Coimbatore SE exits; Saurashtra bourse being wound up

The Securities and Exchange Board of India (SEBI) has passed an order providing for the exit to Coimbatore Stock Exchange Limited, making it the second exchange to exit under the voluntary exit policy after the erstwhile Hyderabad Stock Exchange.

SEBI also started winding up procedure in respect of the Saurashtra Kutch Stock Exchange Limited on the basis of a valuation report submitted by valuation agency H P Mehta & Co.

CSX is the second exchange to exit under the voluntary exit policy after the erstwhile Hyderabad Stock Exchange was allowed exit on 25 January 2013, a SEBI notification issued today said.

Five more non-functional exchanges have also applied for closure under the exit option, SEBI said in its release.

CSX, according to SEBI, has transferred Rs51,27,493 available in its 'Investor Protection Fund', Rs32,41,994 available in its 'Investor Services Fund' and '1 per cent security deposit' amount of Rs20,73,890 available with it to the SEBI Investor Protection and Education Fund.

CSX has paid the necessary dues outstanding to SEBI, including 10 per cent of the listing fee and the annual regulatory fee.

It has also paid an amount of Rs2,28,36,251 towards  outstanding registration fees of brokers/trading members as specified in the SEBI (Stock Brokers and SubBrokers) Regulations, 1992 till the date of such de-recognition.

Further, CSX has contributed Rs15,00,000 towards SEBI IPEF.

CSX has also given an undertaking on 21 March 2013 to clear the liabilities, contingent liabilities and the income tax liability before the distribution of assets of CSX, SEBI said.

CSX will have to comply with its tax obligation under the Income Tax Act, 1961 as also with the undertakings given to SEBI.

Henceforth it would not use either the name or any expression "Stock Exchange" or any variant of that expression in its name and avoid any representation of present or past affiliation with the stock exchange, in all the media.

SEBI has intimated the income tax authorities and the state government of Tamil Nadu about the exit of CSX, for appropriate action at their end.

SEBI has, meanwhile, published valuation report of the Saurashtra Kutch Stock Exchange Ltd (SKSEL) under a winding up process initiated by the regulator.

SEBI had withdrawn the recognition granted to SKSEL as far back as on 5 July 2007. The stock exchange, however, dragged SEBI to the Securities Appellate Tribunal (SAT) and the top courts of appeal, but without any results.

SEBI had also directed SKSEL to transfer amounts available in its Investor Protection Fund & Investor Services Fund, to SEBI and to set aside sufficient funds for pending arbitration cases, awards, investor claims and other liabilities. SKSEL was further directed to refrain from using the expression 'stock exchange' or any variant in its name or in its subsidiary's name.

SKSEL challenged the SEBI order before the Securities Appellate Tribunal (SAT), which, however, upheld the SEBI order and dismissed the appeal.

SKSEL then challenged the SAT order in a special civil application before the High Court of Gujarat. The high court too dismissed the petition on 11 November 2007.

Thereafter, SKSEL filed an appeal under section 22F of SCRA before the Supreme Court against the SAT order on 13 July 2007. The Supreme Court also dismissed the plea by an order dated 14 March 2012.

In the meantime, SEBI issued guidelines and laid down the framework for exit by stock exchanges whose recognition was withdrawn and/or renewal of recognition was refused by SEBI and who may want to surrender their recognition.

SEBI issued a new circular for exit of stock exchanges vide a circular dated 30 May 2012.

SKSEL, a derecognised stock exchange, failed to make an application within two months under the 2012 `Exit Circular' and therefore was subject to compulsory exit process, SEBI said.

Accordingly, SEBI in consultation with SKSEL, appointed H P Mehta & Co as valuation agency on 8 November 2012, for verification and valuation of assets and liabilities of SKSEL. The valuation agency submitted its report on 10 January 2013.

As per the valuation report, SKSEL has total assets worth Rs16,45,63,093 as per the book value, the fair value of which stood at Rs38,46,65,922.

The total value of liabilities of SKSEL is put at Rs4,54,88,031 and contingent liabilities stood at Rs11,78,45,833.
 
The balance of IPF, ISF and the 1 per cent security deposit as of 30 September 2012 stood at Rs92,08,491.41, Rs87,33,503.00 and Rs17,13,000, respectively.

No dues were found to be outstanding to SEBI, including 10 per cent of the listing fee and the annual regulatory fee.

The balance of SGF as of 30 September 2012 stood at Rs40,32,895 and no initial contribution by members was made towards this fund.

The refundable deposits to the trading members of SKSEL amounted to Rs2,05,52,351.

The other liabilities brought out by the valuation report based on the books of SKSEL and its contingent liabilities are as follows:

  • Non-current Liabilities, including long term liabilities and other deposits as on 30 September 2012  (Rs2,94,42,352);
  • Deferred tax liability as of 30 September 2012 (Rs60,000);
  • Current liabilities as of 30 September 2012 (Rs13,03,131);
  • Provision for income tax on current year's estimated income up to September 2012 (Rs750,000) which is not provided in the books of accounts;
  • Contingent liability arising on account of the special leave petitions filed by the department of income tax before the Supreme Court pertaining to exemption claimed by SKSEL for assessment years 1994-95, 1995-96, 1996-97, 1997-98, 2000-01 & 2001-02 . (Rs10,52,73,604);
  • Contingent liability arising on account of show-cause notice issued by department of service tax raising demand for the period March 2006-March 2012, which is pending for adjudication before the joint commissioner of service tax (Rs53,36,527);
  • Contingent liability arising on account of demands raised by the Employees' State Insurance Corporation for the period 1 January 1993 to 31 March 2003 (Rs3,72,638).

SKSEL has obtained stay against demand from the ESI Industrial Tribunal, Rajkot and in accordance with the directions in the order, the exchange has provided bank guarantee to the extent of Rs1,75,000. Further proceedings are pending in the matter.

Contingent liability arising on account of employee termination liabilities towards gratuity, retrenchment compensation and notice pay payable, assuming the retrenchment date of 31 December, as per the certificate from labour law consultant stood at Rs69,63,064.