Investors hit by the ₹5,500-crore NSEL scam are now up in arms against SEBI. Their contention is that the market regulator should not hold NSEL transactions in violation of Forward Contract Regulation Act at a time when the Bombay High Court has held it as ‘deposits’ under the guise of pared contracts and fit for imposition of Maharashtra Protection of Interests of Depositors (MPID). The investors have written to SEBI raising their concern.

Under MPID, attachment of the property of directors and promoters of the company for the purpose of recovery of money in favour of investors is a much easier task. The High Court’s move to uphold proceedings by police under MPID Act has also been one of the reasons why the government could smoothly allow merger of NSEL and its promoter Financial Technologies (now name changed to 63moons Technology). But if SEBI now considers it as a case of FCRA violation, the recovery of assets could be tedious, victims of NSEL scam have reasoned. In October 2016, the Supreme Court had dismissed a petition of NSEL for relief against the Court order on the applicability of MPID.

SEBI recently initiated proceedings against 300 brokers for luring clients. Point number 5 of one of SEBI’s show-cause notice (SCN), which is with BusinessLine , states that pared contracts were in contravention of FCRA. It is mainly this clause in the SCN that NSEL victims fear could endanger their hope for recovery of money, which they say is possible due to MPID.

SEBI did not reply to an email query asking it for the reason to bring in FCRA violations when the High Court had invoked MPID. A senior lawyer in Mumbai, who has closely worked with SEBI, said the regulator may just be looking at how stock brokers don’t go scot-free and are held accountable.

“Brokers as an intermediary are primarily responsible for being a part of the NSEL scam and luring clients on the pretext of fixed return. It is well known now and even then that NSEL contract was nothing but unsecured lending activity. So, SEBI’s motive could be that the key culprits should not go scot-free,’’ he said.

The Economic Offences Wing of Mumbai police had invoked MPID Act against NSEL directors and 24 borrowers of money on the exchange platform and attached even personal property of all the accused. The MPID Act has been in force since1999 and aims to curb fly-by-night operators who collect money from the public by offering higher returns. It allows the police to seize the moveable and immovable assets of the accused and auction them to recover the lost money. NSEL had to shut its operations after the authorities found out that it was dealing in forward commodity contracts when it had permission to function only as a spot exchange.

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