WTM/RKA/MRD/09/2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF

EXIT ORDER IN RESPECT OF STOCK EXCHANGE ______1. Mangalore Stock Exchange Limited (hereinafter referred to as "MGSE") is a company limited by guarantee and was recognized as a stock exchange by the Central Government under section 4 of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "SCRA") on September 9, 1985. The said recognition was renewed from time to time under rule 7 of the Securities Contracts (Regulation) Rules, 1957 (hereinafter referred to as "SCRR"). Securities and Exchange Board of India (hereinafter referred to as "SEBI"), vide its order under section 4(4) of SCRA dated August 31, 2004, refused to renew the recognition of MGSE and directed that it shall cease to be a recognized stock exchange. In the appeal filed by MGSE challenging the said order of SEBI Hon’ble Securities Appellate Tribunal vide its order dated October 4, 2006 upheld the order of SEBI. Thus, MGSE is a de-recognised stock exchange as on date.

2. Vide Circular No. MRD/DoP/SE/Cir-36/2008 dated December 29, 2008, SEBI issued Guidelines and laid down the framework for exit by stock exchanges whose recognition is withdrawn and/or renewal of recognition is refused by SEBI and who may want to surrender their recognition. The said Guidelines were reviewed by SEBI and were modified vide Circular No. CIR/MRD/DSA/14/2012 dated May 30, 2012 (hereinafter referred to as "Exit Circular 2012"). This Exit Circular 2012 was also made applicable to stock exchanges that stood de- recognised as on the date of its issuance and such stock exchanges were given two months' time to make an application for exit, failing which such derecognized stock exchanges would be subjected to compulsory exit process. Accordingly, MGSE made an application for its exit on July 30, 2012.

3. In order to complete the exit process of MGSE, on January 8, 2013, SEBI in consultation with MGSE, appointed A. Raghavendra Rao & Associates as valuation agency (hereinafter referred to as “Valuation Agency”), for verification and valuation of assets and liabilities of MGSE. The Valuation Agency submitted its report on February 4, 2013 (hereinafter referred as "the valuation report").

4. I note that as per the Exit Circular 2012, inter alia, the following conditions are required to be complied with by the de-recognised/non-operational stock exchanges seeking exit:

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a) Permission to distribute its assets would be subject to certain conditions laid down in the Exit Circular 2012 as well as other guidelines that may be issued by SEBI, Government or any other statutory body from time to time. b) The quantum of assets for distribution will be available after payment of the following: i. Statutory dues including Income Tax; ii. Transfer of Investor Protection Fund, Investor Services Fund, 1% security deposit available with the stock exchange to SEBI Investor Protection and Education Fund ("IPEF"); iii. The exiting stock exchange shall pay the following dues to SEBI; • Dues outstanding to SEBI including 10% of the listing fee and the annual regulatory fee; • The outstanding registration fees of brokers/trading members of such de- recognised stock exchanges as specified in the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 till the date of such de-recognition; • In case of any shortfall in collection of dues of the brokers to SEBI, the exiting stock exchange will make good the shortfall; iv. Refund of deposit (refundable) to the stock brokers including their initial contribution/ deposit to Settlement Guarantee Fund / Trade Guarantee Fund. c) Contribution of up to 20% of its assets (after tax) to IPEF taking into account, inter alia , the governance standards of the stock exchange and estimation of future liabilities. d) The companies exclusively listed on the exiting stock exchange shall list their securities on any other recognised stock exchange. If such exclusively listed companies fail to obtain listing of any other recognised stock exchange, they will cease to be listed companies and will be moved to the dissemination board by the exiting stock exchange. Such dissemination board would be provided by a stock exchange with nationwide trading terminals. e) The exiting stock exchange shall set aside sufficient funds in order to provide for settlement of any claims, pertaining to pending arbitration cases, arbitration awards, not implemented, if any, liabilities/claims of contingent nature, if any, and unresolved investors complaints/grievances lying with it.

5. MGSE, in order to satisfy compliance of conditions sated in above paragraphs 4(b)(iv), 4(d) and 4(e) above, vide its duly executed undertaking dated July 31, 2013 has undertaken and declared - (a) That it shall pay all the refundable deposits to its members. (b) That there are no exclusively listed companies at MGSE.

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(c) That it shall settle the liabilities and contingent liabilities as stated in the undertaking before disposition of fixed assets and from other assets of MGSE.

6. With regard to other conditions, the MGSE has made following payments to SEBI- (a) Vide Demand draft nos. 748833, 859263, 403273 and 403274 submitted along with letter dated August 28, 2007, MGSE has transferred its Investor Protection Fund to IPEF amounting to ₹20,24,448.50/-. (b) Vide Demand draft no. 3193 submitted along with letter dated August 28, 2007, MGSE has transferred its Investor Services Fund to IPEF amounting to ₹11,59,357.25/- respectively. (c) Vide letter dated June 30, 2008, MGSE informed SEBI that it has transferred 1% Security deposit to SEBI amounting to ₹1,54,671/-. (d) Vide Cheque no. 415425 dated March 14, 2013 MGSE has paid the necessary dues outstanding to SEBI including 10% listing fee contribution to SEBI and the annual regulatory fee for an amount of ₹77,335/-. (e) Vide Demand Draft no. 008848 dated December 16, 2013, MGSE has paid the outstanding registration fees of its brokers to SEBI amounting to ₹32,07,085/- as specified in the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992 till the date of its de-recognition. (f) Vide Demand Draft no. 008858 dated February 7, 2014, MGSE has contributed an amount of ₹10,00,000/- out of its assets (after tax) to IPEF in terms of Paragraph 5.4 of the Exit Circular 2012.

7. I have considered the valuation report, undertakings and the relevant documents available on record for the purpose of considering the case of voluntary exit of MGSE. From the valuation report and undertaking dated July 31, 2013 of MGSE, it is observed that all its known liabilities have been brought out and that there is no future liability that is not known as on date. I note that in terms of clause 6.4 of Exit Circular 2012, the sale, distribution/transfer of assets/winding up of MGSE, shall be subject to the applicable laws in force. I further note that two arbitration cases that were pending with MGSE at the time of its de-recognition in August 2004 were filed by its members against their clients and MGSE has no liabilities in that regard and it has also not received any claim from investors post its de-recognition.

8. The Valuation Agency had reported that there were two companies exclusively listed on MGSE. In this regard, the MGSE, vide its letter dated May 2, 2013 has submitted that these companies are unlisted and has also submitted a status report from a practising Company Secretary to that effect. It is noted that there is no company which is exclusively listed on MGSE. ______Exit Order in respect of Mangalore Stock Exchange Page 3 of 4

9. From the material available on record, I note that MGSE has substantially complied with the conditions contained in the Exit Circular 2012 subject to its above mentioned undertakings. I am, therefore, of the view that it is a fit case for permitting exit of MGSE in terms of the Exit Circular 2012.

10. MGSE vide its e-mail dated December 25, 2013 has submitted that being a non-profit company registered by the Central Government under section 25 of the Companies Act 1956, it desired to revert back to its previous "for profit" in order to pursue other business objectives. In this regard, I note that the registration granted to MGSE under sub section (1) and (3) of section 25 of the Companies Act, 1956 can be revoked only by the Central Government under sub- section (7) thereof read with corresponding provisions of the Companies Act,2013. MGSE may approach appropriate authority in this regard.

11. Considering the above facts and circumstances, I, in exercise of the powers conferred upon me by virtue of section 19 read with sections 11(1) and 11(2)(j) of the Securities and Exchange Board of India Act, 1992 and sections 4, 5 and 12A of the SCRA, allow the exit of Mangalore Stock Exchange as a Stock Exchange and hereby direct it to: a) Comply with its tax obligations under Income Tax Act, 1961; b) Comply with the undertakings given by it to SEBI; c) Comply with other consequential conditions of Exit Circular 2012; and d) Change its name and not to use the expression “Stock Exchange” or any variant of this expression in its name and to avoid any representation of present or past affiliation with stock exchange, in all media.

12. A copy of this order shall be forwarded to the Income Tax Authorities and the State Government of intimating the exit of MGSE and for appropriate action at their end as per applicable laws.

DATE: March 3rd , 2014 RAJEEV KUMAR AGARWAL PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA

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