SFIO sends 6-page questionnaire to NSEL investors, intensifies probe against brokers

However, some brokers claim that SFIO’s clampdown on them isn’t fair. “There are very few financial products in the country that are sold without a broker. Second, some MCX traders also migrated to NSEL without being advised by brokers. So, what is the case of inducing investors in this case?” a broker told Moneycontrol on condition of anonymity.

In April this year, SEBI had served show-cause notices to five broking houses, questioning their application for a commodity trading licence given they had ‘mis-sold’ NSEL products.

Another source privy to developments told Moneycontrol that soon a recommendation will be made to SEBI to take action on all the 234 brokers. “These 5 brokers [who were served notices] accounted for more than 50 percent in volumes.”

SFIO may not spare even NSEL’s investors. SFIO alleges that investors hadn’t paid VAT at the time of trading in NSEL products. SFIO’s view is that since these trades were undertaken by unregistered investors, there was no way they could have paid the tax. The government is said to have lost hundreds of crores over non-payment of VAT, claims a source.

However, investors cry foul. They claim they had paid the tax to IBMA, an entity set up by NSEL to collect and pay VAT on behalf of unregistered investors. “Since NSEL told us that IBMA had a VAT licence in 24 states, we paid through IBMA. SFIO can easily find out if they inspect any investor’s books of accounts. So, there is no point of evasion of VAT in this case. An unregistered dealer can’t be licenced to pay VAT in every state. They have to go through a licensed VAT agent. Traders use VAT agent for clearing VAT in trades”.