NSEL case: Bombay HC gives relief to small investors

MUMBAI: In what could come as a relief to small investors on the National Spot Exchange Ltd (NSEL), the Bombay High Court has directed the state government’s Competent Authority to distribute available funds lying in the escrow account to 6,445 investors/depositors whose outstanding amounts fall within the range of Rs 2 lakh to Rs 10 lakh.

“...., the State (of Maharashtra), through the Competent Authority, is allowed to distribute the available amount to 6445 depositors/investors, whose outstanding amounts fall within the range of Rs 2 lakhs to Rs lakhs,” the HC order of March 8 said.

However, the HC directed that the order be kept in abeyance for two weeks from March 8 to allow the respondent NSEL Investor Action Group or NIAG to challenge its order in the Supreme Court.

NIAG, praying for pro rata or equal distribution, had opposed the graded distribution proposed by the Competent Authority and Rabibai Mohamad Ismail under the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999.

The NSEL Rs 5600 crore payment crisis surfaced in July 2013 when a dozen counterparties were unable to make pay-ins to 12,735 investors after the then government ordered suspension of trading on the bourse for violating spot exchange rules.

A total of 608 investors having exposure of less than Rs 2 lakh each and who were owed a total of Rs 9.35 crore as on July 31 ,2013 have been paid fully by the bourse under the aegis of the then regulator Forward Markets Commission, which was subsequently merged with Sebi .

A total of 6,445 investors having invested between Rs 2 lakh and Rs 10 lakh and owed Rs 345.77 crore collectively have received 50% of the outstanding amount similarly. While those having invested over Rs 10 lakh, being 5,682 in number and owed Rs 5048.47 crore on July-end 2013, have received 6% of the outstanding amount.

The amounts in the escrow account under MPID have been garnered by selling attached properties of the defaulters on NSEL.