HC asks govt, FMC if they regulate NSEL

DPs body may intervene in favour of NSEL e-series investors

In a case relating to e-series investors of the crisis ridden NSEL, the division bench of the Mumbai High has asked the ministry of consumer affairs and the forward markets commission (FMC) to confirm by Friday whether they have powers to regulate NSEL. The court’s observation came in a case filed by Tarun Amarchand Jain HUF and Ashish Seth HUF pleading to distribute the e-series investors’ assets money to all the non-eseries investors also.

É-series investors have purchased commodities on the NSEL platform by paying full money and received the delivery in demat form. Interestingly delivery slips used to be issued by the depository participants (DP) to the investors and these DPs are registered with two depositories which are regulated by the Securities and Exchange Board of India (Sebi). Association of DPs, is also considering to be party to the case.

Since depositories and hence DPs are regulated by the sebi, FMC doesn't have a role to play in e-series. Even in this case, FMC has taken a view that they have been given to powers to oversee settlement of contracts that were not settled and e-series contracts are settled and hence it (FMC) has no role in this case.

N C Maheshwari, president of the association said that, “we are contemplating to file a response as an inventing part and we will decide soon on this.” The process of demat is such that through DPs’ title of the property/asset (here demated commodities purchased by the e-series investors) is passed on to the buyer. In such a case other investors as pleaded by the petition can not claim right. The DP Association will however have to finalise its view on filing response before 25 october.

During the hearing of the petition, the regulatory vacuum for trading in the scam hit National Spot Exchange Ltd (NSEL) took an interesting debate in the Bombay High Court on Monday with the division bench headed by Justice Wajifdar repeatedly asked government counsels as to who regulates this exchange.

Hearing the case jointly filed by Tarun Amarchand Jain HUF and Ashish Seth HUF on Monday, the judges justice S J Wajifdar and justice K R Shriram remarked, “The company was formed, a business platform was created. Someone must have granted permission. And hence, there should be someone who could be regulating that.”

The petition seeks immediate halt of re-materialization and delivery of the bullion to e-series investors and monetizing of the same for equal distribution among all non-eseries investors also.

The government counsels were clueless on the judges’ remark. Counsels argued that the Ministry of Consumer Affairs through a notification few years ago only granted exemptions to the NSEL under the Forward Contract Regulation Act (FCRA) which oversees futures and forward trading in commodities. The notification in this regards clearly states that NSEL has been granted exemptions with certain conditions including disallowing “short selling”.

Since, the exemption was granted under the FCRA which entrust regulatory power to the Forward Markets Commission (FMC). Hence, FMC should be the only regulator, a petitioner’s counsel argued.

“How can a company was allowed to conduct business without have a regulator to monitor it? We have been asking this question since the beginning of the hearing in this case,” the bench had observed.

The bench also ordered Brinks Arya to avail a copy of the audit report for easy referring of the stocks movement of bullion under the e-series contract.

The case alongiwth the public interest litigation filed by Kirit Somaiya is scheduled for hearing again on Friday.