The capital market watchdog has also observed that activities of DSE were "carried out in a manner contrary to the interest of the investors."
"...hereby withdraw the recognition granted to Delhi Stock Exchange," Sebi Whole Time Member Prashant Saran said in a 19-page order.
The regulator will take all necessary steps consequential to the derecognition.
"I note that serious irregularities have been found in the functioning of DSE at the time when DSE was taking steps for demutualisation," Saran said.
"It is seen that for completing the demutualisation process the erstwhile board of DSE had overlooked the due transfer of shares in the demat accounts and receipt of the funds by the 'appointed date'," he added.
Further, DSE acted in a irregular manner in case of "releasing the funds to the merchant banker, without receipt of the application money, allotment of shares to media company and in turn awarding them media contract etc, without any corresponding utilisation of media space."
Among others, Sebi rules pertaining to demutualisation requires every stock exchange to sell brokers' 51 per cent equity to separate their trading and ownership rights.
Present governing board of DSE admitted that a false certificate of completion of demutualisation process has been submitted by the erstwhile management of the exchange.
"It is seen that the present management, even after getting to know about the irregularities committed by the erstwhile management, has not initiated any action," the Securities and Exchange Board of India (Sebi) said.
"From the same, it can be concluded that DSE had failed to complete the demutualisation process before the 'appointed date," Sebi said
Therefore, the recognition granted to DSE was withdrawn, it added.

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