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.

Tax notice sent to Trading Clients ofn NSEL case

In 2013 when National Spot Exchange came into light for the crisis there were 13K trading clients who lost their money. Few days back Income Tax Department had sent tax notices to some of the trading clients and entities involved in the National Spot Exchange Limited (NSEL) crisis. Since then the case is being investigated by several agencies. Exchange was forced to suspend all its trading contracts.  After the payment crisis Regulatory Body, Investigating Agencies and NSEL had declared 24 members as NSEL Defaulters.

The trading clients and entities who lent them finance to trade on the currently invalid NSEL received notices from tax authorities. 13000 trading clients lost their money. Some to these trading clients have received notices from the income tax department. Income tax department has issued notice seeking details, other than source of funds, investment made in NSEL and bad debt claimed during assessment year 2014-15 and 2015-16. The trading clients are upset over the notices and are considering same as troubling.

Securities and Exchange Board of India (SEBI), Enforcement Directorate (ED), and Economic Offences Wing (EOW) are investigating the matters of NSEL with several other agencies. Leading Broking Firms are investigated by these agencies. They are also interrogating some of the top officials of these broking firms. Brokers, trading clients and entities everyone’s role needs to be probed to carry out an investigation in the NSEL case. Government is also investigating NSEL crisis case in detail and role of everyone involved.

Real Face of NSEL Brokers

Since NSEL crisis came to light there has been series of events where, FTIL the parent company of NSEL is questioned. The defaulters and brokers are sidelined when the money trail of the defaulting amount of 5600 Cr. is traced to the defaulters. Since 2013 when the crisis came to knowledge there has been a needle of doubt on brokers as they fraudulently used details of investors for NSEL platform.

Securities and Exchange Board of India (SEBI) the market regulator has launched a probe against brokers for the act of selling goods with assured returns of 16% and misleading the investors. This is altogether new turn into the NSEL proceedings as this probe has fresh evidences against brokers. According to the sources there are six leading brokers involved.

Accounts of brokers that sold NSEL schemes are also being investigated. It is suspected that these brokers conducted selling of products of NSEL with promise of assured returns. There is also possibility of involment of black money diverted to sister concerns. Apart from SEBI, a high-level committee constituted by the Bombay High Court and other probe agencies are also investigating the matter. 

It is stated that the committee as also other regulators and investigative agencies have found major differences in the data and details submitted by various investors as part of their claims, as against the data submitted by NSEL. These discrepancies include submission of wrong PANs (Permanent Account Numbers), raising doubt about source of funds, while authorisation letters and trade execution documents submitted by brokers have also been questioned. There are also cases of some brokers that they created fake ledger accounts in the name of their clients without their knowledge, sources said. Complaints against brokers include false assurances, enticement and falsification by brokers, trading without right authority from clients, misuse or unauthorised modification of unique client code, funding by NBFCs related to the broker and non-receipt of payouts by clients.