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NSEL Scam: SEBI declares Motilal Oswal, IIFL 'not fit and proper' as commodity derivative brokers

Market regulator Sebi has ruled that Motilal Oswal Commodities Broker and India Infoline Commodities are not "fit and proper" to act as commodity derivative brokers in connection with the Rs 5,600-crore scam at the now defunct NSEL.

twitter-logo PTI        Last Updated: February 23, 2019  | 22:23 IST
NSEL Scam: SEBI declares Motilal Oswal, IIFL 'not fit and proper' as commodity derivative brokers
"Both sets of allegation lead to serious questions about the reputation, integrity, character and competence" of the two entities, Sebi said in the orders.

Market regulator Sebi has ruled that Motilal Oswal Commodities Broker and India Infoline Commodities are not "fit and proper" to act as commodity derivative brokers in connection with the Rs 5,600-crore scam at the now defunct NSEL.

Noting that reputation is an important factor for consideration of "fit and proper" criteria, the watchdog said the reputation of the two entities have been seriously eroded.

The rulings have come against the backdrop of the payment scam at the National Spot Exchange (NSEL) that came to light in 2013; and subsequently, many entities, including brokers, have come under the scanner of Sebi and other probe agencies.

Motilal Oswal Commodities and India Infoline Commodities are not "fit and proper" entities to be granted registration to operate as commodity derivatives brokers, according to two separate orders passed by Sebi on February 22.

The regulator has rejected the applications dated December 11 and December 16, 2015, filed by Motilal Oswal for registration as commodity derivatives broker. In the case of India Infoline Commodities, its application dated December 23, 2015 has been rejected.

Both entities would cease to "act, directly or indirectly, as commodity derivatives brokers", as per the orders.

According to Sebi, the allegations against the Motilal Oswal and India Infoline that they are not fit and proper rests on twin basis.

One is the alleged violation of various laws and circulars with respect to the NSEL matter, and the second is the existence of various adverse observations by various courts/ authorities regarding the transactions in paired contracts on NSEL and the association of the two entities with such transactions and with the spot exchange, it noted.

"Both sets of allegation lead to serious questions about the reputation, integrity, character and competence" of the two entities, Sebi said in the orders.

The regulator noted that the paired contracts could not have been executed in such large volumes, across the large number of clients without the actions and facilitation of the two brokers. This facilitation is sufficient to establish their close association with the NSEL and paired contracts. The two entities themselves to become the channel or instrument of NSEL in promotion of paired contracts amongst its clients, it added.

Regarding any existing clients of Motilal Oswal and India Infoline as commodity derivatives brokers, Sebi said such clients should be allowed to withdraw or transfer their securities or funds held in their custody or withdraw any assignment given to them within 45 days from the date of the orders. These things have be to done without any additional cost to the clients.

In case of failure of any clients to withdraw or transfer their securities or funds within 45 days, the two entities should shall transfer the balance clients with their corresponding securities and funds to another person, holding a valid certificate of registration to carry on such activities. This has to be done within a further period of 30 days and that person should not be directly or indirectly related to the two entities, Sebi said.

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