NSEL Defaulters and Defaulting Brokers

On July 31^st, 2013 the Rs.5600crore National Spot Exchange Ltd. (NSEL) crisis surfaced. The matter came under scanner of multiple agencies since then. Exchange was forced to shut down and suspend all its trading contracts.  After the payment crisis Regulatory Body, Investigating Agencies and NSEL had declared 24 members as NSEL Defaulters.

Brokerage firms involved in the NSEL crisis were also under the observation due to their fraudulent behavior. It came into light that some of the brokers gave promise of assured returns to the trading clients, which turned out to be wrong resulting into crisis. Corporate Affairs Ministry and other agencies including Enforcement Directorate (ED) have been investigating the defaulting brokers in the Rs.5600crore NSEL crisis case. SEBI was also been asked by government to take necessary action against these defaulting brokers.

Mr.Arun Jaitely the Finance Minister had told Lok Sabha that other than Corporate affairs Ministry Economic Offences Wing (EOW) and ED are also investigating the NSEL matter. EOW had attached properties of the accused worth Rs5757crore (approx.) and Rs.1222.89crore, 32 common properties had been attached by ED of Rs.740crore (approx.). Arun Jaitely in a written reply to Lok Sabha had said that SEBI is directed to examine and take necessary actions against defaulting brokers.

 In case of brokers various agencies are investigating into their role. It is proven in the audit report that defaulting brokerage firms named Anand Rathi Commodities, Geofin Comtrade, Motilal Oswal Commodities, India Infoline Commodities and Philip Commodities are guilty. SEBI with EOW and ED is investigating the role if these brokers in NSEL crisis Case.

SEBI the hope for NSEL crisis

SEBI the market regulator will be pursuing the guilty parties in the NSEL crisis with more determination, as the securities market regulator’s merger with the commodities market regulator was getting closer to completion, as decided by Government. It was said that SEBI was looking to begin enforcement measures against entities involved in the case. They would also initiate adjudication & disgorgement proceedings against guilty entities in the crisis if necessary.  SEBI was then likely to play a bigger role after completion of FMC integration. Legal matters related to NSEL too would be handled by SEBI’s legal department. Latest action was expected soon.

It was said that SEBI has sought a report on the entire NSEL crisis from the regulator. A popular question that was floating at the time was as to why was SEBI now been given charge of the guilty in the NSEL crisis? Was FMC not able to take a call on the crisis even though they had the powers to do so? It’s had been a substantially long time since FMC has been sitting on the NSEL matter. The guilty are still at liberty with all their assets still not discharged. It has also come to light after a fresh probe that commodities law violation would continue to be tried under the Forwards Act, however SEBI would have to enforcement powers over them.

This had come as a major relief to FMC, as sources say they were facing difficulties in the NSEL cases due to personnel issues.  For example, they were facing problems to defend the challenge of ‘fit & proper’ against FTIL due to lack of in-house legal department. FMC on many occasions had to rely on outside help on the legal matters. But, unfortunately did not have the provisions to get legal consultants on board.

Hopefully now since SEBI is going after the guilty in the crisis hit NSEL, we can hope this matter will take a worthy turn, relieving the innocent and taking appropriate actions against the guilty.

Evidences point out NSEL Defaulters

National Spot Exchange Ltd. (NSEL) came into focus when the crisis surfaced in the year of 2013. Since then various agencies are investigating the case. Exchange platform was shut down immediately and enforced to stop all its trading contracts. After the payment crisis Regulatory Body, Investigating Agencies and NSEL had declared 24 members as NSEL Defaulters.

Defaulters are the borrowers. The defaulters who are accountable for the NSEL payment crisis are N.K.  Proteins, Mohan Group, LOIL Group, Ark Imports Pvt Ltd, PD Agroprocessors Pvt Ltd, Yathuri Associates, Lotus Refineries Pvt Ltd, Aastha Group, Metkore Alloys & Industries Ltd, Swastik Overseas Corporation, White Water Foods Pvt Ltd, Namdhari Group, NCS Sugars Ltd, Spin-Cot Textiles Pvt Ltd, Vimladevi Agrotech Ltd, Shree Radhey Trading Co and MSR Food Processing.

All the officials who are investigating the NSEL case have the money trail traced to all these defaulters. It states clearly that defaulters have all the money laundered in NSEL case and it is siphoned to middle east where defaulters own assets in forms of properties and lands. Even after three years after the NSEL crisis the defaulters who have 100% of the traders’ amount are still roaming free. The defaulters diverted trading clients’ money into parallel businesses instead of returning the outstanding dues. The defaulters cheated the trading clients by hypothecating stocks to banks, investing the default amount in purchasing benami properties and also slowed down the recovery process by making it difficult. All the evidences point out to the defaulters.

On August 12, 2013, FMC in its letter had stated that there was a possibility that the defaulters have violated the Prevention of Money Laundering Act (PMLA). The Honble’ Bombay City Civil Court, vide its order has observed that it appears the persons responsible for default in payments are the defaulters where all the trading clients are targeting NSEL and FTIL.

Brokers at Fault

In the National Spot Exchange Ltd. (NSEL) crisis case trading clients had earlier complained about brokers alleging that they were involved in different fraudulent activities in regards to trading on the NSEL platform. Hence it was not surprising that the trading clients have now filed different cases against top five brokers for mis-selling and assuring them to invest in agriculture commodities.

It is in context with the Enforcement Directorate’s (ED) process of top officials of broking firms to establish their role in the 5,600 crore settlement crisis which broke out in July 2013. Some broking firms had considerably high exposure in NSEL. Among them were Anand Rathi with a 629 crore exposure, India Infoline Commodities with 326 crore exposure and Motilal Oswal Commodities with a 263 crore exposure. Phillip Commodities and JM Financial are both with a 140 crore and 90 crore exposure respectively. SEBI has also launched a probe into alleged mis-selling of products by some brokers with the assured returns from commodities traded on the NSEL and is looking into various complaints against brokers, including false assurances, inducements and parody, trading without proper authority from clients, misuse or illegal modification of unique client code, funding by NBFCs related to the brokers and non-receipt of payouts by clients.

Trading clients have filed recuperation cases in the Bombay High Court against Anand Rathi, India Infoline Commodities, Motilal Oswal Commodities and Phillip Commodities. Only time will tell if these trading clients will get justice in legal system or not. We can hope that they will receive justice in the least possible time, by putting full-stop to their long awaited suffering.