NSEL case: HC orders forensic audit of business

By Maulik Vyas, ET Bureau | 29 Oct, 2013, 05.32AM IST3 comments |Post a Comment

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MUMBAI: Investors in the so-called e-series gold and silver contracts on troubled spot bourse NSEL will have to wait longer for a financial settlement after a directive by Bombay High Court for a forensic audit of the business. In a separate development, public sector behemoth MMTC filed a suit against NSEL in the HC for recovery of Rs 220 crore after trading of paired contracts in which the PSU invested was halted by the bourse on July 31. 

A division bench of Justices SJ Vazifdar and KR Sriram on Monday directed commodity market regulator FMC, which has been authorised to oversee NSEL, to appoint an independent agency for conducting a forensic audit of the e-series business within four weeks of it appointment. The FMC told the court it would need two weeks to appoint an auditor for the task, the cost of which will be borne by NSEL.

The court direction followed statements of Kevic Setalwad, additional solicitor general of Maharashtra, who argued on behalf of the commodity market regulator and government that to protect investors from further
damage they were willing to conduct a forensic audit of E-series contracts. "It is clear now that by notification, FMC has power to supervise and regulate the E-series contracts," said the court.

MMTC's suit could increase pressure on central agencies like Enforcement Directorate, probing the scam, to take action against those allegedly involved in the Rs 5,600-crore crisis, said sources. The PSU invested in controversial paired contracts traded on NSEL, which allowed investors to lock in a spread by simultaneously buying and selling commodities with two dozen counterparties who raised thousands of crores against supposed agri and metal commodities. The contracts offered by the bourse were halted by the government as they violated spot exchange norms, which allowed only oneday forward contracts and prohibited short selling.

"FMC will have to issue orders to NSEL not to conduct rematerilisation or financial settlement of Eseries contracts till the forensic audit report is received," said the court while directing NSEL to pay for the forensic audit.

The HC is hearing petitions filed by a few NSEL investors who have sought a stay on financial settlement of the e-series. They allege that the gold and silver backing the contracts may not have been purchased with investors' money and that eseries needed to be regulated by a government agency. Apart from the legal battle, the Economic Offences Wing has filed an FIR against NSEL directors, promoter Financial Technologies and two dozen borrowers following an investor complaint alleging cheating and forgery.

The EOW has arrested NSEL former MD & CEO Anjani Sinha and the MD of NK Proteins. It has interrogated Jignesh Shah, founder of FT, twice this month in connection with the scam and is likely to summon him for a further round of questioning shortly, said senior police sources.

NSEL and its promoter Financial Technologies find themselves in the eye of a storm after the bourse was directed to cease trading of controversial paired contracts in July. The trading of these contracts was stopped on July 31 and shortly after the exchange also said it was ceasing trading of e-series.