E-Series case: HC against pro-rata settlement
Tarun Jain and Ketan Shah, two of the 13,000 aggrieved paired contract investors had moved the Bombay HC seeking a stay on the redemption of e-series contracts.
October 08, 2013 / 11:56 IST
In another blow to paired contract investors, the Bombay HC has refused to grant its nod for their proposal seeking settlement on a pro-rata basis, while giving its nod for redemptions of e-series contracts reports CNBC-TV18's Ashmit Kumar.
Also Read: FMC sends fit & proper notice to NSEL promoters, Fin TechTarun Jain and Ketan Shah, two of the 13,000 aggrieved paired contract investors had moved the Bombay HC seeking a stay on the redemption of e-series contracts. They had argued that the e-series contracts are not different from e-series contracts, and hence any settlement being made should be made on a pro-rata basis to all investors, including the 13,000 paired contract investors and 33,000 e-series contract holders. The petition was filed days before Oct 3 – the due date for e-series redemption, with NSEL keen to redeem the contracts to keep the “scope of default from spreading”. NSEL intended to use over 500 crore worth of bullion to redeem the e-series contracts. The petitioners had raised allegations of the NSEL being keen to redeem shares as the e-series contract holders were related to the exchange. The investors also claimed that the SGF funds had fallen dramatically due to the the exchange using the funds to buy gold to support the e-series contracts. However, after listening to all arguments, the Bombay HC today held that, “prima facie not in favor of securities of one contract being substituted by another”. With this remark, the Bombay HC dampened any hopes pf pro-rata allotment of settlement through the sale of bullion. Meanwhile, the Bombay HC has given its nod for the redemption process. However, it has slapped a number of riders. Firstly, NSEL has been barred from making any payouts before Oct 21.Secondly, FMC has been directed to monitor NSEL’s transaction with respect to not only paired contracts, but also e-series contracts. Thirdly, NSEL has been directed to forward all redemption requests to the FMC, which in turn will have to verify the KYC details of contract holders seeking redemption. Fourthly, FMC and the EOW have been authorized by this Bombay HC order to monitor, or even demand books of accounts from NSEL for inspection. And finally, NSEL has been restrained from selling or disposing off of assets without the approval of the FMC. In case of immovable property, NSEL has been kept from selling or disposing off without the HC approval. But some relief has also been granted to petitioners. They have been allowed to seek documents, in particular Grant Thornton’s report on SGF funds as on June 30 and bullion movement ledger. However, as per HC order, FMC and the EOW can turn down such requests, if such disclosures were to hurt the investigation. Petitioners have also been authorized to red flag “suspicious” transactions. Upon being red flagged, NSEL would be barred from making payments to the concerned parties without FMC approval. Finally, Bombay HC has direct the FMC and the EOW to file affidavits by Oct 18, detailing the actions taken so far and steps intended to be taken against NSEL and FTIL. Further hearing in the matter is slated for Oct 21. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
