SEBI appoints panel to resolve NSEL fiasco
The Security and Exchange Bureau of India has appointed a three member panel to deliver a verdict on the probe into the 2013 NSEL scam. An inside source said the investigations had concluded and was "referred to the adjudication department for inquiry and penal proceedings under section 11(B) of SEBI Act." The action against NSEl could include a monetary penalty or suspension of license.
National Spot Exchange Limited (NSEL), established in 2005, is the largest spot exchange in India. Headquartered in Mumbai, the exchange is a marketplace that allows buying and selling of commodities such as sugar, rice, steel, copper etc. NSEL is 99.99% owned by FTIL which is controlled by entrepreneur Jignesh Shah. It got mired in a Rs.5,600 crore commodity scam that surfaced in Jul'13.
NSEL allowed traders to settle a trade between 11-36 days which enabled traders to re-trade without taking delivery of the commodity. However, in other spot exchanges, delivery of commodity for every contract is necessary. Due to this sort of 'futures trading' at NSEL based on the warehouse receipts for commodities that did not exist in warehouses, NSEL failed to settle its obligations to investors.
The NSEL defaulted a payment of around Rs.5,600 crore which impacted 13,000 investors. As a result of the fraud, trading was stopped on NSEL in Jul'13.
The government resorted to the merger of NSEL with its parent entity FTIL in "public interest". The merger was recommended by the market regulator Forward Markets Commission, and was backed by investors. The merger, to be undertaken under section 396 of the Companies Act, 1956, would make FTIL responsible for all liabilities of the NSEL, which currently stands at Rs.5,269 crore.
The economic offenses investigating agency, the Enforcement Directorate (ED), had opposed the merger of NSEL and FTIL. The ED said the merger might obstruct the investigation and prosecution of those accused in the Rs.5,600 crore fraud. While some saw it as a move by the revenue department to help Jignesh Shah, the government has completely refuted the charges.
The government had invited comments from concerned entities in the NSEL-FTIL merger. However, the government had found that 96% of the comments were "orchestrated and concerted". It added that the language and style of emails were almost similar and the emails were sent in bulk from email addresses created by FTIL. FTIL had vehemently opposed the merger and termed it as "highly disappointing".
After months of waiting, the orders for merging the National Spot Exchange Limited (NSEL) and Financial Technologies India Ltd. (FTIL) was finally announced by the Ministry of Corporate Affairs. The government said that the merger was done in "public interest" so as to enable FTIL to subsume liabilities of the fraud-hit NSEL. FTIL, however, said that it would challenge the merger in the court.
FTIL opposed the "forced" merger and questioned the "public interest", as just 6% of the traders held "66% of the entire outstanding amount". However, NSEL investors have welcomed the decision, the liabilities of refunding the investors will fall on FTIL. Market experts have also supported the merger as NSEL was a wholly owned subsidiary of FTIL and responsibility should fall on FTIL.