In case of any existing clients of the Noticee as Commodity Derivatives Broker, the Noticee shall allow such clients to withdraw or transfer their securities or funds held in its custody or withdraw any assignment given to it, without any additional cost to such clients within 45 days from the date of this order. In case of failure of any clients to withdraw or transfer their securities or funds within 45 days from the date of this order, the Noticee shall transfer its balance clients with their corresponding securities and funds to another person, holding a valid certificate of registration to carry on such activity, within a further period of 30 days. Such person should not be directly or indirectly related to the Noticee. Theorder shall come into force with immediate effect," said the order. (
"In view of the seriousness of the matter, facts and circumstances of the case, the conduct of the Noticee in its functioning as a commodity broker is questionable and has certainly eroded its general reputation, record of fairness, honesty and integrity and has therefore affected its status as a ‘fit and proper person’ to be an intermediary in the securities market…”.
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.
The two brokerages are among more than 300 brokerage houses named by the Securities and Exchange Board of India (SEBI) in a first information report (FIR) pointing to the violation of rules in the National Spot Exchange Limited (NSEL) scam.
SEBI had issued show cause notices to five brokers earlier which charged them with illegal forward contracts and failure to do proper diligence such as physical verification of warehouses, stocks and checking claims of exchange on guaranteed returns.
In July 2013, Jignesh Shah-promoted NSEL had defaulted in payment of Rs 5,600 crore. Several investigative authorities have traced the money trail to NSEL and its 22 defaulting brokers who were commodity producers or suppliers.