the
connection across the POP Server thus eliminating the
allocation of IPs being done manually and also
eliminating the time lag in receipt of data packets
experienced by members on account of having connected
to a more loaded POP Servers exceeding 30 connections.
93. Before us, the contention of NSE is, that as and when
NSE received requests from TMs for allocation or
shifting their IPs to a different Port then NSE would take

102
efforts to accommodate such requests, unless there were
feasibility issues regarding non-availability of Ports on a
particular server etc. NSE contended that no preferential
treatment was shown to any particular broker and, in case
any broker complained about any latency issue, such
requests was considered and IPs were shifted after
considering the evidence. It was alleged that the lack of
load balancer did not make the TBT architecture prone to
manipulation. According to NSE, the load balancer was
initially suggested as an automation measure to address
server failures and avoid manual IP movement by the
TBT team to another Port. It was contended that at the
relevant moment of time there was no regulatory
requirement to implement the use of a load balancer. It
was contended that the issue of implementing a load
balancer was conscientiously considered by NSE and a
bona fide decision was taken not to implement the load
balancer on the ground that it would have increased the

103
latency and that it would present one more single point of
failure and that an additional hardware device like that of
a load balancer was generally not used in the TBT
architecture. In support of his submission the learned
senior counsel placed reliance on the statements of Ms.
Mamatha Rangaprasad, Mr. N. Murlidharan. It was
further stated that in any event the variation in load across
servers was not significant which would require a load
balancer. It was urged that the load on each Port
depended on the number of connections by members on
that Port on a given day and the load was not dependent
on the number of allocations of IPs on that Port. It was,
thus, urged that there was no evidence or material to
demonstrate that the variation in load resulted in any
advantage or disadvantage to any TM.
94. Considering the submissions made by NSE and upon
consideration of the material evidence that has come on
record, one thing is clear that there were no defined laid

104
down SOPs for allocation of IPs to a TM. Mr. Ravi Apte
in his submission dated 2nd May, 2018 has categorically
stated that
―there was no system for load balancing/ dynamic

load balancing‖
meaning thereby that there was no procedure for
allocation of IPs.
95. However, one thing is clear that NSE took a decision
to allocate 30 connections per Port on a POP Server i.e. a
total of 90 connections per POP Server. This allocation
of IPs was done sequentially i.e. one POP Server at a time
and distributing the IPs to one POP Server and then
moving on to the next POP Server to manage load
balancing across various POP Servers. However, the
evidence on record and especially table XI in the
impugned order shows allocation of IPs exceeded 30
connections per Port of a POP Server. This table has not
been denied by NSE and this table has also been given in
105
the Deloitte report. Thus, the policy adopted by NSE to
limit 30 connections per Port of a POP Server was
infringed.
96. It has also come on record that the allocations of IPs
were done manually to the POP Server. The shifting of
the IPs from one Port to another Port was also done
manually. Evidence has further come to the effect that
load balancing of IPs on a given trading day was also
done manually. We find that the absence of load balancer
appears to have created an advantage to certain TMs due
to manual intervention. The PSM/Colo teams were aware
that the shifting of IPs from one Port to another Port was
increasing the down time which was inconvenient to most
of the TMs. The PSM/Colo teams were also aware that
the manual distribution of IPs created an operational risk
while balancing the load on the servers continually and
the process of shifting the IPs from one Port to another
especially when the number of connections started

106
increasing. Ms. Mamatha Rangaprasad in her statement
dated 1st August, 2017 stated that a load balancer is used
to balance the actual connects on the servers and the
solution of load balancer was suggested to avoid manual
reconnection and auto connect these members to other
server. Mr. N. Murlidharan in his statement of 20th April,
2018 stated that any additional device would create an
additional hop and that the minimisation of device was a
critical factor which ensured fewer failure points and,
therefore, the load balancer was not considered.
97. As early as on 3rd January, 2012, an email from Ms.
Smrati Kaushik indicated that with the increase in the
number of TBT connections two major risk opened,
namely, that in the event of an issue like hardware failure
for which members had to change the IP to come to the
Fall-back server would increase the down time and most
of the members found it inconvenient and that currently
distribution was manual and recommended

107
implementation of a load balancer. This email was
followed by another email on 4th January, 2012 from
Hozefa Poonawala suggesting implementation of a load
balancer.
98. From the aforesaid, it is clear that NSE was aware of
the practical difficulties in manually allocating the IPs
and shifting the IPs from one Port to another Port. A load
balancer was suggested. The reply of NSE indicates that
a decision was taken not to implement the load balancer.
We find that there is nothing on record to indicate what
bonafide decision was taken by NSE for not
implementing the load balancer. As we have already held
there was no laid down defined SOPs for allocation of the
IPs.
99. This leads us to the question of whether a load
balancer was necessary in the facts of the given case.
100. A Load Balancer as described in the impugned order
is as under:
108
a. A Load Balancer is a hardware/software that
distributes network / traffic load across a
number of POP Servers based on a specific
algorithm like least connections, least response
time, round robin etc.
b. A Load Balancer is very commonly used in
systems across industries, across the world to
distribute the network traffic across a number of
servers.
101. We find that the load on the Port on a particular
Server varies vis–a–vis the load across Ports and across
Servers and, in the absence of a „Load Balancer‟, such
variation of load at each Port would have resulted in a
varied time lag for distribution of data under sequential
data dissemination process.
102. We also find that the manual load balancing of
members across servers was not performed equitably by
NSE. There were significant variations in terms of

109
number of connections across different servers and Ports.
The load on Ports on a particular server and the load
across servers varied significantly. In the absence of a
dynamic load balancer, such variation of load at each Port
resulted in varied time lag for distribution of data under
sequential data distribution process.
103. Though NSE claimed that load balancing was done
manually where members were allocated to servers based
on existing load, actual number of IPs allocated varied
significantly across the ports. The variation was even
more pronounced in terms of number of IPs actually
connected. This resulted into significant variation in
crowding at different ports.
104. We are of the opinion that in a system where a Load
Balancer was employed, the Trading Members would not
be mapped to any particular server or port, but rather to
the Load Balancer itself. The function of the Load
Balancer would be to allocate the TBT IPs of trading

110
members evenly to the servers and ports at the time of
login itself. Once the trading members have logged in,
they would have been mapped to the load balancer, which
will automatically allocate the trading member a lesser
crowded port vis-à-vis other port.
105. Consequently, if a Load Balancer was installed, it
would distribute the load at the start of the trading day
across the ports. It would also distribute the load at every
stage when there is a subsequent connection during the
course of the day. This would ensure fairness, equality
and transparency in the system, which the NSE was
mandated to comply with. It is trite that the process of
load balancing is dynamic in terms of continuous
allocation of lesser crowded ports to the trading members
at the time of login either at the start of the day or during
the time of any subsequent connection.
106. In view of the aforesaid, it is apparent that a load
balancer was essential for equal distribution of IPs on a

111
particular Port. If on a given day there is a load factor on
a particular Port in contrast to a lesser load on another
Port, then the load balancer would automatically shift the
excess IPs on one particular Port to another Port which
has a lesser number of connections on that day in order to
equalize and balance the load across all Ports. The load
balancer distributes the traffic across all Ports and
eliminates manual intervention which is otherwise
susceptible to preferential treatment to a given set of
TMs.
107. The alleged decision taken by NSE not to implement
the load balancer is not on record and, in any case, does
not appear to be a bonafide decision. Their contention
that implementation of load balancer would increase the
latency is per se erroneous. Latency, if any, would be
equal for all TMs and it would not be a case where the
latency factor is for one TM against another TM.
Implementation of a load balancer if it increases the

112
latency would be equal across all TMs who have logged
in on that particular date.
108. Thus, non-implementation of a load balancer has not
ensured the norms of fair access and if the load balancer
was implemented, norms of fair access would not have
been breached. Failure to implement the load balancer in
the TBT architecture, in our opinion, failed to ensure fair,
transparent and equal access by NSE to its TMs.
109. To sum up, a TM who connected first to the POP
server was not assured to receive the tick first. The TM
who logged in first may get a probabilistic advantage of
receiving the data first ahead of the TM who logged in
later on that server. Since the TBT architecture created a
randomness in the dissemination of data also from the
Sender Port level, there was no requirement for installing
a randomiser. The allocation of IPs and its shifting from
one server to another server was not done as per the
decision taken by NSE. There were overcrowding of IPs

113
on one server as compared to other server. There was
inequal distribution of IPs on the same server and there
was no laid down SOP for allocation of IPs to a TM.
NSE should have implemented a load balancer which
would have distributed the IPs equally across all servers
and norms of fair access would not have been breached.
Failure to implement the load balancer has failed to
ensure fair, transparent and equal access by NSE to its
TMs.
Issue No.2
110. Whether access of secondary server had advantage of
receiving information early and what was the mechanism
in NSE to monitor the secondary server misuse.
111. The show cause notice is based on TAC report,
Deloitte report and the EY report. The show cause notice
alleges that NSE did not have any defined policies and
procedures with regard to accessing the secondary server
and that guidelines were not issued as circulars. It was

114
also alleged that NSE was selective in reprimanding only
some brokers who had connected to the secondary server
and allowed other brokers to continue connecting
regularly to the secondary server and, thus, showed
differential treatment to brokers. It was alleged that in
the absence of any mechanism for stopping TMs to
access the secondary server it gave advantage to those
TMs who were connected to the secondary server and,
thus, received information early than other TMs who
were logged in to the regular servers.
112. Deloitte in its report submitted that the secondary
server was also an active server and that a TM could
receive data if it was connected to the secondary server.
The report also stated that there was no documented
policy or procedure with respect to connection to the
secondary server nor was there any mechanism to identify
members connected to the secondary servers. Deloitte
also reported that „Ticks‟ were disseminated faster to

115
members connected to less crowded server thereby giving
advantage to such members.
113. EY in its report submitted that based on stimulation
test performed 95% of all the batches were disseminated
first to the members connected first to Port of secondary
servers.
114. Thus, the two reports primarily observed that in the
first few months of 2012 the connection to the secondary
servers were being monitored by NSE and that certain
TMs were reprimanded and were directed to disconnect it
from the secondary servers. The two reports observed
that whereas certain members were reprimanded other
TMs were allowed to stay connected with the secondary
server for no valid reason. EY has given detailed report
with regard to which members being reprimanded.
115. NSE responded that the secondary server was only a
backup server to be used only in the event of failure of
the primary server. NSE submitted that the secondary

116
server would allow TMs to continuously receive TBT
market feed without disruption and each TM was given
an IP address for connecting to the secondary server.
NSE submitted that it was accepted that the members
would connect to the secondary server only when they
were unable to connect with the primary servers. NSE
further submitted that the secondary server was always
kept in active mode to ensure that members could easily
and quickly switch to secondary server in the event of
failure of the primary servers. These guidelines were
issued to all TMs. NSE, however, admitted that they did
not have any mechanism of continuously monitoring the
connection to the secondary server.
116. NSE further responded that since NSE was
experiencing server failures it was decided to move the
TBT infrastructure from the PDC to a separate Colocation
data centre. This migration of TBT server to the new
colocation data centre was undertaken in the first six

117
months of 2012 and, during this period, in order to ensure
that the secondary server was free in the event that the
primary server went down, during the migration period
with the PSM team performed some limited check with
regard to connections to the secondary server. It was
further contended that the PSM Team, upon checking,
found certain members were connected to the secondary
server, and were reprimanded and were further directed to
disconnect from the secondary server. It was contended
that there was no discrimination and warning was issued
uniformly to all the members who were connected to the
secondary server during the migration period. It was
vehemently contended that at no point of time NSE ever
developed a mechanism to continuously or automatically
monitor connections to the secondary server and only
periodic checks were carried out by the PSM team during
the migration period.

118
117. The WTM found that there was no defined policy
with regard to accessing the secondary server and that
only a guideline was issued which was not in the form of
a circular. The WTM further observed that in the absence
of continuous monitoring of the secondary server led
certain TMs to be given preferential treatment who
continued to access the secondary server and,
consequently, misused the secondary server with
impunity. The WTM further accepted the EY‟s
stimulation test observing that 95-96% in CM Segment
and 80-85% in CD Segment of all batches were
disseminated to members connected first to Port of
secondary server and thereby certain advantages were
made by these TMs. This was only possible in the
absence of strict monitoring which allowed members to
harvests the benefits of early access to the TBT feed from
the secondary server.

119
118. Having heard the learned counsel for the parties and
having perused the record we find that NSE had issued a
Colocation guideline on 8th August 2011 which was
revised on 16th April, 2012 which states as under:
―Members who always check the secondary TBT

parameters are working fine with their application
in case of non-availability of data from TBT primary
source they can move to secondary source‖.
119. According to NSE, the Colocation guidelines was
sent as a welcome email to all new members in
Colocation and that the said guidelines was never used as
a circular. NSE also admitted that there was no
monitoring mechanism to identify members connected to
secondary servers nor was there any documented policy
with respect to TMs connected to fallback servers.
According to NSE, when a TM took a new TBT
connection the activation email sent by the membership
team carried information regarding the primary server
and port and secondary server and Port and it was

120
expected from the members that they would only use the
secondary server only in the event of failure of primary
server.
120. We find it strange that NSE as a regulator did not
place any mechanism to check unauthorized access to the
secondary server by the TMs. The reason why we are
saying this is that there is no difference between the
secondary server and the three primary servers. As we
have observed earlier, information is disseminated from
the PDC Center to the POP 1 Receiver, POP 2 Receiver,
POP 3 Receiver and POP 4 Receiver. POP 4 Receiver is
the secondary sever. Each POP receiver has three Ports
and the secondary server also has three Ports. All TMs
were required to login in the three servers and not in the
secondary server. Certain mechanism was placed by
NSE for balancing the load on the three Ports but no
mechanism of balancing the load was placed in the
secondary server and the reason is not far to see, namely,

121
that TMs were not allowed to access the data from the
secondary server and that the secondary server was only
to be used in the event of an emergency upon failure of
the primary server.
121. It was, thus, found that any TMs who logged in
through the secondary server had an added advantage as
there was no mechanism to monitor the load factor and
since there was less load on the secondary server it
became advantageous to access the data faster ahead of
other TMs.
122. The guidelines issued by NSE were clear that the
secondary server could only be used by a TM for
accessing data only in the event of failure of the primary
server. A TM could only use the secondary server upon a
prior intimation and permission given by NSE Colocation
team.
123. Thus, it was imperative for NSE to have a defined
policy for use of secondary server and a mechanism

122
ought to have been placed for monitoring connection by
TMs on the secondary server and reprimanding or taking
penal action against such TMs who violated and used the
secondary server to access the data. By not doing so the
NSE has failed to carry out its duties as the first regulator.
124. Further, we find that the secondary server was also an
active server meaning thereby that data could be accessed
at any moment of time if a TM is connected. Thus, in our
opinion, a system ought to have been placed whereby the
secondary server could only start when the primary server
failed or a mechanism should have come into existence to
ensure that members could connect to secondary server
only when the primary server failed.
125. It was not sufficient for NSE to hold that the TM was
made aware of the use of the secondary server through
their welcome email which, in our opinion, was
insufficient. We find that when the load on the three
Ports were being monitored it became essential for NSE

123
to ensure that no TM had access to the secondary server
for accessing the data.
126. A plausible explanation has been given that the
monitoring on the secondary server was made only for a
limited period during the period of data center migration.
We however find that when NSE came to know about the
misuse of the secondary server by the TMs, it should
have set up a monitoring system immediately and ensured
that no TMs accessed the secondary server without
permission. We also find that there is no plausible
explanation as to why during this period only some of the
TMs were reprimanded and others who had also logged
in to the secondary server were not reprimanded. Thus,
an irresistible conclusion can be drawn that certain TMs
were given preferential treatment and no warning letters
were issued to them.
127. We also observe that admittedly the secondary server
was less loaded in terms of IP connection primarily due to

124
the fact that TMs were expected to access only the
primary server in compliance with the NSE Colocation
guidelines. In the absence of any mechanism for
monitoring, TMs who connected themselves to the
secondary server were able to harvest the benefit of early
access to the TBT feed in comparison to the other TMs
who were not connected to the secondary server.
128. In this regard, we find that the EY in its report has
given details supported by evidence indicating certain
TMs who continuously logged in to the secondary server
for a considerable period of time and were also connected
to the first, second and third Port of secondary server for
majority of the trading days thus, getting information
prior and faster to other TMs. In this regard, detailed
discussion will be made in the latter part of the judgment.
129. In view of the aforesaid, we are of the opinion, that
NSE did not have any defined policy and procedure
regarding access to the secondary server except those

125
which were mentioned in the NSE guidelines which were
basic and inadequate. Further, there was no documented
policy or procedure regarding monitoring of unauthorized
access by TMs on the secondary server which resulted in
the misuse of the secondary server with impunity by
some of the TMs.
Issue no.3
130. Liability of NSE under SEBI PFUTP Regulations,
2003 and SECC Regulations, 2012.
131. The show cause notice alleged that NSE had violated
Section 12A(a) of the SCRA Act read with Section 11(1),
11(2)(a), 11(2)(j) and 11B of the SEBI Act read with
Regulation 3(a), 3(b), 3(c), 3(d) and Regulation 4(1) of
the PFUTP Regulation, 2003 read with Regulation 41(2)
and Regulation 42(2) of the SECC Regulations, 2012
read with Clause 4(i) of the SEBI Circular dated 30th
March, 2012 and Clause 3 of the SEBI circular dated 13th
May, 2015.
126
132. The WTM after considering the response found that
NSE had not violated any provision of the PFUTP
Regulations since no fraud was committed by NSE or its
employees and, consequently, exonerated NSE of the
charge under the PFUTP Regulations. The WTM held:
―8.3.3.8 As far the exchange is concerned, the factual

build up and the allegations levelled in the SCN,
pertain to violations that are arising by flouting the
principles underlying the conduct of business of a stock
exchange, pertaining to fair and equitable access to
information. Alleging ―fraud‖ against the Exchange,
in this scenario, tantamounts to attributing ―intention‖
or ―knowledge‖. In the absence of facts pointing
towards the collusion of employees with the TMs or
proof of specific discrimination towards any specific
TM or the accrual of monetary benefits/ unjust
enrichment to any employee or TM, etc., I find it
difficult to conclude that there is a violation of the
provisions of SEBI (PFUTP) regulations, involved in
the matter.‖
133. The WTM further held that failure to place the
randomizer or load balancer in the TCP IP dissemination
protocol, cannot be categorised as breach of the principles
of “fairness and equity” attracting the provisions of

127
PFUTP Regulations. The WTM held that the
dissemination of information which is in breach of the
stipulation contained in SECC Regulations cannot
automatically attract the rigors of PFUTP Regulations,
without there being any proof to indicate fraud. The
WTM held that in the absence of any fraud or collusion
or connivance the possibility of fraud was non-existent.
134. The WTM, however, found that the dissemination of
information at different stages of the technology process
was inequitable and that NSE failed to ensure a level
playing field for the TMs subscribing to the TBT data
feed of NSE. The WTM found that there was no
equitable distribution of allocation of IPs and that absence
of load balancer provided an advantage and disadvantage
to certain TMs on the basis of their login rank on a
particular day and that non-inclusion of randomizer gave
a fair advantage for a TM who logged in first coupled
with the fact that there was failure on the part of NSE to
128
monitor frequent connection to the NSE server by certain
TMS. The WTM held that all these factors point out to
violation pertaining to fair and equitable access to
information as provided under Regulation 41(2) of the
SECC Regulations, 2012 and, therefore, came to the
conclusion that NSE did not comply with the provisions
of Regulation 41(2) of the SECC Regulations in “letter
and spirit” and, accordingly, violated the said provision as
well as Regulation 42(2) of the Regulations.
135. While arriving at the aforesaid conclusion, we find
that the WTM has taken into consideration the circular of
13th May, 2015, which in our opinion has nothing to do
with the present controversy in as much as the alleged
violation is for the period 2010 to April, 2014 as during
this period NSE had used the TBT architecture for
dissemination of data before introducing MTBT system.

129
136. Before we proceed further, it would be appropriate to
refer to Section 4 of the SCRA Act, 1965 which provides
as under:
―4. Grant of recognition to stock exchanges.
(1) If the Central Government is satisfied, after

making such inquiry as may be necessary in
this behalf and after obtaining such further
information, if any, as it may require,—
(a) that the rules and bye-laws of a stock

exchange applying for registration are in
conformity with such conditions as may
be prescribed with a view to ensure fair
dealing and to protect investors;‖
137. Section 4 provides that the Central Government may
grant recognition to the stock exchange with a view to
ensure fair dealing and with a view to protect the
investors.
138. In exercise of the powers conferred by Section 4,
Section 8A and Section 31 of the SCRA Act read with
Section 11 and Section 30 of the SEBI Act, SECC

130
Regulations were framed on 20th June, 2012 for the
purpose of requiring recognition, ownership and
governance in stock exchange. Regulation 41(2) of the
SECC Regulations, 2012 provides as under:
“Regulation 41(2):
The recognised clearing corporation and recognised

stock exchange shall ensure equal, unrestricted,
transparent and fair access to all persons without
any bias towards its associates and related entities.‖
139. A perusal of the aforesaid provision indicates that a
stock exchange is required to ensure equal, unrestricted,
transparent and fair access to all persons. Clause 4(i) of
the circular dated 30th March, 2012 issued by SEBI is
extracted hereunder:-
“Guidelines to the stock exchanges and the stock

brokers
4. Stock exchanges shall ensure the following while

permitting algorithmic trading:
(i) The stock exchange shall have arrangements,

procedures and system capability to manage the
load on their systems in such a manner so as to
131
achieve consistent response time to all stock

brokers. The stock exchange shall continuously
study the performance of its systems and, if
necessary, undertake system upgradation, including
periodic upgradation of its surveillance system, in
order to keep pace with the speed of trade and
volume of data that may arise through algorithmic
trading. (Emphasis supplied)‖
140. The aforesaid circular provides that the stock
exchange will ensure that it shall make all arrangements,
procedures and system capability to manage the load on
their systems with regard to algorithm trading in such a
manner so as to achieve consistent response time to all
stock brokers. Clause 3 of the SEBI circular dated 13th
May, 2015 provides as under:
―In order to ensure fair and equitable access to the

co-location facility, stock exchanges shall:
3.1. provide co-location/ proximity hosting in a fair,

transparent and equitable manner.
3.2. ensure that all participants who avail co-

location/proximity hosting facility have fair and
equal access to facilities and data feeds provided by
the stock exchange.
132
3.3. ensure that all stock brokers and data vendors

using co-location/proximity hosting, experience
similar latency with respect to exchange provided
infrastructure.‖
141. Under this circular, a stock exchange was required to
ensure that all participants which avail Colocation facility
have fair and equal access to facilities and data feeds
provided by the stock exchange.
142. Based on the aforesaid provisions, regulations and
circulars, the WTM came to the conclusion that NSE has
violated Regulation 41(2) and 42(2) of the SECC
Regulations, 2012.
143. Admittedly, the WTM found that NSE has not
violated any provisions of the PFUTP Regulations and
has not committed fraud. In this regard, the WTM
observed that the charge leveled under Regulations 3 and
4 of the PFUTP Regulations were not only vague but
were unsubstantiated. None of the ingredients as

133
provided under Regulation 2(c)(1) and 2(c)(9) of the
PFUTP Regulations applied to NSE. There was no
“knowing misrepresentation”, “active concealment”,
“false promise”, “representation made in a reckless and
careless manner”, “fraudulent act or omission”,
“deceptive behavior”, “false statement” etc. which are all
ingredients of fraud and, therefore, Regulation 3(a), 3(b),
3(c) and 3(d) were not attracted. The WTM, on the
aforesaid basis, rightly came to the conclusion that no
case of fraud or inducement was made out against NSE
under Regulations 3 and 4 of the PFUTP Regulations.
144. The WTM, however, came to the conclusion that
Regulation 41(2) and 42(2) of the SECC Regulations,
2012 were violated by NSE in “letter and spirit”. The
WTM found that there was inequity at different stages of
the technology process i.e. TBT architecture and,
accordingly, in paragraph 10.1 of the impugned order
held that NSE had not exercised the requisite due

134
diligence while putting in place the TBT architecture and
that the same created a trading environment in which the
information dissemination was asymmetric, which cannot
be considered fair and equitable and, consequently, the
failure of NSE to ensure equitable and fair access violated
Regulation 41(2) of the SECC Regulations, 2012. In
paragraph 8.3.3.10, the WTM held that the
omission/commission on the side of NSE was in violation
of Regulation 41(1) and 42(2) of the SECC Regulation
read with Clause 4(i) of the circular dated 30th March,
2012.
145. The conclusion drawn in paragraph 10.1 of the
impugned order that the dissemination was asymmetric is
based on the findings given in paragraph 8.3.3.7 of the
impugned order, namely, inequitable distribution in the
allocation of IPs, absence of load balancer, non-inclusion
of randomizer and failure to monitor frequent connection
to the secondary server.

135
146. In the instant case, the inequitable distribution as held
by the WTM in paragraph 8.3.3.7 has nothing to do with
the TBT architecture. As held earlier in the preceding
paragraphs the dissemination of information/tick/data
from the PDC stage to the POP Receiver and thereafter to
the Ports were random, namely, there was randomness in
the dissemination of data from the PDC stage right up to
the Port. No fault has been found in the dissemination of
data in the TBT architecture. The data was disseminated
from the Ports to the Colo rack of the TMs and every TM
had equal, unrestricted, transparent and fair access.
147. The allocation of IP was to be distributed equitably by
the NSE team. This was a human intervention and had
nothing to do with the TBT architecture. We have
already held that there was no requirement of a
randomizer to be installed, namely, after the Port and
before the Colo rack as there was randomness in the
dissemination of the data. Even otherwise, such addition

136
of a randomizer had nothing to do with the existing
architecture or the distribution of its data. Similarly,
installing a load balancer was an additional
hardware/software to be installed in the architecture for
better distribution of the IP allocation but the same had
nothing to do with the dissemination of the data by the
TBT architecture. Similarly, failure to monitor frequent
connection to the secondary server was a human failure
and had nothing to do with the functioning of the
dissemination of the data by the TBT architecture.
148. Thus, the finding of the WTM that because of
inequitable distribution in the allocation of IPs, absence
of load balancer and non-inclusion of randomizer and
failure to monitor frequent connection to the secondary
server did not ensure a level playing field for TMs
subscribing to the TBT data feed of NSE and,
consequently, NSE failed to provide equal, unrestricted
and fair access is wholly erroneous.

137
149. The choice of architecture chosen by NSE was never
doubted. There is no charge against NSE with regard to
the choice of the TBT architecture. In fact, it has come
on record that many countries were using the TBT
architecture. Considering the evidence that has come on
record and, upon an analysis of the evidence made by us,
we are of the view that there was a randomness in the
dissemination of the data/information/tick in the TBT
architecture starting from the PDC stage till the Ports and
there was clear, unrestricted, transparent and fair access
to all the TMs who received the data in their Colo rack
from their respective Ports. We, thus, hold that there was
no violation of Regulation 41(2) of SECC Regulations.
150. We also find that the conclusion drawn in paragraph
10.1 of the impugned order is based on the finding given
in paragraph 8.3.3.7, namely that the dissemination of
data was asymmetric which could not be considered as
fair and equitable and, consequently, resulted in violation

138
of Regulation 41(2) of the SECC Regulations. In the first
instance, this finding is purely perverse and cannot be
accepted in as much as the choice of architecture was
never disputed by the respondent. There was some
randomness in the dissemination of data even from the
Port to the Colo rack. It seems that the WTM has
confused itself between randomness in the dissemination
of a tick to that of dissemination of the tick being
asymmetric. The randomness of the dissemination of the
tick ensured clear and fair access and, consequently, the
finding that since the dissemination of information was
asymmetric therefore there was failure on the part of NSE
to ensure equal and fair access is patently erroneous.
151. There is another aspect, the WTM in paragraph 10.1
of the impugned order holds that NSE did not exercise
due-diligence while putting in place the TBT architecture
and, therefore, violated Regulation 41(1) of the SECC
Regulations. The choice of the TBT architecture was

139
finalized and put into place in the year 2010 when the
SECC Regulations, 2012 had not come into existence
and, therefore, compliance of Regulation 41(2) at the
stage of putting in place the TBT architecture would not
and cannot arise. Thus, at the stage when the TBT
architecture was installed the SECC Regulations had not
come into existence and, therefore, invoking Regulation
41(2) for failure of NSE to exercise due diligence while
putting in place the TBT architecture does not arise. We
are of the opinion that Regulation 41(2) of the SECC
Regulation cannot be invoked for placing the TBT
architecture which had already been placed in 2010. The
Regulation is prospective in nature and cannot have
retrospective application.
152. The charge is violation of Regulation 42(2) of the
SECC Regulations. This provision relates to maintenance
of books of accounts and records by the recognised
clearing corporation and has nothing to do insofar as NSE

140
is concerned. Thus, finding of the WTM that NSE has
violated Regulation 42(2) is patently erroneous.
Similarly, the circular of 2015 is not applicable. The
period when the TBT architecture was in use was from
2010 to 2014. The circular of 2015 is prospective in
nature and cannot apply retrospectively.
153. However, the circular of 30th March, 2012 is
applicable which stipulates that the stock exchange while
promoting algorithm trading will ensure that all
arrangements, procedures and system capability to
manage the load on their systems in such a manner so as
to achieve consistent response time to all stock brokers
and shall continuously study the performance of its
systems and, if necessary, undertake system upgradation.
In the instant case, we find that there was inequitable
distribution of the IP connection which resulted in
unequal load on various Ports. We also find that NSE
should have provided a load balancer to equalize the load

141
on each server. We also find that no laid down policy or
SOP was made to monitor frequent connection to the
secondary server and, thus, there was a violation of
circular of 2012.
154. The SCRA Act was framed with the object of
preventing undesirable transaction in securities. The Act
required all contracts in the securities to be dealt only on
a recognized stock exchange. The Act conferred a larger
responsibility upon the exchanges to ensure that
undesirable transactions do not take place. In U.P. Stock
Exchange Broker’s Association and Ors. v. Securities
and Exchange Board of India & Anr., (2014) 3 Comp.
LJ 462, the Allahabad High Court held:
―51. Stock exchanges provide what is described as "the

first layer of oversight". In many areas, stock
exchanges are self-regulators. As self-regulatory
organizations, stock exchanges have a front-line
responsibility for regulation of their markets and for
controlling compliance by members of rules to which
they are subject. They ensure, in that capacity,
compliance of the requirements established by the
142
statutory regulator. Apart from the regulation of

members, market surveillance carried on by stock
exchanges in certain jurisdictions regulates issuers.
They do so by ensuring that the stocks of issuers are
reliably traded and that issuers meet standards of
corporate governance. In exercising these powers,
stock exchanges may face issues involving a conflict of
interest. Such conflicts of interest have to be handled
and addressed effectively within the regulatory
framework.‖ (emphasis supplied)
155. The Jalan Committee report found that the
information must be accessible to everyone and must be
governed by a transparent and efficient market economy.
156. Considering the aforesaid, we are of the view that the
TBT architecture provided equal, unrestricted, transparent
and fair access of data disseminating from its TBT
architecture to the TMs. There was no violation of
Regulation 41(2) and 42(2) of the SECC Regulations.
Further, the circular of 2015 is not applicable but there is
a violation of the 2012 circular. However, there was a
human failure while allocating IPs to TMs of various
Ports and that there was inequitable distribution of IPs.

143
In this regard, a load balancer should have been placed in
the system to ensure equitable distribution of the IPs. We
also find that there was a human lapse in putting the
system in place to monitor frequent connection to the
secondary server by certain TMs whereby these TMs
bypassed the load in the primary servers.
Issue no.4
157. Liability of employees of NSE for violation of PFUTP
Regulations and SECC Regulations.
158. 16 employees were issued notice and were charged
for violating Section 12A(a), (b) and (c) of the SEBI Act
read with Regulations 3 and 4 of the PFUTP Regulations,
2003, Part A and Part B of schedule II of SECC
Regulations read with Regulation 26(1) and (2) of SECC
Regulations and clause 3.8.1 of SEBI master circular
dated 31st December, 2010. The WTM after considering
the replies and the evidence exonerated all the noticees of
the charge of violation of PFUTP Regulations. The

144
WTM found that no fraud was committed by any of the
16 employees/noticees and exonerated 12 of the
employees from all the charges. The WTM, however,
found that Mr. Ravi Narain and Ms. Chitra Ramkrishna,
noticee nos.2 and 3 being Managing Directors of the
Stock Exchange (NSE) during the relevant period were
liable for the breaches of the provisions of SECC
Regulations. The WTM found that these noticees held
the senior most management position in NSE and being
in charge of the affairs of the conduct of the stock
exchange business, cannot limit their role to the non-
technology issues of the exchange and cannot abdicate
their responsibilities by citing limited knowledge in
certain spheres of business activities. The WTM came to
the conclusion that they were vested with the general and
overall responsibility of ensuring the implementation of
the principle of equal, fair and transparent access, under
Regulation 41 of SECC Regulations and were therefore

145
responsible for the overall efficiency of the stock
exchange which they failed to do so.
159. The WTM also found Mr. Mahesh Soparkar and Mr.
Deviprasad Singh, noticee nos.9 and 10 responsible for
not monitoring the unauthorized connection in the
secondary server. The WTM found that these two
employees headed the Project Management Team (PMT)
and were responsible in enforcing discipline with respect
to the connections established by TMs in the secondary
server. The WTM came to the conclusion that being
Head of the PSM Team it was their responsibility to
inform the Colo team with regard to the unauthorized
connections being done by certain TMs on the secondary
server and should have followed it up with the Colo team
for stopping the connection of these TMs to the server.
The WTM found that these two noticees failed to
discharge their duties as PSM Team Heads and,

146
consequently, directed NSE to initiate enquiry under its
employees Regulations.
160. Insofar as Mr. Ravi Narain and Ms. Chitra
Ramkrishna is concerned, the WTM directed them to
disgorge 25% of their salary drawn for the financial year
2010-11 to 2012-13 and further prohibited them from
associating with any listed Company or market
infrastructure institution or any other market intermediary
for a period of five years.
161. Insofar as NSE is concerned, the WTM directed NSE
to disgorge a sum of Rs.624.89 crores along with interest
calculated at the rate of 12% per annum from April 01,
2014 and further prohibited NSE from accessing the
securities market for a period of six months from the date
of the order. The WTM further directed NSE to carry out
system audit at frequent intervals, after through appraisal
of the technological changes introduced from time to
time, reconstitute its Standing Committee on Technology

147
at regular intervals to take stock of technological issues,
and frame a clear policy on administering whistle blower
complaints. The aforesaid direction has been passed
under Section 11 and 11B of the SEBI Act.
162. Even though Section 11 had no provision for
disgorgement of an amount, the Supreme Court held that
the powers given to SEBI under Section 11 included the
powers to issue directions for disgorgement. However,
Explanation to Section 11B was inserted by Act no.27 of
2014 which provided a direction for disgorgement of an
amount equivalent to the wrongful gain or loss averted.
For facility, the explanation to Section 11B is extracted
hereunder:
“11-B. Power to issue directions and levy penalty.
………….
Explanation.—For the removal of doubts, it is hereby

declared that the power to issue directions under this
section shall include and always be deemed to have
been included the power to direct any person, who
148
made profit or averted loss by indulging in any

transaction or activity in contravention of the
provisions of this Act or regulations made thereunder,
to disgorge an amount equivalent to the wrongful gain
made or loss averted by such contravention.‖
163. From the above provision, it follows that any
direction to disgorge must:
a. be made in relation to any transaction or activity;
b. such transaction or activity ought to be in
contravention of the provisions of SEBI Act or the
Regulations made thereunder;
c. the person directed to disgorge must have made
profit or averted losses from such activity or
transaction; and
d. an amount equivalent to the “wrongful gain” made
or “loss” averted by such contravention may be
disgorged.
164. The contention of NSE is, that the direction to
disgorge was made without providing an opportunity to

149
show that the quantification is inappropriate. It was
urged that the show cause notice failed to indicate the
nature of the measures or directions which the authority
proposed to take under Section 11 and 11B of the Act. It
was contended that the statutory authority was bound to
set out the exact nature of the measures which it proposed
to take in the show cause notice and by not providing the
requisite measure in the show cause notice the order of
disgorgement was wholly illegal and in violation of the
principles of natural justice. In support of his submission,
the learned counsel placed reliance in the case Gorkha
Security Services v. Govt. of NCT of Delhi & Ors.
(2014) 9 SCC 105, wherein the Supreme court held:
―22... However, it is equally important to mention as

to what would be the consequence if the noticee
does not satisfactorily meet the grounds on which an
action is proposed. To put it otherwise, we are of
the opinion that in order to fulfil the requirements of
principles of natural justice, a show cause notice
should meet the following two requirements viz:
150
i) The material/ grounds to be stated on which

according to the Department necessitates an
action;
ii) Particular penalty/action which is proposed

to be taken. It is this second requirement
which the High Court has failed to omit.‖
165. It was also contended that NSE had been exonerated
of the charges of fraud and unfair trade practices under
the PFUTP Regulations. There is no finding of collusion
or connivance with any TM. It was contended that the
impugned order records that in the absence of any
collusion or connivance with the TMs no violation of the
provisions of PFUTP Regulations is made out. It was
also contended that the charge of discrimination against
any specific TM or accrual of any monetary benefit or
unjust enrichment was also not proved and, consequently,
contended that NSE did not indulge in any specific
discrimination towards any specific TM which was in
contravention of the SEBI Act, Rules or the Regulations.

151
It was contended that issues surrounding the functioning
of a technology, namely, the TBT architecture cannot be
considered either a transaction or an activity inviting
directions under Section 11 and 11B of the SEBI Act. It
was contended that since the TBT architecture was not
under challenge no direction for disgorgement could have
been passed.
166. It was also urged that before a direction of
disgorgement could be passed it was necessary for the
respondent to give a finding of ill-gotten gains or unfair
profit or unjust enrichment made by NSE by the ill-gotten
or unethical acts. It was contended that only a wrong
doer who had made gains from the wrong doing can be
asked to disgorge. In support of his submission, NSE
relied upon the decision of this Tribunal in Karvy Stock
Broking Ltd. v SEBI, 2008 SCC Online SAT 74, wherein
this Tribunal held:

152
―(5) Before we deal with the contentions of the

parties, it is necessary to understand what
disgorgement is. It is a common term in developed
markets across the world though it is new to the
securities market in India. Black's Law Dictionary
defines disgorgement as ―The act of giving up
something (such as profits illegally obtained) on
demand or by legal compulsion.‖ In commercial
terms, disgorgement is the forced giving up of
profits obtained by illegal or unethical acts. It is a
repayment of ill-gotten gains that is imposed on
wrongdoers by the courts. Disgorgement is a
monetary equitable remedy that is designed to
prevent a wrongdoer from unjustly enriching himself
as a result of his illegal conduct. It is not a
punishment nor is it concerned with the damages
sustained by the victims of the unlawful conduct.
Disgorgement of ill-gotten gains may be ordered
against one who has violated the securities
laws/regulations but it is not every violator who
could be asked to disgorge. Only such wrongdoers
who have made gains as a result of their illegal
act(s) could be asked to do so. Since the chief
purpose of ordering disgorgement is to make sure
that the wrongdoers do not profit from their
wrongdoing, it would follow that the disgorgement
amount should not exceed the total profits realized
as the result of the unlawful activity. In a
disgorgement action, the burden of showing that the
amount sought to be disgorged reasonably
approximates the amount of unjust enrichment is on
the Board.‖
153
167. In National Securities Depository Ltd. v. Securities
and Exchange Board of India, 2007 SCC OnLine SAT
208, this Tribunal held:
―We do not think that the Board could direct the

appellants to disgorge the aforesaid amount without
first determining their guilt and whether they had
made any illegal gains. Again, it is not that every
erring entity is held liable to disgorge the amount.
Persons who have made illegal or unethical gains
alone could be asked to disgorge their ill gotten
profits.‖
168. It was urged that there has to be a causal link between
the amounts directed to be disgorged and the alleged
unjust enrichment derived from the violation. In this
regard, reliance was made in Sec. & Exch. Comm'n v.
Wills, 472 F. Supp. 1250, 1276 (D.D.C. 1978), which
held:
―33. Further, the Commission has failed to

demonstrate the appropriateness of such a drastic
remedy here. It is not necessary to decide the
precise nature of the causal link which the SEC must
show between defendants' violations and the profits
in question; in this case plaintiff has failed to
demonstrate any reasonably close link between
154
defendants' 1974 and 1975 corporate

compensation and their illegal conduct...
35. When the amounts to be disgorged cannot be

related with sufficient certitude to defendants'
securities law violations, the SEC's disgorgement
request takes on the character of a plea for punitive
relief. The cases, however, are unanimous in
refusing to accede to such a demand. See, e.g., SEC
v. Manor Nursing Centers, Inc., supra, 458 F.2d at
1104-05; SEC v. Texas Gulf Sulphur Co., supra, 446
F.2d at 1308.‖
169. In S.E.C. v. Wyly, 56 F. Supp. 3d 260, the US District
Court of the Southern District of New York, set aside a
SEC disgorgement order for failure to establish a causal
nexus between the alleged wrongful conduct and
wrongful gains sought to be disgorged. The Court held:
―Here, the SEC cannot satisfy its burden to

reasonably approximate a disgorgement amount
merely by proving the violations and then
calculating the total profits on each of the trades
during the existence of the unlawful scheme. Unlike
each of the cases discussed above, there is no
evidence here that the defendants' unlawful
conduct—that is, the scheme to hide beneficial
ownership by failing to disclose transactions—
resulted in any market distortion, price impact, or
profit tied to the violation. Nor is there evidence
155
that the scheme was motivated by the expectation of

such profits. Without proof, a court cannot speculate
about the impact of the Wylys' failure to disclose on
share price...
To hold otherwise would create a per se rule

requiring disgorgement of all profits made by those
who fail to properly disclose their beneficial
ownership of securities—regardless of whether that
failure resulted in unlawful trading, market
manipulation, or distortion. Such a rule would
eliminate the requirement that the government
provide a reasonable approximation of the profits
that are causally connected to the violation. There
would be no need for any approximation—
reasonable or otherwise—if the required
disgorgement is always one hundred percent...
As a matter of law, the SEC cannot show that all of

the profits on all of the sales by the IOM trusts
throughout this extensive time period are reasonably
connected to the Wylys' continuous failure to
disclose beneficial ownership.‖ [Emphasis
supplied]
170. The D. C. Circuit Court in the case of S.E.C. v. First
City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989)
held:
―11. Since disgorgement primarily serves to prevent

unjust enrichment, the court may exercise its
equitable power only over property causally related
to the wrongdoing. The remedy may well be a key to
156
the SEC's efforts to deter others from violating the

securities laws, but disgorgement may not be used
punitively. See SEC v. Blatt, 583 F.2d 1325, 1335
(5th Cir.1978); SEC v. Manor Nursing Centers, Inc.,
458...
Although the SEC bears the ultimate burden of

persuasion that its disgorgement figure reasonably
approximates the amount of unjust enrichment, we
believe the government's showing of appellants'
actual profits on the tainted transactions at least
presumptively satisfied that burden. Appellants, to
whom the burden of going forward shifted, were
then obliged clearly to demonstrate that the
disgorgement figure was not a reasonable
approximation. Defendants in such cases may make
such a showing, for instance, by pointing to
intervening events from the time of the violation. In
SEC v. MacDonald, 699 F.2d 47 (1st Cir.1983) (en
banc), the First Circuit reversed a district court
order requiring the defendant to disgorge all profits
from an illegal insider trade when the defendant had
held on to the stock for more than a year. The court
restricted the amount to a figure based on the price
of the stock ―a reasonable time after public
dissemination of the inside information.‖ Id. at 55.
Similarly, the Second Circuit in SEC v. Manor
Nursing Centers, Inc., 458 F.2d 1082 (2d Cir.1972),
refused to extend the disgorgement remedy to
income subsequently earned on the initial illegal
profits. In those cases, the defendant demonstrated a
clear break in or considerable attenuation of the
causal connection between the illegality and the
ultimate profits.‖
157
171. It was, thus, urged that the direction of disgorgement
has been made in the absence of any finding of any ill-
gotten or wrongful gain and that the basis of
disgorgement is on the finding of contravention of
Regulations 41(1) and 42(2) of SECC Regulations read
with SEBI circular of 2012. It was further urged that on
the basis of a finding of the WTM that there was lack of
due diligence on the part of the appellant in placing the
TBT architecture, it still did not warrant a direction of
disgorgement under Section 11 and 11B of the SEBI Act
without even attempting to establish what gains were
made or loss averted as a result of the alleged lack of due
diligence.
172. It was also contended that direction of disgorgement,
in the instant case was punitive and was not remedial in
nature. In support of his submission, the learned counsel
placed reliance upon a decision of this Tribunal Dushyant

158
N. Dalal v. SEBI, Appeal No. 182 of 2009, decided on
November 12, 2010.
173. It was also urged that the direction for disgorgement
was also disproportionate. It was contended that the basis
for calculation of disgorgement was based on the
percentage of NSE revenue from the operations which
included co-location and non-colocation operations which
could not be taken into consideration. At best, the
disgorged amount could be taken for those transactions
which were against the Acts, Rules and Regulations. It
was contended that the profits sought to be disgorged
were not profits that NSE had earned from the alleged
acts of “omissions/ commissions”
174. On the other hand, SEBI has supported the order of
the WTM and the directions issued under Section 11 and
11B. The contention of the respondent is, that the
impugned order has been passed in terms of the powers
conferred under Section 11 and 11B of the Act and

159
Section 12A of the SCRA Act. It was contended that the
powers are wide and designed to account for any and all
eventualities which may not have been contemplated at
the time of framing the Regulations and that the measures
illustrated in Section 11 and 11 B are only indicative and
cannot be taken to be fetters on the powers of the
respondent to pass directions in the interests of the
protection of the participants of the securities market.
175. The respondent placed reliance in SEBI v. Alka
Synthetics Ltd., AIR 1999 Guj 221, wherein the Gujarat
High Court held :
―As and when new problems arise, they call for new
solutions and the whole context in which the SEBI
had to take a decision, on the basis of which the
impugned orders were passed cannot be said to be
without authority of law in face of the provisions
contained in section 11 and ……. It is clearly made
out by a plain reading of the language of the section
itself that the SEBI has to protect the interests of the
investors in securities and has to regulate the
securities market by such measures as it thinks fit
and such measures may be for any or all of the
matters provided in sub-section (2) of section 11 and
in due discharge of this duty cast upon the SEBI as a
160
part of its statutory function, it has been invested

with the powers to issue directions under section
11B. ……. Thus, so far as the authority of law in the
SEBI to issue such directions is concerned, such
authority to take measures as it thinks fit is clearly
discernible on the basis of the provisions contained
in section 11 read with section 11B of the SEBI Act.
…... We have to, therefore, consider and interpret
the power of the SEBI under the provisions so as to
see that the objects sought to be achieved by the Act
is fully served, rather than being defeated on the
basis of any technicality……... The duty and
function had been entrusted to take such measures
as it thinks fit and in order to discharge this duty,
the power is vested under section 11B. ….. The
authority has been given under the law to take
appropriate measures as it thinks fit and that by
itself is sufficient to clothe the SEBI with the
authority of law.‖
176. Similarly, the Delhi High Court in MZ Khan v. SEBI
(AIR 1999 Del.164) held:
―Under section 11 of the SEBI Act, the SEBI has the

power to protect the interests of the investors in
securities and to promote the development of, and to
regulate the securities market, by such measures as
it thinks fit. The power is of a very wide nature and
is not hedged in by any restrictions. This power will
embrace the power to issue interim orders. The
SEBI in a fit case can pass interim orders in the
interests of investors and to promote the
development of and to regulate the securities
161
market. Under the same provision, it can frame

regulations as well for the same purpose. The final
orders after the inquiry are contemplated
under section 11B of the Act and at that stage it can
issue such directions to any person referred to in the
section as may be appropriate in the interests of
investors and securities market. Both under sections
11 and 11B the duty is cast on the Board to protect
the interests of the investors in securities and to
promote and regulate the securities market. If at the
initial stage it becomes necessary to pass an interim
order, the SEBI has been endowed with such a
power under section 11 of the Act. In case the
provisions of section 11 are construed in a
restrictive manner, the interests of the investors in
securities and development and regulation of
securities market will suffer.‖
177. The Bombay High Court in Ramrakh R. Bohra v.
SEBI (1999) 33 CLA 243 (Bom.) held:
―Section 11B of the SEBI Act is an enabling

provision enacted to empower the SEBI to protect
the interest of investors and to promote the
development of and to regulate the securities market
and to prevent malpractices and manipulations,
inter alia, by brokers, Such an enabling provision
must be construed so as to subserve the purpose for
which it is enacted. It would be the duty of the court
to further the legislative object of providing a
remedy for the mischief. A construction which
advances this object should be preferred rather than
one which attempts to find a way to circumvent it. In
162
the case of Reserve Bank of India v. Peerless

General Finance and Investment Co. Ltd. , the
Supreme Court has observed, as under:
―It is a well accepted canon of statutory
construction that 'it is the duty of the court to
further Parliament's aim of providing a remedy
for the mischief against which the enactment is
directed and the court should prefer a
construction which advances this object rather
than one which attempts to find some way of
circumventing it... In the matter of construction of
enabling statutes the principle applicable is that
if the legislature enables something to be done, it
gives power at the same time, by necessary
implication, to do everything which is
indispensable for the purpose of carrying out the
purpose in view…. It has been held that the power
to make a law with respect to any subject carries
with it all the ancillary and incidental powers to
make the law effective and workable and to
prevent evasion.‖
178. This Tribunal in R.K. Agarwal vs. SEBI, Appeal no.1
of 2001, held:
―One has to view the powers of the Respondent

under the provisions of the Act in the context of the
objects sought to be achieved by the Act and the
duty cast on them in achieving the same. Section
11 and section 11B give enormous authority to the
respondent in this regard.‖
163
179. It was further held that:
―Therefore, in our view, the express grant of

statutory power conferred by section 11B carries the
authority to use of reasonable means to make such
power effective.
If one has regard to the aforesaid principles, it
would follow that the power which has been
conferred by section 11B to issue direction are of a
widest possible amplitude and are exercisable in the
interest of investors and in order to prevent, inter
alia, a broker from conducting his business in a
manner detrimental to the interests of the investors
or the securities market. The said power to issue
directions under section 11B must carry with it, by
necessary implication, all powers and duties
incidental and necessary to make the exercise of
these powers fully effective including the power to
pass interim orders in aid of the final orders...."
180. In Anand Rathi v. SEBI 2002 (2) Bom CR 403 has
held that:
―The SEBI is charged with the duty to protect the

public. What will protect the public must involve an
exercise of discretionary powers. And so the
question of the appropriate remedy is necessarily a
matter of administrative competence. To judge the
validity of any decision or order passed by the SEBI,
normally, the Wednesbury test is to be applied to
find out if the decision was illegal and suffered from
procedural improprieties or was one which no
164
sensible decision maker could, on the material

before him and within the framework of the law,
have arrived at. The Court would consider whether
relevant matters had not been taken into account or
whether irrelevant matters had been taken into
account or whether the action was not bona fide.
The Court would also consider whether the decision
was absurd or perverse. The Court would not,
however, go into correctness of the choice made by
the authority amongst the various alternatives open
to him. Nor could the Court substitute its decision to
that of the authority. The application of the principle
of proportionality which is sought to be invoked by
Dr. Singhvi is debatable qua its application to the
executive actions.‖
181. In Karvy Stock Broking Ltd. vs. SEBI, 2007 SCC
OnLine SAT 2, this Tribunal held:
―The primary function and duty of the Board is to

protect the interests of the investors in securities and
to regulate the securities market. The preamble to
the Act which declares the dominant purpose also
makes it clear that the Board has been established
for this purpose. This duty is performed
under sections 11 and 11B of the Act which are the
very soul and heart of it. ….. On the basis of the past
experience of the Board, a need was felt to amend
the Act to enable it to issue directions, whenever
necessary, for the purpose of protecting the interests
of investors and the securities market. Parliament by
Act 9 of 1995 introduced Section 11B with effect
from 25.1.1995. This section enables the Board to
165
issue directions to any intermediary of the securities

market or any other person associated therewith if it
thinks it is necessary in the interests of investors or
orderly development of securities market or to
prevent the affairs of any intermediary or any other
person referred to in Section 12 from being
conducted in a manner detrimental to the interests
of investors or securities market or to secure the
proper management of any such intermediary. For
regulating the securities market and with a view to
protect the same, the Board started issuing interim
orders/directions under this newly added provision
to keep the erring intermediaries or other
delinquents associated therewith out of the
market.… Even under section 11(1) and thereafter
with the introduction of section 11B in the year
1995, the power of the Board was very wide and it
could take every measure that a situation would
demand and issue such directions that it considered
necessary including the suspension of an
intermediary. Yet, to put everything beyond the
shadow of doubt, even the implicit has been made
explicit by adding sub section (4) in Section
11 which now expressly authorizes the Board to
issue various kinds of orders, "either pending
investigation or enquiry or on completion of such
investigation or enquiry.
……….
As already observed, section 11 is the very heart

and soul of the Act. This provision has been
periodically amended and today it is substantially
different from what it was at its inception in the year
1992. The scope of the power has been considerably
widened. The introduction of sub section (4)
166
in section 11 and various other provisions

like section 11B is indicative of the legislative intent.
These provisions are meant to arm the Board with
authority so as to be able to effectively exercise
power and achieve the declared objectives of the
Act. It is clear that a common thread runs through
the various provisions of the Act and that is to
empower the Board to take preventive as well as
punitive measures so as to protect the investor and
to promote the securities market.
…..
In view of the above, we hold that the word 'inquiry'

used in section 11(4) refers to the inquiries held
under sections 11, 11B, also to the enquiry under
the inquiry regulations framed under section
12(3) and also to the inquiry held under Chapter
VIA and it is during the pendency of any of these
inquiries that an interim order could be passed with
a view to protect the interests of investors or in the
interest of the market. It is in this background of the
legal position that we have to examine the validity of
the impugned order.‖
182. In IL&FS Securities v. SEBI & Ors., A.No.138 of
2019, this Tribunal held:
―Section 11 and 11B gives wide powers to SEBI to

protect the interest of investors in securities and to
promote the development and to regulate the
securities market. Under Section 12A of the SCRA,
1956 SEBI has powers to issue directions to any
Stock Exchange, Clearing Corporation or agencies
associated with the securities market.”
167
183. In Karvy Stock Broking Ltd. v. SEBI, Appeal No.6 of
2007 decided on 2nd May, 2009, this Tribunal held:
―5. Disgorgement is a monetary equitable remedy

that is designed to prevent a wrongdoer from
unjustly enriching himself as a result of his illegal
conduct. It is not a punishment nor is it concerned
with the damages sustained by the victims of the
unlawful conduct. Disgorgement of ill-gotten gains
may be ordered against one who has violated the
securities laws/regulations but it is not every
violator who could be asked to disgorge. Only such
wrongdoers who have made gains as a result of
their illegal act(s) could be asked to do so. Since the
chief purpose of ordering disgorgement is to make
sure that the wrongdoers do not profit from their
wrongdoing, it would follow that the disgorgement
amount should not exceed the total profits realized
as the result of the unlawful activity.‖
184. In Dushyant N. Dalal v. SEBI, Appeal No. 182 of
2009, order dated 12th November 2010, it was argued that
without a specific provision, direction to disgorge cannot
be issued, but this Hon‟ble Tribunal held that no specific
provision in the SEBI Act is required and the power to
order disgorgement is inherent in the Board. The
Supreme Court held:

168
―9. Since disgorgement is not a punishment but only

a monetary equitable remedy meant to prevent a
wrong doer from unjustly enriching himself as a
result of his illegal conduct, we are of the view that
there need be no specific provision in the Act in this
regard and this power to order disgorgement
inheres in the Board.‖
185. In Mahavirsingh Chauhan v. SEBI, Appeal No. 393
of 2018 dated 18th October 2019, it was held by this
Tribunal that:
―21. From the aforesaid, it is clear that a person

can be directed to disgorge amount equivalent to the
wrongful gain made by him. [...] The order of the
WTM is consequently, modified to the extent that the
liability of the appellants in question except Rajesh
Ranka to disgorge the amount is to the extent of the
profit earned by them as calculated by the WTM
under Table 9. In the event of failure by these
appellants to pay the amount, it would be open to
SEBI to recover the amounts in the order of
hierarchy stipulated in paragraph 145€ of the
impugned order.‖
186. In Gagan Rastogi v. SEBI, Appeal No. 91 of 2015
dated 12th February 2019, this Tribunal held:
―18. [...] that equitable remedy demands that

disgorgement has to be made from the point of
unjust enrichment or where the chickens come to
169
roost. However, we cannot accept the arguments

that no such unjust enrichment has been made by
the appellants nor disgorgement has to be made
from where the unjust enrichment rests finally. If
one entity who has unjustly enriched knowingly
transferring those proceeds further to some other
entity does not prevent the authorities from
disgorging the same from the original beneficiary of
unjust enrichment. The choice is clearly that of the
authority to pursue and disgorge an illegal gain
from any point of a chain, if such a chain exists.
Tracing to the last point of the chain is an exercise
in futility and is not needed. When the proof of
unjust enrichment is right before the eyes of an
authority chasing the mirage of further transfers
itself cannot be supported.‖
187. Certain case laws on disgorgement under US
Securities Laws were also cited. In this regard, we find
that The Securities Exchange Act, 1934 did not include
any separate statutory provision for disgorgement.
However, in 1971, restitution of unlawful gains was
considered and upheld in Securities Exchange
Commission v. Texas Gulf [446 F.2d 1301 (2d Cir.
1971)].
170
188. In the year 1990, the US Congress conferred statutory
sanction on the remedy of disgorgement by the enactment
of the Security Enforcement Remedies and Penny Stock
Reform Act, 1990, which expressly authorised accounting
and disgorgement in securities laws.
189. In SEC v. Great Lakes Equity [775 F. Supp. 211], it
was held that unjust enrichment is not merely restricted to
what remains in the pockets of the wrongdoer in the
aftermath of a fraud, but rather includes the „value of the
other benefits‟ which accrue to the wrongdoer through a
scheme. These benefits may be in the form of interest free
loans, improved reputation, cost defrayments, etc. Thus,
the definition was given a much wider interpretation by
the authority.
190. Further, in an order instituting cease-and-desist in the
matter of credit-rating agency DBRS, Inc., SEC dated
October 26, 2015 charged the Respondent for
misrepresenting its surveillance methodology for ratings

171
of certain complex financial instruments during three
years and directed the Respondent to disgorge an amount
of USD 2.7 million. In this case, disgorgement was
directed even though there was no wrongful gain or loss
caused. It was thus urged that the concept of
disgorgement cannot be restricted to just recalling
unlawful gains which would lead to it being given a very
narrow interpretation.
191. In another matter of TPG Capital Advisors, LLC,
dated December 21, 2017 SEC charged the Respondent
for inadequate disclosures that involved a breach of
fiduciary duty. It failed adequately to disclose or obtain
the consent of the Funds to its receipt of accelerated
monitoring fees. Despite the practice of receiving
accelerated monitoring fees, TPG did not adopt or
implement any written policies or procedures reasonably
designed to prevent violations of the Advisers Act or its
rules arising from the conflicts of interest associated with

172
the undisclosed receipt of fees. The Respondent was, inter
alia, directed to disgorge an amount of USD 9.4 million
along with interest.
192. Similarly, in the matter of Kestra Advisory Services,
LLC dated July 9, 2015, the Respondent breached its
fiduciary duty to advisory clients by failing to provide
full and fair disclosure regarding two types of
compensation paid to its predecessor firm and affiliated
broker, and the conflicts of interest. Further, the
Respondent did not adopt or implement written policies
and procedures reasonably designed to prevent violations
of the Advisers Act and the Rules thereunder, and was
therefore directed to disgorge an amount of USD 7.2
million along with interest and a civil penalty.
193. It was thus urged that in the US jurisprudence, the
term “disgorgement” has been given a much wider
meaning and the said power has been used even in cases
of violation of statutory obligations and has not just been

173
restricted to cases wherein an unlawful gain has been
made or a loss has been avoided.
194. In Janak Chimanlal Dave vs. SEBI, SAT A.No.446
of 2020, decided on 20th September, 2021, this Tribunal
held:
―The contention that under Section 11B only

unlawful gains could be disgorged and since he has
incurred a loss no disgorgement can be made
against him is erroneous... disgorgement in our
opinion is an equitable remedy under Section 11B of
the Act meant to prevent the wrongdoers from
enriching himself by his wrong by wresting ill-
gotten gains from the hands of the wrongdoer. The
provisions relating to disgorgement is thus remedial
in nature and is not punitive... In our opinion net
profit from wrongdoing is the gain made by any
business or investment, where both the receipts and
payments are taken into account. We are further of
the opinion that the appellant will not be allowed to
diminish the show of profits by putting in
unconscionable expenses or other inequitable
deductions even though entire profits of a business
may result from the wrongdoings of the appellants
and therefore are not entitled for the deductions as
prayed by them.‖
195. It was urged that disgorgement from salary can be
ordered. In support of this submission reliance was

174
placed in the matter of SEC v Church of God Inc., 429
F. Supp. 2d 1045, wherein SEC held that:
―Disgorgement of illegal profits and unjust

enrichment is an equitable remedy available under
the federal securities laws. E.g., SEC v. First City
Financial Corp., 890 F.2d 1215, 1230
(D.C.Cir.1989). The court concludes that each
defendant should be ordered to disgorge one half of
his base salary for 2001, plus interest, as proceeds
from the securities law violations. That was the last
full year of CEG's operations and of these
defendants' employment. But for the securities
violations, CEG would have collapsed earlier, so
the violations enabled the defendants to continue
their employment. There is no magic to the fraction
of one-half, but it is intended to reflect in an
equitable way the fact that both defendants also
provided real and valuable services to CEG and the
Church of God for many years, as well as other
mitigating factors.‖
196. From the aforesaid decisions, it is clear that SEBI has
wide powers to issue directions for disgorgement under
Section 11 and 11B of the Act. However, explanation to
Section 11B, as inserted by Act No.27 of 2014 gave
specific power to SEBI to issue a direction for
disgorgement of an amount equivalent to the wrongful

175
gain. Further, the direction to disgorge must be in
relation to any transaction or activity and that such
transaction or activity is in contravention to the
provisions of the SEBI Act or the Regulations made
thereunder. Further, the person must have made profit or
averted loss from such transaction or activity.
197. Disgorgement means that the act of giving up
something, namely profit obtained by illegal or unethical
acts. It is a repayment of ill-gotten gains by the wrong
doer. Disgorgement is also an equitable remedy that is
designed to prevent a wrongdoer from unjustly enriching
himself as a result of his illegal conduct. It is not
necessary that in each and every case there should be a
direction to disgorge profits merely because the
provisions of the Act or Regulations have been violated.
Disgorgement should be ordered only where persons have
made gains or averted loss/losses as a result of their
illegal/unethical acts.
176
198. Thus, it becomes essential first to pin point a person
and hold him guilty of making illegal gains and only
thereafter direct him to disgorge the ill-gotten gains.
Further, there must be a finding of ill-gotten gains by ill-
gotten or unethical acts.
199. We are also of the view that the disgorgement
amount should not exceed the wrongful gain made or loss
averted by such contravention. Further, the burden of
showing that the amount sought to be disgorged is
equivalent to the wrongful gain is upon SEBI. In addition
to the above, the direction to disgorge an amount must
establish a causal nexus between the wrongful conduct
and wrongful gains.
200. The primary function and duty of SEBI is to protect
the interest of the investors in securities and to regulate
the securities market. This function is performed under
Sections 11 and 11B of the Act. Section 11B was
introduced by Parliament to enable SEBI to issue

177
directions if it was necessary in the interests of investors
or orderly development of the securities market. The
scope of powers under Sections 11 and 11B has been
considerably widened through various amendments
issued from time to time. The amendments made
indicates the legislative intent, namely to arm SEBI with
such powers so as to enable SEBI to effectively exercise
power and achieve the objects of the Act and to take
preventive measure so as to protect the investors and to
promote the securities market.
201. Disgorgement is not a punishment but only an
equitable remedy to prevent a wrongdoer from unjustly
enriching himself as a result of his wrongful acts. As
stated earlier, disgorgement should be the amount
equivalent to the wrongful gain made or loss averted by
such contravention.
202. In the light of the aforesaid, we have already held
that the inequitable distribution of IPs had nothing to do

178
with the TBT architecture. The dissemination of
information/data from the PDC center to the POP
Receiver and thereafter to the Port were random, namely
there was randomness in the dissemination of data from
the PDC center right up to the Port and no fault has been
found in the dissemination of data in the TBT
architecture. We also find that the data that was
disseminated from the Port to the Colo rack of the TM
was equal, unrestricted and transparent and there was fair
access.
203. We have also found that there was no violation of
Regulation 41(2) of the SECC Regulations. We also
observed that Regulation 41(2) of the SECC Regulations
cannot be invoked for placing the TBT architecture which
has already been placed in 2010.
204. We found that the TBT architecture provided equal,
unrestricted, transparent and fair access to data
dissemination from its TBT architecture to the TMs. We

179
also found that there was lack of due diligence while
allocating IPs to various Ports and that there was unequal
load on various Ports and a load balancer would have
ensured equal distribution of IPs. We also find that there
was a human lapse in not putting the system in place to
monitor frequent connections of certain TMs to the
secondary server.
205. For this lack of human intervention in failing to
monitor frequent connection to the secondary server by
certain TMs, equitable direction under Sections 11 and
11B could be issued, but in our view there was no
occasion to issue a direction for disgorgement. The
direction for disgorgement is patently erroneous since we
do not find any unethical act/acts on the part of NSE.
206. NSE has not indulged in any unethical act nor has
unjustly enriched itself as a result of any wrongful act.
The direction to disgorge must be in relation to any
transaction or activity which is contravention of the

180
provisions of the SEBI Act or its Regulations. The
direction to disgorge can be issued when it is found that
the person has made profit through illegal or unethical
acts and is not necessary that in each and every case a
direction to disgorge should be passed merely because
some provisions of the Act or Regulations have not been
adhered to. In the instant case, the lack of due diligence
is not on account of any violation of any provisions of the
Act or the Regulations or circulars but is on account of
human failure to comply with the circulars completely in
letter and spirit.
207. We further find that the WTM has exonerated NSE of
the charge of violation of the PFTUP Regulations holding
that no fraud was committed by NSE or its employees.
We, therefore, find that the activity of NSE was not in
contravention of any provisions of the SEBI Act or the
Regulations or circulars made therein and it is only a case
of non-adherence of a circular to some extent. No doubt

181
that SCRA Act was framed with the object of preventing
undesirable transactions in securities. The Act requires
all contracts in securities to be dealt only on a recognized
stock exchange. A larger responsibility was placed on the
stock exchange to ensure that undesirable transactions do
not take place. In the instant case, the information
disseminated from the TBT architecture was accessible to
everyone through a transparent mode which was equal,
unrestricted and gave fair access. The lapse on the part of
NSE is not ensuring equitable distribution of IPs can only
invite a penalty or a direction under Section 11 and 11B
but under no circumstances a direction in the nature of
disgorgement could be passed in the facts and
circumstance of the present case. In our view, the
direction to disgorge an amount was totally unwarranted.
208. In view of the aforesaid, it is not necessary for us to
go into the question raised by the appellant, namely, that
the respondent was duty bound to set out the exact nature
182
of the measure which it proposed to take in the show
cause notice and that it did not provide the requisite
measures in the show cause notice and, consequently, the
order of disgorgement was in violation of the principles
of natural justice.
209. Insofar as Mr. Ravi Narain and Ms. Chitra
Ramkrishna are concerned, the show cause notice alleged
that Mr. Ravi Narain being the Managing Director and
Chief Executive Officer („MD and CEO‟) of NSE from
2000 to March, 2013 and Ms. Chitra Ramkrishna, being
the Deputy Managing Director from 2008 to 2010; Joint
Managing Director („JMD‟) from 2010 to 2013 and Chief
Executive Officer („CEO‟) from April, 2013 to
December, 2016 and during the relevant period failed to
take any steps to ensure proper systems, checks and
balances so as to provide fair and equitable access to all.
The show cause notice alleged that adherence to the
principle of fair and equitable access was left to the

183
technology team without any specific guidance and, thus,
failed to perform their role in establishing adequate
systems which led to the scenario whereby certain
brokers were allowed to breach the norms of fair and
equitable access. It was also alleged in the show cause
notice that it was the duty of Mr. Ravi Narain and Ms.
Chitra Ramkrishna to prevent manipulation of the system
architecture and ensure fair, transparent and equitable
access and by not taking preventive as well as curative
measures proactively, they facilitated fraud and
manipulation by OPG. It was, thus, alleged that Mr. Ravi
Narain and Ms. Chitra Ramkrishna violated Section
12A(a), (b) and (c) of the SEBI Act read with Regulations
3 and 4 of the PFUTP Regulations and SECC
Regulations.
210. The appellants Mr. Ravi Narain and Ms. Chitra
Ramkrishna sought to make out a case that they were
utterly unaware of the TBT Architecture. It was

184
contended that they had no technical/computer
knowledge and, for that purpose, had employed experts
and took decision on the basis of the advice given by the
experts. It was also contended that Mr. Ravi Apte and
Mr. N. Murlidharan who were the Chief Technology
Officer („CTO‟) were involved in choosing the
technology and that Dr. V.A. Sastry who was a
technology expert with a Ph.D. in computer applications
gave his expert opinion and, consequently, are not
responsible for the alleged violations.
211. The WTM found that Mr. Ravi Narain and Ms. Chitra
Ramkrishna were holding the position of MD and CEO
during the relevant point of time and having held the
senior most management position in NSE and, being in
charge of the affairs of the conduct of the stock exchange
business, could not abdicate their responsibility by citing
limited knowledge on technology issues. The WTM held
that being vested with general and overall responsibility

185
of ensuring the implementation of the principle of equal,
fair and transparent access, as mandated under Regulation
41 of the SECC Regulations Mr. Ravi Narain and Ms.
Chitra Ramkrishna being the MDs during the relevant
period are liable for breach of the provisions of the SECC
Regulations. The WTM consequently directed Mr. Ravi
Narain to disgorge 25% of the salary drawn for the
financial years 2010-2011, 2012-13 and prohibited Mr.
Ravi Narain from associating with any listed company or
a market infrastructure institution or any other market
intermediary for a period of five years. The WTM further
directed Ms. Chitra Ramkrishna to disgorge 25% of the
salary drawn for the financial year 2013-14 prohibited her
from associating with any listed company or a market
infrastructure institution or any other market intermediary
for a period of five years.
212. Mr. Ravi Narain holds a degree in Economics and
according to him does not have any computer technology

186
qualifications. He became the first Deputy Manager of
NSE and became it MD and CEO in the year 2000. Mr.
Ravi Narain ceased to be the MD and CEO on 31st
March, 2017 but continued till June, 2017 as a Non-
Executive Director, after which he left NSE.
213. Ms. Chitra Ramkrishna was with NSE since inception
and is a qualified Chartered Accountant. According to
her, she is not a technical expert nor does she have any IT
qualification. Ms. Chitra Ramkrishna was promoted as
Deputy Managing Director in 2003 and all department
heads were directly reporting to her. After Mr. Ravi
Narain, Ms. Chitra Ramkrishna became the MD and CEO
from April, 2013 onwards and resigned on 3rd December,
2016.
214. We have already held that the TBT architecture
provided equal, unrestricted and fair access to the data
also found that there was no violation of Regulation 41(2)

187
of the SECC Regulations. The WTM has also found that
no fraud was found against the appellants Mr. Ravi
Narain and Ms. Chitra Ramkrishna nor were they
facilitating any manipulation done by OPG.
215. We also find that being the head of the institution it is
not necessary that the person should have intricate
knowledge in technical matters and for such purposes
even the head of the institution is required to take
guidance from experts. In this regard, we find that
experts were appointed and decisions were taken based
on the expert advice and policies were implemented. In
this regard, we find that Dr. V.A. Sastry was a technical
expert with Ph.D. in computer applications and had 30
years of experience in the software industry including
with Infosys Ltd. The Board of NSE used to rely on his
technical expertise. This fact has not been disputed in the
impugned order. Further, we find that NSE had Chief
Technology Officers, Mr. Ravi Apte and Mr. N.

188
Murlidharan who as technical experts were involved in
the choosing of the technology, namely, the TBT
architecture for the Colo facility. These persons were
also noticees in those proceedings and their submissions
have been recorded in detail which upon a perusal we
find that these noticees have given detailed reasons
justifying the choice of the TBT architecture. We also
find that these two noticees have been expressly
exonerated of the charges leveled against them with
regard to the choice of the TBT architecture and
facilitating fraud and manipulation by OPG, etc.
216. At the same time, we cannot ignore the fact that Mr.
Ravi Narain and Ms. Chitra Ramkrishna being the MD
and CEO of the stock exchange at the relevant movement
of time cannot abdicate their responsibility by citing
limited knowledge in certain spheres of the business
activities. In the changing scenario in the corporate world
the functions are delegated to professionals who become

189
responsible for their acts and conduct. While functions
may be delegated, duty of care, due diligence, verification
by the top management cannot be abdicated. The MD
and CEO are responsible for the day to day affairs in the
running of the exchange and cannot pass on the
responsibility of non-implementation of the load balancer
or non-monitoring of the secondary server. The
responsibility at the end of the day falls squarely upon the
MD and CEO. The implementation of the Colocation
technology was carried out under the overall supervision
of Mr. Ravi Narain and Ms. Chitra Ramkrishna and,
therefore, they cannot abdicate their responsibility for the
lapse that has been incurred in the monitoring of certain
areas.
217. We, however, find that there is no finding to the fact
that Mr. Ravi Narain or Ms. Chitra Ramkrishna has made
profit or wrongful gain which is a prerequisite for
issuance of a direction under Sections 11 and 11B for

190
disgorgement. In the absence of any finding of wrongful
gain being made by Mr. Ravi Narain and Ms. Chitra
Ramkrishna, we are of the opinion that no direction for
disgorgement can be made especially when there is no
finding of fraud, unfair trade practice or collusion with
any TM.
218. We also note that the direction to disgorge 25% of the
salary is patently erroneous. The power under Sections
11 and 11B for disgorgement cannot be extended to
recover money from salary. Salary is a periodical
payment for one‟s labour. As per Black‟s Law
Dictionary Eight Edition salary means compensation for
services. Salary is given to a person as a remuneration
for the work that he does in an organization. Salary is not
a profit nor can it be termed as an unfair gain for the work
which the person has done in the organization. If the
person is not in service/employed, the question of
disgorgement from the salary does not arise. Recovery

191
from salary can only be done when the person is in
service/employed. Disgorgement under Sections 11 and
11B can only be made for illegal or unethical acts through
such transactions or activity which is in contravention to
the provisions of the SEBI Act or the provisions made
thereunder. In the absence of any illegal or any unethical
acts and in the absence of any finding of unlawful gain
being made by them the direction to disgorge 25% of the
salary is wholly illegal and cannot be sustained.
Directions under Sections 11 and 11B are equitable in
nature. Disgorgement has been held to be an equitable
direction. In our opinion, direction for disgorgement
from salary amounts to penal recovery. It becomes
punitive and not equitable.
219. We do not agree with the decision in the matter of
United States SEC v Church of God Inc., 429 F. Supp.
2d 1045, (supra). No reason or analogy has been given
as to why disgorgement from salary was made. In the

192
context of Sections 11 and 11B of the Act, the decision
(supra) is not applicable.
220. Now we take the appeal of OPG. The charge against
OPG and its Directors are as under:
i. First Connect/Early Login to POP Servers – OPG
was alleged to have consistently logged in first
across POP Servers as it was aware of the weakness
of the TCP/IP TBT System architecture and the
advantage of having first login across various POP
Servers in terms of trades. OPG was also alleged to
have designed its trading software in such a way that
it could manage to connect first on the POP Servers
and gain advantage.
ii. Crowding out other market participants – OPG
was assigned multiple TBT IPs to single Ports of
certain POP Servers which enabled it to consistently
be 1st, 2nd, 3rd and even 4th connection to the POP

193
Servers. Thus, it tried to crowd out other TMs from
the TBT platform.
iii. Connection to Secondary/Fall–back Server for
TBT data – Since TMs were permitted to
Secondary POP Server only in case of
disconnections to primary POP Server, the load on
Secondary POP Server was generally very low.
Therefore, OPG, by connecting to Secondary POP
Server almost on a daily basis without valid reasons,
gained unfair advantage over other TMs.
iv. Connivance/Collusion with NSE – OPG displayed
disregard to the norms of NSE and yet NSE
continued to permit OPG to connect to the
Secondary POP Server. The reluctance on the part
of NSE to prevent OPG from accessing the
Secondary POP Server to gain unfair advantage
could only have been possible through active
connivance/collusion of NSE and OPG.

194
v. Unlawful gains– OPG gained materially by being
the first logger as well as by connecting to the
Secondary POP Server.
vi. Conduct of OPG and its Director, Sanjay Gupta,
during SEBI Investigation–OPG acting through
its Director, Sanjay Gupta, had concealed/
destroyed vital information which could have
been helpful in providing better insight and
evidence in arriving at more conclusive findings
in the instant proceedings.
221. Based on the aforesaid charges, for reasons best
known to the WTM only four issues were framed namely:
i. Issue 1: Whether OPG consistently logged in
first across POP Servers on account of being
aware of the weakness of the TCP/IP TBT
System architecture and thereby, gained an
advantage?
195
ii. Issue 2: Whether OPG tried to crowd out other
TMs from the TCP/IP TBT System platform?
iii. Issue 3: Whether OPG Securities gained an
unfair access and advantage by consistently
logging into the Secondary POP Server for
large number of days?
iv. Issue 4: Unlawful gains made by OPG.
222. The WTM exonerated OPG and its Directors on issue
nos.1 and 2 and found OPG and its Directors guilty of
unfair access and advantage by consistently logging into
the secondary POP servers, and on that basis, made unfair
gain of Rs.15.57 crores.
223. The WTM accordingly prohibited OPG from
accessing the securities market and from buying, selling
or otherwise dealing in securities for a period of five
years. The Directors were also restrained from accessing
the securities market for a period of five years. Further,

196
OPG in its capacity as a stock broker was directed not to
take any new clients for a period of one year and further
directed OPG and its Directors to disgorge an amount of
₹15.57 crores along with interest at the rate of 12% per
annum from April 7, 2014 onwards, till the date of
payment.
224. On issue no.1, the WTM after considering the
material evidence on record found that the total number
of first connect by OPG was 137 days out of 528 trading
days during the period February, 2012 to 6th April, 2014.
The WTM upon analysis of the evidence also came to a
conclusion that advantage accruing to the first connect
would not continue throughout the day and depending
upon the load factor in front of each Port, it may get
diffused and diluted in the course of the trading day to a
„probabilistic advantage‟. This conclusion was drawn
considering that while it was possible to identify the POP
server that logs in first to the PDC and the Sender Port of
197
that POP Server which receives the data first, at the
starting point of the trading day, the subsequent changes
in dissemination sequence between the Ports or between
the POP Servers cannot be ascertained because of the
variance in the load factor at various Ports of different
POP servers. This is on account of the fact that the data
correlating the early login or first connect at each Port
level was not available for the relevant period. The
WTM therefore concluded that even though OPG
consistently logged in to the POP server it did not gain
any preferential access to TBT architecture and,
consequently, decided issue no.1 in favour of OPG
holding that even though OPG logged in first across POP
server it did not gain any advantage.
225. On issue no.2, the WTM again came to the conclusion
that even though OPG were allotted several IPs and were
allocated to a single Port enabling it to establish 1st, 2nd,
3rd and even 4th connection to the POP server it did not
198
gain any advantage over other TMs. The WTM held that
since data dissemination occurs first to Port 1 of the POP
server and then to Port 2 and then to Port 3 OPG was
allotted Port 1 on only one primary POP server
(TBTCOLO26) and the secondary POP server
(TBTCOLO27). The WTM came to the conclusion that
assigning multiple IPs to OPG on single Port did not
crowd out the other TMs as data dissemination occurred
first to POP server and thereafter to different Ports and
that similar process of allocating multiple IPs on single
Port were also given to other TMs. Consequently, issue
no.2 was also decided in favour of OPG and its Directors.
226. Even though there was a specific charge that OPG
disregarded the norms of NSE and that NSE continued to
permit OPG to connect to the secondary POP server
further, NSE did not prevent OPG from accessing the
securities market and this was possible only through
active connivance of NSE and OPG. In this regard, we

199
observe that there is no finding or discussion relating to
any connivance of OPG and its Directors with any
employee/officials of NSE. The WTM has also found
that the charge of collusion and connivance of NSE and
OPG was not substantiated as there was no sufficient
evidence. Further, there is a discussion in the impugned
order on the issue that OPG through its Directors
concealed/destroyed vital information but no
consequential penalty/directions has been issued. When
an allegation has been made in the show cause notice, it
was the duty of the WTM to frame as an issue and decide
that matter. We further observe that WTM fell in error in
exonerating the appellant on Issue no.2. Admittedly, the
OPG had multiple IPs to single Ports and established 1st,
2nd, 3rd and even 4th connect to the POP Servers as a result
it gained unfair advantage over other TMs. The tick
received by other TM was after it was received by OPG
causing loss of those few seconds which was

200
advantageous to OPG and disadvantageous to other TMs.
This aspect has not been considered.
227. On issue no.3, the WTM came to the conclusion that
unfair advantage was gained by OPG through its
secondary POP servers connections.
228. On the issue as to whether OPG gained an unfair
advantage and access by consistently logging into the
secondary server for a large number of days, the show
cause notice alleged as under:
i. Based on the above events it is alleged that OPG
displayed disregard to the norms laid by NSE and
yet NSE continued to permit OPG to connect to the
secondary server. The reluctance on the part of NSE
to prevent OPG from accessing the secondary server
ahead of others on continuous basis, allowed OPG
to have free access to secondary server in order to
gain undue advantage. It is alleged that such
regularity of success by OPG would have been

201
possible only with active connivance/collusion of
NSE and OPG.
ii. Since, stock brokers were permitted to access the
secondary server only in case of disconnection to
primary server, the load on the secondary server was
generally very low. Therefore, by connecting to
secondary server almost on a daily basis without
valid reasons, it is alleged that OPG has gained
unfair advantage over other stock brokers. Further,
it is alleged that NSE was aware that OPG has been
generally connecting to the secondary server, NSE
did not take any steps nor took any action. It was
therefore alleged that there was connivance between
OPG and NSE to give preferential treatment to
OPG. It was also alleged that OPG has acted in a
fraudulent manner and had indulged in fraudulent
and unfair trade practices in securities market.

202
229. The WTM after considering the submissions of OPG
and the material evidence on record as well as the TAC
report and Deloitte report came to the conclusion that
OPG was connecting to the secondary server on a regular
basis and at times had logged in only on the secondary
server and did not log on the primary POP server. The
WTM further found that the load on the secondary server
was very low and inspite of several warnings being issued
by NSE to shift to the primary server OPG continued to
ignore those warnings and continued to login on the
secondary server. The WTM did not accept the
contention of OPG that it was facing disconnection issues
which resulted in OPG logging on to the secondary
server. The WTM found that on account of low load on
the secondary server OPG gained advantage over other
TMs who were only logged in to the primary server and,
therefore, on account of low load factor OPG had faster
access to the data dissemination from the TBT

203
architecture. The WTM further found that OPG
displayed complete disregard to the circular and
guidelines as well as the norms laid down by NSE for
moving to the secondary POP server and, consequently,
had indulged in unfair trade practice which was violative
of Regulation 4(1) of the PFUTP Regulations.
230. In this regard, the contention of the learned senior
counsel for OPG is that the NSE circular dated 31st
August, 2009, the Colocation guidelines dated 8th August,
2011 and the updated guidelines dated 16th April, 2012
did not contain restriction on the usage of the secondary
server. These circulars/guidelines only informed the TMs
with regard to the introduction of the Colocation services
at the NSE premises. It only provided the information as
to the facilities that would be made available at the
Colocation and the process for member applications. It
was urged that the guidelines dated 8th August, 2011
which was updated on 16th April, 2012 only provided that

204
―Member‘s should always check the secondary TBT

parameters are working fine with their application
in case of non-availability of data from TBT primary
source they can move to secondary source‖.
231. It was urged that the updated guidelines only advised
the TMs to connect to the secondary server as against
barring the same and, consequently, the only way to do so
was by initiating a secondary server connection and
staying connected to it. The learned senior counsel
contended that there was no Regulation or norms in
relation to usage of the secondary server and for
reprimanding or punishing a TMs for accessing the
secondary server and, consequently, cannot be charged
for connecting to the secondary server. It was urged that
NSE itself admitted that there was no restriction,
regulation or conditions regarding the usage of
connection of the secondary server and that NSE had left
the usage of secondary server to the discretion of the
TMs. It was contended that since the secondary server

205
was always in active mode, the TMs were free to connect
to the secondary servers at all times. It was urged that
there was no violation of any norms for using the
secondary server.
232. It was also urged that 67 out of 108 TMs were
connected to the secondary server and only directions
under Section 11 and 11B has been issued to OPG which
is arbitrary and discriminatory. It was contended that
during September to October, 2011, OPG faced
disconnection issues with the NSE servers which
continued in the subsequent years. It was contended that
disconnection/disruption of the servers on a trading day
even for a few seconds can result in huge financial losses
and adversely impact the business of OPG. Frequent
disconnection resulted in potential loss of business and
this frequent disconnection resulted in connection to the
secondary server. It was contended that between
December, 2012 to May, 2014 there were a total of

206
35,817 disconnections from the primary server on 357
days which came to 98 disconnections per day. NSE was
aware of such disconnection as OPG made certain
complaints in this regard which remained unattended and
which has not been considered in the impugned order. It
was also urged that in order to avoid trade losses, OPG
connected one or two IPs to the secondary server and
minimal business was conducted through the secondary
server connections.
233. On the other hand, the respondent has supported the
order passed by the WTM and contended that OPG by
consistently logging on to the secondary server gained
advantage over the other TMs as it had less load and,
therefore, the data was disseminated faster to OPG before
it reached other TMs. OPG gained advantage and by not
following the norms laid down by NSE, OPG indulged in
unfair trade practice in securities which was in violation

207
of Regulation 4(1) read with the Code of Conduct as
specified in the Stock Brokers Regulations.
234. We find from the evidence that OPG was connected
to the secondary server in the Futures and Options
Segment on 31% of the number of trading days in the
calendar year 2012; 99% of the number of trading days in
the calendar year 2013; 95% of the number of trading
days in the calendar year 2014 and 38% of the number of
trading days in the calendar year 2015. Further, the
Deloitte report analysed and submitted that OPG was
only connected to the secondary POP server on 63 trading
days in 2012, 248 trading days in 2013, 232 trading days
in 2014 and 92 trading days in 2015. This data clearly
indicates that OPG was trading only through secondary
server as on these many days OPG was not even
connected to the primary POP server.
235. We find that OPG was connected 99% of the number
of trading days in 2013 and 95% of trading days in 2014.

208
Admittedly, the evidence recorded in the Deloitte and
TAC reports shows that the load on the secondary server
was low and less crowded amongst all the POP servers.
The contention of OPG is that business transacted from
the secondary server was minimal is not supported by any
evidence and, in any case, we refuse to believe this
contention when we find that OPG was connected to
secondary server 99% of the trading days in 2013 and
95% of the trading days in 2014 and 248 days in 2013
and 232 days in 2014 when OPG was only connected to
the secondary server and was not connected to the
primary servers on these days. It is therefore hard to
believe that business conducted through secondary server
was low. It was urged vehemently that OPG was facing
disconnection issues from 2012 and there was a total of
35,817 disconnections from primary server on 357 days
between 2012-2014 which led OPG to connect and use
the secondary server. Such allegation has not been

209
proved and some complaints made in this regard cannot
be taken to be the gospel truth regarding disconnection on
all these days as from the logs furnished by OPG itself
one finds that OPG was connecting to the secondary POP
server consistently from 7 a.m. to 7.05 a.m. which
disproves the theory of OPG being disconnected at odd
times of the day during the trading days. The logging on
the secondary server from morning itself prior to the start
of the trading clearly indicated that OPG was
continuously logging in to the secondary POP server
irrespective of disconnection issues relating to the
primary POP server. The contention raised by the
appellant in this regard is clearly an afterthought and
against the material evidence.
236. In this regard, the WTM has analysed the complaints
referred by OPG and found that complaints were only
made in the Futures and Options Segment on five days.
Further, OPG itself stated that disconnection in the

210
primary server was less frequent in 2013. These facts
have not been disputed before us and in view of the
admission that disconnection to the primary POP server
was less frequent in 2013 yet the evidence indicates that
OPG was connected to the secondary server on 248 days
without being connected to the primary server in 2013
and that OPG was connected to the secondary server on
99% of the number of trading days in 2013. In this
regard, the contention that OPG was connected to the
secondary server on account of disconnection issues
cannot be accepted as it is unimaginable that OPG faced
disconnections on 95% to 99% in 2013-2014.
237. We also find that between January, 2012 to June,
2012, NSE had issued several warnings with regard to
connecting to the secondary server and advised OPG to
shift to the primary server. In spite of issuance of
warnings OPG continued to remain connected to the
secondary server which has been analysed and observed

211
in table 20 of the impugned order. This analysis has not
been disputed by OPG before us. This shows scant
regards to the norms and guidelines laid down by OPG
and taking advantage of the laxity by NSE.
238. Since the secondary server was always in active mode
and running without any time lag and in view of the
finding that there was less load on the secondary server as
it was less crowded OPG by consistently logging on the
secondary server had advantage over TMs logged in
normal POP servers. Because of the low load since it as
less crowded on the secondary server OPG gained
advantage in accessing the data faster than other TMs.
The variance in time in terms of millisecond and
microsecond in respect of data was immensely significant
which was to the advantage of OPG when it accessed data
from the secondary server. Since the delivery of the data
can be done only to one recipient at a time OPG

212
connections has to be looked from this aspect and in this
background.
239. Admittedly, the circular dated 31st August, 2009 was
not the only circular issued by NSE with regard to
Colocation facilities. NSE also issued guidelines on 8th
August, 2011 and 16th April, 2012 wherein TMs were
advised to move to the secondary server in case of non-
availability of data from the TBT primary source.
Guidelines was clear that TMs were required to access
the data from the primary POP server and the secondary
POP server connection was to be utilized only when there
was non-availability of data from the primary POP server.
Emails were written to OPG inspite of which they
continued to stay connected with the secondary server.
We are of the opinion that OPG displayed complete
disregard for the norms laid down by NSE in its
circular/guidelines for moving to the secondary server
such disregard for the norms and the manner in which

213
OPG was connected to the secondary server amounted to
an unfair trade practice which, in our opinion, is violative
of Regulation 4(1) of the PFUTP Regulations. In this
regard, Regulation 4(1) of the PFTUP Regulations is
extracted hereunder:
―4. Prohibition of manipulative, fraudulent and

unfair trade practices
(1) Without prejudice to the provisions of

regulation 3, no person shall indulge in a
manipulative, fraudulent or an unfair trade practice
in securities market.
Explanation.–For the removal of doubts, it is

clarified that any act of diversion, misutilisation
or siphoning off of assets or earnings of a company
whose securities are listed or any concealment of
such act or any device, scheme or artifice to
manipulate the books of accounts or financial
statement of such a company that would directly or
indirectly manipulate the price of securities of that
company shall be and shall always be deemed to
have been considered as manipulative,
fraudulent and an unfair trade practice in the
securities market.‖
214
240. Whether an act or practice is unfair is to be
determined by the facts and circumstances surrounding
the transaction. In the context, the PFUTP Regulations a
trade practice may be unfair if the conduct undermines
the good faith dealing involved in the transactions and
undermine the ethical standards between parties engaged
in the business transactions.
241. In Rakhi Trading Pvt. Ltd.v. SEBI (2018) 13 SCC
753, the Supreme Court held that practice which does not
conform to the fair and transparent principles of trade in
the stock market is unfair trade practice.
242. In SEBI v. Kanhaiyalal Baldevbhai Patel &
Others, 2017 SCC Online SC 1148, the Supreme
Court held that the concept of unfairness appears to be
broader than and includes the concept of „deception‟ or
„fraud‟.
243. Thus, OPG repeatedly connecting to the secondary
server almost on a daily basis without any valid reason

215
and ignoring the warning and advice given by NSE for
the purposes of gaining unfair advantage over other TMs
is, in our opinion, an unfair trade practice which is
prohibited under Regulation 4(1) of the PFUTP
Regulations.
244. The show cause notice alleged that OPG gained
materially by being the first logger as well as by
connecting to the secondary server. In this regard, NSE
had appointed ISB to calculate the profits earned by TMs
including OPG especially on days when they logged in
first to the PDC either from the primary server or from
the secondary server. The ISB in its report took 30 days
on sample basis and analysed the same for the period
2012 and 2013 which were the days when OPG had
consistently logged in first. ISB in its report submitted
that OPG made higher profits close to Rs.25 crores when
they logged in early. Based on this ISB report, the show

216
cause notice directed OPG to show cause as to why the
profit of Rs.25 crores should not be disgorged.
245. The WTM after considering the material evidence
held that the computation of profit made by ISB in its
report is on the basis of early login by OPG. The WTM
in paragraph 8.39 of the impugned order held that the
computation based on analysis of first login cannot be
adopted. In view of the finding given by the WTM in
paragraph 8.13 that the first connect early login did not
give any unfair advantage to OPG and that only a
probabilistic advantage could be gained by TMs on
account of early login on such POP servers, the WTM on
the aforesaid basis held that the computation of unfair
gains as made out in the show cause notice to the extent
of first login made by OPG cannot be accepted or
adopted.
246. The WTM, however, took into consideration table
A11 and A15 of the ISB report and based on the

217
calculations made in table XXI of the impugned order
came to the conclusion that OPG had made a profit of
Rs.15.57 crores on account of unauthorized connection to
the secondary server.
247. In our opinion, the calculation of profits made on the
basis of ISB report is patently erroneous. Admittedly, the
ISB report was made on the allegations that OPG by
being the first logger/early connection gained materially
for the purpose of analyzing the profits the sample taken
of the trading made in the Futures and Options Segment
was on the basis of OPG logging in first on those days.
248. When a categorical finding has been given by the
WTM and we have also arrived at the same finding that
early login or first logger did not create any advantage the
basis of calculation of profits or unlawful gain cannot be
made under this criterion.
249. The ISB report used First-In-First-Out (FIFO)
methodology to calculate both intraday and overnight

218
profits. Intraday profits are profits generated through
positions that are opened and closed on the same day.
Overnight profits are profits generated through positions
opened on a prior day and closed on that particular day.
The definition of various profit terminologies used in the
anaysis is as under:
i. First Prop: Profits made by the trading
member from proprietary trades on days
when he logged first into a Port located on the
server which connected first to the PDC.
ii. Non-First Prop: Profits made by the trading
member from proprietary trades on days
when he was not the first to log into any
server Port.
250. A perusal of the terminology „First Prop‟ indicates
that the profits made by the TM is on the basis of its
trades made on days when he logged in first into a Port.

219
251. The WTM has calculated the unlawful gain on the
basis of table A11 and A15 of the ISB report. A perusal
of the aforesaid tables indicates that the calculation has
been made on the basis of „First Prop‟ and „Non-First
Prop‟. The „First Prop‟ analysis is based on when OPG
logged in first. When the WTM has given a finding that
early logging in does not give any advantage and could
only be given a probabilistic advantage the question of
calculating profits on the basis of early login becomes
wholly erroneous. The WTM could only consider
probabilistic advantage, if any, which the OPG may have
gained by being the first logger.
252. Thus, on this aforesaid short point, the calculation of
unlawful gain made by the WTM cannot be accepted.
253. Admittedly, seven reports of experts were considered
while passing the impugned order. OPG submitted a
report of another expert which is called the „Pasumarthy
Report‟ which report was rejected by the WTM. OPG

220
submitted that there are infirmities in the investigation
carried out by SEBI and there are deficiencies in the
report submitted by Deloitte, TAC, EY etc. The appellant
contended that the Pasumarthy Report should be taken
into consideration.
254. Upon a perusal of the Pasumarthy Report, we find that
it deals with several allegations which has been dealt in
the impugned order and has been dropped as highlighted
in paragraph no.8.13 and 8.15 of the impugned order.
Further, the Pasumarthy Report does not dwell into the
unauthorized connection by OPG to the secondary server.
Further, in our view, the Pasumarthy Report does not
submit its own finding. It only relies on the findings of
earlier expert committee‟s report. The Pasumarthy
Report has not based its findings on independent research
and, therefore, in our opinion the WTM rightly rejected
the Pasumarthy Report.

221
255. Before we conclude, we must observe that when
serious allegations were made against a first level
regulator, namely, NSE, SEBI should have been proactive
and should have conducted the investigation seriously.
We find that SEBI had adopted a slow approach and, in
fact was placing a protective cover over NSE‟s alleged
misdeeds. It is only when questions were placed on the
floor of the Parliament that SEBI woke up and instituted
an investigation. The scope of investigation was limited
and not made under Section 11(4) but was conducted by
another agency under Section 11C. In our opinion,
considering the gravity of the alleged charges, SEBI
should have itself conducted an investigation/enquiry
instead of delegating it to NSE to conduct an
investigation. It is strange and it does not stand to reason
as to how SEBI directed NSE to conduct an investigation
against itself. It is clear that a casual approach was
adopted.
222
256. We also find that two separate orders of the same date
were passed by the same Officer (WTM), one against
NSE, Mr. Ravi Narain and Ms. Chitra Ramkrishna and
the other order was passed against OPG. We find that
there are contradictions in the findings arrived at on the
same issue. For example, on the issue of early login, the
WTM, in the order against NSE held that early log in by
TM and OPG created an advantage. The WTM held that
a TM who logs in first would be disseminated the data
first at the start of the trading day and, therefore, has an
advantage over other TMs. On the other hand, the WTM,
in OPG matter held that the early log in by OPG did not
make any unfair advantage. This anomaly is one such
instance and there are more. It is not worthwhile to cull
out all the contradictions but it is suffice to state that the
same Officer who has passed the orders on the same date
cannot make different analysis on the same subject/issue.

223
257. To conclude, we find that all the charges leveled in
the show cause notice has not been proved. Many of the
charges were dropped by the WTM himself while passing
the impugned order. The WTM held that the charge of
fraud and unfair trade practice by NSE under PFUTP
Regulation is not made out. The charge that NSE and its
employees have colluded with TMs, especially OPG has
not been made out. The allegation of suppression of
material facts and non-cooperation by NSE with the
investigating authorities has not been made by the WTM.
258. We also find that early log in by TM did not create
any advantage with regard to dissemination of data. May
be a probabilistic advantage is obtained by a TM on
account of early login, but in the absence of any further
evidence on this aspect, no adverse orders can be passed.
We also hold that there was randomness in the
dissemination of data in the TBT architecture and,

224
therefore, there was no requirement to add a randomiser
to the existing TBT architecture.
259. We, however, found that there was laxity at the hands
of the employees of NSE in the distribution of IPs which
resulted in unequal distribution of IPs on the servers. We
have opined that a load balancer should have been
employed which would have allocated IPs of TM evenly
to the servers at the time of log in itself. The load
balancer would equally distribute the load at every stage
and would have ensured fairness, equality and
transparency in the system which NSE was mandated to
comply. The decision taken by NSE not to implement the
load balancer does not appear to be a bonafide decision.
260. We also found that NSE failed to monitor the
secondary server which led many TMs especially OPG to
misuse it to their advantage. NSE failed to follow its own
norms and guidelines framed for such purpose. NSE
should have placed a mechanism to check unauthorised

225
access to the secondary server by the TMs. NSE should
have placed a defined policy for use of secondary server
and a mechanism ought to have been placed for
monitoring connection by TM on the secondary server
since it was an active server.
261. We also find that the WTM further held that failure to
place the randomizer or load balancer in the TCP IP
dissemination protocol, cannot be categorised as breach
of the principles of “fairness and equity” attracting the
provisions of PFUTP Regulations. The WTM held that
the dissemination of information which is in breach of the
stipulation contained in SECC Regulations cannot
automatically attract the rigors of PFUTP Regulations,
without there being any proof to indicate fraud. The
WTM held that in the absence of any fraud or collusion
or connivance the possibility of fraud was non-existent.
262. We also find that the charge that NSE has violated
Regulation 41(2) and 42(2) of SECC Regulations is not

226
proved. NSE provided a level playing field for TM
subscribing to the TBT data feed of NSE and provided
equal, unrestricted and fair access from the TBT
architecture. We, however, found that the circular of 30th
March, 2012 was not followed by NSE.
263. We also found that the WTM exonerated OPG and its
Directors on issue of first login and crowding out other
TMs. We, however, affirm the findings of the WTM that
OPG gained an unfair access and advantage by
consistently log in to the secondary server and made
unlawful gains.
264. We, however, find that for violation of the circular,
there can be no disgorgement by NSE or by Mr. Ravi
Narain and Ms. Chitra Ramkrishna. Insofar as Mr. Ravi
Narain and Ms. Chitra Ramkrishna are concerned, the
order of disgorgement cannot be sustained. We also find
that order of disgorgement against NSE also cannot be
sustained.
227
265. We have already held that NSE did not commit any
violation of Regulation 41(2) of the SECC Regulations.
We have also found that TBT architecture provided
unrestricted, transparent and fair access to data
have also found that there was lack of due diligence while
allocating IPs on various Ports and that there was
inequitable distribution of IPs. We also found that a load
balancer should have been placed for equitable
distribution of the IPs. We also found that there was
failure to monitor frequent connections to the secondary
server by certain TMs. Even though NSE has not
indulged in any unethical act or has unjustly enriched
itself the direction to disgorge, in our opinion, cannot be
sustained. However, NSE has not adhered to its own
norms and guidelines and has not followed the circular.
The SCRA Act confers a large responsibility upon the
exchange to ensure that undesirable transactions do not

228
take place. Being a first level regulator it has a front line
responsibility for regulation of the market and has a
mandate to ensure compliance by the TMs of its own
norms, guidelines and circulars. NSE has a duty to
ensure transparency and fair access to all the TMs. For
lapses committed by NSE directions under Sections 11
and 11B could be passed and some of the directions of
the WTM were rightly passed. However, the direction
for disgorgement was unwarranted but the appellant NSE
cannot be allowed go scot free and is required to pay a
price for the lack of due diligence on account of human
failure to comply with the circular in letter and spirit.
Though there are no parameters to quantify the lapse
committed by NSE but taking into consideration all facts
and circumstances of the case and the factors
contemplated under Section 15J of the SEBI Act read
with 23J of the SCRA Act and in exercise of the powers
confirmed upon this Tribunal under Rules 21 of the

229
Securities Appellate Tribunal (Procedure) Rules, 2000,
we are of the opinion that NSE should pay a sum of
Rs.100 crores for this lapse which is not expected from a
first level regulator and which would act as a deterrent.
266. In view of the reasons given in the preceding
paragraph:
a. We set aside the order of the WTM directing
disgorgement of an amount of Rs.624.89 cores
alongwith interest at the rate of 12% p.a. against
NSE.
b. Directions given by the WTM prohibiting NSE from
accessing the securities market, directly or
indirectly, for a period of six months and, further,
directing NSE to carry out system audit at frequent
interval after thorough appraisal of the technological
changes introduced from time to time is affirmed.
c. We direct NSE to deposit a sum of Rs.100 crores to
the Investor Protection and Education Fund created

230
by SEBI. This amount will be adjusted by SEBI
pursuant to the deposit already made by NSE vide
our interim orders dated 22nd May, 2019 and 17th
May, 2021. The excess amount alongwith interest
accrued shall be refunded by SEBI within six weeks.
The appeal of NSE is partly allowed.
d. The direction to disgorge 25% of the salary from
Mr. Ravi Narain and Ms. Chitra Ramkrishna is set
aside.
e. The direction prohibiting Mr. Ravi Narain and Ms.
Chitra Ramkrishna from associating with any listed
Company or a market infrastructure institution or
any other market intermediary for a period of five
years is set aside and substituted for the period
undergone by them. The appeals for Mr. Ravi
Narain and Ms. Chitra Ramkrishna are allowed.
f. The direction of the WTM directing NSE to initiate
enquiry against its employees is affirmed.

231
g. The violations committed by OPG as found by
WTM is affirmed. However, the direction of the
WTM directing OPG and its Directors to disgorge
Rs.15.57 crores alongwith interest at the rate of
12% p.a. from 7th April, 2014 onwards is set aside.
The matter is remitted to the WTM to decide the
quantum of disgorgement afresh in the light of the
observation made above within four months from
today.
h. In addition to the above, we direct the WTM to
consider the charge of connivance and collusion of
OPG and its Directors with any employee/officials
of NSE. Further, the WTM will decide the issuance
of direction/penalty concealment/destruction of vital
information and will further reconsider Issue No.2
relating to crowding out other market participants.

232
i. All other directions issued against OPG and its
Directors are affirmed. The appeal is partly
allowed.
j. The intervention applications as well as the appeal
of Mr. A. Kumar are rejected.
267. In the circumstances of the case, parties shall bear
their own costs.
268. This order will be digitally signed by the Private
Secretary on behalf of the bench and all concerned parties
are directed to act on the digitally signed copy of this
order. Certified copy of this order is also available from
the Registry on payment of usual charges.
Justice Tarun Agarwala

Presiding Officer
Justice M.T. Joshi

RAJALAKS Digitally signed
by
Judicial Member
HMI RAJALAKSHMI
23.1.2023 HARISH HARISH NAIR
Date: 2023.01.23
RHN NAIR 15:47:55 +05'30'
233
GLOSSARY
Sr. Abbreviation Description
No.
1. Algo - Algorithmic
2. CD - Currency Derivatives
3. CEO - Chief Executive Officer
4. CFT - Cross Functional Team
5. CM - Cash Market
6. Colo - Colocation Services
7. CTO - Chief Technology Officer
8. Deloitte - Deloitte Touche Tohmatsu India LLP
9. DMA - Direct Market Access
10. EY - M/s. Ernst & Young LLP
11. FSB - Front Side Bus (FSB) speeds
12. HFT - High Frequency Trading
13. IPEF - Investor Protection and Education

Fund created by SEBI.
14. IRF - Interest Rate Futures

234
15. ISB - Indian School of Business
16. JMD - Joint Managing Director
17. MD and CEO - Managing Director and Chief

Executive Officer
18. MTBT - Multi-cast Tick By Tick
19. NSE - National Stock Exchange of India

Ltd.
20. Omnesys - Omnesys Technologies Pvt. Ltd.
21. OPG - OPG Securities Pvt. Ltd.
22. PDC - Primary Data Centre
23. PFUTP - Securities and Exchange Board of

Regulations India (Prohibition of Fraudulent and
Unfair Trade Practices relating to
Securities Market) Regulations, 2003
24. POP Server - Point of Presence Servers or

dissemination servers
25. PSM Team - Project Support and Management

Team
26. SCRA - Securities Contracts (Regulation),

Act 1956
27. SEBI - Securities and Exchange Board of

India
235
28. SEBI Act - Securities and Exchange Board of

India Act, 1992
29. SECC - Securities Contracts (Regulation)

Regulations (Stock Exchanges and Clearing
Corporations) Regulations, 2012
30. SOP - Standard Operating Procedure
31. TAC - Technical Advisory Committee
32. TBT - Tick–By–Tick mechanism
33. TCP/IP - Transmission Control Protocol/

Internet Protocol
34. TM - Trading Member
35. UMLO - Unique Multi-Leg Option
36. WTM - Whole Time Member, SEBI.
Justice Tarun Agarwala

Presiding Officer
Justice M.T. Joshi

Judicial Member
RAJALAK Digitally
by
signed
SHMI RAJALAKSHMI
23.1.2023 HARISH NAIR
HARISH Date:
2023.01.23
RHN NAIR 15:48:43 +05'30'

NSE V SEBI

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BEFORE THE SECURITIES APPELLATE TRIBUNAL

Date of Hearing: 26.11.2021

Misc. Application No.257 of 2019

National Stock Exchange of India Limited

Securities and Exchange Board of India

Mr. Darius Khambata, Senior Advocate with Mr.

Mr. Rafique Dada, Senior Advocate with Dr. Poornima

Mr. Nithyaesh Natrajan, Advocate for the Intervener.

1. OPG Securities Pvt. Ltd.

2. Mr. Sanjay Gupta

Securities and Exchange Board of India

Mr. Gaurav Joshi, Senior Advocate with Mr. Ravichandra

Mr. Rafique Dada, Senior Advocate with Dr. Poornima

Mr. Ravi Narain

Securities and Exchange Board of India

Mr. Pesi Modi, Senior Advocate with Mr. Neville Lashkari,

Mr. Rafique Dada, Senior Advocate with Dr. Poornima

Ms. Prerna Sharma and Ms. Samreen Fatima, Advocates i/b.

Mr. Nithyaesh Natrajan, Advocate for the Intervener.

Ms. Chitra Ramkrishna

Securities and Exchange Board of India

Mr. Prashant S. Pratap, Senior Advocate with Mr. Piyush

Mr. Rafique Dada, Senior Advocate with Dr. Poornima

Mr. Nithyaesh Natrajan, Advocate for the Intervener.

Appeal No.433 of 2019

Securities and Exchange Board of India

Mr. Nithyaesh Natrajan, Advocate for the Appellant.

Mr. Rafique Dada, Senior Advocate with Dr. Poornima

CORAM: Justice Tarun Agarwala, Presiding Officer

Per: Justice Tarun Agarwala, Presiding Officer

1. The Whole Time Member („WTM‟ for short) passed

an order dated 30th April, 2019 directing:

a. National Stock Exchange of India Ltd.

(hereinafter referred to as „NSE‟), noticee no.1 to

disgorge an amount of Rs.624.89 crores

alongwith interest at the rate of 12% per annum

with effect from 1st April, 2014 onwards to the

Investor Protection and Education Fund („IPEF‟

b. NSE is prohibited from accessing the securities

market directly or indirectly for a period of 6

months from the date of the impugned order.

c. NSE to carry out System Audit at frequent

intervals, after taking into consideration the

changes in the technology.

d. NSE to reconstitute its Standing Committee on

Technology at regular intervals.

e. NSE to frame a clear policy on administering

whistle blower complaints.

f. Mr. Ravi Narain, noticee no.2 to disgorge 25% of

the salary drawn for Financial Years 2010-11 to

2012-13 to the IPEF.

g. Mr. Ravi Narain shall not associate with any

listed company or a Market Infrastructure

Institution or any other market intermediary for a

period of five years.

h. Ms. Chitra Ramkrishna, noticee no.3 to disgorge

25% of the salary for Financial Year 2013-14.

i. Ms. Chitra Ramkrishna shall not associate with

any listed company or a Market Infrastructure