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The National Spot Exchange (NSEL) has been able to pay only half the money due to investors in its first payout on Tuesday. While NSEL Investors’ Forum is considering taking the legal route and may file a suit against the exchange and its promoters, there are many legal options available for anxious investors stuck in this mess.
Hariani & Comany's managing partner, Ameet Hariani advises an NSEL investor can take criminal action against those who induced him / her to invest in NSEL on the basis of false information, either about returns from investment or about the company. In this case, an investor can take action against NSEL or promoters or the brokerage.
An investor can also take action against the exchange and the people running it. “If investors have transaction receipts from the exchange's godowns, they will be secure about their investment. Such investors may have only factored in losses by virtue of the underlying asset.
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In such case, investors can take legal action against the exchange and its people because this event (exchange defaulting) was unknown to them,” Hariani explains.
Law experts say investors can recover their money if the exchange had insured its stock. Investors will have to file a case and get paid from the policy. But here, the insurer can prove there was stock available and not pay.
Senior Supreme Court counsel YP Trivedi says despite there being many options for recovery of money, the battle will be a long drawn one as the exchange does not have money.
Many legal experts believe it is highly unlikely that small investors will get their money back. "There is no regulatory framework as the Forward Markets Commission (FMC) can only seek information from NSEL. It has no powers beyond that. There is no assurance of payment as NSEL has no money, the counterparties to the trades have failed to honour their commitments and the stock base is questionable. The relationship between NSEL and its investors is also only contractual. Only remedy for the investors therefore, would be to seek redressal for breach of contract in a civil court and / or initiate criminal proceedings. Quite a few penal sections would be attracted to NSEL's actions," explains Sajid Mohamed, partner at PDS & Associates.
As on today, even government intervention will be helpful only once the officers on special duty submit their report to the board, say experts. Both the government or the Court can give a timeline to the exchange to raise those funds and pay back the investors. But, it would be a long drawn processes where each option to raise funds will be considered carefully.
Many investment industry experts feel authorities should attach the exchange's properties to repay the investors. But, this is the last step authorities will take when there is no alternative at all.
Legal experts the options investors have in this situation can broadly be categorised as -
Who can the action be taken against
Should investors get together to take action or fight their battle individually
In which case should the action be taken against a brokerage
Who should sue NSEL and its people
Should one file a civil case for recovery of money or a criminal case for misappropriation
