NSEL crisis: Bombay HC sets up three-member panel to recover funds
Mumbai: The Bombay high court on Wednesday said it will set up a three-member committee to recover money in the Rs.5,574.35 crore payment crisis at the National Spot Exchange Ltd (NSEL).
The committee is likely to have powers to pass a decree against the borrowers who have defaulted in the NSEL case.
It will comprise a retired judge, a lawyer and a chartered accountant. A
single bench of the high court will decide on the members and the
committee’s terms of reference on Friday.
This move means the borrowers of NSEL will be bound to appear before the
committee and the decree of the committee will be binding on them.
“It is a very good and positive step towards recovery, and it will put
pressure on other defaulting borrowers to come and pay up their dues,”
said Ashok Mittal, alternate president of Commodity Participants Association of India.
The investors felt the development was delayed, but hoped for faster recovery of their dues.
“Considerable time has lapsed in forming the committee. We hope this committee will move and act better than that formed by FTIL,” said Ketan Shah, an aggrieved investor in NSEL.
The high court was hearing a representative suit filed by Modern India Ltd against Financial Technologies (India) Ltd (FTIL), promoted by entrepreneur Jignesh Shah, and 40 other entities including NSEL, which has been embroiled in a crisis since the end of July.
The settlement crisis at NSEL came to light on 31 July when the exchange
abruptly suspended trading in all but its e-series contracts. These,
too, were suspended a week later
The closure of trading may have been prompted by an instruction from the
ministry of consumer affairs to the exchange asking it not to offer
futures contracts. A spot exchange isn’t supposed to do so, but NSEL was
doing that.
NSEL tried to implement the change, but because its appeal was to
investors and members who were not interested in spot trades, it
eventually had to suspend all trading.
It later emerged that all trading on NSEL happened in paired contracts,
with investors, through brokers, buying a spot contract and selling a
futures one for the same commodity.The entities selling on spot and buying futures were planters or
processors and members of the exchange. It turned out there were only 24
of them, and they used the paired contracts as a way to raise easy
money. When the trading was suspended, the investors were left holding
contracts that the members couldn’t buy because they didn’t have the
money to do so.
On 14 August, NSEL proposed a payout plan, but it has been unable to
stick to the schedule and has not made a single successful payout ever
since.
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