NSEL e-series settlement delayed as Bombay HC to pass order today

Written by fe Bureau | Mumbai | Updated: Oct 4 2013, 23:30pm hrs
TraderNSEL was allowed to take investors' request for redeeming their demat stocks.
The scheduled settlement of the e-series contract under the mechanism suggested by the National Spot Exchange (NSEL) was stalled on Thursday due to a directive by the Bombay High Court in response to a writ petition filed by two parties Tarun Amarchand Jain HUF and Ashish Seth HUF seeking to halt the settlement process. The court decided to resume the hearing of the petition on Friday.

Even as NSEL was allowed to take investors request for redeeming their demat stocks, the court directed the crisis-ridden bourse not to carry out the sale of physical stocks of gold and silver to complete the settlement. The court also refrained NSEL from passing on redemption requests for settlement in cash or physical form to vaulting agencies or custodians of all e-series stocks.

Last week, NSEL had announced that it would square off gold and silver holdings of e-series investors through financial settlement between October 3 and October 9. Under this plan, the unitholders were asked to transfer their holdings to members or brokers pool account. The prospective buyers were asked to communicate their requirements by 5 pm. Such collective intentions were then to be offset against the unit holdings in the members pool account. The investors of the demat product were to receive their payouts by 1.30 pm on the next working day.

Meanwhile, the court directed the Forward Market Commission (FMC) to submit a written statement as to what role it intends to play in the e-series settlement, along with its suggestions, if any, with respect to the settlement plan.

Earlier on Monday, the court had asked the commodity market regulator to provide clarity on whether it will oversee the settlement of the e-series contracts at NSEL.

The court also noted that there is a need to determine if the settlement requests are genuine and that the underlying security is not fraudulently created. In the wake of this observation, the court asked NSEL to call Brinks Arya, the custodian of e-series linked bullion, to confirm if the demat certificates issued by the custodian were provided only after receiving the physical goods.

Meanwhile, the court is likely to add another writ petition filed against NSEL by investor Ketan Shah with the one being heard. The petition alleges that the government failed to act against the exchange despite the ministry of consumer affairs having issued a showcause notice to NSEL in April 2012 for having violated norms related to short sales and settling contracts beyond the mandated 11 days.

Besides seeking a stay on the e-series contract, the petitioner has also requested that the forensic report on NSEL irregularities prepared by Grant Thornton be made public. The petition addresses seven entities as respondents, including EOW and Brinks Arya.

The EOW representative informed the court that the agency has decided to de-freeze the settlement and escrow accounts of NSEL, which were blocked on Tuesday. The decision was a fallout of nationwide raids conducted on the premises of NSEL and 24 borrowers, which led to the bourse calling off its seventh weekly payout.