Stock broker associations in Mumbai have embarked up on crowd funding to mount a legal battle against NSEL, the now defunct commodity spot exchange. NSEL recently moved Bombay High Court seeking attachment of brokers’ assets, who traded on its platform and have been named in the first information report by the Mumbai police and also are facing SEBI’s show cause notice in the scam that rocked the markets in 2013.

There are 632 brokers involved with the NSEL matter and have been asked to contribute ₹5 lakh each by ANMI and BSE Brokers Forum (BBF).

Assets of NSEL and its promoters, led by Financial Technologies (renamed 63 Moons Technologies), were attached by police five years ago after the scam broke in 2013. But brokers have not been touched despite their alleged involvement, multiple first information reports, and notices by market regulator SEBI naming them, NSEL said in its petition.

Most of the leading brokerages have been named in the NSEL case. The exchange told the court that the attachment of assets of brokers under the MPID Act was inevitable and the same was also stated categorically by a Division Bench of the High Court in October 2018.

“The true masterminds of scam are using their financial clout and attempting to shift blame on brokers. Broker associations are therefore assisting small and medium brokers for obtaining good legal counsel,” said Uttam Bagri, Chairman, BBF.

“All brokers in the NSEL matter are not equal and hence the contribution being sought from them too should differ. There were few brokerage houses who have large exposure or the lion’s share with NSEL running into hundreds and thousands of crore. Most others had very small amounts or around a few crore. So how can each one be made to contribute the same amount of ₹5 lakh,” a broker involved with the matter told BusinessLine .

There is a provision in the MPID that properties of all other accused should be attached if the assets of key players are not enough. So, brokers too should bear the burnt,” said another leading investor.

NSEL has accused the Maharashtra government of protecting brokers in its petition and said that there is a provision in the MPID Act that properties of all other accused should be attached if the assets of key players are not enough. Market regulator SEBI had issued show-cause notices to some 300 brokers in October 2016 and again in April 2017 alleging various violations of laws.

“It is established that investors are defrauded by defaulted borrowers of NSEL. The money trail is found in their books by EoW, which seized their assets whose value is more than ₹6,000 crores against payable sum to investors of ₹5,500 crores. Brokers can't be blamed for defrauding investors. Brokers and association are continuing to work for recovering lost money of investors,” said a member of ANMI.

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