BackNSEL says FMC has given no-objection for re-mat of e-series contracts
FMC observes 'the forensic auditors' report by Chokshi and Chokshi has not brought out any adverse finding with specific reference to e-series contracts
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Mumbai: National Spot Exchange Ltd (NSEL) on Thursday said Forward Markets Commission (FMC) has given its “no-objection" for so-called re-materialization or financial close-out of its e-series contracts.
The commodity exchange is engulfed in a Rs5,574.35-crore payments crisis.
FMC, the commodities market regulator, observed that “the forensic auditors’ report by M/S Chokshi and Chokshi, Chartered Accountants has not brought out any adverse finding with specific reference to the e-series contracts on the basis of which prima facie any adverse inference can be drawn about the bonafide of the e-series contracts which are already settled and only pending for re-materialization / financial closure by the NSEL," the commodity exchange said in a statement.
The e-series contracts are those in which retail investors can buy and sell commodities in de-materialized form. At NSEL, these involved 33,000 investors and around Rs525 crore. The re-materialization refers to the process of converting electronic holdings into paper certificates.
“In view of the foregoing and to protect the interest of over 33,000 e-series investors, the commission has no-objection to re-materialization/financial closure of the e-series contracts," NSEL cited FMC as saying in its communication to the exchange.
NSEL is 99.99%-owned by Financial Technologies (India) Ltd (FTIL).
In the copy of the communication sent to Mint by FTIL, the regulator said that since no separate bank accounts were maintained for e-series contracts and the paired contracts and as no separate entries had appeared in the bank statement for e-series contracts, it was not possible to identify the pay-in/pay-out specifically for e-series contracts from such payments.
The regulator also told NSEL that although various procedural lapses were observed in engaging the Indian Bullion Market Association (IBMA) as the authorized dealer and in maintaining records, physical stock of the metal matched with the stock data of custodians/depositories.
It added that since there was no default in pay-in on e-series contracts, it could not be established that the settlement guarantee fund was utilized for the settlement of e-series contracts. NSEL owns a 60.88% stake in IBMA. A phone call to FMC chairman Ramesh Abhishek was not answered.
Mint had reviewed the order of Chokshi and Chokshi’s forensic audit report in February, which showed that IBMA carried out circular trades of its e-series contracts to show “substantial turnover and volumes" at the commodity spot exchange.
“These trades were executed at the same price, which neither resulted in any profit/loss to IBMA, but has an effect of indicating a high daily turnover and traded volumes on the exchange platform," Chokshi and Chokshi had said in their audit report.
On 28 October, the Bombay high court had asked FMC to get a forensic audit of the e-series contracts by an independently appointed auditor before any contracts were settled, while hearing a case filed by Tarun Jain and Ketan Shah—two investors of NSEL—who had asked the court to stay the settlement of the gold and silver e-series contracts of the exchange. They wanted the e-series settlement to be clubbed with other settlements. “We will move the high court in a day or two against FMC’s permission to NSEL that allows re-materialization," said Shah.
In a separate statement, NSEL said Assistant Excise and Taxation Commissioner (AETC), Ludhiana-2 has directed HDFC Bank Ltd to unfreeze the bank accounts of IBMA. The AETC letter dated 10 February, directing the unfreezing of IBMA’s bank accounts, was communicated to HDFC Bank on Wednesday.
IBMA’s accounts were frozen after the AETC’s directions to HDFC Bank on 30 October relating to an erroneous additional demand created though an assessment order dated 3 April, which was communicated on 13 August.
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