The Ministry of Corporate Affairs is looking into any violations of Companies Act by Financial Technologies, the promoter of National Spot Exchange Ltd (NSEL), and its group companies.

“The report of Mayaram panel has been given to the Government and the Finance Minister has asked various ministries and department to take action pertaining to their domain. We are looking at possible violations of Companies Act by all companies and all entities under question,” Minister of Corporate Affairs, Sachin Pilot said.

Pilot was speaking to reporters on sidelines of an event organised by the All India Management Association on Friday.

“We have asked the Registrar of Companies (RoC) to look into all companies and all entities under question as to whether there have been any violations in the past,” Pilot said stating that his Ministry would initiate action once the RoC submits its report.

Different agencies such as the Central Bureau of Investigation, Enforcement Directorate and Income-Tax Department have been probing the NSEL issue from various angles. The Government has ruled out any systemic danger due to the Rs 5,600 crore payment crisis arising from defaults by NSEL after it suspended trading on July 31 after a government directive. NSEL has defaulted on six consecutive weekly payments to its investors.

Exchange-broker-client nexus under scanner

PTI reports: A possible collusion between the exchange officials, brokers and clients, including HNIs and politically connected entities, has come to the fore in the NSEL matter being probed by multiple agencies and regulators.

Preliminary investigations conducted by capital markets regulator SEBI and inputs from other regulators and government departments suggest that some brokers were offering structured financial products to their HNI clients under some portfolio investments schemes for high returns of 10-20 per cent.

The brokers are believed to have been working in close coordination with some top officials at National Spot Exchange Ltd (NSEL), as also certain other group entities, while many of the clients could also have been in the loop about such structured products being in contravention of the extant norms, a senior official said.

While investigations are as yet in initial stages, further evidence in these directions could lead to formal proceedings against the suspected entities under regulations governing fraudulent and unfair trade practices, portfolio management schemes and rules governing code of conduct of market intermediaries, he added.

Sources said that the NSEL fiasco is turning out to be a unique case where even the investors could be among the main culprits, as they were not the common people who usually get conned in ponzi schemes and other investment frauds.

In contrast, most of these so-called victims are rather well-heeled brokers or high networth individuals (HNIs) and some of them have been found to have close connections with certain politically active persons in Mumbai, he added.

SEBI is also ascertaining facts from Financial Technologies on withdrawal of report by its auditor.

Deloitte Haskins & Sells had withdrawn its audit report certifying accounts of the company for FY’13 fiscal as Rs 5,500-crore payment crisis at its group company NSEL ballooned.

The regulator has already sought details from various brokers about their direct and indirect exposure to the NSEL.

Besides, it has also sought to ascertain whether the brokerage firms and individual brokers have put in place effective ‘chinese—wall’ like structure to ensure that the problems in spot commodity markets do not spill over to the equity and other segments.

NSEL, which offers an electronic platform for spot market trading in various farm commodities as also bullion contracts, has suspended trade in almost all its products.

A major crisis erupted at NSEL last month after it suspended most trades on its platform, prompting the government to order an enquiry by the commodity regulator FMC, while Sebi also began a separate probe.

SEBI is probing the matter and is looking into potential violations of rules related to insider trading, fraudulent trade practices and possible payment defaults.

(This article was published on September 27, 2013)
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