September 7, 2013

The Chairman The Warehousing Development and Regulatory Authority (WDRA), Warehousing Bhawan 4/1, Siri Institutional Area, August Kranti Marg, Hauz Khas, New Delhi 110 016 Dear Sir, Re: Settlement and Payment Crisis at National Spot Exchange Ltd (NSEL) 1. With reference to our letter to you on August 20, 2013, where we drew your attention to the on-going payment crisis at National Spot Exchange Limited (NSEL) and highlighted the role of the Warehousing Development and Regulatory Authority (WDRA) as the national regulatory authority under the Warehousing (Development and Regulation) Act, 2007 (WDRA Act). In light of the magnitude of the NSEL payment crisis and its impact on investor confidence in other markets, we called upon the WDRA to take urgent steps and exercise the powers conferred upon it by the WDRA Act to address the issues highlighted in our letter. 2. We note with regret that we have received no response to our pleas from the WDRA, and that no action has been taken by the WDRA to investigate, examine or redress the various malpractices, wrongdoings and illegalities that have led to the present crisis. Given the scale of the NSEL payment crisis, and the element of national interest involved, we find it surprising that the WDRA, despite being the apex authority in the warehousing business, has not taken a more active role in investigating the events that have precipitated this crisis. It is a matter of grave concern that a national regulator has chosen to refrain from utilizing its powers in this scenario, where the hard earned money of over 13,000 investors has been placed in great risk 3. We write to you to in order to draw your attention to certain warehousing practices used by NSEL to facilitate its activities as a spot exchange where commodities were traded. Since its inception, NSEL has time and again represented that commodities of a specified quality and quantity are maintained in the Exchange designated warehouses. Sellers desirous to sell/buy through NSEL have to compulsorily deliver the commodity in the NSEL designated warehouse of a particular location specified in the Exchange circular. The NSEL Bye-laws also set out the manner in which the underlying stock was to dealt with by the Exchange. As per the Bye-laws, all outstanding transactions in commodities is generally required to be for compulsory delivery at any one or more delivery points, and/or warehouses approved, certified and designated by NSEL. The Bye-laws make it abundantly clear that NSEL is responsible for approving and designating the warehouse for making and receiving deliveries . The Bye-laws also confirm that the Certified Warehouse Receipts issued by the Exchange constitute actual proof of ownership of the underlying commodities. 4. We would also like to draw your attention to the notification on the NSEL website titled NSEL: How to use its facilities which demonstrates that the warehousing was a specific facility provided by the Exchange. You will further note from a presentation on NSEL operations that sellers desirous to sell/buy through NSEL have to compulsorily deliver the commodity in the NSEL designated warehouse of a particular location specified in the Exchange circular .... In addition, the said presentation states that the WDRA is its regulator in respect of the negotiability of warehouse receipts.

5. We further invite your attention to the NSEL circular dated November 14, 2011 entitled Trading in negotiable warehouse receipt through National spot exchange , which describes how negotiable warehouse receipts (NWR) may be converted into electronic form and traded on the spot exchange. It is clearly stated in the said circular that in order to utilize NWRs, the depositor would have to deposit the commodities in a warehouse accredited by WDRA and NSEL. Further, it states that such warehouse receipts can be used for availing loans or selling on the NSEL platform. You will note from the NSEL Product Circular for Basmati Rice (T+25) contracts, that NSEL states that the warehouse receipts will be transferred to the buyer after due endorsement. This incontrovertibly indicates that NWR were being utilized by NSEL to facilitate trades on its platform. 6. According to Section 3 of the WDRA Act, no person may issue NWRs unless he is registered as a warehouseman with WDRA. Moreover, Rules 3 and 4 of the Warehousing (Development and Regulation) Registration of Warehouse Rules, 2010 set out the procedure by which persons seeking to issue NWRs may be registered with the WDRA for the same. Crucially, Regulation 4 of the Warehousing Development and Regulation Authority (Negotiable Warehouse Receipts) Regulations, 2011 states that the WDRA shall be the sole repository of the negotiable warehouse receipt books and shall issue, control and maintain records of such negotiable warehouse receipt books. Therefore, you are the ultimate authority governing the issue of NWRs in India, and all NWRs must have been issued from the books issued by you. You, the WDRA, are also obligated by law to maintain records of all NWR books. 7. We also note that under Regulation 10 of the Warehousing Development and Regulation Authority (Negotiable Warehouse Receipts) Regulations, 2011, a warehouseman is required to maintain a copy of the NWR, and other details relating to the same. According to the format prescribed for NWRs under the WDRA Act, the NWR must contain details such as the description and quality of the goods, the quantity thereof etc. As the apex authority for such warehouses, the WDRA has wide powers, inter alia, under Section 35 of the WDRA Act, to call for information and records from its registrants. As you are aware, information regarding the NWRs issued by NSEL certified warehouses would be of invaluable assistance in identifying the parties responsible for the payment crisis at NSEL. Consequently, we are shocked and surprised by the WDRAs silence and inaction on these matters. 8. We trust that the WDRA has fulfilled all its obligations regarding the issuance of NWRs and maintenance of records pertaining thereto. In light of the huge deficiencies in stock and questions over the authenticity of the NWRs issued in the trades executed on NSEL, we call upon the WDRA, as the sole public authority over issue of NWRs, to publish all information and records relating to the NWRs issued by NSEL certified warehouses. We further request the WDRA as the statutory regulator to utilize all its powers of calling for records, inspection, investigation, and etc., to help uncover the persons behind the NSEL payment crisis. 9. Pursuant to the above, we request you to take the following actions as a matter of urgency in order to address the present situation: (i) Produce and publish all records relating to the issue of NWR books to NSEL-certified warehouses. Produce and publish the reports of the WDRA and/or accreditation agencies authorised by it, in connection with grant of certification to, and registration of NSEL-certified warehouses. Call for and publish all records and registers maintained by NSEL-certified warehouses.

(ii)

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Take all appropriate actions within its powers against persons found to have contravened the WDRA Act, or failed to fulfil their obligations thereunder, including without limitation, pursuing all available remedies, whether civil or criminal in nature.

We urgently seek your response and action with respect to the issues highlighted herein. Yours faithfully, For and on behalf of

NSEL Investors Forum,

Arun Dalmia Secretary

Mobile: 09821013308 Email:arundalmia2000@yahoo.com With copies to: 1. The Chairman Forward Markets Commission, Government of India, Everest, 3rd Floor, 100, Marine Drive, Mumbai - 400 002 2. Mr. K. V. Thomas Minister of Consumer Affairs, Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution, Krishi Bhavan, New Delhi - 110001 3. The Secretary Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution, Krishi Bhavan, New Delhi - 110001 4. Mr. Arvind Mayaram Secretary - Department of Economic Affairs, Ministry of Finance, North Block, New Delhi - 110001