Reply to show cause notice in 3 weeks: Sebi to Motilal Oswal on NSEL scam

The investigation relates to the Rs 56 bn payment default which broke out at the spot commodity trading platform NSEL in 2013

Markets regulator Securities and Exchange Board of India (Sebi) has ordered commodity broking firm Motilal Oswal Commodities Broker, an arm of India's leading equity broking and financial services firm Motilal Oswal Securities Ltd, to reply in three weeks to the regulator's show cause notice in the Rs 56 billion payment default at National Spot Exchange Ltd (NSEL).

In a late Monday-evening order, Sebi has asked Motilal Oswal Commodities Broker to appear for a personal hearing on September 27 at the regulator’s headquarters. The show cause notice was issued to Motilal Oswal Commodities Broker in April 2017 in connection with NSEL scam. Since then, however, Motilal Oswal Commodities has not filed its reply to Sebi.

In an 18-page order, Sebi said, “If the noticee (Motilal Oswal) opts not to submit a reply on merits or appear for the personal hearing on merits on the scheduled date or do both, then, in the interest of justice and to avoid any further delay in bringing the present quasi-judicial proceedings to its logical conclusion, the proceedings on merits shall proceed ex parte on the basis of material available with Sebi”.

The investigation relates to the Rs 56 billion payment default which broke out at the spot commodity trading platform NSEL in 2013 in which broking firms like Motilal Oswal Commodities Broker are alleged to have involved in misselling of NSEL contracts without having underlying commodities in the warehouses.

Following the payment default at NSEL, a number of government agencies including Economic Offences Wing of the Mumbai Police, Ministry of Corporate Affair and Sebi among others.

Earlier, on August 30, Sebi had directed Geofin Comtrade and Anand Rathi Commodities to file their respective replies to the regulator’s show-cause notices within three weeks, also issued in April 2017. It also had given India Infoline Commodities two weeks to file its reply and Phillip Commodities four weeks. These commodity booking firms are also members of national commodity exchanges including MCX and NCDEX. An action against these brokers could have a wider impact on commodity markets.

Erstwhile commodity markets regular Forward Markets Commission (FMC) had ordered NSEL promoter and its leading officials "unfit and improper" in the NSEL case.