R.

Gopalan, Finance Secretary wrote (7th June 2011) to the Department of Consumer Affairs (DCA), Shri Rajiv Aggarwal that National Spot Exchange the trade volumes in certain contracts have grown exponentially. SEBI is not claiming regulatory jurisdiction over spot delivery contracts Spot Commodities does not even come under the purview of FMC Clearing & Settlement arrangements under spot exchanges are not authorized or regulated under any authority; hence NSEL would need to apply to RBI for the same.

In the interest of the investors the issue of regulatory framework for NSEL may have to be addressed urgently. The Letter is enclosed as Exhibit A. DCA wrote back to Finance Ministry on 8th August 2011 stating that Government has now appointed the FMC as the designated agency to ensure that the spot exchanges comply with various conditions such as: No Short Sales All outstanding positions at end of day shall result in delivery In case of exigencies, the exemption under the section 27 of FCR Act will be withdrawn without assigning any reasons.

Since spot exchanges would be substantially regulated by the FMC, the RBI may consider writing to the Government to exempt SPOT Exchanges regulated by Forward Market Commissions from purview of Payment & Settlements Systems (PSS) Act, 2007. Letter enclosed as Exhibit B. Forward Markets Commission (FMC) wrote to DCA on 15th July 2011 stating that Ministry should nominate FMC as the designated agency to safeguard the interest of the investors and to ensure that the conditions stipulated for grant of exemption are complied with. It is also necessary to specify that in case of any breach of conditions subject to which the exemption is granted, the FMC will be competent to take action as deemed necessary and fit. Quote I am there to request that FMC may be notified as the Designated Agency for providing oversight over the spot exchanges which are granted exemption under Section 27 of FCRA Act and for taking necessary action as and when deemed fit. Unquote. Letter Enclosed as Exhibit C

On 5th August 2011 Mr. Brij Mohan, from DCA wrote to FMC stating that

In order to safeguard the interest of investors and to ensure that the conditions stipulated for grant of exemption are complied with, the competent authority has decided to nominate FMC as a Designated Agency for providing oversight over all the Spot Exchanges which are granted exemption under Section 27 of FMCR Act 1952. In view of above FMC may ensure that the conditions stipulated for grant of exemptions are complied with and in case of breach of conditions subject to which exemptions is granted, the FMC will be competent to take action as deemed necessary and fit. Exhibit D FMC wrote to DCA on 9th November, 2011 stating that the Commission would be in legally stronger position to inform the aforesaid decisions and provide oversight over the exempted Spot Exchanges if these directions are a part of notification appointing the FMC as the Designated Agency. Exhibit E On 6th February 2012, the Ministry of Consumer Affairs, Department of Consumer Affairs (DCA) issued the notification in the Gazette of India by making the necessary amendments. Exhibit F Thus FMC was given legal powers to regulate the Spot Exchanges. On 10th April 2012 Forward Market Commission, the designated agency of the National Spot Exchange wrote to Department of Consumer Affairs that NSEL has not followed the guidelines Stipulated under notification dated 5th June 2007 and the Ministry is requested to take necessary action at its end. Exhibit G In a show cause- notice based on data provided by Forward Markets Commission (India) dated 27/4/12 the Ministry of Consumer Affairs had asked NSEL that why proceedings should not start against NSEL as it was conducting illegal trades and there was no mechanism to verify the commodity stocks. A copy of this letter was marked to the FMC chairman. Exhibit H The unanswered questions: Ministry knew that there were violations by NSEL of the FCRA Act by trading in contracts with delivery period of more than 11 days NSEL did apply for permission for the NTSD contracts (which was not given by the FMC), knowing fully well that exemptions under FCRA were not met. What changed between 2012 when no action was taken by the FMC to stop trading & July 2013 such that FMC directed the Exchange to stop trading & settle all the contracts?

Article published in India Today on 3rd October 2013 exposes the pressure brought on the Ministry of Consumer Affairs and I quote Food and Consumer Affairs Minister KV Thomas was expected to decide on whether or not to take the investigation forward. It is still unclear why the government did not take any action since its notice to NSEL on April 27, 2012. Sources within the government say, tremendous amount of political pressure was brought on the Ministry of Consumer Affairs not to precipitate the matter but settle amicably. "Lobbying at different levels within the bureaucracy was started. At the highest levels in the ministry, it was felt

that NSEL's operations were indefensible, but caution was preferred to knee-jerk government intervention that could potentially dent market confidence", a senior official within Government said. So finally, the exchange's business continued. http://indiatoday.intoday.in/story/why-government-sat-for-more-than-a-year-on-nseldiscrepancies/1/312824.html Exhibit I On 2nd August 2012 FMC wrote to DCA stating that and I quote NSEL has applied to FMC for registration under section 14B of FCRA for launching NTSD contracts and the application is under consideration. Thus Exchange is aware that exemption granted under section 27 of FCRA is not applicable in respect of NTSD contracts. Therefore the argument of NSEL that it can conduct NTSD contract on the ground of exemption u/s 27 of FCRA act is not acceptable. All contracts traded on NSEL which provides settlement schedule for a period exceeding 11 days are forward contracts. Thus even if the gazette notification does not specify the delivery period, Exchange has to settle delivery for all open positions within a period of 11 days as Ex has not been allowed to trade in forward contracts. Ministry is requested to take appropriate action at its end. Exhibit J The Exchange wrote to the Ministry in 2010 to seek permission to introduce contracts with a maturity period of more than 11 days, knowing that it is in violations of the permission given The Forward Market Commission / Ministry of Consumer Affairs did not take any action and did not stop trading on the Spot Exchange in 2012 despite exchanging several letters with the spot Exchange. The reasons for the same must be investigated. Sir as a result of cross negligence of duties by officials at the DCA & FMC around 13,000 investors collectively have been looted of Rs 5600 crores by 23 members of the Exchange. You are requested to conduct an enquiry into the exemptions given to the NSEL in June 2007 and also on the fact that despite being aware of wrong doings at the National Spot Exchange Limited, no action was taken until July 2013 to stop trading. This inaction/ collusion with the Promoters of the Exchange, if any has destroyed at least 10,000 middle class families by causing irreparable damage to their existence. Thanking You.