Securities Appellate Tribunal
Iifl Commodities Limited vs Multi Commodity Exchange Of India ... on 28 November, 2025
IN THE SECURITIES APPELLATE TRIBUNAL
AT MUMBAI
DATED THIS THE 28TH DAY OF NOVEMBER, 2025
CORAM: Justice P.S. Dinesh Kumar, Presiding Officer
Ms. Meera Swarup, Technical Member
Dr. Dheeraj Bhatnagar, Technical Member
Appeal No.170 of 2022
IIFL Commodities Limited
(Earlier known as India Infoline
Commodities Limited)
Corporate office at IIFL Centre,
Kamala City, Senapati Bapat Marg,
Lower Parel, Mumbai- 400 013. ...Appellant
(By Mr. Darius Khambata, Senior Advocate with Mr. Kunal
Kataria and Ms. Aparna Wagle, Advocates i/b. Alliance Law for
the Appellant).
Multi Commodity Exchange of India Limited
Exchange Square, Suren Road,
Andheri (East), Mumbai - 400 093. ...Respondent
(By Mr. Sameer Pandit, Advocate with Ms. Sarrah Khambati and
Mr. Aastik Agarwal, Advocates i/b. Wadia Ghandy & Co. for the
Respondent.)
With
Appeal No. 171 of 2022
IIFL Commodities Limited
(Earlier known as India Infoline
Commodities Limited)
Corporate office at IIFL Centre,
Kamala City, Senapati Bapat Marg,
2
Lower Parel, Mumbai- 400 013. .....Appellant
(By Mr. Darius Khambata, Senior Advocate with Mr. Kunal
Kataria and Ms. Aparna Wagle, Advocates i/b. Alliance Law for
the Appellant)
Multi Commodity Exchange of India Limited
Exchange Square, Suren Road,
Andheri (East), Mumbai - 400 093. .....Respondent
(By Mr. Sameer Pandit, Advocate with Ms. Sarrah Khambati and
Mr. Aastik Agarwal, Advocates i/b. Wadia Ghandy & Co. for the
Respondent.)
With
Appeal No.172 of 2022
IIFL Commodities Limited
(Earlier known as India Infoline
Commodities Limited)
Corporate office at IIFL Centre,
Kamala City, Senapati Bapat Marg,
Lower Parel, Mumbai- 400 013. .....Appellant
(By Mr. Darius Khambata, Senior Advocate with Mr. Kunal
Kataria and Ms. Aparna Wagle, Advocates i/b. Alliance Law for
the Appellant)
Multi Commodity Exchange of India Limited
Exchange Square, Suren Road,
Andheri (East), Mumbai - 400 093. .....Respondent
(By Mr. Sameer Pandit, Advocate with Ms. Sarrah Khambati and
Mr. Aastik Agarwal, Advocates i/b. Wadia Ghandy & Co. for the
Respondent.)
3
THESE APPEALS ARE FILED UNDER SECTION 23L OF SCRA, 1956
TO SET ASIDE ORDERS DATED FEBRUARY 25, 2022 (EX-A)
PASSED BY MEMBER AND CORE SETTLEMENT GUARANTEE FUND
COMMITTEE OF MULTI COMMODITY EXCHANGE OF INDIA
LIMITED.
THESE APPEALS HAVING BEEN HEARD AND RESERVED FOR
ORDERS ON APRIL 15, 2025, COMING ON FOR
PRONOUNCEMENT OF ORDER THIS DAY, THE TRIBUNAL MADE
THE FOLLOWING:
ORDER
Per: Justice P.S. Dinesh Kumar, Presiding Officer The issues raised in these three appeals are similar. Hence, they were taken up together for hearing and being disposed of by this common order.
2. Appeal Nos.170, 171 and 172 of 2022 are directed against three (3) separate orders dated February 25, 2022 passed by the MCSGFC1, Multi Commodity Exchange of India Limited imposing a penalty of Rs.3,29,90,211/-2, Rs.1,19,24,568/-3 and Rs.62,35,182/-4 respectively on the appellant.
3. Brief facts of appellant‟s case are:
(i) The appellant is a clearing cum trading member registered with the respondent. It is required to 1 Member and Core settlement Guarantee Fund Committee 2 For the year 2014-2015 3 For the year 2015-2016 4 For the year 2016-2017 4 collect sufficient margin from its clients in advance before trades. Appellant maintained an end to end fully automated system for calculation of client‟s margin and regularly reported to the exchanges.
Being an automated process, every day‟s limits were set for the client on the basis of available balance in the RMS5 and clients would take positions based on such limits. Due to a technical error, clients who had provided fixed deposits as collaterals had been inadvertently valued multiple times and the margin money erroneously inflated and unintentionally incorrect margins got reported to the exchange. Appellant suo moto carried out a system audit and resolved the error immediately and intimated the details of technical system and the „bug‟ through various communications to the respondent. Later, appellant put in place a more robust mechanism and no such instances have been observed since then.
(ii) The respondent carried out an inspection of the books of accounts, records and documents for the financial years 2014-15 to 2016-17. As stated in the inspection reports6, respondent observed certain violations with respect to alleged incorrect reporting of margin collection from the clients and vide emails7 respondent informed the appellant about the 5 Risk Management System 6 dated 29.05.2017 7 dated 07.06.2017 in Appeal No. 170 of 2022; dated 26.05.2017 in Appeal No.171 of 2022 and dated 21.03.2018 in Appeal No.172 of 2022.
5violations and the proposed penalty amount. The appellant through its communications dealt with every violation in detail and provided relevant documents. On April 12, 2018, respondent after considering appellant‟s submissions vide two separate orders imposed a penalty of Rs.3,30,00,211/- in respect of FY 2014-15, Rs.1,19,24,568/- in respect of FY 2015-16 respectively. The said orders were challenged before this Tribunal in Appeal Nos.141 of 2018 and 140 of 2018 and they have been quashed by a common order on the ground that they was not passed by a competent authority and directed the Disciplinary Action Committee of the respondent to decide afresh after issuing fresh show cause notices. In a similar way, respondent vide order dated October 23, 2019, imposed a penalty of Rs.62,35,182/- in respect of FY 2016-17. That order was also challenged before this Tribunal in Appeal No.608 of 2019 and this Tribunal set aside the said order. Respondent issued fresh show cause notices8. After hearing the appellant, impugned orders have been passed.
4. We have heard Shri Darius Khambata, learned Senior Advocate for appellants and Shri Sameer Pandit, learned Advocate for the respondent.
8Dated July 12, 2021 in Appeal Nos.170 and 171 of 2022, dated July 26, 2021 in Appeal No.172 of 2022.
65. Learned Senior Advocate for the appellant submitted that:
a. The impugned order has been passed without considering appellant‟s genuine inadvertence which was suo moto noticed and rectified. The error had occurred due to the system bug and after rectifying the system, there has been no recurrence of the issue. There was no mala fide intention on part of the appellant.
b. The respondent has incorrectly interpreted the exchange circular9 dated July 8, 2014. The circular does not contemplate imposition of penalty for technical errors in reporting. The respondent has taken a very narrow view of the words „technical error‟ in reporting to mean that such technical errors pertain to reporting and did not apply to present case. The object of the circular is to cover all kinds of technical errors in reporting. The four instances of the incorrect margin reporting as mentioned in the show cause notice were in the nature of technical errors and wholly unintentional. Therefore, the respondent ought to have considered the MCX Circular10 dated December 18, 2019 as it was in existence as on the date of show cause notice11 and restricted the penalty amount within the cap provided in the circular while passing the impugned order.
Circular No. MCX/C&S/243/2014 dated July 8, 2014 9 Circular No. MCX/INSP/712/2019 dated December 18, 2019 10 11 dated 12.07.2021 7 c. SEBI has prescribed the penalty „up to 100%‟ of such short collected amount. The system bug issued was resolved on October 7, 2015 but it was not accepted by the respondent. The respondent has not placed any material on record to prove that the system bug was not resolved.
d. There is no wilful violation attributable to the appellant. Therefore, imposition of maximum penalty without looking into the cap is against the spirit of natural justice.
e. The respondent ought to have considered the Circular12 dated August 1, 2019, wherein it is categorically stated that proportionality factor has to be considered by the exchanges while imposing penalty. The impugned order incorrectly records that the said circular has come into force from September 1, 2019 and that it is not applicable to the facts of this case. This Tribunal on several occasions held that the law has to be interpreted in its spirit invoking proportionality. In support of this submission, he relied on Zenith Steel Pipes and Industries Limited v. SEBI13, GRD Securities Limited v. National Stock Exchanges of India Ltd & Another14, Alice Blue Financial Services Pvt. Ltd v. National Stock Exchanges of India SEBI‟s Circular No. CIR/HO/MIRSD/DOP/CIR/P/2019/88.12
2023 SCC OnLine SAT 104 13 14 GRD Securities Limited v. National Stock Exchanges of India Ltd & Another, Appeal No.285 of 2018 dated 10.06.2019 8 Ltd15, Sunshine Stock Broking Pvt. Ltd v. National Stock Exchanges of India Ltd & Another16, Sudhir Bapusaheb Devkar v. SEBI17.
6. The sum and substance of Shri Khambatta‟s argument is that as on the date of issuance of show cause notices18, SEBI‟s circular dated August 01, 2019 and the consequential circular dated December 18, 2019 were in force. As per those circulars, the maximum penalty is Rs.15 Lakhs in case of a trading member and Rs.25 Lakhs in case of a clearing member. Therefore, the penalties imposed as per the impugned order are not sustainable in law.
7. In reply, Shri Sameer Pandit for the respondent contended inter alia that:
a. The appellant had deliberately suppressed its violations. Though appellant became aware of the purported „bug‟, it deliberately suppressed the information. If appellant had acted in a bona fide manner, it should have voluntarily disclosed the instances of incorrect reporting and paid penalty as soon as the „bug‟ was discovered.15
Alice Blue Financial Services Pvt. Ltd v. National Stock Exchanges of India Ltd Appeal No.196 of 2018 dated 19.10.2020.16
Sunshine Stock Broking Pvt. Ltd v. National Stock Exchanges of India Ltd & Another Appeal No.240 of 2020 dated 29.09.2020 17 2022 SCC OnLine SAT 2334 In Appeal Nos.170 & 171 of 2022 on 12.07.2021 and in appeal No.172 of 18 2022 on 26.07.2021.9
b. The appellant is a habitual offender and has been reprimanded in the past. SEBI had passed an order dated February 22, 2019, holding appellant‟s predecessor as „not fit and proper‟.
c. The purported system bug was not detected and overlooked for a long time (almost fifteen months), despite conducting quarterly audit. Incorrect reporting of margin collection has occurred even beyond the period of alleged „technical bug‟. Therefore, appellant‟s contention to reduce the penalty on the ground of technical error is untenable.
d. SEBI circular dated August 1, 2019 specifically states that „revised penalty structure‟ would be applicable for instances of false/incorrect reporting of margin from September 1, 2019. In appellant‟s case circular19 dated September 7, 2016 is applicable because the instances of incorrect reporting of margin money collection pertains to FY 2014-15. Even if appellant‟s argument is to be accepted, the penalty imposed is well within the limit prescribed by 2019 SEBI Circular. The said Circular expressly permits penalty of up to 100% of the amount of margin falsely reported even after September 1, 2019. The penalty imposed on the appellant does not exceed the 100% limit prescribed by the SEBI. The penalty structure in 2019 MCX Circular is indicative and not 19 Circular No. MCX/C&S/274/2016 10 mandatory. In appropriate cases, the respondent can go beyond the indicative penalty structure, so long as it remains within the limits prescribed by the SEBI.
e. The Appellant has not challenged the validity of either SEBI Circular or the MCX Circular. Hence, the Appellant is bound by the terms of these circulars.
f. The Circulars cannot be treated retrospectively. Benevolent construction can be applied if the statute is silent or ambiguous and not when the law expressly makes it prospective in nature. The circulars issued by the SEBI and the MCX are expressly prospective in nature. A rule or law cannot be construed retrospectively unless it expresses a clear or manifest intent to the contrary and in the absence of express statutory authorisation. In support of this submission, he relied on CIT v. Vatika Township Private Limited20, Shyam Sunder & Ors v. Ram Kumar & Anr21, State of Jharkhand v. Shiv Karampal Sahu22, Asst. Excise Commissioner Kottayam v. Esthappan Cherian & Anr23.
8. We have carefully considered the rival contentions and perused the records.
20CIT v. Vatika Township Private Limited (2015)1 SCC 1 21 Shyam Sunder & Ors Vs Ram Kumar & Anr (2001)8 SCC 24 22 State of Jharkhand Vs Shiv Karampal Sahu (2009)11 SCC 453 23 Asst. Excise Commissioner, Kottayam v. Esthappan Cherian & Anr (2021)10 SCC 210 11
9. Principal allegation against the appellant is reporting incorrect/false margins. Appellant‟s defence is that the system was fully automated and incorrect reporting occurred due to a bug in the system and after rectification, there was no incorrect reporting.
10. Admitted fact is, appellant is, both a „trading‟ and a „clearing‟ member. In the written submissions, appellant has conceded to restrict its submissions on the issue of applicability of circulars and the penalty levied thereunder. It was stressed by the appellant that the revised penalty structure provided with maximum cap of Rs.15 Lakhs for trading member and Rs.25 Lakhs for the clearing member.24
11. The violations are of the year 2014-15 to 2016-17. The penalty orders passed for violation during the said period were challenged in this Tribunal and they were set aside. MCX has issued its Circular on December 18, 2019. The exchange has issued fresh show cause notices thereafter. Therefore, the point that arises for consideration is 'whether appellant is entitled for the benefit of Circular dated December 18, 2019?'
12. We have considered the authorities relied upon by both sides. In our view, the law laid down by the Constitutional Bench of the Apex Court in CIT v. Vatika Township is apposite, wherein it is held as follows:
24Para No.C (d) of appellant‟s written submission 12 "30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators' object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect.
This exactly is the justification to treat procedural provisions as retrospective. In Govt. of India v. Indian Tobacco Assn., the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in Vijay v. State of Maharashtra. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are (sic not) confronted with any such situation here."
13. In SEBI‟s circular dated August 1, 2019, it is stated that the guidelines were being issued by SEBI in order to rationalise and bring uniformity in the manner of imposition of fine for false/incorrect reporting. Thus, in the opinion of the „regulator‟ namely the SEBI there was need to rationalise and bring uniformity. MCX has followed the SEBI‟s Circular and issued a consequential circular. It is settled that the statutory entities are bound by their circulars. (See para 7 of Commissioner of Central Excise, Bolpur v. Ratan Melting & Wire Industries, [(2008) 13 SCC 1]). Therefore, respondent is bound 13 by its circular which provides a cap on the penalty. However, MCX has taken the following stand in its written submissions.
"C. Penalty imposed is within the limit prescribed by 2019 SEBI Circular
6. Without prejudice to the above, it is submitted that the parent circular is the 2019 SEBI Circular which is issued under Section 11 of the SEBI Act and Section 10 of the SCRA. The purpose of the circular was to harmonize the penalty structure across exchanges (see paras. 2 and 3). The 2019 SEBI Circular expressly permits a penalty of up to 100% of the amount of margin falsely reported even after September 1, 2019 (para. 3(b)). Thus, even if the circular is taken to be retrospective in nature, the new penalty structure prescribed by SEBI permits a penalty of up to 100% of the amount of margin falsely reported. There is no further monetary cap imposed by the 2019 SEBI Circular. Since the penalty imposed by the Impugned Order does not exceed the 100% limit prescribed by SEBI, the Impugned Order is well within the confines of law."
14. In our considered opinion, the above stand is wholly untenable as it runs contrary to its own circular dated December 18, 2019. The show cause notice having being issued whilst the said circular was in force and adjudication proceedings having been conducted thereafter, in our view, appellant shall be entitled for the benefit flowing under the circular. Accordingly, the point for consideration is answered in the affirmative.
15. Penalties imposed are in respect of 2014-15, 2015-16 and 2016-17. The appellant being both trading and clearing member is liable for penalty of Rs.15 Lakhs plus Rs.25 Lakhs and in all a 14 penalty of Rs.40 Lakhs per year for false/incorrect reporting of margin amount.
16. Hence, the following ORDER
a) Appeals are allowed in part and the penalty of Rs.3,28,52,711/- for the year 2014-15, Rs.1,04,93,568/- for the year 2015-16 and Rs.53,92,682/- for the year 2016-17 are modified as Rs.40 Lakhs per year, totalling to Rs.1,20,00,000/-.
b) The remaining portion of the order remains undisturbed.
c) Pending interlocutory application(s), if any, stand disposed of.
d) No costs.
Justice P.S. Dinesh Kumar Presiding Officer Ms. Meera Swarup Technical Member Dr. Dheeraj Bhatnagar Technical Member RAJALA Digitally signed 28.11.2025 KSHMI by RAJALAKSHMI H NAIR RHN H NAIR Date: 2025.12.01 17:33:47 +05'30'