NSDL Pays Rs 3.12 Crore to Settle Rule Violation Case with SEBI
On October 14, the National Securities Depository Ltd (NSDL) settled a case with the Securities and Exchange Board of India (SEBI) involving alleged violations of depository rules. The settlement was reached after NSDL paid Rs 3.12 crore to SEBI. The case involved allegations of NSDL’s failure to comply with the SEBI (Depositories and Participants) Regulations, 2018.
The allegations centered on NSDL’s failure to address grievances from participants and beneficial owners within the mandatory 30-day period as required by Regulation 7(g) of the SEBI regulations. Additionally, NSDL was accused of breaching clauses of the Code of Conduct under the same regulations. The violations were said to have occurred both before and after August 28, 2023.
In response to these allegations, NSDL chose to settle the matter through a settlement order, a legal mechanism that allows entities to resolve regulatory disputes without admitting or denying any findings of fact. This type of settlement is commonly used to avoid lengthy litigation and further penalties. By opting for the settlement process, NSDL proposed to pay the settlement amount and resolve the case without admitting any wrongdoing.
SEBI accepted the settlement offer from NSDL, and on October 14, the depository paid Rs 3.12 crore to the market regulator. The settlement brought an end to the adjudication proceedings initiated against NSDL in February 2024. A show cause notice had been issued to the depository on February 8, 2024, outlining the specific violations, and NSDL’s decision to settle effectively disposed of these proceedings.
The settlement order from SEBI noted, “In view of the acceptance of the settlement terms and the receipt of settlement amount…by SEBI, the instant adjudication proceedings initiated against applicant vide show cause notice dated Feb. 8, 2024, is disposed of.” This indicates that SEBI was satisfied with the payment of the settlement amount, and no further action would be taken against NSDL in relation to this case.
This settlement comes at a significant time for NSDL, as it prepares to enter the public market. In late September 2024, SEBI granted NSDL the approval to launch its much-anticipated initial public offering (IPO). This clearance came over a year after NSDL had submitted its preliminary draft red herring prospectus to SEBI in July 2023.
NSDL’s IPO is expected to be a full offer for sale of more than 5.72 crore equity shares. Major shareholders, including prominent financial institutions such as the National Stock Exchange of India, State Bank of India, and HDFC Bank, are set to divest their shares as part of the offer for sale. These details were disclosed in NSDL’s draft red herring prospectus submitted to SEBI.
NSDL plays a pivotal role in India’s financial and securities markets as a SEBI-registered market infrastructure institution. The depository offers a wide range of services and products that facilitate the seamless operation of the country’s financial markets. Its significance stems from its role in pioneering the dematerialization of securities in India, following the introduction of the Depositories Act in 1996. This groundbreaking move, which began in November 1996, revolutionized the way securities were handled in India, enabling electronic storage and transfer of financial assets and significantly reducing the risks associated with physical securities.
Today, NSDL’s services are critical to the smooth functioning of India’s financial ecosystem. Its role as a depository allows investors to hold securities in electronic form, offering convenience, transparency, and safety in the process of investing and trading. Over the years, NSDL has continued to innovate and expand its services, contributing to the modernization of India’s capital markets.
The recent settlement with SEBI, while a notable development, does not appear to have hindered NSDL’s IPO plans. The depository’s approval for the public offering represents a significant milestone in its growth trajectory and could potentially mark a new chapter for the institution as it opens up to a broader base of investors.
As NSDL moves forward with its IPO, the market will be watching closely to see how the company navigates this important phase, especially in light of the recent regulatory scrutiny. With its long-standing reputation and crucial role in India’s financial infrastructure, NSDL remains a key player in the evolution of the country’s securities market. The settlement with SEBI underscores the importance of regulatory compliance for institutions of its stature while also paving the way for its future in the public market.