Home / Market / Stock-market-news /  HC seeks govt, FMC opinion on NSEL’s e-series settlement issue

Mumbai: The Bombay high court on Friday directed commodities market regulator Forward Markets Commission (FMC) and the government to give their opinion by 28 October on the merits of settling the suspended e-series contracts of crisis-hit National Spot Exchange Ltd (NSEL).

A division bench of the Bombay high court, comprising justices S.J. Vazifdar and K.R. Shriram, said it will pass a final order on the matter on 28 October.

The court was hearing a case filed by Tarun Jain and Ketan Shah—two investors of NSEL—who have asked the court to stay the settlement of the gold and silver e-series contracts of the exchange. They both want the e-series settlement to be clubbed with other settlements.

E-series contracts are those in which retail investors can buy and sell commodities in demat form. They involve 33,000 investors and around 525 crore.

On Friday, additional solicitor general K. Setalvad submitted a 6 August communication received by FMC, the commodities futures markets regulator, from the ministry of finance, redirecting FMC to regulate NSEL after the 5,574.35 crore payment crisis at the exchange.

The court had earlier asked the Union government, the ministry of consumer affairs and FMC to name the agency that has the “power to supervise and regulate" NSEL.

Setalvad, who is representing the government, the ministry of finance and FMC in this case, said clubbing of e-series payouts with the paired contracts is “logically incompatible" and may lead to “harassment" of e-series investors. “FMC will now monitor the e-series contract in its entirety. but no final decision has been taken on the payouts as yet," he added.

Till date, FMC has received 65 requests for rematerialization (converting electronic holdings into physical certificate format) for financial payouts in the e-series contracts.

Gaurav Joshi, counsel representing investor Jain, said a report by consulting firm Grant Thornton proves that the settlement guarantee fund was used for e-series contracts. On Friday, NSEL also submitted the supplementary report prepared by Grant Thornton in connection with the crisis.

Earlier, the high court asked FMC and the Economic Offences Wing (EOW) of the Mumbai Police to monitor the books of NSEL and its subsidiary Indian Bullion Market Association (IBMA) to verify each request for settlement received by the exchange under the e-series contracts. The court also prescribed the process of settlement of the contracts.

NSEL holds around 68% stake in IBMA.

Both NSEL and the Multicommodity Exchange of India (MCX) are units of Financial Technologies (India) Ltd, or FTIL, a company promoted by entrepreneur Jignesh Shah.

In a related development, FTIL said its director Chandrakant Kamdar had resigned from the board, without specifying a reason. In a statement after market hours on Friday, the company also announced it had appointed A. Nagarajan as additional director, adding he would be a non-executive and independent director.

FTIL owns 99.99% of NSEL.

Earlier in the day, EOW began questioning Shah, chairman and managing director of FTIL, for a second time in connection with the payment crisis at NSEL.

Himanshu Roy, Joint commissioner of the Mumbai Police, said former NSEL chief executive officer and managing director Anjani Sinha and Shah were cross-examined in each other’s presence and “the confrontation has given us a better idea of who are beneficiaries, how were the borrowers selected by NSEL".

Sinha, according to Roy, has blamed Shah for the payment crisis at the commodity spot exchange.

Roy, in a press briefing, said NSEL was lending arbitrarily to companies. For instance, Amit Mukherjee—an NSEL official who is currently in police custody—used to approach banks for their non-performing asset list for possible customers, said Roy.

“My heart is with the investors. The EOW is investigating the matter and law will take its own course," Shah said. “The main aim is to protect the interest of the investors."

The settlement crisis at NSEL came to light on 31 July, when the exchange abruptly suspended trading in all but its e-series contracts. These were suspended a week later. The closure of trading may have been prompted by an instruction from the ministry of consumer affairs to the exchange asking it not to offer futures contracts.

A spot exchange isn’t supposed to do so, but NSEL was doing that.

NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading and investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.

On 14 August, NSEL proposed a payout plan, but it has been unable to stick to the schedule.

Sunil B.S. and Ami Shah contributed to this story.

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