More than 100 brokerage firms, including several big names, have come under capital market regulator SEBI's scanner for allegedly defrauding investors of over Rs 4,000 crore in the high-profile NSEL case, officials said.
While proceedings are already underway against five brokers (Anand Rathi Commodities, Geofin Comtrade, Motilal Oswal Commodities Broker, Phillip Commodities India Pvt Ltd and India Infoline Commodities), SEBI has identified 111 other brokerage firms under its jurisdiction for further possible action for allegedly defaulting on payments on the erstwhile National Spot Exchange Ltd (NSEL) platform.
Out of these, SEBI will first initiate inspection of the ten biggest players by appointing an auditor, while action against the remaining 101 entities registered as stockbrokers with SEBI would be taken after receipt of digital forensic audit from the Mumbai Police's Economic Offence Wing (EOW), which has been probing the NSEL case.
The Securities and Exchange Board of India (SEBI) will apprise its board next week of the status on the NSEL matter and also seek approval for its proposed action against stock brokers.
Overall, a total of 147 brokers have allegedly defaulted on payments to the tune of Rs 5,403 crore on the NSEL. Of these, 116 have applied or registered with SEBI as stock brokers and the remaining 31 members of the NSEL have not applied with markets regulator for registration.
Accordingly, 116 brokers are under SEBI's jurisdiction and they are now under the scanner of the markets regulator for allegedly defaulting on payments totalling Rs 4,033 crore.
Further, SEBI board will consider a proposal that a complaint will be sent to EOW against brokers for action for participation on NSEL platform, senior officials said.
According to them, SEBI has no role to play in the matter of effecting recovery of dues from the defaulters of NSEL and this recovery matter is beyond its regulatory domain.
This recovery matters are being dealt by agencies such as Economic Offences Wing (EOW) and enforcement directorate (ED) as well as three-member committee set-up by Bombay High Court to ascertain the assets of defaulters and to determine the assets payable to investors.
NSEL was incorporated as a company, with FTIL holding 99.98 per cent stake, with an objective of operating pan-India commodities spot exchange platform for which it obtained licenses under APMC Acts of various state governments to run spot exchange activities.
It was also granted exemption by the government from the preview of the erstwhile Forward Contracts Regulation Act (FCRA) to conduct trading of one-day duration forward contracts subject to various conditions.
The erstwhile Forward Markets Commission (FMC) was the statutory regulator under the FCRA and was functioning under administrative control of the Consumer Affairs Ministry. Later, this administrative control was transferred to the finance ministry in September 2013.
While NSEL was outside the domain of regulation of the erstwhile FMC, the government through notifications in February 2012 and August 2013 had assigned specific role to FMC to discharge certain responsibilities vis-a-vis NSEL.
Before the merger of FMC with SEBI, the government also withdrew the exemption granted to NSEL from the FCRA provisions.
However, as on the date of FMC-SEBI merger, there was no notification in existence for observance by FMC with respect to NSEL and therefore SEBI did not have any role to discharge regarding NSEL, except for defending the interest of the erstwhile regulator and the central government in various litigations pertaining to the NSEL scam.
The regulator on September 3 had granted three more weeks to Motilal Oswal Commodities Broker to submit its reply on a show cause notice issued by it in April 2017.
Further, it had passed similar orders on August 30, directing Geofin Comtrade and Anand Rathi Commodities to file their respective replies within three weeks to the SCNs issued to them in April 2017, while giving India Infoline Commodities two weeks of time to file its reply.
On June 6, the regulator had come out with a ruling against Phillip Commodities India Pvt Ltd, asking it to file a reply in four weeks to the SCN issued to it.
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