India's appeals tribunal on Monday set aside a ruling by the markets regulator against the National Stock Exchange (NSE), the country's largest stock exchange, in a colocation case of 2019, according to an order published on the tribunal's website.
The tribunal ordered the NSE to pay the ₹1-billion ($12.3 million) penalty for system lapses but set aside a disgorgement of nearly ₹11 billion rupees for illegal gains levied by the Securities and Exchange Board of India (SEBI).
"Even though (the) NSE has not indulged in any unethical act or has unjustly enriched itself, the direction to disgorge, in our opinion, cannot be sustained," the Securities Appellate Tribunal (SAT) said in its order.
"However, the NSE has not adhered to its own norms and guidelines," it added.
Officials at the NSE and SEBI did not immediately respond to Reuters' request for comment.
In 2019, SEBI passed a series of orders against the NSE and its former chief executives, Chitra Ramkrishna and Ravi Narain, alleging the exchange did not exercise due diligence when putting in place a network, which allowed high-frequency traders unfair access to some network servers at the exchange.
SEBI had ordered the NSE to deposit nearly ₹11 billion, including interest, in an investor fund and barred it from raising money on the securities market directly or indirectly for six months.
It had also asked Mr. Narain and Ms. Ramkrishna to return 25% of the salaries they had received during the relevant period.
The SAT also set aside the disgorgement against Ramkrishna and Narain and reduced their ban from the capital market to time already served.
SEBI had, in its order, said it found NSE systems at fault and gave preferential access to select brokers when they accessed its high-speed algorithmic trading platform and colocation facility.
The SAT said SEBI did not investigate the charges seriously enough.
"We must observe that when serious allegations were made against a first-level regulator, namely, NSE, SEBI should have been proactive and should have conducted the investigation seriously," said the SAT in the order.
"We find that SEBI had adopted a slow approach and, in fact, was placing a protective cover over NSE's alleged misdeeds."