Submit names of brokers involved in NSEL scam in sealed cover: HC to Sebi

Sebi had informed the Madras HC that action was being taken against 300 brokers involved in the NSEL scam and their names could not be made public as it would impact markets

The Madras High Court has asked the Securities and Exchange Board of India (Sebi) to submit the names of the 300 brokers against whom the regulator has taken action related to the alleged Rs 56-billion National Spot Exchange Ltd (NSEL) scam in a sealed cover.   

The direction was related to a petition filed by an individual, L Palpandi, seeking action against the brokers, according to senior counsel P Wilson, who appeared on behalf of the petitioner.

When the petition came up for hearing on Monday, the markets regulator informed the court that action was being taken against the 300 brokers who were involved in the NSEL scam and that their names could not be made public as it would impact the stock market.  
 

The Division Bench of the Madras High Court, Madurai Bench, comprising Justice KK Sasidharan and Justice Adhikesavalu, was hearing the matter. 

Wilson submitted that neither Sebi nor the Ministry of Corporate Affairs has taken action against the brokers, named in a Grand Thornton report, who were involved in syphoning off billions of rupees. He submitted that while NSE was amalgamated with the promoter company, Financial Technologies (FTIL), since renamed 63moons, by the ministry, no action was initiated against the brokers involved in the scam. 
 

After hearing the arguments and taking note of the counter affidavit by the ministry, the Division Bench directed Sebi to give it the names of the 300 concerned brokers in a sealed cover. The Bench also directed the markets regulator to file an affidavit about the latter's compliance to an earlier order, dated July 2, 2018.   

The Bench posted the Writ and Contempt petitions for hearing on December 10, 2018, said the senior counsel.   

He had recalled earlier in court that the misuse of NSEL in the 2009-2013 period was ordered to be probed in an audit by consultants Grant Thornton. This was ordered by the erstwhile Forward Markets Commission (FMC), since merged into Sebi. The wrongdoing was confirmed, with 24 brokers being named; a number of other unnamed brokers were also found to have benefited. The court had on July 2 expressed concern on the issue and directed Sebi and the ministry to consider the petitioner's representation and make appropriate orders within six weeks.

In an order of last week, the ministry said that based on the audit by Grant Thornton, examined by the FMC in its order on December 17, 2013, it had been decided to amalgamate NSEL and FTIL and to take over the management of FTIL. The FMC has not made any other recommendation to the ministry, which had separately on October 28, 2016, directed an investigation by the Serious Fraud Investigation Office (SFIO) into the affairs of 20 group companies of the erstwhile FTIL. And, to examine the role of brokers involved in the payment crisis at the exchange.

"The report dated September 9, 2018, of the SFIO has been examined and instructions issued to it to file appropriate prosecutions/proceedings," goes the ministry's order. The ministry contends that as the central government is taking action, the petition should be disposed of as infructuous.

The Union Ministry of Finance had also given an affidavit to the HC, on October 30. which says that based on specific allegations in an interim report from the economic offences wing of the Mumbai Police, and complaints from NSEL, "inspections were initiated against members/brokers viz Anand Rathi Commodities, India Infoline Commodities, Motital Oswal Commodities Brokers, Geofin Comtrade and Philip Commodities (India)". With such action having already been set in motion, it has asked the court to dismiss the petition.