HC asks FMC to monitor paired, e-series contracts in NSEL scam

Mumbai, Oct 7. In an ad-interim order, the Bombay High Court today directed Forward Markets Commission (FMC), the regulator of Commodities, to monitor paired and e-series bullion contracts traded at the crises-ridden National Spot Exchange Ltd (NSEL). The Court was hearing a petition filed by borrowers, who urged that the settlement of e-series bullion contracts at NSEL be aggregated with that of the paired contracts being overseen by FMC. A bench headed by Justice S F Vajifdar also restrained NSEL from disposing of property or creating third party rights without the permission of FMC. The bench further ordered that Brinks Arya, Custodian of Bullion, will allow the petitioners, Ketan Shah and others, inspection of the Bullion Register unless it is objected by the Economic Offences Wing of Mumbai Police which is probing the multi-crore scam that has rocked NSEL. The Judges said that every request or complaint of financial settlement of e-series contracts should be forwarded to FMC and EOW. The bench further directed FMC to reply in details what steps it had taken by it after the scam broke out in NSEL. The orders passed today were ad-interim and the next hearing in the case has been posted on October 21. The e-series contracts is a unique market segment, which functions like the cash segment in equities, but offers commodities in the demat form in smaller denominations. NSEL was offering spot as well as E-series contracts, which were subsequently banned by the government. Paired contracts are those where borrowers sell commodities on the exchange to investors while simultaneously agreeing to buy them back after a stipulated period. Hearing a petition filed by an investor, seeking a stay on the settlement, the bench had on October 4 asked FMC to adopt safeguards for the settlement process of bullion deals on NSEL to protect the investors. The bench had suggested on last occasion that the Commodity Regulator, FMC, and Economic Offences Wing (EOW) of Mumbai police should depute their officers to NSEL for inspection of e-series contracts. The Court opined that as a regulator a duty was cast on FMC to investigate the complaints. The petition seeks clubbing settlement of bullion deals with paired contracts, because settlement of gold and silver contracts would give preferential treatment to one set of investors. The judges had asked FMC to make its stand clear on what role it had to play, on petitioner Ketan Shah's argument that e-series contracts should be clubbed with paired contracts. FMC counsel said that the regulator had not received any complaints from investors so far against NSEL on e-series bullion contracts. FMC was ready to monitor the complaints but it could not inspect all the investors and would be in a position to only inspect general contracts, he said. NSEL counsel said e-series bullion contracts involved 800 kgs of gold and 43 million tonnes of silver, estimated to be worth Rs 525 crores.