NSEL case: SEBI defers hearing with broker as investor association writes to SEBI

The capital and commodities market regulator, SEBI, has deferred hearings of five commodities brokers in the NSEL scam after an investor association, Indian Council of Investors raised concerns in a letter to the regulator. The five brokers involved are Geofin Commodities, Philip Commodities, Anand Rathi, Motilal Oswal and India Infoline Commodities. The National Spot Exchange Limited (NSEL), promoted by Financial Technologies India Limited (FTIL), had suspended trading on July 31, 2013 following a Rs 5,500-crore scam. The scam came to light when entities which had borrowed funds on the NSEL platform from around 13,000 investors failed to repay the money when the erstwhile commodities regulator Forward Markets Commission barred NSEL from issuing spot contracts. Later, it turned out the collateral deposited by the borrowers were near worthless, and in many cases there was no collateral at all. The personal hearings of these brokers, which were scheduled to start last week, have been deferred indefinitely. SEBI had scheduled the first hearing last week with India Infoline commodities, but the meeting was deferred. One of the concerns raised by the association is that the hearing was to be held by the same whole-time member who is the head of the Market Intermediaries Regulation and Supervision Department (MIRSD). "Same WTM is also the administrative head of MIRSD, which has ordered an audit of these 5 commodities brokers for their NSEL trading and has accordingly made a case against them. It is a settled principle of law that no one should be a judge of his own cause. It is also a settled internal norm in SEBI that Quasi-Judicial matters are undertaken by WTMs only for those cases which are not handled by them in their capacity as an administrative in-charge of the concerned department of SEBI,” the association wrote to SEBI in its letter. The brokerages involved also say they were not allowed to inspect the investigation reports. In every case, SEBI shows the books and records based on which action was taken. But in this case, that procedure was not followed. A source close to the development told Moneycontrol “The new regime of SEBI is facing a legacy issue and the NSEL case is one of them.” However, SEBI has called these five brokers on the basis of Mumbai Police Economics Offense Wing (EOW) prima facie. In this case, Mumbai police have not filed charge sheet yet. EOW has issued lookout notice against 13 brokers which includes these 5 brokers. Three officials from Anand Rathi, Geofin Commodities and India Infoline were arrested by EOW in 2015.. A source close to the development told Moneycontrol “There is no specific rule about regulator taking action against all brokers in NSEL at the same point in time. If regulator feels those other brokers are the culprit then the regulator will take action on them also.” More than 200 brokers used the NSEL platform and convinced investors into investing through NSEL. “In the other case of around 200 NSEL brokers, SEBI has already taken a decision to consider them fit and proper while granting registration to them. Thus, it is wrong to say that SEBI is yet to take decision in their matter. Vigilance authorities have asked SEBI to explain different approach in the case of these 200 brokers as compared to SEBI’s approach in the case of 5 brokers to whom show cause notice has been issued,” another source said.