Don't look to us for action, Sebi tells NSEL investors

Explains the erstwhile FMC, whose powers it has since taken over, had no regulatory jurisdiction in the matter

Despite being aware of the several lapses at the National Spot Exchange (NSEL), the capital markets watchdog, Securities and Exchange Board of India (Sebi), could not intervene in the matter as the commodity spot market did not come under its jurisdiction, the regulator clarified in a letter to NSEL investors.

The market regulator specified its role and restrictions in response to complaints registered by NSEL investors on the Prime Minister's Office (PMO) portal.

Sebi in a letter to NSEL investors dated June 14, said: “Investor grievances pertaining to the NSEL matter are beyond (our) regulatory domain.”

However, Sebi said, it would support the committee set up by the high court here for recovery of the dues. Also, “will respond to agencies investigating the case and ensure representation in the meetings within the government for reviewing progress in the matter,” wrote Sebi in the letter, where it referred to the Union finance ministry’s directive on the role of the regulator in the case.

It has been clarified, it stated, that as commodity spot markets/ready delivery contracts were not regulated by the erstwhile Forward Markets Commission (FMC), Sebi was not expected to take up any regulatory function with regard to such markets.

When the scam was exposed in 2013, the Union consumer affairs ministry argued FMC had powers to take action. The issue has been raised and discussed in various regulatory committees, which advised the gap be addressed, as FMC did not have the mandate to control or regulate NSEL and other spot exchanges. “Sebi has no regulatory jurisdiction over spot delivery contracts in commodities even after the merger with FMC, as it did not come under the latter’s purview, which was regulating only forward contracts,” said a legal expert, on condition of anonymity.

“Since FMC itself had no regulatory jurisdiction over the commodity spot and ready delivery contracts, Sebi cannot assume a jurisdiction which was absent in the first place. Accordingly, Sebi in terms of the Finance Act, 2015, shall not be in a position to grant relief to NSEL investors by acting independently against the errant counter-parties but can only assist the courts/agencies appointed in the matter and represent matters wherein FMC was involved in any capacity,” said Tejesh Chitlangi, partner of IC Legal, a Mumbai-based law firm.

The regulator is defending the interest of FMC in all existing proceedings pending against the latter in various courts of law, said Sebi in its letter. The NSEL matter came to light on July 31, 2013, when the erstwhile exchange failed to pay its 13,000 investors in commodity pair contracts. Investors lost a combined Rs 5,600 crore, as it was found NSEL had neither the money nor the stocks to pay them back. This followed the consumer affairs ministry directive not to issue fresh contracts that crossed the 11-day timeline, which were in violation of the norms.