Inter-corporate deposits and group company investments not involving financial liability do not violate SCRR Rule 8.

The Appellant, a trading member, challenged an order dated November 28, 2023, passed by the National Stock Exchange (NSE).

The NSE had imposed a total monetary penalty of ₹5,35,000 upon finding that the Appellant engaged in business other than securities involving personal financial liability, specifically regarding inter-corporate deposits/advances and investments in group companies.

This was deemed a violation of Rule 8(1)(f) and Rule 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957 (SCRR), interpreted through an NSE circular dated January 7, 2022, which provided an "illustrative list" of prohibited activities.

During the pendency of the appeal, the Ministry of Finance amended the SCRR on May 19, 2025, and the NSE subsequently issued new circulars in 2025 and 2026 deleting or modifying the prohibited categories.

The Tribunal applied Rule 8(1)(f) and Rule 8(3)(f) of the Securities Contracts (Regulation) Rules, 1957, which restrict members from engaging in non-securities business involving personal financial liability.

It further considered the amendment by the Department of Economic Affairs (Ministry of Finance) dated May 19, 2025, which clarified that investments by a member do not constitute "business" unless they involve client funds/securities or create financial liability.

The Tribunal also relied on NSE Circular No. NSE/INSP/74836 dated June 23, 2026, which narrowed the scope of non-compliance to only two specific activities: issuing corporate guarantees and pledging deposits for overdraft facilities.

The Tribunal noted that the legislative and regulatory landscape had shifted significantly since the original order. The findings against the Appellant were primarily based on inter-corporate deposits and investments in group companies—activities that originally fell under "Point No. 10" of the NSE's illustrative list.

However, the 2025 amendment to the SCRR and the 2026 NSE circular expressly deleted these points, restricting violations of Rule 8(3)(f) strictly to the issuance of corporate guarantees or pledging deposits for overdrafts.

Since the Appellant’s conduct did not involve these two remaining prohibited activities, the legal basis for the penalty under Rule 8(3)(f) evaporated.

The Tribunal rejected the Respondent’s request for remand, determining that since the underlying clauses no longer existed, a fresh hearing would serve no purpose.

The Tribunal allowed the appeal in part. The impugned order was quashed insofar as it related to the ₹5,00,000 penalty for Rule 8(3)(f) violations, and the NSE was directed to refund this amount within two weeks. The Appellant did not press the appeal regarding other issues and undertook to pay the remaining ₹35,000 penalty. No costs were awarded.