It's five years to the day that the payment crisis at the National Spot Exchange Limited (NSEL) broke out. Probes by investigative agencies and judicial proceedings have followed since, but investors have received little relief.
Against over INR5,300 crore of investor funds still stuck with defaulters, only about INR19 crore has reached the escrow account formed to route payments to investors. A high court-appointed committee had opened the escrow account nearly four years ago.
Now to add to the injury, a payment of INR65 crore supposedly received from the National Agricultural Cooperative Marketing Federation of India (Nafed) has become a contentious issue for the investors and the beleaguered exchange.
NSEL maintains that Nafed, which was also a minor shareholder in the defunct exchange, has not completed certain compliances, but investors suspect that the funds have been already received but are not being disclosed to the investors or authorities.
In September 2017, the Delhi High Court disposed of an appeal by Nafed challenging an arbitral award. It gave a minor relief to Nafed on costs but did not alter the arbitral award.Mystery of the undisclosed receipt
NSEL, floated by 63 Moons Technologies (then Financial Technologies), offered paired contracts in commodities such as rice, sugar, castor seed, and cotton. Though touted as a national market for agricultural produce, the way the contracts were structured allowed speculators and financial investors to earn risk-free returns by rolling them over month after month. By the time the government and regulators woke up in July 2013, it had grown to an elaborate financing scheme sized at INR5,600 crore, drawing in 24 borrowers and 13,000 investors.
Sources say Nafed, which was a minor shareholder in the defunct exchange, has already paid INR65 crore of money it owed. For the investors, who have seen only meagre payments into the escrow, this is the single-largest receipt since the INR110 crore they received from multiple parties in August 2013.
When ET Prime asked an NSEL spokesperson about this payment and whether it has been used to repay dues, the spokesperson in an e-mail response said: “Regarding our claim, Nafed has not completed its compliances and the dues were from the cotton-procurement segment.”
The spokesperson did not elaborate on the “compliances”. Investors are upset that the receipts are not reflecting anywhere.
When asked about the Nafed receipts, the NSEL Aggrieved and Recovery Association (Naara) said, "The government, both state and central, should take note of this continuing malfeasance very seriously. Money recovered from a government-owned entity, who is also a co-promoter, appears to be 70%. Only claims that were admitted by Nafed have been awarded by the arbitral tribunal and upheld by the court. We shudder to think what will happen to claims against unscrupulous private entities.”
The Naara statement added that the Economic Offences Wing (EOW), Mumbai, and other prosecution agencies have been regularly hoodwinked by the entire 63MTL Group. The group was recently found concealing the interest income from certain investments in a bank account undisclosed to EOW, which had ostensibly attached those accounts, the Naara alleged.
E-mails sent to Nafed officials did not elicit any response.Investors believe that including the receipts from Nafed, there could be close to INR180 crore available for distribution to investors from agencies.
These include
INR50 crore lying with the competent authority (CA), the Maharashtra Protection of Interest of Depositors (MPID) court.
Around INR54 crore in an escrow account, including funds and margins from non-defaulting members.
Around INR9 crore submitted with the MPID court by two defaulters.
The long-winding tale of Nafed’s dues
On December 30, 2008, Nafed appointed NSEL as the state-level agency (SLA) in Andhra Pradesh for the 2008-09 season’s procurement of cotton and its processing into bales. The two entered into another agreement for the season 2012.
There were two components of the payments that Nafed was to make to NSEL. The first was the payment to be made to the farmers from whom the cotton was procured. The second was the payment towards the service charges and expenditure incurred in processing the cotton and converting it into bales.
For the year 2008-09, NSEL made a claim of INR8.50 crore, and for 2012-13, it claimed INR94.34 crore plus interest. The contention of the exchange was that Nafed had admitted that the said amount was due and payable.
With regard to the claim for 2012-13, Nafed said it could not make the payment as it had to await the audit by the Chief Adviser Cost (CAC), a finance-ministry body that advises the government on cost-accounting matters. The arbitrator said the audit clause did not stipulate that the payment has to await the audit clearance.
The arbitrator also did not agree with the entire claim of NSEL. The respondent had claimed an amount of INR9,434,378, but the arbitrator concluded that it had not been able to substantiate the entire claim by producing cogent evidence.
“The arbitrator, however, has found that the respondent/claimant is entitled to an amount of INR683,703,859. From the said amount, the arbitrator has allowed a deduction of an amount of INR42,665,104 as recoverable against seed sales. The arbitrator has thus awarded a sum of INR641,038,755 in respect of the said claim,” the high court said in its order.
In addition, the arbitrator also awarded an interest of 12% per annum from the date of the award till the date of payment. The court did not find any need to interfere with this.
Investors’ struggle for dues
As early as October 2013, the NSEL investors’ forum had raised the issue of dues from Nafed with the then Union agriculture minister.
“While analysing the balance sheet of NSEL for the year ended 2012-13, we observed (that) an amount of INR277 crore is payable by Nafed to NSEL towards procurement and processing — ginning, pressing, loading, unloading, transportation, interest on borrowed funds, etc. — incurred on behalf of Nafed. On its website, NSEL says Nafed is a promoter, along with Financial Technologies. According to rules, there should not be any outstanding from Nafed, as it is the promoter company."
Nafed then wrote to the agriculture minister, seeking clearance for the payment. The ministry wrote to the then NSEL CEO Saji Cherian, seeking details of the dues. Cherian told the ministry that the actual dues were less than the INR277 crore indicated by the investors’ forum.
According to a detailed note provided by Cherian, NSEL made payments of INR702 crore to farmers towards the procurement of cotton bales. After taking other expenses into account, its total dues stood at INR767 crore.
Nafed has made payments of about INR600 crore. After adjusting for rejections and the commission payable to NSEL, the dues stood at INR94.34 crore, Cherian’s note had said.
Where is the issue headed?
The dues to some 13,000 investors amounted to over INR5,600 crore when the payment crisis was triggered after the exchange suspended settlement on July 31, 2013.
It opened a deferred-settlement cycle but only a fraction of the amount came over the next several months. Around INR360 crore had been received and distributed according to the arrangement that was in force till November 2014.
After that, the high court-appointed committee took over.
The committee undertook the massive exercise of collating all investor claims. NSEL had raised a dispute, saying the majority were benami investors.
Separately, the MPID CA did the same exercise by collating claims through a public notice.
Though direct recovery from defaulters have been limited, CA reported a payment of about INR543 crore was distributed to investors on pro rata basis in 2014-15. This was funded by a loan from NSEL’s parent 63 Moons and other recoveries, say investors.
Some 600 small investors with dues below INR2 lakh got paid in full, while 6,445 investors with dues between INR2 lakh and INR10 lakh got 50%. Around 5,680 investors, who had dues of over INR10 lakh each, got 6.5%, the CA’s recent report to the MPID court said.
It stated that through a forensic audit it has established that there are genuine claims of nearly 12,700 investors and explicitly stated that the high court committee’s data was not made available to the CA. Since the CA does not have bank-account details of a large number of investors, it is unable to do a payout, say investors.
The CA told the court: “…Gathering this data will take a lot of time and effort. It is therefore proposed to adopt the approach taken by Forward Market commission which directed NSEL to distribute money to investors through whom the investors had made the initial investment.”Though NSEL has obtained decrees against many defaulting members, enforcing these and recovering the funds amid multiple investigations is likely to take its own sweet time.
Against over INR5,300 crore of investor funds still stuck with defaulters, only about INR19 crore has reached the escrow account formed to route payments to investors. A high court-appointed committee had opened the escrow account nearly four years ago.
Now to add to the injury, a payment of INR65 crore supposedly received from the National Agricultural Cooperative Marketing Federation of India (Nafed) has become a contentious issue for the investors and the beleaguered exchange.
NSEL maintains that Nafed, which was also a minor shareholder in the defunct exchange, has not completed certain compliances, but investors suspect that the funds have been already received but are not being disclosed to the investors or authorities.
In September 2017, the Delhi High Court disposed of an appeal by Nafed challenging an arbitral award. It gave a minor relief to Nafed on costs but did not alter the arbitral award.Mystery of the undisclosed receipt
NSEL, floated by 63 Moons Technologies (then Financial Technologies), offered paired contracts in commodities such as rice, sugar, castor seed, and cotton. Though touted as a national market for agricultural produce, the way the contracts were structured allowed speculators and financial investors to earn risk-free returns by rolling them over month after month. By the time the government and regulators woke up in July 2013, it had grown to an elaborate financing scheme sized at INR5,600 crore, drawing in 24 borrowers and 13,000 investors.
Sources say Nafed, which was a minor shareholder in the defunct exchange, has already paid INR65 crore of money it owed. For the investors, who have seen only meagre payments into the escrow, this is the single-largest receipt since the INR110 crore they received from multiple parties in August 2013.
When ET Prime asked an NSEL spokesperson about this payment and whether it has been used to repay dues, the spokesperson in an e-mail response said: “Regarding our claim, Nafed has not completed its compliances and the dues were from the cotton-procurement segment.”
The spokesperson did not elaborate on the “compliances”. Investors are upset that the receipts are not reflecting anywhere.
When asked about the Nafed receipts, the NSEL Aggrieved and Recovery Association (Naara) said, "The government, both state and central, should take note of this continuing malfeasance very seriously. Money recovered from a government-owned entity, who is also a co-promoter, appears to be 70%. Only claims that were admitted by Nafed have been awarded by the arbitral tribunal and upheld by the court. We shudder to think what will happen to claims against unscrupulous private entities.”
The Naara statement added that the Economic Offences Wing (EOW), Mumbai, and other prosecution agencies have been regularly hoodwinked by the entire 63MTL Group. The group was recently found concealing the interest income from certain investments in a bank account undisclosed to EOW, which had ostensibly attached those accounts, the Naara alleged.
E-mails sent to Nafed officials did not elicit any response.Investors believe that including the receipts from Nafed, there could be close to INR180 crore available for distribution to investors from agencies.
These include
INR50 crore lying with the competent authority (CA), the Maharashtra Protection of Interest of Depositors (MPID) court.
Around INR54 crore in an escrow account, including funds and margins from non-defaulting members.
Around INR9 crore submitted with the MPID court by two defaulters.
The long-winding tale of Nafed’s dues
On December 30, 2008, Nafed appointed NSEL as the state-level agency (SLA) in Andhra Pradesh for the 2008-09 season’s procurement of cotton and its processing into bales. The two entered into another agreement for the season 2012.
There were two components of the payments that Nafed was to make to NSEL. The first was the payment to be made to the farmers from whom the cotton was procured. The second was the payment towards the service charges and expenditure incurred in processing the cotton and converting it into bales.
For the year 2008-09, NSEL made a claim of INR8.50 crore, and for 2012-13, it claimed INR94.34 crore plus interest. The contention of the exchange was that Nafed had admitted that the said amount was due and payable.
With regard to the claim for 2012-13, Nafed said it could not make the payment as it had to await the audit by the Chief Adviser Cost (CAC), a finance-ministry body that advises the government on cost-accounting matters. The arbitrator said the audit clause did not stipulate that the payment has to await the audit clearance.
The arbitrator also did not agree with the entire claim of NSEL. The respondent had claimed an amount of INR9,434,378, but the arbitrator concluded that it had not been able to substantiate the entire claim by producing cogent evidence.
“The arbitrator, however, has found that the respondent/claimant is entitled to an amount of INR683,703,859. From the said amount, the arbitrator has allowed a deduction of an amount of INR42,665,104 as recoverable against seed sales. The arbitrator has thus awarded a sum of INR641,038,755 in respect of the said claim,” the high court said in its order.
In addition, the arbitrator also awarded an interest of 12% per annum from the date of the award till the date of payment. The court did not find any need to interfere with this.
Investors’ struggle for dues
As early as October 2013, the NSEL investors’ forum had raised the issue of dues from Nafed with the then Union agriculture minister.
“While analysing the balance sheet of NSEL for the year ended 2012-13, we observed (that) an amount of INR277 crore is payable by Nafed to NSEL towards procurement and processing — ginning, pressing, loading, unloading, transportation, interest on borrowed funds, etc. — incurred on behalf of Nafed. On its website, NSEL says Nafed is a promoter, along with Financial Technologies. According to rules, there should not be any outstanding from Nafed, as it is the promoter company."
Nafed then wrote to the agriculture minister, seeking clearance for the payment. The ministry wrote to the then NSEL CEO Saji Cherian, seeking details of the dues. Cherian told the ministry that the actual dues were less than the INR277 crore indicated by the investors’ forum.
According to a detailed note provided by Cherian, NSEL made payments of INR702 crore to farmers towards the procurement of cotton bales. After taking other expenses into account, its total dues stood at INR767 crore.
Nafed has made payments of about INR600 crore. After adjusting for rejections and the commission payable to NSEL, the dues stood at INR94.34 crore, Cherian’s note had said.
Where is the issue headed?
The dues to some 13,000 investors amounted to over INR5,600 crore when the payment crisis was triggered after the exchange suspended settlement on July 31, 2013.
It opened a deferred-settlement cycle but only a fraction of the amount came over the next several months. Around INR360 crore had been received and distributed according to the arrangement that was in force till November 2014.
After that, the high court-appointed committee took over.
The committee undertook the massive exercise of collating all investor claims. NSEL had raised a dispute, saying the majority were benami investors.
Separately, the MPID CA did the same exercise by collating claims through a public notice.
Though direct recovery from defaulters have been limited, CA reported a payment of about INR543 crore was distributed to investors on pro rata basis in 2014-15. This was funded by a loan from NSEL’s parent 63 Moons and other recoveries, say investors.
Some 600 small investors with dues below INR2 lakh got paid in full, while 6,445 investors with dues between INR2 lakh and INR10 lakh got 50%. Around 5,680 investors, who had dues of over INR10 lakh each, got 6.5%, the CA’s recent report to the MPID court said.
It stated that through a forensic audit it has established that there are genuine claims of nearly 12,700 investors and explicitly stated that the high court committee’s data was not made available to the CA. Since the CA does not have bank-account details of a large number of investors, it is unable to do a payout, say investors.
The CA told the court: “…Gathering this data will take a lot of time and effort. It is therefore proposed to adopt the approach taken by Forward Market commission which directed NSEL to distribute money to investors through whom the investors had made the initial investment.”Though NSEL has obtained decrees against many defaulting members, enforcing these and recovering the funds amid multiple investigations is likely to take its own sweet time.
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