One-time settlement plan announced for NSEL victims: Is the offer good enough?

The scheme has been approved by the tribunal meaning it will be binding on 63 Moons.

Over 5,000 High Networth traders are set to receive compensation for their losses in the  Rs 5,600 crore National Spot Exchange(NSEL) scam.  Moneycontrol explains who will benefit from the current payout, by how much and if it  compensate investors for their losses.

What was the NSEL scam?

The NSEL scam came to light in 2013, in the segment of paired contracts. In such contracts, a trader buys commodity from a seller at a lower price and then sells back the same commodity to the seller at a higher price. On July 31,2013 the consumer affairs department prohibited such contracts. Consequently, NSEL was forced to suspend its operations on 31st July 2013 and members of NSEL were asked to discharge their outstanding payment obligations to clients by August 31, 2013. As a result, 24 Members of NSEL defaulted in honoring their respective pay-in obligations. These defaults impacted 12,735 investors to a tune of Rs 5,600 crore.

What is the compensation status so far?

Out of 12,735 affected investors, 7,053 investors have already been compensated by 63 Moons, erstwhile promoter of NSEL. The investors who have already been paid are the ones who had lost less than Rs 10 lakh in the scam.  According to NSEL Investors Forum(NIF), of the 7,053 traders, 608 traders had dues less than Rs 2 lakh while 6,445 of them had dues between Rs 2 lakh to Rs 10 lakh. In 2013, NSEL had paid out full amounts to the 608 traders. Subsequently, based on  court orders, NSEL paid  the 7,053 traders who had balances upto Rs 10 lakh.

What is the current scheme?

63 Moons through National Company Law Tribunal(NCLT) proposed a one-time settlement scheme wherein the promoter would pay out the rest of 5,682 traders a total amount of Rs 1,950 crore, proportional to their dues. The scheme has been approved by the tribunal meaning it will be binding on NCLT.

Generally, such settlements happen via regular court routes where conclusion of cases takes years.

For 63 Moons, it will help clear up pending litigation between the company and affected investors. Over 90% of the investors voted in favor of the settlement.

As per the scheme, impacted investors will receive anywhere between 49.3% to 64% of their impacted amount. According to NIF, the agreed settlement amounts are significantly higher than in normal cases where impacted investors recover about 20-25% of the amount lost.

“The one-time settlement was pursued because legal routes alone are slow and resource intensive. The settlement was overwhelmingly supported by investors, with 92.81 % by number and 91.35 % by value voting in favor of the proposal before the tribunal,” said Sharad Kumar Saraf, chairman, NIIF.

Does this recover all the losses made by the traders?

No. What 63 Moons has proposed is a settlement scheme wherein it would pay out proportionally. Like in terms of quantum of payment, the trader who has lost most money gets the biggest share in the payment.

Some of the investors, especially the ones with highest exposure, may not be able to recover full amounts. Back of the envelope calculations shows per capita payout for the investors would be around Rs 35 lakh, however it would also depend on the total dues. Additionally,  investors would not receive any interest or returns on the capital they lost.

"It is for the first time that a financial dispute is being settled in this manner. In this settlement, the traders with an exposure of Rs 10 lakh will be getting around 50% or more of their total claim amount, which is unheard of in any settlement that has taken place so far. Even in other NCLT cases, the settlement takes place between 2—25% only." Saraf added.