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NSEL Scam: Sebi’s probe against 5 brokers at an ‘advanced stage’

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The case dates back to 2012 when NSEL failed to repay 13,000 investors who were trading on the platform.

Mumbai: The capital market regulator is at an ‘advanced stage’ of investigation against five top brokers in the ?5,500 crore National Spot Exchange (NSEL) scam, said two people familiar with the matter. Securities and Exchange Board of India had issued a show cause notice against them alleging that they are no longer ‘fit and proper’ to function as a registered broker in the commodities market. The five broking rms include Anand Rathi Commodities, India Infoline Commodities, Geofin Comtrade, Motilal Oswal Commodities and Philip Commodities.

The regulator is expected to issue an order soon.

The case dates back to 2012 when NSEL failed to repay 13,000 investors who were trading on the platform. The exchange also did not have adequate goods in its warehouse to back trades. On April 4, 2015, the Economic Offences Wing asked Sebi to take appropriate action in the NSEL case. The erstwhile commodity market regulator Forwards Market Commission was merged with Sebi on Sept 28, 2015. The five brokers made an application to Sebi for registration as a commodity broker. Sebi had appointed J Singh & Associates, a chartered accountant, to carry out an inspection of these brokers. Based on its fundings, the regulator initiated inquiry proceedings against the brokers and appointed a bench to inquire. The bench recommended that the application of the brokers should not be considered in the interest of the securities market and the applications should be rejected. Sebi issued a show cause notice to the ve brokers in April. The five brokers sought to withdraw their application for registration and objected to Sebi’s legal action against them citing it didn’t have jurisdiction over them. Brokers had said that they were not registered with Sebi, which had asked them to apply afresh with it after the FMC’s merger with the regulator. But, Sebi contended that since brokers had applied for registration in the commodities segment, the regulator had jurisdiction over them, prompting them to withdraw the applications.

When Sebi rejected this argument, they went to the Bombay HC. The court dismissed the petition saying they were seeking to withdraw their applications only to escape the inquiry initiated against them. Sebi’s ruling could have a bearing on these brokers’ licence to operate in equities segment as well.

“While there are similarities between commodity derivative segment and equity segment, there is no automatic rule under securities laws that would apply a t and proper criterion in one segment into another. Some of Sebi’s past orders itself takes that position,” said Sumit Agrawal, Founder, RegStreet Law Advisors and an ex-Sebi official.