An interim government probe report has recommended immediate relief for the beleaguered investors of National Spot Exchange Limited (NSEL), setting the ground for a potential winding down or a takeover of the Rs. 5,600-crore default-hit commodities stock exchange in a government-supervised exercise to protect thousands of investors.
“The registrar of companies (RoC) has recommended that the corporate affairs ministry may seek appropriate relief under section 397 and 398 (of the Companies Act) to protect interests of public at large and persons dealing with the NSEL,” a top government source told Hindustan Times.
The RoC, Mumbai, in an interim report submitted to the ministry, says that NSEL violated at least 15 provisions of the Companies Act as it hurtled into a Rs. 5,600-crore payments default that hit as many as 13,000 unwitting investors.
The RoC findings are part of a multi-agency probe investigating the causes of the crisis that hit the bourse in July this year, after the consumer affairs ministry instructed NSEL to stop launching new contracts.
As brokers withdrew funds in the wake of probable government action, NSEL ran into a severe cash crunch and failed to honour most of its payment commitments.
The interim RoC report, sources said, has blamed the board of directors for acting in good faith and “failing to perform their fiduciary duties towards shareholders.”
“Many directors are holding common directorship in all companies of the promoter Financial Technologies (FTIL) group companies. They cannot take shelter of ignorance about the state of the affairs of the company,” the RoC report has said, according to the source.
The spot commodity exchange had never declared any of its members a defaulter despite repeated payment defaults — also cited as one of the main reasons for the crisis. Many defaulters were allowed to continue to trade and increase their exposure in NSEL, sources said.
The RoC report said the exchange did not have as many as nine committees required under regulations — including vigilance, dispute resolution, trading, clearing and arbitration panels.
The RoC also found major discrepancies in the minutes of board meetings, and that there was no system to verify physical stock at warehouses.