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CBI, Other Bodies To Take Action Against NSEL: Chidambaram

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The government said on Thursday, 26 September, the CBI, the Ministry of Corporate Affairs and the Forward Markets Commission will take action against the National Spot Exchange Ltd (NSEL), which was an unregulated entity and violated norms from day one.

"The Mayaram panel report has suggested that the Central Bureau of Investigation (CBI), FMC and MCA must take appropriate action. They have listed out the irregularities.

These authorities are looking into the matter. They will take action," Finance Minister P Chidambaram told reporters.

The panel headed by Economic Affairs Secretary Arvind Mayaram looked into alleged irregularities in the functioning of commodity exchange NSEL, which is grappling with a Rs 5,600 crore payment crisis after halting trading.

Chidambaram said NSEL was not a registered or recognised association under the FMC but got exemption even before it started its business.

"I think there is much more to the way NSEL started business than meets the eye. People seem to have given money to NSEL promoters with open eyes that it is not a regulated entity, that is violating conditions from day one. Yet they were giving money to NSEL. Many of them made money in initial stages and some of them lost money now," he said.

The investors, Chidambaram said, knew that they were investing in an entity which was unregulated.

Chidambaram said although there was no fear of the NSEL crisis spilling over to other markets, he has asked capital market regulator Sebi and commodity market watchdog FMC to keep a careful watch.

"NSEL was violating the very conditions under which they claimed they could do business," he said.

NSEL, part of the Jignesh Shah-led Financial Technologies group, had to suspend trading on July 31 after a government directive. It has defaulted on six consecutive weekly payments to be made to its investors.

Financial Technologies (India) Ltd has also promoted two other trading platforms -- the Multi Commodity Exchange of India Ltd and MCX Stock Exchange Ltd.

On whether the government is looking at changing the management of other entities with the same promoters, Chidambaram said, "Let us wait for the report of the regulators. Let FMC give its report. I think the FMC report will be ready in a day or two. We will see the report first."

He said once the FMC report is received, the CBI and MCA will look into it and decide what action needs to be taken.

Chidambaram said the Income Tax department is looking into the financial details of investors in NSEL to find out whether there is involvement of black money.

The government had in 2007 exempted NSEL from provisions of the Forward Contracts Regulation Act (FCRA) to operate one-day forward commodity contracts.

The exemption was given on some conditions, including delivery of commodities within 11 days and a bar on short selling by members of the exchange.

Observing that the NSEL got exemption under the FCRA even before it started business, he said, "I have seen the exemption order. Now, whether it is valid or not -- that has to be examined."

He said the investors would definitely approach court as it is a matter between them and the company.

"The government does not come into the picture at all. It is a company. It is not a regulated entity, which got exemption order even before it started business. Therefore, what legal rights flow to the company and investors, court will adjudicate that.

"What mutual rights and liabilities between the courts and investors is there, only courts will adjudicate that," he said.

There are around 17,000 investors in NSEL, out of which 9,000 traded through the top eight brokers, including Anand Rathi, Motilal Oswal, India Infoline and Systematix.