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NSEL probe gets wider

Inspection under Companies Act launched; ED starts money-laundering probe; FMC mulls special audit of MCX

Rajesh Bhayani  |  Mumbai 

The probe in the National Spot Exchange Ltd (NSEL) payment crisis is being widened, with more agencies joining the investigations. Also, the Forward Commission (FMC) is considering a special audit of the Multi Commodity Exchange (MCX), NSEL’s sister concern.

The Department of Company Affairs has already begun an inspection of NSEL under Section 209-A of the Companies Act, 1956. The probe would include inspection of the exchange’s books, with a specific reference to “all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure take place”. The Enforcement Directorate is probing the exchange’s operations under the Prevention of Money Laundering Act (PMLA), after securing information in this regard from the economic offences wing of the Mumbai Police.

When contacted, an NSEL spokesperson said, “Since investigations are on, we cannot comment on this.”

After issuing a show-cause notice to the promoters and directors of the crisis-ridden exchange, the FMC is now focusing on MCX, India’s leading commodity futures exchange. It is considering a special audit of MCX operations since the inception of the exchange in 2003, focusing on related party transactions and on probing whether any special treatments were given to these, in terms of margins.

In response to a query, an MCX spokesperson said, “MCX has not yet received any communication from FMC with regard to a special audit. MCX is open to any scrutiny from FMC or any other authority.”

MCX has already admitted the Indian Bullion Merchants’ Association (IBMA) was found to be trading on MCX, despite the fact that it was a subsidiary of NSEL and, therefore, a related party. Trading by related parties isn’t allowed by regulations governing commodity futures.

The MCX spokesperson clarified, “MCX has an automated trading system, with virtually no human interference. Calls for margin money are automated, with adequate provisions for informing members about their margin requirements and settlement dues. Moreover, the system does not waive or lower margin money for members’ leveraged trades. Members are not allowed to take new positions without the requisite margin requirements, and the system automatically squares off all such outstanding positions.”

Sources privy to the development said a special audit would cover issues related to trading by IBMA — whether any related party traded on it or not, whether favourable margins were given to related parties and whether proper procedures were followed in case of NSEL defaults.

In its show-cause notice to NSEL promoters, FMC had said there were 2,000 defaults.

A source said FMC would soon finalise who would conduct the special audit. The audit is aimed at ascertaining whether corporate governance norms were adhered to. “If nothing serious comes out, that will inspire confidence among other stakeholders and if some discrepancies are found, prompt action will be taken to restore the confidence,” said a government official.

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First Published: Mon, October 14 2013. 22:48 IST