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Two years after a payment crisis at National Spot Exchange Limited (NSEL), India's first spot commodity exchange, broke out in 2013, the issue continues to be mired in controversy. After NSEL suspended trading on July 31, 2013, following a government diktat, there was a Rs 5,600-crore payment default by borrowers of funds against pledging of commodities. In these two years, only about 10 per cent of the dues have been cleared. The parties concerned have been engaged in a seemingly endless blame game.
While legal advisors and professionals are making money, those who raised funds using the NSEL platform and defaulted on payments seem to be exploiting the loopholes in India's slow-moving legal system. The judiciary is yet to assess who was at fault.
According to FTIL's results for FY15, it spent Rs 100 crore towards legal and professional fees in FY 15.
FTIL proposed two settlements, which were not accepted. In what could be the first real step in the direction of recovery, the Bombay High Court has passed decrees involving Rs 1,233 crore worth of assets, to be liquidated through auction. Law enforcement agencies will have to provide support to ensure these are sold. This is required more because of the borrowers' approach so far. NSEL has also obtained injunction in the case of 12 borrowers' properties, valued at Rs 3,055 crore.
Last year, the Forward Markets Commission (FMC) had proposed merging NSEL with FTIL, as the formers did not have any wherewithal to recover money from borrowers. However, NSEL fought and the decrees were passed by the high court in response to this. But this did not satisfy the investors who had lost money. Arun Dalmiya, secretary, NSEL Investors' Forum, says: "We want our hard-earned money back. Several families are still suffering from their losses in NSEL. The case is crystal-clear but the parties concerned are delaying justice to investors by pointing out legal procedure issues."
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NSEL RESPONSE NSEL has sent the following response to the queries sent by Business Standard |
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Legal tangle
The economic offences wing of the Mumbai Police has attached properties worth Rs 6,000 crore; these include the assets of NSEL directors. All of these are at stake because applicability of the Maharashtra Protection of Interest of Depositors Act - under which the police registered the NSEL case and attached all properties - has been challenged in one of the cases. Hearing has been completed and the court could pronounce its verdict soon.
The argument was that NSEL investors were not investors but they buyers of commodities, for which they made payments. VAT was paid, and profits were shown in books of account as business income. So, they could not be called investors. If the court accepts this, all attachment of properties could be termed illegal. Investor associations are prepared to continue with this battle, even if it means moving the Supreme Court.
FMC had issued an order declaring FTIL and others 'not fit and proper'. Based on that, all regulators declared FTIL not fit and the company had to sell most of its assets. It raised Rs 2,000 crore from sale of these assets; more money is to come when the remaining companies or its stakes in those are sold. However, a case challenging FMC's 'fit and proper' order is not yet adjudicated and remains pending in the high court.
On the basis of FMC's recommendation, the corporate affairs ministry had last year moved to supersede the FTIL board and merge NSEL with FTIL. The cases related to this are pending, as the ministry was asked by the high court to hear all concerned before passing an order - it received 19,000 representations; the ministry is still studying those. Another case is pending with the Company Law Board. The issue remains whether such a merger can be done when NSEL was a limited liability company and regulatory actions challenged by FTIL, the promoter of NSEL, are yet not adjudicated.
There were 13,000 NSEL investors, all of whom dealt with the bourse through their respective brokers. Brokers are facing charges of mis-selling and trading on investor accounts without their permission or knowledge. The Mumbai Police has conducted forensic audits of all major brokers. But neither is the audit report in public domain, nor is the police sharing it with other authorities. The commodity regulator has sent several requests to the economic offences wing for taking follow-up actions but hasn't been able to procure the report.
There are no answers on whether mis-selling could be considered a crime. Brokers are facing the charge of having dummy clients to trade on NSEL and doing margin funding. If this is proved, those who used margin funding would not be called investors. These are some of the other legal issues yet to be sorted.
| NSEL CRISIS AT A GLANCE |
Source: NSEL |
