Sebi to initiate fresh proceedings in NSEL scam

Examining adjudicating and disgorgement provisions for entities

The securities and exchange board of India (SEBI) is going after the guilty in the National Spot Exchange (NSEL) scam in a more concerted way, as the securities market regulator’s merger with the commodities market regulator gets closer to completion.

Sebi is looking to initiate enforcement proceedings against entities involved in the scam, according to sources. People privy to the developments said the regulator had sought a report on Forward Contracts and Regulations Act (FCRA) violations by the entities.

“Once the merger is announced, after September, the regulator may initiate adjudication and disgorgement proceedings against entities found culpable in the NSEL scam,” said a source.

SEBI ON NSEL

• Sebi has sought reports of FCRA violations
• Securities market regulator looking to initiate adjudication and disgorgement proceedings in the NSEL case
• Likely to play a bigger role in booking the guilty after completion of FMC integration
• Legal matters related to NSEL to be tackled by Sebi's legal department
• Fresh action likely in September

On a fresh probe of commodities law violation would continue to be tried under the Forwards Act, but Sebi would have enforcement powers over it.

“A fresh proceeding related to an offence under the Forward Contracts Act may be initiated by the Security Board under that Act within a period of three years from the date on which that Act is repealed and be proceeded with as if that Act had not been repealed,” stated the Finance Act.

 

It is learnt that Sebi has sought a report on the entire NSEL crisis from the regulator, which pinpoints the culpable parties. The Sebi’s legal department would deal with the scam cases in the Bombay High Court. The markets regulator would also coordinate with the Ministry of Corporate Affairs on the merger of NSEL with the parent company Financial Technologies (FTIL).

This will come as a major relief to FMC, according to a source, which faced difficulties in the cases due to personnel issues.  For example, they faced problems to defend the challenge to the ‘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 they did not have the provisions to get legal consultants on board.

 

Sebi would also take up enforcement in the recently completed investigations, pertaining to multi-commodity exchange, United Commodities Exchange.

The regulator would also be required to coordinate with police and other investigative agencies for criminal proceedings with respect to commodities markets in various states.

One would argue that it is only the commodities market that is benefiting from the merger. But Sebi would gain from informer’s network that FMC maintains and allocates a budget for every year, said a source.

Sebi has highlighted the need for action on the market intermediaries. According to sources, there are more than 1,700 audit reports on the commodity market intermediaries pending for the past five years.