Surendra Kumar, J. (Member (J)) - (1.)THE present appeal has been filed by the Financial Technologies (India) Limited (in short, 'FTIL') challenging the order dated 13th May, 2014 passed by the learned Central Electricity Regulatory Commission (hereinafter referred to as 'Central Commission') in Suo Motu Petition No. SM/341/2013 whereby the learned Central Commission, in the matter of Regulatory Oversight of the Management and Governance of Indian Energy Exchange Limited (IEX), has disposed of the aforesaid Suo Motu Petition in exercise of its powers under Regulation 22(A) and Regulation 63(i) of the Central Electricity Regulatory Commission (Power Market), Regulations 2010 directing the following for compliance by the Indian Energy Exchange (IEX): -
"(a) IEX shall ensure that FTIL divests its entire shareholding from the IEX by 30.9.2014.

(b) Pending divestment of shares, the voting rights of FTIL shall stand extinguished and any corporate benefit in lieu of such shareholding shall be kept in abeyance or withheld by the exchange.

(c) IEX shall ensure that no nominee of FTIL is represented in the Board of IEX.

(d) IEX is directed to ensure compliance of the above directions with immediate effect and submit monthly report to the Commission."

(2.)THE Financial Technologies (India) Limited is the appellant in this Appeal and is also one of the promoter shareholders of the IEX and has two Directors on the Board of the IEX.
2.1. that the respondent No. 1 i.e. Central Electricity Regulatory Commission is a regulator of electricity, authorized under the Electricity Act, 2003 to discharge its functions and exercise its authority according to the provisions of the Electricity Act, rules and regulations.

2.2. Indian Exchange Limited (IEX), which is the respondent No. 2 herein, has been established and is being operated in accordance with the provisions of the Central Electricity Regulatory Commission (Power Market) Regulations, 2010 (in short, 'Power Market Regulations').

That the Central Commission started suo motu proceedings against the appellant to the effect That the appellant/FTIL has been declared as 'not fit and proper person' by Forward Market Commission (FMC) which is a Regulatory Authority under the Forward Contract Regulations Act, 1952 (FCR Act). FMC in its order dated 17.12.2013 in Reference No. 4/5/2013 -MKT -I/B had issued the following directions: -

"15.1.4 Keeping in view the foregoing observations and the facts which reveal misconduct, lack of integrity and unfair practices on the part of FTIL in planning, directing and controlling the activities of its subsidiary company, NSEL, we conclude That FTIL, as the anchor investor in the Multi -Commodity Exchange Ltd., (MCX) does not carry a good reputation and character, record of fairness, integrity or honesty to continue to be a shareholder of the aforesaid regulated exchange. Therefore, in the public interest and in the interest of the Commodities Derivatives Market which is regulated under FCRA, 1952, the Commission holds That Financial Technologies (India) Ltd. (FTIL) is not a 'fit and proper person' to continue to be a shareholder of 2% or more of the paid -up equity capital of MCX as prescribed under the guidelines issued by the Government of India for capital structure of commodity exchanges post 5 -years of operation. It is further ordered That neither FTIL, nor any company/entity controlled by it, either directly or indirectly, shall hold any shares in any Association/Exchange recognized by the Government or registered by the FMC in excess of the threshold limit of the total paid -up equity capital of such Association / exchange as prescribed under the commodity exchange guidelines and post 5 -year guidelines."

3.1. That the Central Commission, in its order dated 03.01.2014, had directed the Indian Energy Exchange (IEX) to inform the Central Commission about the action being taken by the Board of the Company with regard to Shri Jignesh Shah and the shareholding of appellant/FTIL in IEX in light of the directions issued by Forward Market Commission dated 17.12.2013. In response to the above order, IEX vide its affidavit dated 17.1.2014 stated That the Board of IEX would meet post 07.02.2014 (i.e. date of hearing before the Bombay High Court) to discuss and take any steps on the basis of the outcome of the hearing of the Writ Petition filed by the appellant against the order dated 17.12.2013 of FMC in the Hon'ble High Court of Bombay.

3.2. That subsequently, IEX vide its affidavit dated 31.01.2014 clarified That the Board of IEX through circulation had decided to take further action with regard to the directions of the Central Commission after the outcome of the hearing in the Bombay High Court. IEX vide affidavit dated 13.03.2014 informed the Central Commission That Shri Jignesh Shah has tendered his resignation from the Board of IEX vide letter dated 07.03.2014.

3.3. That the Securities And Exchange Board of India (SEBI) in its order dated 19.03.2014 passed in Reference No. WTM/RKA/MRD -DSA/11/2014 has issued the following directions: -

"18. I, therefore, in exercise of the powers conferred upon me under Section 19 read with sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 and section 12A of the Securities Contracts (Regulation) Act, 1956, read with regulations 20(2) and 49 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, hereby issue the following directions:

(a) FTIL is not a 'fit and proper person' to acquire or hold any equity share or any instrument That provides for entitlement for equity shares or rights over equity shares at any future date, in a recognized stock exchange or clearing corporation, either directly or indirectly;

(b) FTIL shall divest the equity shares and/or any instrument That provides for entitlement for equity shares or rights over equity shares at any future date, held by it, directly or indirectly, in MCX -SX, MCX -SX CCL, DSE, VSE and NSEIL within 90 days from the date of this order through sale of shares and/or instrument, and

(c) FTIL and the entities through whom it indirectly holds equity shares or any instrument entitling voting rights in MCX -SX, MCX -SX CCL, DSE, VSE and NSEIL shall cease to be entitled to exercise voting rights in respect of those shares or instruments, with immediate effect."

3.4. That further, FMC through Reference No. 1/1/2014 -MD -I/B dated 06.05.2014 has brought out the Revised Norms regarding Shareholding, Ownership, Net worth, Fit and Proper Criteria etc of the Nationwide Multi Commodity Exchanges, Clause of the revised norms provided as under:

"6. Consequences of ceasing to be a "fit and proper person":

In the event of any person ceasing to be a "fit and proper person" or being declared so by the Commission, such person shall forthwith divest his shareholding. Further, pending divestment of shares, the voting rights of such person shall stand extinguished and any corporate benefit in lieu of such holding shall be kept in abeyance/withheld by exchange. The exchange shall take necessary steps as it may deem fit so as to ensure That the shareholding of such person is divested forthwith."

3.5. That further vide the same reference dated 06.05.2014, the FMC issued directions under section 10 of the Forward Contracts (Regulation) Act, 1952 read with Rule 7(2)(II) of the Forward Contract (Regulations) Rules, 1954 for compliance of the revised norms by all National Commodity Exchanges by amending their rules including the memorandum and articles of associations within 45 days.

3.6. That examination of the orders issued by SEBI and FMC shows That FTIL (appellant) which has been declared as "not fit and proper person" shall have to divest all its shares in the Security Exchanges as well as Commodity Exchanges controlled by SEBI and FMC respectively and pending divestment of shares, FTIL/appellant shall have no voting rights. Considering these developments, the learned Central Commission was of the view That such decisions by SEBI and FMC have direct bearing on the Power Market due to the following reasons: -

"(a) IEX is an important market infrastructure institution playing a major and pivotal role in promoting the power market in the country with more than 95% of the market share. There is a need to ensure transparent and professional management of the IEX in order to inspire public trust and confidence in the exchange.

(b) The regulatory objectives of the power exchanges are similar to That of the commodity and stock exchanges in so far as the investor/consumer protection, market integrity, transparency, fairness and governance are concerned.

(c) Systems and processes such as electronic trading platform, clearing and settlement and risk management are similar in these exchanges.

(d) The Power Exchange as well as the Commodity Exchanges and the Stock Exchange are market infrastructure institutions needing the same level of integrity and governance."

3.7. That the appellant should not hold any share in the IEX or have any representation in the Board of the IEX because the appellant cannot be considered as 'fit and proper person' to hold shares in the Power Exchange and such a person poses same risk to the interests of the power market and its participants.

3.8. That the learned Central Commission issued an amendment to the CERC (Power Market Regulations), 2010 on 03.04.2014 after following the due procedure through public consultation and inserted a new Regulation as Regulation 22A after Regulation 22 of the Principal Regulations by way of amending the CERC (Power Market Regulations), 2010 which is as under:

"22A Qualifications and Disqualifications for appointment as Director in the Board of Power Exchange

(1) A person shall be considered as qualified to be appointed as a Director in the Board of Power Exchange if such person has a record of fairness and integrity, good reputation and character, and honesty.

(2) A person shall be considered as disqualified for appointment as Director of the Power Exchange, if: -

(a) he is convicted by a court of any offence involving moral turpitude or fraud or any economic offence or any offence against any law and a period of five years has not elapsed from the date of expiry of the conviction:

Provided That if the person is convicted of any offence and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible to be appointed as a Director in any Power Exchange; or

(b) he is found guilty in any proceedings for non -compliance of any of the provisions of the Act or the rules or the regulations made thereunder or any order made by the Appropriate Commission or the Appellate Tribunal for Electricity and a period of five years has not elapsed from the date of the order; or

(c) an order restraining, prohibiting or debarring him to hold the post of Director in the Board of a Company has been passed by any other Regulatory Authority constituted under any law in force in India under their respective Acts or regulations; or

(d) an adverse order has been passed against him by a competent court/tribunal in a winding up proceedings; or

(e) he is an un -discharged insolvent; or

(f) he has applied to be adjudicated as an insolvent and his application is pending; or

(g) he is found to be of unsound mind by a court of competent jurisdiction and the finding is in force.

(3) No person who suffers from any of the disqualifications prescribed under Companies Act, 2013 shall be eligible for appointment or continuation as Director of the Power Exchange.

(4) The qualifications and disqualifications specified in this regulation shall also be applicable to the existing Directors of the Power Exchanges.

(5) If any shareholder of the Power Exchange suffers from any of the disqualifications as mentioned in clauses (2) and (3) of this regulations, such shareholder or his nominee shall be debarred from being appointed as Director in the Board of the Power Exchange.

(6) If any question arises as to whether a person is qualified/ disqualified to be a Director in a Board of the Power Exchange, the decision of the Central Commission on such question shall be final."

3.9. That in accordance with Regulation 22A(2)(c) and 22A(5) of the aforesaid Power Market Regulations, 2010 various shareholders of the Power Exchange have been prohibited, restrained or debarred by any Regulatory Authority constituted under any law in force in India from holding the post of Director in the Board of a Company, such shareholder or his nominee shall be debarred from being appointed as Director in the Power Exchange.

3.10. That since in the present case, the appellant, as stated above, has been held to be 'not fit and proper person' by SEBI and FMC which are Regulatory Authorities under the Securities and Exchange Board of India Act, 1992 and Forward Contract (Regulations) Act 1952, the directions of the SEBI and FMC in view of the Central Commission amount to debarment of representation of FTIL/appellant in the Boards of the Commodity Exchanges and the Stock Exchanges and therefore, in view of the provisions of Regulations 22(A)(2)(c) and 22(A)(5) of the Power Market Regulations, 2010 as amended by the Notification dated 03.04.2014 of the Central Commission, the appellant is not entitled to nominate its representative on the Board of IEX.

3.11. That the learned Central Commission has, in the impugned order, however, noted That there is no provision in the Power Market Regulations, 2010 directing a shareholder of the Power Exchange to divest his/or her shares but the Central Commission has the power under Section 63(i) of Power Market Regulations, 2010 to make such orders as may be considered necessary for meeting the ends of justice. The learned Central Commission, keeping in view the public interest and the interest of the power market participants, has taken the view while passing the impugned order That the appellant/FTIL should divest its entire shares in the IEX as stated above.

3.12. That on 31.08.2007, the learned Central Commission passed an order in Petition No. 38 of 2007 granting permission to IEX to set up a power exchange subject to finalization of the power exchange design as well as rules and bye -laws of the power exchange.

3.13. That on 09.06.2008 IEX was granted approval set up and operate a power exchange.

3.14. That on 20.01.2010 the learned Central Commission in the exercise of its powers under Section 66 read with Section 178(2)(y) of the Electricity Act, 2003 notified the CERC (Power Market Regulations, 2010) and as per Regulation 14 thereof IEX was deemed to have been registered under the Power Market Regulations, 2010.

3.15. That on 25.02.2013, the learned Central Commission granted time till 20.01.2014 to the Indian Energy Exchange Limited (IEX) for reduction of appellant's shareholding in IEX to 25% in compliance with the Power Market Regulations, 2010.

3.16. That on 20.12.2013, the appellant filed a Writ Petition being Writ Petition No. 3330 (L) of 2013 under Articles 226 and 227 of the Constitution of India against the order dated 17.12.2013 of the FMC.

3.17. That on 31.12.2013 the IEX filed a Petition being Petition No. 9/MP/2014 before the learned Central Commission seeking extension of time for compliance of Regulation 19 of the Power Market Regulations, 2010 submitting That the appellant is holding 30.14% of the paid up capital in IEX (on fully diluted).

3.18. That the Central Commission in its order dated order dated 03.01.2014 had directed the IEX to inform the Central Commission of the actions being taken by the Board of IEX with regard to Shri Jignesh P. Shah and the shareholding of the appellant in IEX and to place on record the Audit Committee Report for the last three financial years for perusal of the Central Commission in the light of the directions of the FMC to the appellant and Shri Jignesh P. Shah.

3.19. That the respondent IEX filed an affidavit before the learned Central Commission in compliance of its earlier order dated 03.01.2014. The learned Central Commission on 24.01.2014 wrote to the IEX stating That the affidavit of IEX dated 17.01.2014 does not show That the order of the learned Central Commission dated 03.01.2014 had been placed before the Board of IEX as the meeting was held prior to the receipt of this order dated 03.01.2014. The learned Central Commission further directed the Board of IEX to consider its order dated 03.01.2014 and forward its decision to the Central Commission within one week of the receipt of letter dated 24.01.2014.

3.20. That on 30.01.2014 the IEX passed a Board Resolution through circulation resolving That pursuant to the Central Commission's order dated 03.01.2014, the Central Commission's letter dated 24.01.2014, affidavit of IEX dated 17.01.2014 and FMC order and also considering That the appellant has communicated to the Board of IEX vide letter dated 14.01.2014 That the FMC order has been challenged before the Bombay High Court, the IEX Board shall convene a meeting after 07.02.2014 to take a decision on the basis of the outcome of the Writ Petition hearing before the Hon'ble Bombay High Court.

3.21. That the IEX in its affidavit dated 31.01.2014 filed before the Central Commission further informed That the Board of IEX has been awaiting the outcome of next hearing in the Bombay High Court before taking a decision on disinvestment of the appellant's stake in IEX.

3.22. That the appellant vide its letter dated 12.02.2014 informed the IEX That the Writ Petition has been posted for hearing on 28.02.2014 and the hearing in SEBI matter has been postponed to the first week of March.

3.23. That the learned Central Commission, thereafter passed the aforesaid impugned order dated 13.05.2014 which is under challenge before us in the instant Appeal.

3.24. That the IEX vide its affidavit dated 30.05.2014 filed before the Central Commission submitted That two representative Directors of the appellant, namely, Shri Miten Narendra Mehta and Shri Prasant Desai had resigned from the Board of IEX with immediate effect vide their letters dated 19.05.2014. It was further informed to the Central Commission That IEX shall comply with the order of the Central Commission.

3.25. That the Hon'ble Bombay High Court vide its interim order dated 28.02.2014 has refused to grant the stay, as prayed by the appellant, against the order dated 17.12.2013 of the FMC and by observing as follows:

"After having perused the impugned order, we find That elaborate enquiry has been made by the Commission. Findings of fact of serious nature have been recorded against the Petitioners. The fraud perpetrated is to the tune of Rs. 5,500/ - crores. Criminal investigations are in progress. Considering the gravity of the allegations which have been found to be established against the Petitioners, this is not a fit case where prayer for stay can be granted in exercise of writ jurisdiction under Article 226 of the Constitution of India. Accordingly, prayer for interim relief is rejected. Hearing of the Petition is expedited."

(3.)THAT the impugned order dated 13.05.2014 of the learned Central Commission has been challenged on the following grounds: -
"(A) that the Central Commission has directed the appellant to divest its stake in IEX without giving the appellant any notice or opportunity to submit its case in violation of the principles of natural justice.

(B) that the learned Central Commission has, without conducting an independent enquiry, erroneously relied upon the order dated 17.12.2013 of the Forward Markets Commission (FMC) declaring the appellant as 'not fit and proper person' to hold more than 2% shares in Multi Commodity Exchange (MCX).

(C) that the order dated 19.03.2014 of Security Exchange Board of India (SEBI) further declared the appellant to be 'not a fit and proper person' to acquire and hold any shares in a recognized stock exchange or clearing corporation either directly or indirectly.

(D) that the orders of the FMC and SEBI had been arbitrarily applied by the learned Central Commission in violation of the legal rights of the appellant without conducting an independent enquiry.

(E) that the impugned order of the learned Central Commission is contrary to the provisions of CERC (Power Market) Regulations, 2010.

(F) that the learned Central Commission has exercised its inherent powers erroneously and contrary to law."