FMC stops NSEL payments to defaulting members

The Forward Markets Commission on Tuesday directed the crisis-ridden National Spot Exchange Ltd (NSEL) to withhold payment due to defaulter members of its related entity Indian Bullion Market Association (IBMA) and other connected firms of the exchange.

The directive from the commodities market regulator comes hours before the order to NSEL to ensure payment of Rs174.72 crore due to investors on the first day of the seven-month settlement plan.

In a letter to NSEL, the FMC said, "The total amount received till today should be distributed proportionately to the various members, including IBMA."

The letter said barring genuine members who have cleared trade through IBMA, "The amounts due of defaulter members for whom IBMA has cleared the trades should be withheld."

The amount due on account of proprietary transactions of IBMA and amounts due to related and connected entities of NSEL, its group and management should be withheld, it said.

The FMC further said that the amount payable towards 'utilised margin refundable', and the 'value added tax receivable by members' and 'exchange fund utilisation' may not be distributed immediately and should be kept in an escrow account until further instructions.

The FMC further asked the exchange to submit the final list of party-wise pay-out along with details of bank accounts and bank name and also upload the same on the web site.

NSEL is facing the problem of settling Rs5,600 crore in dues after it suspended trading on 31 July on a government directive after it was found to have violated certain rules. Of this amount, NSEL owes Rs1,159.55 crore to IBMA.

Anjani Sinha, managing director and chief executive, and six other officials of NSEL were stripped of their posts on Tuesday after the troubled bourse failed to clear its first pay-out, deepening fears that investors might find it tough to salvage their money.

FMC warned that non-settlement of the outstanding trade on NSEL seriously reflected on the board's "credibility" and "reputation", key ingredients in meeting the fit and proper criterion for operating an exchange.

NSEL vice chairman Jignesh Shah and directors Joseph Massey and Shreekant Javalgekar are also on the board of MCX.

The first pay-out from borrowers on NSEL to 148 broker members, representing 13,000 investors, was unsuccessful, with the exchange managing to recover only Rs92.12 crore against the Rs174.72 crore it was supposed to pay out every week for the next five months beginning 20 August.