Commodity market regulator Forward Markets Commission (FMC) has ordered a forensic audit of National Spot Exchange Ltd (NSEL), raising serious questions about the credibility of books of account and record maintenance at the crisis-ridden bourse.

The exchange will have to appoint a reputed auditor in seven days that will examine the causes behind the dramatic decline in the settlement guarantee fund and details of stocks of commodities lying at the exchange warehouses.

Expressing its disappointment over information shared by the exchange, FMC in a six-page letter to NSEL on Friday said, "The settlement plan submitted by the exchange does not inspire confidence as the exchange has gone back on its earlier commitments. This has also raised serious doubts on credibility of the commitments made by buyers as per settlement schedule."

A significant direction by the regulator is that the exchange has the sole responsibility of settlement of trade as per the pre-announced schedule and cannot simply depend upon the realisation of pay-in obligation from buyers. "As such the exchange appears to have disowned its responsibility of guaranteeing the financial settlement," said the FMC letter.

From now on, the exchange has to inform FMC daily on the amount deposited by buyers (borrowers) into the escrow account set up with Axis Bank for collecting recoveries that will be used to repay the investors.

In separate developments, Sharad Saraf, convenor of NSEL Investors Forum, filed a public interest litigation against the exchange in the Bombay High Court while Kirit Somaiya, national secretary of BJP and president of the Investors' Grievances Forum (IGF), said the forum would also file a PIL next week. Somaiya claimed that promoters of Juggernaut Projects, which has borrowed 400 crore on NSEL, were "employed as peons at a large Mumbai-based brokerage".

Milind Deora, Congress MP from south Mumbai, also wrote a letter to the prime minister seeking a quick resolution to the crisis. According to the letter, in a presentation before the secretary, consumer affairs, on July 10, NSEL MD & CEO Anjani Sinha along with Jignesh Shah, founder of NSEL promoter Financial Technologies, said, "NSEL offers highest level of safety for participants as the model has over 100% stock as collateral (managed by independent collateral manager), 10-20% as margin money and backed by 100% post-dated cheques from participants."

In this connection, FMC has asked NSEL to share the terms of appointment of SGS, a collateral management firm, hired by the exchange to verify the quality and quantity of commodities lying at various warehouses.

FMC has also questioned why the exchange hadn't closed out the positions of participants who failed to meet their pay-in obligations and did not initiate default proceedings against them. One of the buyers, Lotus Refineries, had disputed its pay-in obligation of Rs 252 crore.

Also, the regulator has restrained NSEL from paying out Rs 1,159 crore to its arm Indian Bullion Market Association Ltd. NSEL has to disclose the shareholding of IBMA and all trading members/clients attached to the association. (Economic Times)