NSEL declares 9 borrowers defaulters

These 9 members have to pay Rs 2,892 crore to NSEL out of total Rs 5,574 crore

The crisis-ridden National Spot Exchange Ltd late on Thursday night declared nine of its borrowers as defaulters.

Now, details could emerge on how much stock lies in the warehouses of these defaulter-members.

On Friday, the NSEL recommended three agencies — Grant Thornton, Deloitte and Ernst & Young — to the Forward Markets Commission (FMC) to do the forensic audit of the exchange’s books. The commodity futures market regulator is likely to select one.

The defaulter listing was the first important decision taken by P R Ramesh after taking over as the officer on special duty, with powers of a chief executive officer. The nine members listed as defaulters would have to pay Rs 2,892 crore to the NSEL, of the Rs 5,574-crore dues.

Three days earlier, the FMC had asked the NSEL to declare those who’d failed to pay as defaulters.

In another development, the NSEL Investors Forum on Friday asked Economic Affairs Secretary Arvind Mayaram to ensure the finance ministry took action. However, Mayaram said the ministry did not have powers over the NSEL or the FMC. He said he would send the forum’s grievances to Consumer Affairs Secretary Pankaj Agarwal; that department oversees the FMC.

After the meeting, forum president S K Saraf said finance ministry officials promised action. He said the association would wait for the government to act before exploring a legal option. Saraf said the crisis in NSEL was likely to spill over to other exchanges.

Later in the day, the investors forum met Agarwal. Officials said the consumer affairs department has assured the investors the government was doing everything possible to recover their dues.

Friday also saw four parties making payment of Rs 8.10 crore to the NSEL, putting this week's collection at Rs 8.5 crore, according to the exchange’s announcement. The exchange had only collected about Rs 40 lakh till Thursday.

The defaulter list announced on Friday had NK Proteins and ARK Imports. The exchange has classified the former as an entity that would have to sell its assets to pay dues. Another such defaulter, Lotus Refineries, had disputed the exchange’s claim of dues of Rs 252.6 crore.

According to the exchange’s bylaws, defaulters would have to hand over their books, documents, papers, assets, cheque books and other documents to the authority assigned the recovery work. Commodities, securities and bank guarantees of a defaulter with the exchange would vest with the relevant authority. The exchange can seize all the assets, stocks and bank accounts of these defaulters.

However, the process of selling and encashing the assets could be a time-consuming process. Some, like Lotus Refineries, would dispute the exchange’s claims. Hence, long legal battles are likely. Legal experts said if the assets found were not enough to recover the dues, then arbitration could begin.

FMC had told the exchange to auction the commodities in NSEL’s accredited warehouses. The regulator had also given an in-principle approval to the exchange to liquidate all possible assets of the defaulter to meet the pay-in obligations. The proceeds would be put in an escrow account.