NSEL-- Why Creditors will not be paid.

Tejinder Narang

If investors are expecting that they will be paid by NSEL (National Spot Exchange Ltd) after its recent default they are living in a world wide web of illusive reality. Here it is why –

1.       It is a mega default by a privately held institution which the Government is trying to remedy after ignoring it for many years.

2.       NSEL abandoned the obligation of an exchange and assumed itself to be a “bank” for giving higher return without professionally lending the money.

3.       Even if it was a lender of money—it had no viable system of ensuring its earnings/profits or followed any prudential norms that are enforced upon a bank by RBI.

4.       FMC (Forward Market Commission) was not regulating it, though investors believed or were led to believe that way as if it is an entity like NCDEX or MCX.

5.       Intervention or control by FMC can be prospective and not retrospective as per the Law. (Vodafone judgement on Supreme Court refers).

6.       Any assurance to investors by the Government that FMC’s involvement will ensure recovery of their dues is practically not feasible especially when there was no mechanism with NSEL for verification of stocks.

7.       None can proceed against FMC or the Government legally.

8.       If a creditor or any one proceeds legally against NSEL itself, NSEL will be rescued. It will simply reply that matter is sub-judice. Wait till court decides. There will be an appeal after the decision and so on. There are millions of cases pending in Indian courts and this will be one of them.

9.       The moment NSEL gives a letter to stake holders that they will be paid within next 35-45 days , it is completing the formality of declaring itself insolvent and asking the creditors to wait for the time being. And that time could be eternity.

10.   Any enquiry or investigations or income tax cases or arrests do not provide financial relief to investors.