The Hindu Business Line : FMC notice to NMCE on coffee delivery row

THE Forward Markets Commission (FMC) has sought written comments from the Ahmedabad-based National Multi-Commodity Exchange of India Ltd (NMCE) on complaints over non-delivery of July coffee futures. The commission, which is the regulatory authority for functioning of commodity exchanges in the country, could also call top officials of NMCE for a personal hearing.

"We have received complaints that delivery has not taken place for July futures contract in coffee. We have sent a notice to NMCE asking their comments and they have five days to respond," said Dr Kewal Ram, FMC member.

Dr Ram said FMC had received complains from 2-3 persons and "they may be representing one party or could be independent also".

"We will have to investigate the issue. If the seller has violated, then he will be asked to compensate. We will also have to see if the exchange is part of the system, which then is a serious matter," he said.

One of the complainants to the FMC is Mr Milan Shah of General Commodities. According to him, he sold July robusta cherry coffee futures in February and made delivery on July 9. However, the consignment that was delivered was rejected on the ground that it did not meet the specification.

"NMCE contracts allow for three per cent defects when coffee is delivered. My consignment had 1.1 per cent defects but NMCE said as per a May 17 notification defects were allowed only up to 0.3 per cent and hence, it was not acceptable. We protested this and registered it with the Central Warehousing Corporation in Bangalore that stores coffee for NMCE futures before withdrawing the consignment," Mr Shah said.

"The May 17 notification only said that from November onwards there could be only 0.3 per cent defects and even NCDEX had come out with such a circular. How can NMCE force such a condition for a contract that was entered into in February? Even then, they should have said it was with retrospective effect," he said.

When contacted, the NMCE Managing Director, Mr Kailash Gupta, told Business Line over phone from Bangalore that standard contracts had been formulated in consultation with the trade.

"The 3 per cent defect was a typographical error and we changed that specification. There are two types of defects; one is black bleached and the other black brown. Both these are acceptable. But there is another defect, black immature, which is not acceptable. Mr Shah delivered the black immature one," Mr Gupta said.

"But the issue doesn't end here," said Mr Shah. On July 11, he bought 456 tonnes of robusta cherry coffee under July futures contract. July 15 is the last date and coffees to be delivered have to be certified by then. If there is any default in delivery, then the seller has to pay the highest price of the contract, which in this case is Rs 76 a kg," he said.

"What happened was that 15 tonnes were delivered but without certification. The delivery period was extended to July 17, then the next day and then to July 19. But NMCE did not take our permission for the delay," he said.

"When the coffee was delivered, it did not meet the specifications and NMCE claimed it was as per the Coffee Board's norms. However, the Coffee Board says it doesn't endorse the quality," Mr Shah said.

"No samples were taken, no certification was done and NMCE was refusing to reply to our questions," he said.

NMCE said in a statement that an interest of 36 per cent a year was being paid for the delay but Mr Shah said it was for two days and would amount to just 10 paise a day for a kg.

The NMCE Managing Director said it was for the first time in the country that coffee was being delivered under futures contract. "Therefore, it took sometime for the logistics to be put in place. The buyer can take his stocks from CWC or from us. We can also give warehouse receipt. The consignments meet the specifications but we feel it is a deliberate attempt to squeeze the market," Mr Gupta said.

"From the beginning, the buyer has no intention to take delivery," he said.

"We are holding a meeting of sellers and buyers to bring in some regulation. We had problems with our rubber contract also but today, it has matured and our consignments command a premium of Rs 50 a quintal," Mr Gupta said.

While FMC is looking into the issue that is keenly watched by market players, sources in the commission said earlier too they had received intelligence report on problems in NMCE delivery. "Then too we asked them about the intelligence reports we were getting and they settled the things smoothly," the sources said.

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