National Spot Exchange Ltd.

National Spot Exchange Ltd. (NSEL) is the national-level, institutionalized, electronic, transparent spot trading platform for commodities. It is a structured market place, set-up to transform the commodity market by way of reducing the cost of intermediation and, thereby, improving marketing efficiency. Its state-of-the-art technology facilitates risk-free and hassle free purchase and sale of various commodities. NSEL provides others, customized solution to farmers, traders, processors, exporters, importers, arbitrageurs, investors and other stake holders, pertaining to commodity procurement, storage, marketing, warehouse receipt financing, etc. NSEL commenced Live trading on October 15, 2008. At present, NSEL is operational in 16 states in India, providing delivery-based spot trading in 50 commodities. In 2010, NSEL added a new dimension to commodity market by introducing investment products in commodities in demat form. For the first time in the history of Indian commodity market, NSEL launched a series of unique investment products, known as e-Series instruments. e-Gold, the first product under e-Series umbrella, was launched on March 17, 2010. e-Series products provide an opportunity to small investors to invest in physical commodities (e.g. Bullion) in smaller denomination in demat form. This segment is similar in functionality to the cash segment in Equities.

Mission To develop a pan-India, institutionalized, electronic, transparent common Indian market offering compulsory delivery-based spot contracts in various agricultural and non-agricultural commodities. With a view to reduce cost of intermediation by improving marketing efficiency and, thereby, improving producers realization coupled with reduction in consumer paid price. Objectives The main objective of NSEL is to develop a vibrant electronic spot market in various commodities and to offer a value proposition to different segments of the commodity ecosystem. The idea is to reduce cost of intermediation and create an electronic linkage between buyers and sellers across the country. The Exchange provides counterparty guarantee in terms of quantity, quality and payment. Hence, the participants get a safety net against credit risk and counterparty default. USPs OF NSEL Provides an effective method of spot price discovery in various commodities in a transparent manner Provides a market where farmers/producers/importers/Government companies can sell their commodities and realize proceeds at the best prevailing price in a risk-free manner Offers a market where the processors, end-users, exporters, corporate (both private and Government) and other upcountry traders can purchase commodities at the most competitive price without any counterparty and quality risk Provides investment instruments in commodities for retail investors and HNIs Offers a transparent market where financiers, investors and arbitrageurs can invest money in buying various commodities across the country without going through the physical market hassles Provides authentic spot price of various commodities that can be used by the futures market as the benchmark price for settlement of their contracts on the date of expiry Helps the futures exchanges, Forward Markets Commission (FMC) and the Government in achieving the target of compulsory delivery in all agricultural produce by way of creating a linkage between physical market and futures market Promotes grading and standardization of agricultural produce and facilitates warehouse receipt financing to farmers and traders by the financial institution Creates a market for trading in negotiable warehouse receipts, both in physical and electronic form

Regulatory Set Up NSEL commenced operation pursuant to the Gazette Notification dated June 5, 2007 issued by the Ministry of Consumer Affairs, Food and Public Distribution, Government of India, allowing it to conduct trading in one day duration forward contracts in commodities subject to conditions. Subsequently, the Ministry has issued Gazette Notification dated February 6, 2012 to appoint Forward Markets Commission (FMC) as the designated agency to which all information or returns relating to the trade as and when asked for shall be provided by the National Spot Exchange. In compliance with the conditions of the Gazette Notification, NSEL submits specified reports, returns and information to the Forward Markets Commission (FMC) on regular basis. Since marketing of notified agricultural produce is regulated by Directorate of Marketing of respective State Government, NSEL obtains licenses from State Governments under respective State APMC Acts, where it intends to launch Farmers Contracts for agricultural commodities. NSEL has hitherto obtained licenses from the following State Governments: Government of MAHARASHTRA The Director, Agricultural Marketing & Rural Finance, Government of Maharashtra, has granted license to NSEL as Private Market under the State APMC Act Government of KARNATAKA The Director of Agricultural Marketing, Government of Karnataka, has issued license to NSEL for establishment of Spot Exchange in the State of Karnataka under the State APMC Act Government of GUJARAT The Director of Agricultural Marketing & Rural Finance, Government of Gujarat, has granted license to National Spot Exchange as E-Market under the State APMC Act Government of MADHYA PRADESH (MP) The Managing Director, MP State Agricultural Marketing Board, Government of Madhya Pradesh, has granted license to NSEL for establishing electronic trading facilities in MP Government of ORISSA The Director, Agricultural Marketing, Government of Orissa, has granted license to NSEL as a Private Market under the State APMC Act

Government of RAJASTHAN The Director, Agriculture Marketing, Government of Rajasthan, has granted license to NSEL under the State APMC Act as a Private Sub E-Market

Major Achievements: Milestones & Strategic Alliances 2013 MAR Agreement with Hadher Group of establishments LLC, Abu Dhabi, UAE for Joint business development and marketing in commodities JUN NSEL and SBI have tie up for the collateral Management Services Coffee board of India signs pact with NSEL to create a Warehouse receipt based electronic Spot Marker for Coffee beans JUL Tamil Nadu Co-operative Marketing Federation (Tanfed ) entered into an agreement with NSEL to purchase potato, onion and ginger online 2012 FEB Received Shariah certification for e-Lead, e-Zinc and e-Nickel APR Launched e-Platinum under its investment product category e-Series SEP Western Ghats Agro Growers Ltd. (WGAGL), Joint initiative of Kerala farmersand NSEL was inaugurated by the Honorable Chief Guest Prof K. V. Thomas,Minister of State for Consumer Affairs, Food and Distribution in Kerala. NOV Signed an MoU with Belarusian Universal Commodity Exchange (BUCE), thelargest Commodity Spot Exchange in Republic of Belarus for developing bilateraldeals between India and Eastern European countries, especially Republic ofBelarus, Russia, Ukraine, Kazakhstan. NAFED appointed NSEL as a State Level Supporter (SLS) for the procurement of cotton and processing of cotton by ginning and pressing to convert into cotton bales for the season 2012-13 on its behalf. DEC National Spot Exchange Limited (NSEL) has signed an agreement with Small Farmers Agribusiness Consortium (SFAC) to provide the services of Technical and Logistic Supply Agency (TLSA) for the Pulses Procurement Programme under MSP (PPPMSP). 2011 JAN Signed an MoU with Govt. of Gujarat under Vibrant Gujarat 2011

FEB Received Shariah certification for e-Gold, e-Silver and e-Copper 2009 JAN Commenced cotton procurement in Andhra Pradesh under Price Support Scheme (PSS) operation on behalf of Nafed JUN Signed an MoU with the Maharashtra State Agriculture Marketing Board, to create linkage between rural Primary Agricultural Cooperative Societies (PACS) godowns and spot market facilities SEP Signed an MoU with Govt. of Orissa, for developing electronic market facilities in Orissa 2008 JAN Issuance of license by Govt. of Maharashtra MAY Issuance of license by Govt. of Karnataka for setting up spot exchange in the State of Karnataka JUN Signed an MoU with the Gujarat Agro-Industries Corporation Ltd. (GAIC) to create a strategic alliance for development of agri-business and providing an electronic market platform in the State 2007 MAY MoU with Govt. of Madhya Pradesh, for developing electronic market facilities in Madhya Pradesh JUN Recommendation by the Ministry of Agriculture, Govt. of India about NSEL project Issuance of Gazette Notification by the Ministry of Consumer Affairs, Govt. of India under Section 27 of the FCRA, 1952 OCT Issuance of license by the Govt. of Gujarat under Gujarat APMC Act NOV Signed an MoU with IL&FS for common service centers being setup under National EGovernance Project to be connected to NSEL project Signed an MoU with Govt. of Rajasthan 2005 MAY Incorporated as a company limited by shares under the Companies Act, 1956

Services Offered
Electronic spot trading facility in various commodities with specific delivery Centres Trading in Commodity-based Investment instruments in demat form Grading, quality certification and standardization of commodities Facilitating Collateral financing against warehouse receipts Customized services relating to storage, transportation, logistics and shipment Procurement services to Corporates and Government agencies Electronic auction of various commodities on behalf of FCI, MMTC, etc. Scientific storage of commodities with warehouse receipt financing

Benefits NSEL offers significant benefits to various stakeholders of the commodity ecosystem, such as farmers, traders and the Government among others. FARMER Enables seamless connect to the national market to ensure sale of marketable surplus Provides better price discovery and realization GOVERNMENT Enables better realization of cess as NSEL submits a statement of all physical deliveries to the authorities Enables Govt. companies to enhance price realization by conducting auction of commodities through NSEL platform Promotes agro-industrial processing and exports as uninterrupted supply of raw materials is assured through NSEL Enables creation of important trading hubs that generate direct and indirect employment All the aforementioned objectives are achieved without any significant cost to the exchequer TRADERS Provides a wider and liquid market, where huge quantities can be traded Eliminates counterparty risk, credit risk, and risk relating to rejection at buyers godown at the time of delivery Ensures elimination of post trade risks

Empowers farmers to quote desired selling price, which is not available in mandi auction system Enhances bargaining power due to availability of alternative marketing channel Promotes grading and standardization at farm gate, leading to grade and quality based price realization Increases holding capacity due to availability of warehouse receipt financing

Provides easy access to bank finance against warehouse receipts Provides a grading system for effectively using the futures market for managing their risks Offers opportunities to expand activities to multiple commodities with operational ease

Operations
Trading NSEL provides an online, screen-based trading system, which can be accessed through VSAT, leased line or internet. The Exchange conducts trade through daily expiry commodities contracts. The positions outstanding at end of the day result into compulsory delivery. However during the day, the transactions of offsetting nature are netted off and delivery is effected only with respect to the net quantity outstanding at end of the day. Terms relating to quality specifications, place of delivery, date of delivery and other conditions are specified by the Exchange in advance. All contracts executed on the system are based on such terms only. Market remains open from 10:00 am to 11:30 pm. Delivery, Clearing and Settlement All trades executed during the day are netted off at the close of market hours as per the weighted average price of the last 30 minutes. The profit/loss arising thereon is settled on the basis of Mark-To-Market (MTM) on either the same day or next day depending on the contract condition. The net sellers have to give delivery by way of depositing goods in the Exchange designated warehouses/storage tanks as specified in the Circular. The buyer's account is debited by the Exchange and delivery order is issued to him after ensuring that payment is complete. Thereafter, payout is credited to the seller's account. In case the seller/buyer fails to honor his delivery obligation, the position is auctioned/closed out at the risk and cost of the defaulting party. Risk Management, Margining and Surveillance The Exchange uses various tools for risk management, margining and surveillance to ensure market integrity. All positions outstanding in the market are subject to margin payable by both buyers and sellers. However, margin is not applicable on the sellers who have deposited goods in the Exchange-designated warehouses and pledged with the Exchange. Settlement Guarantee Fund The Exchange guarantees performance of all contracts executed on the Exchange platform. For this purpose, the Exchange maintains a settlement guarantee fund. Notwithstanding default of any member, payout is honored as per the Exchange schedule. Technology NSEL has the strategic advantage of having Financial Technologies (India) Ltd. (FTIL), as its technology partner for delivering technologically advanced solutions to market participants. FTIL has provided a robust technology platform to multiple domestic and international Exchanges. The Exchange uses a client server application, which can be accessed through VSAT, leased line, Internet as well as mobile phones. The hardware hosting the trading and surveillance applications are fully fault tolerant systems with zero redundancy.

Operational Flow chart regarding Use of NSEL platform by a Farmer

Product Summary
Exchange is providing an unbiased and state-of-art platform for buying and selling of commodities. Commodities traded on Exchange platform include agricultural commodities, bullions, and metals. Exchange has now launched investment products (E-Series) in commodities which are accumulated in the demat account of the investors. Main aim of the Exchange is to bring a large number of buyers and sellers on the same platform for spot price discovery and to make sure that the commodity bought and sold on the Exchange is delivered on time without the counter-party risks to the traders 1. Commodities are traded in contract form on the electronic trading terminal. 2. All contracts are of single day duration having different settlement cycle depending upon the commodity and market practices 3. The Exchange offers two types of contract (Farmers contract and traders contract) for agriculture commodity. Farmers contract is market cess unpaid and has smaller lot size to facilitate even a marginal farmer to sell their produce. Traders contract is market cess paid and usually has larger trading lot size. 4. A commodity may have multiple contracts based on the market location, settlement cycle, and lot size.

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Commodities Offered
NSEL provides a platform for trading in multiple commodities with multiple contracts. It also provides trading in such commodities, which are traded on futures exchanges. This has enabled seamless process of cash future arbitrage, enabling investors to buy Exchange-certified deliveries. Besides, there are some customized contracts to meet the specific requirements of an institutional buyer or institutional seller. It has also launched a number of farmers contracts to provide a service to the small and marginal farmers, where it does not charge transaction fee from small and marginal farmers. As on Dec 31, 2012, the Exchange offers trading in 50 commodities. Commodity Arecanut Bajra Barley Basmati Rice (or Rice) Basmati Paddy (or paddy) Black Pepper Cardamom (Oil type & Splits) Castor Seed Delivery Centres Shimoga, Channagiri (Karnataka) Jaipur (Rajasthan), HAFED Warehouse (Haryana) Jaipur, Chomu, Sikar, Srimadhopur (Rajasthan) Jakhal, Ratia, Raina - HAFED Warehouse (Haryana), Ludhiana (Punjab) Karnal, Nilokhari, Thanesar, Ladwa, Pehowa, Sirsa, Ismailabad - HAFED Warehouse (Haryana), Warangal (AP), Ludhiana, Khamanon (Punjab) Vandanmedu (Kerala), Saharanpur (Uttar Pradesh) Vandanmedu (Kerala) Palanpur, Kadi, Jagana, Mehsana, Patan, Chandisar, Visnagar, Panthawada, Gandhidham, Sidhpur, Dhenera, Deesa, Harij, Vadali, Mundra, Himmatnagar, Deodhar, Thara, Khedbrama, Vadgam (Gujarat) Kandla (Gujarat) Delhi, Bikaner, Jaipur, Sri Ganganagar, Malpura (Dist. Tonk) (Rajasthan), Ganj Basoda, Vidisha, Guna (Madhya Pradesh), Osmanabad, Jalgoan (Maharashtra), Gadag (Karnataka) Indore (Madhya Pradesh), Jalgaon (Maharashtra)

Castor Oil Chana/Desi Chana Chana Kantawala/Chan a Kabuli Coal Copra Coriander Copper Cotton (Bales & Kapas)

Mangalore (Karnataka) Tiptur, Arsikere & Tumkur (Karnataka) Guna (Madhya Pradesh) Demat (e-Copper), Delhi Mumbai, Yavatmal-Arni, Gunj, Darwha, Wani, Digras, Nagpur-Narkhed, Wani, Kalameshwar, Amravati-Achalpur, Chandur, Akola-Telhara, Murtijapur, Khamgaon, Dhule, Balapur, Barshi Takli, Jalgaon-Raver, Erandol, Dharangaon, Pahur, Parola, Amalner, Aurangabad-Sillod, Beed Georai, Sonpet, Parli, Ashti, Kaij, Buldana-Malkapur, Nandura, Deulgaon Raja, Hingoli-Aundha Nagnath, Jalna-Ambad, Jafrabad, Parbhani-Selu, Nanded-Bhokar, Dharmabad, Ardhapur, Wasim-Karanja, Nisik-Shirpur, Osmanabad, Nandurbar, Kolhapur, Solapur, Latur, Aurangabad-Vaijapur (Maharashtra), Himmatnagar, Rajkot (Gujarat), Adilabad, Nizamabad, Khammam (Andhra Pradesh)

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Cottonseed Wash Kadi, Tramba (Gujarat), Shamshabad (Hyd) (Andhra Pradesh) Oil Gold Ahmedabad, Rajkot (Gujarat), Mumbai (Maharashtra), Kolkata (West Bengal), Hyderabad, Vijayawada (Andhra Pradesh), Chennai, Coimbatore (Tamilnadu), Jaipur (Rajasthan), Delhi, Indore (Madhya Pradesh), Patna (Bihar), Bangalore (Karnataka) Groundnut Jaipur, Bikaner, Jodhpur (Rajasthan), Maliya Hatina (Gujarat) Guar Seed Bikaner, Jaipur (Rajasthan), Hissar, Sirsa, Adampur (Haryana), Deesa, Chandisar (Gujarat) Guar Gum Jodhpur (Rajasthan) Jeera (Cumin Jodhpur (Rajasthan) seed) Lead Demat (e-Lead) Tur (Lemon, Mumbai, Jalgoan (Maharashtra), Chennai (Tamilnadu), Ex-Godown Tandur, Malavi, Whole, (Andhra Pradesh) Split Redgram) Maize Maheshkhoont (Bihar), Jalgaon, Khopate near Uran (Maharashtra), Umerkote (Orissa), Davangiri (Karnataka), Kota (Rajasthan) Masoor/Lentil Kolkata (West Bengal), Mumbai (Maharashtra) Moong (Green Mumbai, Jalgoan (Maharashtra) Gram) Mustard Oil Jaipur (Rajasthan) Nickel Demat (e-Nickel) Pig Iron (iron Jajpur (Odisha) ore) Platinum Demat (e-Platinum), Ahmedabad, Jaipur, Delhi, Hyderabad, Mumbai Rajma (Kidney Ex-Godown (Andhra Pradesh) Bean) Red Chilly Saharanpur (Uttar Pradesh), Khammam (AP) RBD Palmolein Mundra, Kandla (Gujarat), Kakinada (AP) RM seed Jaipur, Jodhpur, Kota, Baran (Rajasthan), Narnaul, Rewari (Haryana) (Mustard seed) Silver Ahmedabad, Rajkot (Gujarat), Mumbai, Solapur, Kolhapur (Maharashtra), Kolkata (West Bengal), Hyderabad (Andhra Pradesh), Chennai (Tamilnadu), Jaipur (Rajasthan), New Delhi (Delhi), Demat (e-Silver) Soybean Ganj Basoda, Vidisha (Madhya Pradesh), Jalgoan, Nandurbar (Maharashtra), Kota, Pratapgarh, Baran (Rajasthan) Soybean DOC Kota (Rajasthan) Soybean Oil Kota (Rajasthan) (Crude) Soybean Oil Shamshabad (Hyd) (Andhra Pradesh) (Refine) Steel & Steel Raipur (Chhattishgarh), Jharsuguda (Orissa), Kurnool (AP), Mumbai TMT (Maharashtra) Sugar Kolhapur (Maharashta), Patna (Bihar), Kolkata (West Bengal), Ex-HAFED

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Sunflower Seed Sunflower Oil Urad (Black Mapte) FAQ Wheat Wool (Raw) Wool (top) Yellow Peas Zinc

SUGAR MILL ASSAND, Ambala (Haryana), Dadariya, Dist. Vapi (Gujarat), Jalgaon (Maharashra) Shamshabad (Hyd) (Andhra Pradesh) Mumbai, Jalgaon (Maharashtra) Rajkot (Gujarat), Jaipur, Chomu (Rajasthan), Delhi, Vidisha (Madhya Pradesh), Ex-Odisha, Jalgaon (Maharashtra) Ludhiana (Punjab) Ludhiana (Punjab) Mumbai (Maharashtra), Kolkata (West Bengal) Demat (e-Zinc), Delhi (Zinc Ingot)

E-Series
The Cash Segment of Commodities; Investment Products for Retail Investors For the first time in India, NSEL has introduced e-Series products in commodities for retail investors. These are investment products that enable investors to buy and sell commodities in demat form and hold them in their demat account. Retail investors now trade and invest in commodities like they do in equities. This is a unique market segment, which functions like the cash segment in equities, but offers commodities in the demat form in smaller denominations. The clearing and settlement, pay-in and pay-out mechanism is based on T+2 settlement cycle. E-Series products provide opportunity for intra-day trading, coupled with demat delivery in respect of positions outstanding at end of the day. NSEL has launched e-Gold, e-Silver, e-Copper, e-Zinc, e-Lead, e-Nickel and ePlatinum. NSEL will continue to add more commodities under this segment. Investors who wish to purchase e-Series products are required to open beneficiary accounts with NSEL-empanelled Depository Participants (DPs). National Securities Depository Ltd. (NSDL) and Central Depository Services (India) Ltd. (CDSL), are the depositories for holding commodity units in the electronic form. Industrial Products NSEL provides the facility to sell processed/manufactured industrial products on its platform. The producer company gets listing of its products on the NSEL platform through a formal agreement, specifying the rights and obligations. The primary objective of allowing branded products on the Exchange is to provide efficient marketability and mechanism to manage trading of the branded products. At present, Hindustan Zinc Ltd. sells silver bars mined and refined at its factory on the

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NSEL platform under such arrangement. Similarly, Neelachal Ispat Nigam Ltd. (NINL) Orissa sells Pig Iron produced in its mines, while MMTC sells branded gold coins on its platform. Advantages of selling industrial products on NSEL platform Accessible by large number of buyers spread across the country Good market depth since it reaches every corner of the country Cost-effective method of electronic marketing with complete end-to-end solutions relating to trading, delivery and settlement Transparent price discovery process Elimination of counterparty risk

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Membership
Membership of NSEL is available to individuals, partnership firms, corporate houses, HUFs, cooperative societies and other legal entities. Membership is granted to such entities, which comply with all requirements relating to admission fee, security deposit, annual subscription, qualification/experience and net worth criteria. Members can trade on their own account or on accounts of their clients. They can also appoint their sub-brokers, franchisees, authorized persons and remisiers. Members can also set up their branch offices and franchises. Members/brokers can charge brokerage or commission from their clients, as may be negotiated between them. Corporate houses, willing to use NSEL platform for procurement or sale of commodities, can either become a member directly or can trade through any of the members of the Exchange. Membership Categories Trading-Cum-Clearing Member (TCM) TCM is a person/corporate who is admitted by the Exchange as a member, conferring upon him a right to trade and clear through the Clearing House of the Exchange, as a Trading-Cum-Clearing Member. TCM can appoint sub-brokers, franchisees, authorized persons and remisiers, as well as set up their branch offices. Members can charge brokerage or commission from their clients, as may be negotiated between them. Trading Member (TM) TM is a person admitted by the Board who has the right to trade on his own account as well as on accounts of his clients, but has no right to clear and settle such trades himself. All such trading members must be affiliated with any one of the Institutional Trading-cum-Clearing Member (ITCM) or Professional Clearing Member (PCM), having clearing rights on the Exchange. Institutional Trading-Cum-Clearing Member (ITCM) ITCM is an institution/corporate which is admitted by the Exchange as a member, conferring upon it the right to trade and clear trades, as an Institutional Trading-Cum Clearing Member. Further, the ITCMs can also appoint sub-brokers, authorized persons, and Trading Members, who would be registered as Trading Members on NSEL at the request of the ITCM. ITCM can clear and settle trades on behalf of the sub-brokers, authorized persons and such Trading Members, who are registered on NSEL at their request, subject to the terms and conditions specified by NSEL. Professional Clearing Member (PCM) PCM is a Financial Institution, company or Bank admitted by the Exchange as a Professional Clearing Member, conferring upon it the right to clear and settle trades through the clearing house

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of the exchange, as a Professional Clearing Member. PCM is allowed to clear and settle trades of such members of the Exchange who choose to clear and settle their trades through such PCM. However, PCMs do not have trading rights.

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Market Timing Trading on the Commodities takes place on all days of the week (except Sundays and holidays declared by the Exchange - Trading Holidays & Clearing and Settlement Holidays-2013) The market timings for trading on the online platform of the Exchange are as under Products AGRI NON-AGRI Intraday Contracts (Agri / nonagri) E-Series Product Auction Contract Products Silver HAFED - Bajra, Basmati Paddy, Paddy and Rice Contracts NAFED- Rajma & Whole Toor Ball Copra Sugar Monday to Friday 16:00 to 16:40 12:00 to 15:00 12:00 to 15:00 12:00 to 15:00 10:00 to 11:50 and 18:00 to 19:30 Saturday 13:00 to 13:40 Monday to Friday 10.00 to 18.00 10:00 to 23:30 10:00 to 16:00 10:00 to 23:30 Saturday 10:00 to 14:00 10:00 to 14:00 -

FCI Wheat auction contracts for various Delhi FSDs traded from 10:00 AM to 11:50 AM on the Wednesdays as notify by FCI. Some other Contracts timings: Trade timing Commodity Symbol Monday to Friday Gold Medallion RBD Palmolein MMTCGL8DEL RBDGOKUL9 RBDGOKUL9 10:30 to 16:30 10:00 to 17:00 Saturday 10:00 to 14:00

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RBDGUJOIL9 Masoor Tur Malavi MASOORKOL5 TURMLWCHE5 10:00 to 19:00 10:00 to 19:00 10:00 to 20:00 10:00 to 14:00

Kapas (Raw Cotton) FKAPASMAH0

Board of Directors

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Mr. Shankarlal Guru - Chairman Mr. Jignesh Shah - Vice Chairman Vice Chairman - MCX, Founder of FTIL Mr. B D Pawar - Director Director - CITA Mr. Ramanathan Devarajan - Director Financial Technologies Group

Promoters
NSEL is promoted by Financial Technologies India Limited (FTIL) and National Agricultural Cooperative Marketing Federation of India Limited (NAFED). Financial Technologies (India) Ltd. (FTIL)

FTIL is the flagship company of the Financial Technology Group. FTIL is a global leader in creating and operating technology-centric, next generation financial markets that are transparent, efficient and liquid, across multi asset class, including equities, commodities, currencies, energy and bonds among others. It is a company listed on BSE and NSE. www.ftindia.com National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED)

NAFED is the national level farmers federation registered under Multi State Co-operative Societies Act. It was set up on 2nd October, 1958 to promote co operative marketing of agricultural produce to benefit the farmers. www.nafed-india.com

NSEL Collapse

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There was the Rs 250 crore Harshad Mehta scam built on fake bank receipts and now there is the Rs 5600 crore NSEL scam built on fake warehouse receipts and illegal trades. It's been almost 2 months since the National Spot Exchange started to unravel but we are still in government committee territory. Not only did the government allow an unregistered, unregulated exchange to function but it also ignored early signs of trouble. NSEL's former CEO says in his affidavit that the exchange faced payment issues way back in 2011-12. FSDC was alerted to this in 2012. FMC Chairman Ramesh Abhishek told this show that when it discovered the illegal trades last year the exchange turnover was at Rs 2000 crores. But nobody did nothing till mid this year when the turnover had jumped to Rs 6000 crores. An innocuous-looking notification from the Forward Markets Commission (FMC) came in on July 12, 2013. And in the offices of the National Spot Exchange Limited (NSEL), a commodities exchange promoted by the Jignesh Shah-led Financial Technologies (FinTech), things began to change. The notification restricted NSEL from making fresh contracts available as they were likely in contravention of the Forwards Contracts Regulation Act. NSEL first changed its contract duration to comply, and then when it found customers leaving in droves, threw up its arms and shut down the exchange. More than Rs 5,500 crore was due, and over the next few days it became evident that there was neither the money nor the underlying spot goods to settle trades by over 15,000 investors. Since then, the story has unravelled, slowly. The scale of this default dwarfs the last big exchange crisis, the Rs 600 crore settlement problem at the Calcutta Stock Exchange in 2001. What is a Spot Exchange? Commodity spot trading is about buying and selling a commodity, paying cash for and receiving your goods on the spot. Which signifies that the buyer and seller agree on a price and deliver their side of the contract immediately. NSEL was a spot exchange designed to help this activity, with the added feature of being electronic (so buyers and sellers can be in different locations) and anonymous (the buyer and seller dont know who the other side is). The important feature of any such exchange is that the exchange has to stand guarantee to either party that it will ensure the contract is settled. If the buyer cant bring in the money for any reason, the exchange should then sell the goods to someone else and recover the money (and make up the difference). And a similar exercise if the seller defaults.

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Now, when the seller and buyer are far away from each other, how does the exchange guarantee delivery? The idea is that the seller must come to an exchange-designated warehouse and give his goods, which are then tested and verified for quality and weight. He then gets a warehouse receipt (WR) that is used for electronic trading. When he sells on the exchange, the warehouse receipt is transferred to the buyer; this receipt entitles the buyer to take the goods out of the warehouse, or if he chooses, to retain the goods there (to sell them later) by paying the warehouse rental charges. There are rules governing commodity trading, which is regulated firmly by the Forward Market Commission (FMC). Under the Forward Contracts Regulation Act, any contract that is called spot must be settled within 11 days that is, both delivery of goods and transfer of money must happen within 11 days (called T+11). The 11 days give the buyer and seller time to complete the contract. Thus, this would then not become a forward contract. Spot contracts, by their nature, were deemed to be out of FMC regulation by a small notification in 2007 by the Department of Consumer Affairs. This exemption was given specifically for one-day duration contracts or, technically those contracts that complete both delivery of goods and transfer of money within two days, called T+2. What NSEL Really Did Instead of just making T+2 contracts, the spot exchange designed multiple contracts. Some of them were T+2 settled, making them spot in nature. Others were the same product but settled after 25 to 35 days, called T+25, or T+36 contracts. This was illegal such contracts are forward contracts and NSEL was not authorized to execute these, but it did. And no one stopped it. And the concept got worse. NSEL sold what seemed to be arbitrage. You could buy the T+2 contract and sell the T+25 contract and the difference in prices gave you nearly 15 per cent per year, annualized. Effectively, you would be the owner of half a ton of sugar or castor seeds or such commodities, for a period of about a month, which would get sold when you exited. The exchange practically removed all constraints from investors during this period the goods would lie in the same warehouse and be sold from there, and the price difference included a 15 percent net return after storage charges, VAT, etc. This arbitrage was almost guaranteed. NSEL as an exchange stood guarantee, or so investors thought. Brokers peddled this product to their customers for over two years. The number of customers ballooned to over 15,000, each of whom put in at least Rs 2 lakh to get their superior returns. What Was the Problem? Who was on the other side? Thats the question that no one seems to be asking.

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Was the arbitrage genuine? It appears not. The contracts were always sold in pairs. Brokers have reported that no one was allowed by the exchange to just take one side of any contract you always had to have a buy on the near contract and a sell on the far side. A quick look at the Kadi contract for castor seeds, sold in pairs of T+3 and T+36, shows identical volumes and interest for both contracts in January 2013, and thats the case with every commodity that had a near and far contract. This is hardly possible in a real market, so it points to the fact that these contracts were always executed in pairs. The Ponzi Scheme It turns out now that those on the other side were just 24 members of the exchange, called Planters or Processors or Borrowers. These members owned plants that processed commodities or, at least, they said they did. For instance, NK Proteins owned a plant to process castor seeds in Kadi, Gujarat. The contract the Kadi Castor Seeds contract was settled at an NSEL warehouse located inside the Kadi plant of NK Proteins. Processors like NK Proteins (and there were 23 other such members) were on the other side of the trade. They would sell at T+2 and buy back at T+23, offering huge returns. The fact that the contracts were executed in pairs indicates a financing program. Something is placed as collateral to borrow money for a short period of time. This used to be commonly known as badla financing in the pre-2000 stock exchanges, where shares were collateral. (Badla is banned now; the financing has moved to the futures market.) Lets say I am a plant owner, and I cant get a loan from a bank. I can effectively borrow from you at 15-18 percent much cheaper than I can borrow from banks. And if Im smart, I know that the goods I sell you will remain at a warehouse inside my premises, so why not cheat a little and tell you that yes, Ive added more goods to your warehouse, and you, on the other end of the phone agree. In this situation I can invent stock that doesnt exist and borrow against it for 15 days; for the interest, I might pay some out, but immediately get it back in a new contract when I add even more imaginary stock. This was the Ponzi nature of the game. Indeed, it turned out that some of these companies had poor balance sheets incapable of handling such large loans loans of the size of Rs 900 crore. And the exchange did nothing. Most investors rolled over their contracts. That is, when the contract was unwound after T+35, they would enter a fresh round of T+2 (buy) and T+35 (Sell). Meaning, the interest received was also ploughed back into further purchases; a borrower, on the other hand, was pretending to pay interest, but was simply creating warehouse receipts for the interest and trading them on the exchange, while rolling over the contract forever. The End of the Game

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All this had to stop sometime, and the circular from FMC stopped it. First, on 16th July the contracts were cut to T+10. But that would involve too many pair trades from one a month to three a month, each of which had higher transaction costs. Next, some investors smelt a rat and didnt roll over their contracts. The lack of a rollover shuttered the exchange. When the borrowers were told that they had to pay back all the money, they simply could not (or didnt want to). And it turns out they dont seem to have the goods to back it up either. On July 31, NSEL issued a circular saying all future contracts would be stopped. And because there was a settlement problem, they would have to delay payouts for a while. Remember, some investors had bought goods on a T+2 contract, paying upfront. Now they expected that after their 25-35 days, the other contract would kick in and they would be paid back money at the higher rate on that contract. At this point, the exchange should have stood guarantee. Thats the role of an exchange. But because it didnt get paid from the borrowers, it didnt have the capacity to pay. Lies, Deceit and an Incestuous Web The exchange started to lie. The CEO, Anjani Sinha said on August 1st that they had a Settlement Guarantee Fund of over Rs 800 crore plus they had all the stocks in the NSEL warehouses. In a few days they changed that position, stating they had only Rs 60 crore in cash and the rest of the guarantee fund was in stock. All entities were supposed to put a tiny amount up to 5 percent as margin until trade completion. This, too, was unavailable for some reason. And then, after telling everyone that they would get their money back, the NSEL management said they had to auction stock to get the money. Soon, even that avenue was gone as there wasnt any stock. Jignesh Shah, the founder of FinTech, which promoted the exchange, said in a press conference that they would have a high-powered committee, including an ex-SEBI chief, a senior police officer and the like, to ensure settlements happen. As it turns out, the committee was useless in actually enforcing the contracts. NSEL next created a complex settlement program. After a few days, NSEL management offered a settlement calendar stretching 30 weeks where people would be paid back Rs 174 crore per week for 20 weeks, Rs 86 crore a week after that, and a big balloon payment at the end. NSEL couldnt even make the first weeks payments properly it paid up just half. In the second week, to fend off investor aggression, FinTech dipped into its resources and paid Rs 177 crore to those with less than Rs 10 lakh outstanding. There have been three payments till now of Rs 92

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crore, Rs 190 crore (including small investor payouts) and then, this week on Tuesday, 3rd September, Rs 15 crore. But in the settlement program, NSEL had promised to pay Rs 174 crore on each of these three Tuesdays. In the middle of all of this, it turned out that many of NSELs 24 Processor members were related to each other. One of the biggest borrowers, NK Proteins, is owned by the son-in-law of NSELs chairman Shankarlal Guru. Then there was Indian Bullion Market Association, owned primarily by NSEL, which participated as a member, allowing parties in the bullion space to buy through them. The whole thing began to stink. N Sundaresha Subramanian of Business Standard visited many of the defaulting members and found strange results. There was a mall in the place where 2 lakh tons of sugar was supposed to have been stored, at the address of a NSEL borrower called Mangla Shree Properties. In Ludhiana, where ARK Imports was supposed to have 12,000 tons of raw wool, there was apparently nothing. One borrower had vacated its premises months back, while another refused to admit they owed anything. NSELs investors involved clients from nearly every major broker in the country. Even the Sahara Group, which is under RBI and SEBI fire, was found to have invested more than Rs 200 crore. Some NSEL board members were close to political bigwigs like Union Agriculture Minister Sharad Pawar. CEO Anjani Sinha had earlier in his career overseen defaults in two exchanges in Magadh and Ahmedabad. Belling this cat will not be an easy task. Where are the Regulators? The FMC was supposed to control regulation of all forward contracts. Although NSEL had received an exemption, it was only for the T+2 contracts and definitely not the T+35 contracts. The new FMC Chief, Ramesh Abhishek followed this up since 2012, but what about those before him? The Department of Consumer Affairs was the de facto regulator when no one else was. It had been made aware of the situation over a year ago and should have taken action, and it didnt. Even after the scam was unearthed, and the scale of the borrowing discovered, regulators remain tight-lipped about action. SEBI has barred some of the 24 borrowers from trading on the stock exchange, and FMC has ring-fenced MCX (a commodities futures exchange which shares the same promoter, FinTech, with NSEL) from helping the beleaguered NSEL with its cash. However, any other actions have yet to come through. Where is the RBI? Banks have lent to operations that involve stocks in warehouses. In fact, some photos of NSEL warehouses explicitly state that goods are pledged to certain banks. Are these goods there? Has the RBI asked banks to initiate a probe? Not yet.

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If FinTech is the promoter of NSEL, and NSEL has seen a huge default, the obvious next step is to declare that FinTech is not fit and proper to run any other exchange, including MCX. This has not yet happened. Given this is a huge fraud, it remains astounding that agencies like the CBI, the Economic Offenses Wing or others have not been brought in to investigate. The failure of regulation could be because there are too many agencies involved. Were Brokers to Blame? Brokers might have known something was wrong. After all, you dont get an exchange everyday where you have to coordinate between a buy and a sell on the phone. Many, though, fell prey to the machinations themselves. They promised investors a return of, say, 12 percent, and then took that money to NSEL and decided to make the 3 percent extra that NSEL promised. Now, when NSEL has defaulted, brokers want to put the blame on the exchange but just like the exchange, they promised the money, which they have to pay. SEBI must act and ensure these brokers pay. Also, brokers are expected to be fiduciary agents of their customers should they have exercised more caution before recommending such an investment? Where is the Money? The short answer is: we dont know. The Enforcement Directorate and a Mumbai Police Special Investigations Team (SIT) are trying to find the money. Its gone abroad through hawala, says the SIT. Others claim it has gone to fund real estate, where there is no swift liquidity. Yet others claim the money was used to prop up FinTech and MCX shares in the stock market so when those stocks fall, the amount of money that can be recovered reduces. It is also believed the money was siphoned for political interests or for personal gains of the personalities involved. Jignesh Shah, the ambitious promoter of FinTech, started out as an engineer on the BOLT system for the Bombay Stock Exchange in 1989. After learning the ropes, he set up FinTech in 1995 and established a presence in brokerage back-office and terminal software across India. Then he set up MCX and a slew of other exchanges in India and abroad. Shah won a battle against SEBI in 2012 about a circumvention of regulation in their new MCX-SX stock exchange. He had aggressively taken away market share from other exchanges. He had sued people who wrote against him and kept media as a friend with a big advertising budget. NSELs

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exemption from the Department of Consumer Affairs was attributed to Shahs influence. But it is now apparent that everything is not clean in the FinTech empire. It would be a surprise if someone with Shahs business sense let all this happen without knowing where the money has gone. What Happens to MCX and FinTech? FinTech, at Rs 111 per share, is down over 70 percent from its 31st July price of Rs 540. It derived a large portion of its profits from NSEL the trades resulted in outsized earnings through exchange fees. But the sudden lack of profit is not its only problem. If it is declared unfit to run exchanges and it has about nine of them that would destroy the enterprise. Apart from this, there are potential fraud charges if more dirt is discovered. MCX is a well-regulated commodities futures exchange. The volumes in it havent come down quite as much as one would suppose. Its share price fell 60 percent after NSELs shutdown announcement on July 31 but has now recovered to a mere 40 percent fall. The expectation is that regardless of what happens to its promoter FinTech, MCX will be sold and there are willing buyers. The Future? The NSEL crisis shows the investment community one thing: we do not have adequate regulation or enforcement. That if there is a crisis, the agreement will not be sacrosanct; it will be secondary to the interests of the parties who have better political and business connections. This default will trigger other issues, and in a country already branded as crony capitalist, the lack of will to enforce laws and put people in jail for fraud will hamper future investment. Decisive action is required, but the window for action is fast shrinking. There is a political fallout to this crisis, but the details on that are sketchy at best. The problem really is: we have lost trust. The entire financial system is based on trust for example, if everyone tried to withdraw his or her bank deposits at once, wed have to shut everything down. Every attempt to undermine this trust must be dealt with heavily. NSELs getting away will leave us all with a deficit worse than a fiscal or current account one: the Deficit of Trust.

'Wrongdoers' removed, steps being taken, NSEL assures HC National Spot Exchange Limited (NSEL) today assured the Bombay High Court that it was taking steps to protect investors' interests, and an oversight committee had been appointed to look into the alleged Rs 5,500 crore scam.

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It also said that "wrongdoers" had been now removed from its management. The division bench of Chief Justice Mohit Shah and Justice M S Sanklecha was hearing a petition filed by Indian Council of Investors seeking direction to NSEL that it should safeguard the rights of the investors after the bourse plunged into a crisis in July this year. The PIL also seeks that commodity market regulator Forward Market Commission and other authorities should take immediate custody and control of commodities stated to be lying in the warehouses. Senior counsel Janak Dwarkadas, appearing for NSEL, today told the court that it had taken some steps. "The previous employees who were responsible for the scam have been removed. A fresh management has been appointed. An oversight committee comprising a former judge and former Maharashtra Director Generalof Police D Sivanandan has been appointed," he said. "It is not that the NSEL is not doing anything. The wrongdoers are not in control anymore. Six complaints against the errant employees and borrowers have been lodged with the city police's Economic Offences Wing," he said. Dwarkadas added that so far Rs 850 crore of the guarantee fund had been used to pay back the investors' dues. The bench directed NSEL, government and other respondents to file affidavits-in-reply within four weeks. Judges also said that if any bail/ anticipatory bail petitions were filed by the accused in the case, the present bench would hear them. NSEL, promoted by Jignesh Shah-led Financial Technologies (India) Ltd, is facing the problem of settling dues of Rs 5,500 crore of 148 members/brokers, representing thousands of investor-clients, after it suspended trading on July 31 on the government's direction. NSEL's settlement guarantee fund stood at only Rs 85 lakh National Spot Exchange Ltds latest annual report, published in the bourses website for the first time since the crisis broke out a month ago, shows the exchange had set aside only a fraction of the amount it claimed to have had as Settlement Guarantee Fund. Against varying claims its SGF ranged from Rs 839 crore (Rs 8.39 billion) to Rs 62 crore (Rs 620 million), between July 29 and August 14, the bourse had Rs 84.66 lakh (Rs 8.46 million) in the actual SGF. In its annual report, the exchange termed it security guarantee fund, and it appeared under the head reserves and surplus.

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SGF is a separate fund maintained by exchanges, in addition to the margins they collect. This fund has to be created out of the exchanges own profits, to enable settlements in case of default. From NSELs annual report, it is clear the exchange first tried to project the margins it collected from investors as the SGF but later changed the practice and set aside a portion of its reserves. This real SGF was miniscule compared to the unsettled amount -- about Rs 5,600 crore (Rs 56 billion). According to note 35 in the annual report for 2012-13, the bourse said, Various state APMCs (agricultural produce marketing committees), while issuing a licence for establishing an emarket/private market spot exchange, have laid down to maintain a settlement guarantee fund to meet exchange obligations, but have not given any guideline for the constitution of the SGF. In view of such a requirement, an amount of Rs 64,66,448 had been apportioned out of the initial margins of the members to SGF NC and shown under current liabilities in financial year 2011-12. However, in 2012-13, it changed the practice. The report added, In the current year, the said amount has been transferred back to initial margins from members accounts and an appropriation of an equal amount has been done, out of the opening balance of reserves and surplus of the company. The company has appropriated for a security guarantee fund an additional amount of Rs 20,00,000 for financial year 2012-13. Elsewhere, in the annual report, the bourse said it had a settlement fund of Rs 706 crore (Rs 7.06 billion). As of March 31 2013, the company has maintained a settlement fund amounting to Rs 70,69,044,892 (previous year Rs 36,06,046,920). The fund comprises of total of initial margin, fixed deposits and bank guarantees collected from the members, the annual report said. This, however, isnt the same as an SGF in the spirit of the term, as it already had positions built on it and could not be used to fill in case of a default. This was exposed when the exchange was unable to make good payment defaults by borrowers for the second consecutive week.

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The magic behind the shrinking fund NSEL claimed to have Settlement Guarantee Fund of Rs 839 crore (Rs 8.39 billion) as of July 29 It gave varying figures during first two weeks of August confusing regulators, investors Annual Report shows actual settlement guarantee fund was just Rs 84.66 lakh (Rs 8.46 million) as of March 31 NSEL had Settlement fund of Rs 706 crore (Rs 7.06 billion) comprising margins paid in by investors But this is not same as Settlement guarantee fund, which has to be set aside from exchange's profits/reserves

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NSEL submits Rs. 5,600 crore settlement plan, FMC to take final call
Crisis-ridden National Spot Exchange Ltd (NSEL) on Wednesday submitted a seven-month plan with regulator Forward Markets Commission (FMC) for settling dues worth Rs. 5,600 crore to investors. The regulator said it will take a decision on the settlement plan after getting views from brokers and investors while directing NSEL not to make payments to related-entity Indian Bullion Market Association (IBMA) without prior approval. As per NSEL, the settlement process could start from August 16 and run till March 11, next year. Earlier, the exchange had said it would settle the payments to over 13,000 investors over the next five months. FMC has been empowered to oversee the settlement process. "Today, we have finalised the detailed settlement plan... Starting this Friday, August 16th, there will be pay-in every Friday and pay-out every subsequent Tuesday," Anjani Sinha, managing director and CEO of NSEL, said in a statement. As per the plan, Rs. 3,494.4 crore would be settled this year in weekly instalments of Rs. 174.02 crore. Another Rs. 860 crore will be paid in ten weekly instalments of Rs. 86.02 crore each during January-March quarter next year. During this period, NSEL said some members would settle their dues worth nearly Rs. 1,220 crore through sale of commodities, fixed assets and land among others. There are 24 buyers required to complete funds pay-in obligation to ensure smooth settlement, Sinha said, adding the focus should be on these buyers/processors for realisation of pending dues. "FMC has asked NSEL to share their settlement plan through their website and get feedback of investors and brokers. FMC will take a view after receiving their feedback." "We have asked NSEL for certain information on IBMA which is their related entity and not to make any disbursement to them without our approval," Forward Markets Commission (FMC) chairman Ramesh Abhishek told PTI. NSEL is engulfed in a crisis after the national spot commodity bourse suspended trade on all its contracts, raising concern over the possible defaults of Rs. 5,600 crore dues to about 13,000 investors.

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According to the NSEL, 21 entities owe nearly Rs. 5,600 crore to investors, with the maximum liability of Rs. 929 crore from N K Proteins. NSEL forms settlement panel The National Spot Exchange Ltd (NSEL), which faces a risk of default after suspending trade, today said it has formed an independent committee to advise and monitor settlement of trade amounting to about Rs 5,500 crore. NSEL will come out with the settlement plan by August 14, Jignesh Shah, Chairman and Managing Director of Financial Technologies India Ltd (FTIL), one of the promoters of NSEL, told reporters here. The exchange has been in a crisis after it suspended trade in most contracts on July 31. The decision to set up the committee was taken after a joint meeting of the regulator Forward Markets Commission (FMC) and NSEL with investors yesterday. "NSEL constituted an independent committee of eminent persons for the purpose of advising and monitoring the progress of financial close-out plan," the exchange said in a statement. Members of the committee include former Company Law Board Chairman Sharad Upasani, former Bombay High Court judge R J Kochar, former Sebi and LIC Chairman G N Bajpai, and D Sivanandan, former Director General of Police in Maharashtra. NSEL said the exchange will collate the payment plan from buyers and finalise pay-in and pay-out in consultation with the FMC and then announce it to the market. Yesterday, the exchange said eight entities are willing to pay about Rs 2,181 crore as per the scheduled due date or earlier. Another 13 entities have offered to pay about Rs 3,107 crore in weekly installments, while negotiations are on with three others for payment of Rs 311 crore. FMC okays NSEL settlement plan; questions accounts credibility Commodity markets regulator FMC has asked crisis-ridden NSEL to go ahead for the time being with its plan to settle Rs 5,600 crore of dues to investors and questioned the credibility of the accounts and information provided by the exchange. On August 14, the National Spot Exchange (NSEL) had submitted the plan to the Forward Markets Commission (FMC) to clear dues to 13,000 investors over a period of seven months.

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Noting that the NSEL's settlement plan does not inspire confidence, the FMC asked the exchange "to go ahead with your settlement plan for time being as the payouts are already seriously delayed, which is causing deep anxiety and resentment among the sellers." The FMC came down heavily on the NSEL for not taking guarantees for the financial settlement and providing different sets of information at different times. "The credibility of information given and the books of account/records maintained by NSEL have raised serious doubt on its authenticity. You (NSEL), are therefore directed to appoint a forensic auditor firm to establish the credibility of books of account, record maintenance by the exchange in next seven days," the regulator said in a letter to the NSEL. The FMC directed the exchange to appoint the auditor with its consent. The NSEL has also been asked to update the amount deposited in the escrow account on a daily basis to the regulator and on its official website. While the exchange is required to guarantee the settlement of all financial obligations, the NSEL mentioned in its settlement plan that the dues would be cleared subject to realisation of funds from payers. To this, the FMC said, "As such, exchange appeared to have disowned its responsibility of guaranteeing the financial settlement. Whereas the exchange has the sole responsibility of settlement of trade on the exchange...It cannot simply depend upon the realisation of pay-in obligation from buyers." The NSEL, promoted by Jignesh Shah-headed Financial Technologies India Ltd (FTIL), was engulfed in a crisis after its suspended trade on July 31, raising concerns about possible default of Rs 5,600 crore due to investors, including 7,000 small investors.

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NSEL Payments Defaults

NSELs first settlement default Commodity bourse National Spot Exchange (NSEL), promoted by Financial Technologies, defaulted in its very first part settlement to its clients on Tuesday, bringing true their worst fears. The commodity exchange, which had last week given a detailed schedule to pay Rs5,574 crore in 30 weeks through part payouts, managed to collect only half of the amount planned for the first week from 15 members. As against a payout obligation of Rs174.72 crore, it received Rs92.13 crore. The exchange could not recover anything from nine members. These include top defaulting members such as NK Proteins, Ark Imports, Yathuri Associates and Tavishi Enterprises, which owe Rs967.15 crore, Rs719.42 crore, Rs424.64 crore and 333.01 crore, respectively. The failure to meet the very first payout means the exchange may take longer than the seven months it has sought to complete the entire settlement, unless the government intervenes earlier. The exchange will pay the Rs92.13 crore to 148 clients in proportion of their dues. Indian Bullion Market Association, Anand Rathi Commodities, India Infoline Commodities and Geojit Comtrade, which have large amounts of money stuck with the exchange, will receive Rs19.17 crore, Rs10.50 crore, Rs5.34 crore and Rs51.3 crore, respectively. Meanwhile, in order to save its face, the beleaguered exchange sacked Anjani Sinha, the MD and CEO, and other six heads of department. The board decided that the current key management team headed by Anjani Sinha, MD & CEO, and other relevant heads of departments be removed from their current assignments, pending an enquiry. Anjani Sinha will cease to be the MD & CEO of NSEL with effect from August 20 and will be a special officer assisting in recovery process, said an NSEL release. The move comes after the Forward Markets Commission made known its displeasure over the way things were being handled at NSEL. Despite several directives by the Commission, NSEL had given different information on different occasions, even just one day prior to the first Scheduled pay out date. This casts serious doubt on the reliability of the figures submitted by the NSEL and also raises doubt on the seriousness of the

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Management and Board of the NSEL regarding settlement of the outstanding obligations, FMC had said in a release on Monday. Sensing trouble, market participants heavily dumped the stock of Financial Technologies, which closed at Rs141.30 its lowest since November 2004. The NSEL board has appointed P R Ramesh, a former Sebi official with over 20 years in legal practice, as the officer on special duty (OSD) to exercise all powers of a CEO of the company and report directly to the board. NSEL said it is also conducting a special investigation under the OSD to identify various lapses that may have been caused in the operation of the exchange and to suggest corrective and consequential actions for recovery of outstanding dues. Two days after the Forward Markets Commission (FMC) directed the National Spot Exchange Ltd. (NSEL) to take punitive action against those who have defaulted payment for claim settlement, the exchange declared nine members as defaulters. They are: ARK Imports Pvt Ltd., Loil Overseas Foods Ltd., Lotus Refineries Pvt Ltd., N K Proteins Ltd., NCS Sugars Ltd., Spin Cot Textiles Pvt Ltd., Tavishi Enterprises Pvt Ltd., Vimladevi Agrotech Ltd. and Yathuri Associates. These members (buyers) have been declared as defaulters as per the rules of the exchange, NSEL said in a circular. These members had failed to meet their financial commitment for the first settlement dated August 20, 2013. As per the settlement plans finalized by NSEL, investors were to get Rs. 174 crore every week from the buyers till clearance of the total dues amounting to Rs. 5,600 crore. However, for the first settlement, the exchange could mop up only Rs. 92 crore which has been distributed among investors. On August 21, the FMC had asked NSEL to auction the commodities lying as collateral in the warehouses to recover dues from defaulting members. The exchange was asked to proceed to liquidate all realizable assets of the defaulters .

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NSEL defaults in 2nd payout; takes loan to pay small investors As it defaulted for the second consecutive week in paying its investors, crisis-ridden National Spot Exchange (NSEL) today said it has received over Rs 177 crore from its main promoter, Jignesh Shah-run FTIL, which will be used to clear payments due to small investors. NSEL today defaulted for the second consecutive time in meeting its weekly payment obligation of Rs 174 crore. Payout today was about Rs 12.60 crore as against Rs 174 crore due. As per the schedule drawn, the exchange was to pay investors every week for 20 weeks beginning August 20. Forward Marketing Commission (FMC) Chairman Ramesh Abhishek did not say what action it will take against NSEL but said the FTIL funding to NSEL was outside the the payment schedule. Together with Rs 12.60 crore in borrowers had deposited in the escrow account, NSEL has Rs 190 crore for payments to 7,000 investors. NSEL in a statement said it will pay 100 per cent amount to 608 investors who were to receive amounts up to Rs 2 lakh as on July 31 this year. These investors will receive the remaining amount proportionately as per the settlement plan, it added. The announcement has came on the second day of the pay-out when exchange is supposed to pay Rs 174.02 crore. The beleaguered bourse has availed a bridge loan from its promoter Financial Technologies (India) Ltd (FTIL) for this disbursement. "NSEL has availed a bridge loan from FTIl, the promoter company to make these payments aggregating Rs 177.23 crore," the statement added. Meanwhile, the NSEL will also make a pay-out of Rs 12.60 crore under the settlement plan, through the escrow account, out of the money recovered from the members with outstanding dues. The exchange added that it has appointed Grant Thornton appointed as the forensic auditors who have commenced the audit today. "NSEL is actively pursuing recovery of the dues from the members with outstanding dues. This includes initiation of civil and criminal proceedings against the defaulting members besides taking actions under the Rules and Bye-laws of the NSEL," the statement added.

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NSEL DEFAULTS ON 3RD PAYOUT National Spot Exchange Ltd (NSEL) on 3 September, 2013 has again defaulted for the third time to meet their obligations in the payment of Rs. 174.72 crore to investors as only Rs. 15.37 crore could be paid. NSEL in its settlement plan submitted to the Forward Markets Commission (FMC) had committed to pay out Rs. 174 crore to investors. Out of which NSEL has already defaulted in the first two payouts as in the first payout it received only Rs. 92.73 crore from members and in second payout it received only Rs. 12.05 crore. Further, notices have been issued to 14 defaulters for bouncing of cheques for settlement. Out of 24 members, only five members have paid in Rs. 15.37 crore and the remaining 19 members has been declared defaulters. As per NSEL notice, the recovery from these defaulting members would be done by selling commodities lying in the warehouses, sale of assets offered by these members or by payments made by the defaulting members through their own resources. As per the exchange, the payments from the defaulting members would depend on actual receipts of payments based on the above process and not in a predefined schedule. NSEL has an obligation of Rs.5,700 crore dues settle, with 148 members and brokers who represent 13,000 investors. The exchange has to settle the entire amount to investors by paying Rs. 174.72 crore every week in seven months time. NSEL defaults for 4th time National Spot Exchange Ltd (NSEL) defaulted for the fourth consecutive week as it could pay only Rs 7.77 crore on Tuesday to investors out of scheduled Rs 174.72 crore. Crisis-ridden NSEL had defaulted in payments on three previous occasions as well. "The commodities which are lying in warehouses under the control of NSEL are being auctioned after calling for sealed bids. So far, Rs 7.77 crore has been realised and pay-out is being made of these proceeds on Sept 10, 2013. Auction of other stocks are in process," NSEL said in a statement. With today's pay-out, NSEL has been able to settle only Rs 128 crore out of Rs 5,500 crore outstanding to the 13,000 investors. The exchange had availed a bridge loan of Rs 177.23 crore from its promoter Financial Technologies (FTIL) to make payments on priority basis to small investors. NSEL was engulfed in a crisis when it stopped trading on all contracts on July 31 following government directives. It raised concerns about the possible default of Rs 5,500 crore to investors. Later, NSEL announced a seven-month plan to settle the dues to investors.

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NSEL said it is actively pursuing recovery of outstanding dues from the members with pay-in obligation. "This includes initiation of civil and criminal proceedings against defaulting members besides taking actions under the Rules and Bye-laws of the Exchange. So far, 19 members have been declared defaulters and legal proceedings have commenced under the Rules and Bye-laws," NSEL said. While 13 defaulters out of the 19 have met the exchange officials during the last two weeks, six are yet to meet the officials, NSEL said. Legal notices against 14 defaulters have been issued under Section 138 of Negotiable Instruments (NI) Act for bouncing of cheques for settlement. "So far, 5 defaulters have minuted their commitment to provide their properties as collateral for disposing of the same. The outstanding liability of these 5 defaulters stands at Rs 1,328.48 and the collateral offered is Rs 1,458 crore as per the defaulters, however, it is subject to due diligence and valuation," NSEL said. . NSEL added that Chartered Accountant firm Sharp and Tannan Associates, have confirmed that payouts have been made by NSEL to the bank accounts of the defaulting members. "The liability is confirmed by the CA firm at Rs 5,574.25 crore as on August 12, 2013. Sharp and Tannan have also conducted physical audit of gold, silver, platinum and base metals in respect of e-series contracts and have found the physical to be in order with the outstanding e-series units," the statement added. NSEL has appointed Grant Thornton as forensic auditors and, additionally, internal investigation has also been initiated against the management team of the exchange. The exchange has also appointed SGS to assay the quantity and quality of goods lying in various warehouses of the defaulters. According to the audit done by the agency, significant stock shortage has been found in the nine warehouses relating to 7 defaulters, however in 29 warehouses relating to 11 defaulters, the SGS audit team was not allowed inside the premises, it added.

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NSEL defaults for fifth time The National Spot Exchange Ltd (NSEL) today made the fifth straight payment default, as it could pay only Rs. 8.57 crore to investors out of the scheduled amount of Rs. 174.72 crore. Crisis-ridden NSEL had defaulted in payments on four previous occasions as well. With today's pay-out, NSEL has been able to settle just about Rs. 137 crore out of Rs. 5,500 crore outstanding to the 13,000 investors. "The total amount being disbursed today is Rs. 8,57,88,539," NSEL said in a statement. Members of the exchange are advised to disburse the amount in the same proportion to all the pending clients having receivable amount against their unsettled obligations, it said. According to the NSEL data, four members out of 24 have paid in Rs. 8.57 crore today to the bourse, against the the pay-out requirement of Rs. 174.72 crore. The four members include Metkore Alloys & Industries (Rs. 4.5 crore), N K Proteins (Rs. 2.1 crore), Sankhya Investments (Rs. 1.4 crore) and Yathuri Associates ( Rs. 58 lakh) The beleaguered NSEL has already defaulted in the last four pay-outs as it could gather only Rs. 92.73 crore in the first pay-out (August 20), Rs. 12.05 crore in the second pay-out (August 27), Rs. 15.37 crore in third pay-out (September 3) and Rs. 7.77 crore in the fourth pay-out (September 10), out of the scheduled Rs. 174.72 crore each time. The bourse, however, had availed a bridge loan of Rs. 177.23 crore from its promoter Financial Technologies (FTIL) to make payments on priority basis to small investors. NSEL, promoted by Jignesh Shah-led FTIL, is facing the problem of settling Rs. 5,500 crore dues to 148 members after it suspended trade on July 31 on the government direction. NSEL defaults sixth time Crisis-ridden National Spot Exchange Ltd (NSEL) on Tuesday made the sixth straight payment default, as it could pay only Rs 11.45 crore to investors out of the scheduled amount of Rs 174.72 crore. NSEL bourse had defaulted in payments on five previous occasions as well. With today's pay-out, NSEL has been able to settle just about Rs 148 crore out of Rs 5,500 crore outstanding to the 13,000 investors. "The amount being disbursed today is Rs 11,45,09,931.73," NSEL said in a statement.

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Members of the exchange are advised to disburse the amount in the same proportion to all the pending clients having receivable amount against their unsettled obligations, it said. According to the NSEL data, only 10 members out of 24 have paid in Rs 11.45 crore so far to the bourse, against the pay-out requirement of Rs 174.72 crore. The beleaguered NSEL has already defaulted in the last five pay-outs. It disbursed Rs 92.73 crore in the first pay-out (August 20), Rs 12.05 crore in the second pay-out (August 27), Rs 15.37 crore in third pay-out (September 3), Rs 7.77 crore in the fourth pay-out (September 10) and Rs 8.57 crore in the fifth pay-out (September 17) out of the scheduled Rs 174.72 crore pay-out each time. The bourse, however, had availed a bridge loan of Rs 177.23 crore from its promoter Financial Technologies (FTIL) to make payments on priority basis to small investors. NSEL, promoted by Jignesh Shah-led FTIL, is facing the problem of settling Rs 5,500 crore dues to 148 members after it suspended trade on July 31 on the government direction. NSEL bank accounts frozen; bourse defaults for 7th time The Economic Offences Wing (EOW) of the Mumbai Police has frozen 58 bank accounts connected with the Rs 5,500-crore payment crisis at the National Spot Exchange Ltd (NSEL). More accounts are likely to be frozen as the investigation unfolds. The NSEL said on Tuesday that it failed to execute its seventh weekly payout as its bank accounts, including the settlement account, were frozen. However, Rajvardhan Sinha, Additional Commissioner of Police (EOW) said, "The escrow accounts in which their money is to be paid have not and will not be touched. There should be no confusion about this aspect." The action comes a day after the police registered an FIR in connection with the payment crisis at NSEL, promoted by Jignesh Shah-led Financial Technologies. Meanwhile, the CBI has started an inquiry into the irregularities by NSEL. "We have registered a preliminary inquiry to look into all aspects," said Kanchan Prasad, CBI spokesperson. The EOW, which has registered a complaint against directors and trading members of the exchange, has been conducting search and seize at warehouses, offices and residences of the accused.

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"As of Tuesday evening, we have completed searches at 54 places in various parts of the country and they are still going on. The houses and offices of the chairmen of NK Proteins, Hyderabad, and Mohan India, Delhi were also searched on Tuesday, as were seven to eight warehouses," said Sinha. "We are basically dealing with the flow of money and trying to gauge the net worth at hand. The entire process of search and seizure will take at least two more days, after which we will begin analysing the data that our men have been tasked to collect," Sinha added. Meanwhile, more than 100 complainants claimed to have been allegedly cheated by NSEL on Tuesday. The number is expected to rise. The main complainant is Pankaj Sutar, who formed the NSEL Investors' Forum and had approached the crime branch around a month ago. NSEL defaults eighth time Crisis-ridden National Spot Exchange Ltd (NSEL) today made the eighth straight payment default, as it could pay only Rs 2.85 crore to investors against scheduled amount of Rs 174.72 crore. NSEL bourse had defaulted in payments on six previous occasions as well, while in the last (seventh) pay-out exchange was unable to pay as its account was frozen by economic offences wing ( EoW) of the Mumbai police. With today's pay-out, NSEL has been able to settle just about Rs 152 crore out of Rs 5,500 crore outstanding to the 13,000 investors. "The total amount being disbursed today in a proportionate manner is Rs 2.85 crore," NSEL said in a statement. Members of the exchange are advised to disburse the amount in the same proportion to all the pending clients having receivable amount against their unsettled obligations, it added. According to the NSEL data, only one member out of 24 members have paid in Rs 2.85 crore so far to the bourse, against the pay-out requirement of Rs 174.72 crore. The bourse, however, had availed a bridge loan of Rs 177.23 crore from its promoter Financial Technologies (FTIL) to make payments on priority basis to small investors. NSEL, promoted by Jignesh Shah-led FTIL, is facing the problem of settling Rs 5,500 crore dues to 148 members after it suspended trade on July 31 on the government direction.

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The bourse plans to settle the entire dues in 30 weeks time, by paying Rs 174.72 crore for the first 20 weeks followed by Rs 86.02 crore for next ten weeks.

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Government Interference
PMO (Prime Minister Office) plans to set up special team to look into NSEL issue With a payment crisis engulfing the National Spot Exchange Ltd (NSEL), the Prime Minister's Office is planning to set up a special team headed by the Economic Affairs Secretary to look into the issue. Besides Economic Affairs Secretary Arvind Mayaram, the team would comprise of secretaries of Department of Consumer Affairs and Ministry of Corporate Affairs, sources said. It would also comprise of officials of RBI, SEBI, Directorate of Revenue Intelligence and Enforcement Directorate. The mandate of the committee would also be to see that there are no systemic threats. NSEL has to settle Rs 5,600 crore of dues to investors after it suspended trading in all contracts recently on directions from the government. The exchange has said it will submit a settlement plan by today and has set up a four-member panel to monitor the process. The government has empowered the Forward Markets Commission (FMC), the commodity market regulator, to oversee the settlement. According to the NSEL, 21 entities owe nearly Rs 5,600 crore to investors, with the maximum liability of Rs 929 crore from N K Proteins. Eight of the entities have said they will pay their liability on time and 13 have agreed to pay 5 per cent of their total dues every week. In addition, there are three entities, with total liabilities of Rs 311 crore, which are yet to decide on the payment schedule. Mayaram submits report on NSEL A high-level panel, headed by Economic Affairs Secretary Arvind Mayaram, on Monday submitted to Finance Minister P. Chidambaram its report on the alleged irregularities at the National Spot Exchange Ltd (NSEL). The panel is said to have recommended two sets of measures to deal with the NSEL issue and also the problem of regulatory gaps in oversight of spot exchanges. Enforcement action has been recommended against NSEL and the persons behind the company, it is learnt. The main issue was whether NSEL violated the Government exemption for one-day forward trading and also the ban on all short sales.

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The panel is said to have spelt out the immediate measures to be taken against NSEL in the context of the investigations by various agencies. Several agencies such as the Enforcement Directorate, the Serious Fraud Investigation Office, the Income-Tax Department and the Forward Markets Commission were involved in the NSEL probe. For the long term, the report has made certain recommendations to strengthen the functioning of the Forward Markets Commission, which regulates commodities markets. The Commission, which has come under the administration of the Finance Ministry, had no powers to regulate spot exchanges. It was only a nominated agency till the NSEL crisis broke out. Since then the Consumer Affairs Ministry has armed the FMC with special powers to look at the NSEL payments crisis and take action. The Mayaram committee report is said to have recommended a regulatory framework for spot exchanges. But closing the regulatory gaps around spot exchanges will be the long-term solution. NSEL, part of Jignesh Shah-led Financial Technologies group, is facing a crisis in settling dues worth Rs 5,600 crore. ED submits report to finance ministry The Enforcement Directorate in its status report submitted to the finance ministry on Thursday on alleged financial law violations by National Spot Exchange indicated that the crisis-ridden bourse may have violated money laundering laws and a few foreign exchange procedures. The Enforcement Directorate (ED) was one of the two working groups that was looking into the payment crisis on the commodity exchange."The ED has finalised its report and submitted the same to the finance ministry. The report speaks about detected violations in a few instances and necessary regulations that possibly were not complied with," people familiar with the development said. People with direct knowledge of the matter said once the finance ministry and a panel of secretaries, headed by economic affairs secretary Arvind Mayaram, go through the contents of the report, legal action could be initiated against those involved in the operations of National Spot Exchange (NSEL). The ED, according to sources, could register cases under the Prevention of Money Laundering Act (PMLA) and may also launch a preliminary inquiry to probe forex violations under the Foreign Exchange Management Act (FEMA).

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The ED has prepared the report after obtaining data from the Income Tax department and the Forward Markets Commission (FMC) which have probed and gleaned through the finances of the exchange. The I-T had conducted surveys on two dozen entities which were involved in the exchange last month. The role of few individuals belonging to NSEL, whose names could not be obtained, figure in the status report. The other working group probing the same case has been constituted under a deputy governor of the RBI. The NSEL, promoted by Jignesh Shah-led Financial Technologies (India) Ltd, is facing the problem of settling Rs5,600 crore dues to 148 members/brokers, representing 13,000 investor clients, after it suspended trade on 31 July on the government direction. The Prime Minister's Office (PMO) had last month suggested setting up of a special team led by DEA. The panels were constituted to check possible systemic fallout of the NSEL crisis on the financial system, members of the panel include company affairs secretary, consumer affairs secretary and revenue secretary. CBI set to probe NSEL crisis With Finance Minister P Chidambaram on 26 september,2013 saying the Central Bureau of Investigation, the Forward Markets Commission and the Ministry of Corporate Affairs will look into the payment crisis at National Spot Exchange Ltd, the probe net on the exchange looks set to widen. Chidambaram said the three would look into different aspects of the troubles at NSEL, which flouted rules from Day-1, and take action under their respective jurisdictions. He added the income tax department was also checking the financial details of NSEL investors to see if any black money was involved. A committee headed by Economic Affairs Secretary Arvind Mayaram on Monday given its report on NSEL to the finance minister. The Mayaram panel report has suggested CBI, FMC and MCA must take appropriate action. They have listed the irregularities. . . They will take action, Chidambaram said at a press conference in New Delhi. FMC might file its report in a couple of days, after which the three bodies would decide on the action, he said. A CBI official said the agency was in the process of verifying the NSEL complaint.

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It was looking into the aspect of criminal offence to find out if there was an instance of fraud or cheating. The government had received a complaint from investors but not referred the matter to CBI yet. The agency, therefore, was also trying to establish whether the probe in this matter came under its jurisdiction, a senior CBI official said. Ruling out similarities between the crises at Satyam and NSEL, Chidambaram dropped hints that the government might not bail out the people that had put their money in the exchange, saying they invested with open eyes, knowing full well they were investing in an unregulated entity. The government does not come into the picture at all, he added. Chidambaram said NSEL was not a registered or recognised association under FMC; it got exemption even before it started its business. In the way NSEL started business, theres much more than meets the eye. People seem to have given money to NSEL promoters, knowing fully well that it is not a regulated entity. . . Many of them made money in initial stages and some lost money now... I have seen the exemption order. Now, whether it is valid or not has to be examined. he said. Of the 17,000 investors who put their money in NSEL -- which is now grappling with a Rs 5,600crore payment crisis -- 9,000 traded through eight top brokers, including Anand Rathi, Motilal Oswal, India Infoline and Systematix. According to the finance minister, the investors would definitely move court, as it is a matter between them and the company. The government had in 2007 exempted NSEL from provisions of the Forward Contracts Regulation Act to operate one-day forward commodity contracts. The exemption was given on some conditions, including delivery of commodities within 11 days and a bar on short-selling by members of the exchange. From Day-1, NSEL was violating the very conditions under which it claimed it could do business, he said. The Mayaram panel had suggested NSELs troubles had no systemic risk of an impact on other markets. However, Chidambaram said he had asked both the Securities and Exchange Board of India and FMC to keep a careful watch. NSEL, part of the Jignesh Shah-led Financial Technologies group, had to suspend trading on July 31 after a government directive.

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It had committed itself to clearing its dues to investors in tranches through weekly payments. But it has so far defaulted on its weekly obligations for six weeks in a row. Two other trading platforms -- Multi Commodity Exchange and MCX-Stock Exchange -- are also Financial Technologies-promoted entities. On whether the government was looking at changing the management of other entities with the same promoters, Chidambaram said: Let us wait for the regulators report. Supreme Court order on tainted MPs: FM accuses BJP of changing stand Under attack from the Opposition for bringing an ordinance to protect lawmakers from immediate disqualification, the Centre on Thursday hit back, accusing Bharatiya Janata Party of changing its stand on overturning a Supreme Court judgment on the issue. Finance Minister P Chidambaram had said in an all-party meeting on August 13 that there was a unanimous demand that something be done in relation with the Supreme Court judgment on Sections 62(5) and 8(4) of the Representation of People Act. They are entitled to change their mind but they should not ask everybody to do so, he said on 26 september,2013.

Court asks FMC to monitor books of NSEL, IBMA The Bombay high court on Monday directed commodity regulator Forward Markets Commission (FMC) and the Economic Offences Wing (EOW) of Mumbai police to monitor the books of National Spot Exchange Ltd (NSEL) and its subsidiary Indian Bullion Market Association (IBMA) to verify each request for settlement received by the exchange under e-series contracts. NSEL on 27 September announced a faster route to settle the dues of investors in e-series products by way of financial settlements from 3-9 October. E-series contracts are those in which retail investors can buy and sell commodities in demat form. NSEL is engulfed in a payments crisis after it suspended trading of forward contracts on 31 July without specifying any reason. It needs to settle Rs.5,600 crore owed to 148 members/brokers, representing 13,000 investor clients. The e-series contracts are different from these. Trading in these was suspended on 6 August. NSEL defaulted on the first six of its scheduled weekly payouts on the paired futures contracts and the seventh payout could not be undertaken after EOW froze its accounts.

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The court was hearing a petition filed by Tarun Jain and Ketan Shah, two investors of NSEL who have asked the court to stay the settlement of the gold and silver e-series contracts of the exchange. They wanted the e-series settlement to be clubbed with the other settlements. The two investors also wanted FMC to verify the authenticity of the gold and silver stocks under eseries and ascertain whether these were purchased with investors money. And they wanted the court to restrain NSEL from making payouts to preferred e-series investors. As per the courts order, NSEL will have to forward details of each and every settlement request received under e-series contracts to FMC and EOW, which will in turn allow Jain and Shah to inspect these. The two investors can within two days of inspection raise objections against such transactions along with reasons. The FMC will then investigate such transactions and give its decision within four days of receiving the objections. For such disputed transactions NSEL cannot make payment or deliver or physically deliver any bullion till the commodity regulator gives it a go ahead, the court said. The e-series involves 33,000 investors and around Rs.525 crore. A division bench of the Bombay high court, comprising Justices S.J. Vazifdar and K.R. Shriram said any rematerialization done by NSEL under e-series will have to be deposited in a designated account. The high court has also asked FMC and EOW to submit a report on the action taken by them against NSEL, its associate entities and the directors of the spot exchange by 18 October. Besides, the court has asked NSEL to submit the details of payment made through its settlement guarantee fund and the names of entities that received the funds since 1 April. The court will hear the case on 21 October after the inspection of the books of NSEL. The commodity market regulator in its submission to the court said since the e-series contracts are huge in number it cannot check each and every contract for alleged fraud. The court had earlier directed NSEL to use a designated account created for bullion contracts only for pay-in and not for pay-out till its final order. NSEL was supposed to start financial settlement of the e-series gold and silver contracts on 3 October. Jain and Shah have contended that the settlement of bullion contracts should be clubbed with paired contracts such as steel and paddy among others, which is being monitored by FMC in the wake of the payment crisis at NSEL.

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NSEL and IBMA cannot dispose off any property or create third party rights without the permission of FMC, EOW and the Bombay high court. The court will give its final order on 21 October.

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Conclusion & Suggestion

As the crisis is still going on and judgments are being taken so all the below conclusion and suggestion is, per my understanding From the making of this project I have got to know that not only NSEL somewhere FMC is a part of this crisis. As FMC has got a hint about wrong happening in trading of contracts in 2012 where amount was standing upto approx. Rs. 2000 crores. Well my suggestion for the future of the NSEL is that it should continue its trading once all the payments are cleared. There should be a regulator for NSEL under whose control it should performs his duties.

References:
http://www.nationalspotexchange.com www.moneycontrol.com www.thehindu.com www.indianexpress.com www.financialexpress.com economictimes.indiatimes.com www.business-standard.com www.capitalmind.in

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MARINE INSURANCE Introduction of the subject: Importance of Marine insurance in commerce; Marine insurance plays a very important role in the field of overseas commerce and internal trade of a country. It is closely linked with Banking and Shipping. Banks generally finance the goods which are transported by ships or by other means of transport in the case of internal trade and Marine Insurance protects such goods against loss or damage. Without such protection the entire trade structure is bound to suffer. Marine Insurance can be divided broadly into two groups o Cargo Insurance o Hull Insurance As stated earlier, Marine Insurance is closely linked up with the trade of a country internal as well as international. A sale contract which is an essential feature in the trade involves a seller and a buyer, apart from the other parties like the carrier, the bank, and the clearing agent. Whether the insurance of the goods in transits is to be the responsibility of the seller or the buyer depends on the type of the sale contract in any transaction. There are different types of sales contracts the most important of which, as affecting the Marine Insurance are F.O.B. ( Free on Board) In this case, the seller is responsible for loss of or damage to the goods until they are placed on board the steamer for on carriage. Thereafter the buyer becomes responsible and he has, therefore, the option to insure where he likes. C.I.F. (Cost, Insurance and Freight) In this case the seller assumes responsibility for the insurance and the insurance charges are indicated in the invoice along with the other charges. C & F (Cost and Freight) In this case, normally the buyers responsibility attaches from the time the goods are placed on board the vessel and he has therefore to take care of the insurance. F.O.R. (Free on Rail) This is same as F.O.B. but it concerns mainly the internal trade transactions. Marine Cargo Policy: This policy covers goods, freight and other interests against loss or damage to goods whilst being transported by rail, road, sea and/or air.

Highlights

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 This policy covers goods, freight and other interests against loss or damage to goods whilst being transported by rail, road, sea and/or air. Different policies are available depending on the type of coverage required ranging from an ALL RISK cover to a restricted FIRE RISK ONLY cover. This policy is freely assignable and is basically an agreed value policy. Scope Transportation of goods can be broadly classified into three categories: i. Inland Transport ii. Import iii. Export The types of policies issued to cover these transits are: For Inland Transit a. Specific Policy - For covering a specific single transit b. Open Policy -For covering transit of regular consignments over the same route. The policy can be taken for an amount equivalent to three months despatches and premium paid in advance. As each consignment is despatched, a declaration giving details of the despatch including GR/RR No. is to be sent to the insurer and the sum insured gets reduced by the amount of the declared despatch. The sum insured can be increased any number of times during the policy period of one year; but care should be taken to ensure that adequate sum insured is available to cover the consignment to be despatched. c. Special Declaration Policy - For covering inland transit of goods wherein the value of goods transported during one year exceeds Rs.2 crores.Although the premium for the estimated annual turnover [i.e. the estimated value of goods likely to be transported during the year] has to be paid in advance, attractive discounts in premium are available. d. Multi-transit Policy - For covering multiple transits of the same consignment including intermediate storage and processing. For e.g. covering goods from raw material supplier's warehouse to final distributors godown of final product. For Import/Export

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a. Specific Policy - For covering a specific import/export consignment. b. Open cover - This policy which is issued for a policy period of one year indicates the rates, terms and conditions agreed upon by the insured and insurer to cover the consignments to be imported or exported. A declaration is to be made to the insurance company as and when a consignment is to be sent along with the premium at the agreed rate. The insurance co. will then issue a certificate covering the declared consignment. c. Custom duty cover - This policy covers loss of custom duty paid in case goods arrive in damaged condition. This policy can be taken even if the overseas transit has been covered by an insurance company abroad, but it has to be taken before the goods arrive in India.

Add on covers Inland transit policies can be extended to cover the following perils on payment of additional premium : i. SRCC - Strike, riot and civil commotion (including terrorist act) ii. FOB - Where the inland transit is required to be extended to cover the goods till they are loaded on board the vessel, this extension can be taken. Export /Import policies can be extended to cover War and /or SRCC perils on payment of an additional premium. Who can take the policy The contract of sale would determine who buys the policy. The most common contracts are: FOB (Free on Board) C & F (Cost & Freight) CIF (Cost, Insurance & Freight) In FOB AND C&F contracts, the buyer is responsible for insurance. Whereas in CIF

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contracts the seller is responsible for insurance from his own premises to that of the purchaser. How to select the sum insured The sum insured or value of the policy would depend upon the type of contract. Usually, in addition to the contract value 10/15% is added to take care of incidental cost.

How to claim The following steps should be taken by the insured in event of a loss or damage to goods insured : i. Take immediate steps to minimise loss. ii. Inform nearest office of the insurance company or claim settling agent mentioned on the policy. iii. In case of damage to goods whilst on ship or port, arrange for joint ship survey or port survey. iv. Lodge monetary claim with carrier within stipulated time period. v. Submit duly assigned insurance policy/certificate along with the original invoice and other documents required to substantiate the claim such as : a. Bill of Lading / AWB/GR b. Packing list c. Copies of correspondence exchanged with carriers. d. Copy of notice served on carriers along with acknowledgment/receipt. e. Shortage/Damage Certificate issued by carriers. vi. Survey fees are to be paid to the surveyor appointed by the insurance company. These fees will be reimbursed along with the claim if the claim is otherwise admissible.

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vii. Survey report submitted by Surveyor. Key Documents required for settlement of Marine Cargo Insurance Claim. A. Claim form containing the following information. a. Date, time, cause and circumstance of the loss. b. Details of damaged property. c. Amount of loss claimed. d. Sound value of the goods at the time of Loss. e. Other insurance, if any. B. Letter lodging monetary claim with carrier within stipulated time period. C. Payment details of premium amount paid D. Insurance policy/certificate along with the original invoice. E. Bill of Lading / AWB/R R/L R. F. Stores Receipt Note G. Packing list. H. Copies of correspondence exchanged with carriers. I. Copy of notice served on carriers along with acknowledgment/receipt. J. Shortage/Damage Certificate issued by carriers. K. Survey Report is very important where claim amount is over Rs.20,000/- as per provisions of the Insurance Act.1938. L. Discharge voucher. M. Letter of Undertaking where applicable. N.B. Waiver of requirement of any claim documents can be made on the merit of each claim case by the claim sanctioning authority with the approval of the Head of the Department.

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Marine Hull Policy

What is covered? -going vessels

- construction of vessel

- at -Risks insurance for voyages

els

SCOPE OF INSURANCE COVER : All risks relating to Vessels, Floating Dry Docks, Jetties and Shipowners' Interests including Hull & Machinery (H&M), Freight, Disbursements, Increased Value, Premium Reducing, Excess Liabilities, Protection and Indemnity (P&I) Liabilities, Charterers' Liabilities, Charterers' Freight, Charterers' Hire and/or Disbursments, General Average Disbursments, Ship Repairers' Liabilities, Shipbuilding Risks, Shipbreaking Risks and

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other allied interests of whatsoever nature required to be insured in India.

Perils / Risks (A) The policy covers perils of the seas, rivers, lakes or other navigable waters loss/damage to the property insured caused by :

isons

conveyance, dock or harbour equipment or installation. ghtning.

Exclusions The policy does not cover loss/ damage due to :

Weapons.

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with political motive CLAIM INTIMATION AND STEPS TO BE TAKEN BY OWNERS: In the event of casualty likely to give rise to a claim - Immediate notice to policy issuing office. - Giving brief details as to name of vessel, place of occurrence, date & time of casualty, circumstances leading to incident. - Seek appointment of surveyor to inspect and assess loss. - In case of theft please notify police. - In case of fire assistance of fire brigade to extinguish fire. - Appointment of adjuster in case of Oceangoing Vessels where necessary. - All steps to minimise loss as prudent uninsured. DOCUMENTS ESSENTIAL :

Key Documents required for settlement of Marine Hull Insurance Claim. A. Claim form containing the following information. a. Date, time, cause and circumstance of the loss. b. Details of damaged/loss vessel. c. Amount of loss claimed. d. Other insurance, if any. B. Certified copy of note of protest by master. C. Payment details of premium amount paid. D. Insured's report on occurrence. E. Survey Report is very important where claim amount is over Rs.20,000/- as per provisions of the Insurance Act.1938. F. Original Repair Bill, cash memo, Invoices. G. Weather Report by Meteorological Dept if available.

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H. Affidavits filed by rescue vessels. I. Certificate of survey for inland vessels. J. Registry certificate. K. Notarized statements of master of the vessel. L. Log Book extracts (Engine & Deck ) M. Crew list with details of competency certificates. N. Copy of Claim bill with supporting documents. O. V.R.C. cancellation certificate P. Death certificate of crew for P.A. claim Q. Post mortem report of crew for P.A. claim R. Disability Certificate from Doctor of crew for P.A. claim S. Legal heir Certificate of crew for P.A. claim T. Letter of Undertaking where applicable. N.B. Waiver of requirement of any claim documents can be made on the merit of each claim case by the claim sanctioning authority with the approval of the Head of the Department.

Wikipedia marine insurance

Marine insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which property is transferred, acquired, or held between the points of origin and final destination. Cargo insurance discussed here is a sub-branch of marine insurance, though Marine also includes Onshore and Offshore exposed property (container terminals, ports, oil platforms, pipelines); Hull; Marine Casualty; and Marine Liability. When goods are transported by mail or courier, shipping insurance is used instead.

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History[edit]
Maritime insurance was the earliest well-developed kind of insurance, with origins in the Greek and Roman maritime loan. Separate marine insurance contracts were developed in Genoa and other Italian cities in the fourteenth century and spread to northern Europe. Premiums varied with intuitive estimates of the variable [1] risk from seasons and pirates. Modern marine insurance law originated in the Lex mercatoria (law merchant). In 1601, a specialized chamber of assurance separate from the other Courts was established in England. By the end of the seventeenth century, London's growing importance as a centre for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd opened a coffee house on Tower Street in London. It soon became a popular haunt for ship owners, merchants, and ships' captains, and thereby a reliable source of [2] the latest shipping news.

It became the meeting place for parties in the shipping industry wishing to insure cargoes and ships, and those willing to underwrite such ventures. These informal beginnings led to the establishment of the insurance market Lloyd's of London and several related shipping and insurance businesses. The participating members of the insurance arrangement eventually formed a committee and moved to the Royal Exchange on Cornhillas the Society of Lloyd's. The establishment of insurance companies, a developing infrastructure of specialists (such as shipbrokers, admiralty lawyers, bankers, surveyors, loss adjusters, general average adjusters, et al), and the growth of the British Empire gave English law a prominence in this area which it largely maintains and forms the basis of almost all modern practice. Lord Mansfield, Lord Chief Justice in the mid-eighteenth century, began the merging of law merchant andcommon law principles. The growth of the London insurance market led to the standardization of policies and judicial precedent further developed marine insurance law. In 1906 the Marine Insurance Act codified the previous common law; it is both an extremely thorough and concise piece of work. Although the title of the Act refers to marine insurance, the general principles have been applied to all non-life insurance. In the 19th century, Lloyd's and the Institute of London Underwriters (a grouping of London company insurers) developed between them standardized clauses for the use of marine insurance, and these have been maintained since. These are known as the Institute Clauses because the Institute covered the cost of their publication. Out of marine insurance, grew non-marine insurance and reinsurance. Marine insurance traditionally formed the majority of business underwritten at Lloyd's. Nowadays, Marine insurance is often grouped with Aviation and Transit (cargo) risks, and in this form is known by the acronym 'MAT'.

Practice[edit]
The Marine Insurance Act includes, as a schedule, a standard policy (known as the "SG form"), which parties were at liberty to use if they wished. Because each term in the policy had been tested through at least two centuries of judicial precedent, the policy was extremely thorough. However, it was also expressed in rather archaic terms. In 1991, the London market produced a new standard policy wording

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known as the MAR 91 form and using the Institute Clauses. The MAR form is simply a general statement of insurance; the Institute Clauses are used to set out the detail of the insurance cover. In practice, the policy document usually consists of the MAR form used as a cover, with the Clauses stapled to the inside. Typically each clause will be stamped, with the stamp overlapping both onto the inside cover and to other clauses; this practice is used to avoid the substitution or removal of clauses. because marine insurance is typically underwritten on a subscription basis, the MAR form begins: We, the Underwriters, agree to bind ourselves each for his own part and not one for another [...] . In legal terms, liability under the policy is several and not joint, i.e., the underwriters are all liable together, but only for their share or proportion of the risk. If one underwriter should default, the remainder are not liable to pick his share of the claim. Typically, marine insurance is split between the vessels and the cargo. Insurance of the vessels is generally known as "Hull and Machinery" (H&M). A more restricted form of cover is "Total Loss Only" (TLO), generally used as a reinsurance, which only covers the total loss of the vessel and not any partial loss. Cover may be on either a "voyage" or "time" basis. The "voyage" basis covers transit between the ports set out in the policy; the "time" basis covers a period of time, typically one year, and is more common.

Protection and indemnity[edit]

Main article: Protection and indemnity insurance A marine policy typically covered only three-quarter of the insured's liabilities towards third parties. The typical liabilities arise in respect of collision with another ship, known as "running down" (collision with a fixed object is an "harbour"), and wreck removal (a wreck may serve to block a harbour, for example). In the 19th century, shipowners banded together in mutual underwriting clubs known as Protection and Indemnity Clubs (P&I), to insure the remaining one-quarter liability amongst themselves. These Clubs are still in existence today and have become the model for other specialized and noncommercial marine and non-marine mutuals, for example in relation to oil pollution and nuclear risks. Clubs work on the basis of agreeing to accept a shipowner as a member and levying an initial "call" (premium). With the fund accumulated, reinsurance will be purchased; however, if the loss experience is unfavourable one or more "supplementary calls" may be made. Clubs also typically try to build up reserves, but this puts them at odds with their mutual status. Because liability regimes vary throughout the world, insurers are usually careful to limit or exclude American Jones Act liability.

Actual total loss and constructive total loss[edit]

These two terms are used to differentiate the degree of proof where a vessel or cargo has been lost. An actual total loss occurs where the damages or cost of repair clearly equal or exceed the value of the property. A constructive total loss is a situation where the cost of repairs plus the cost of salvage equal or exceed the value. The use of these terms is contingent on there being property remaining to assess damages, which is not always possible in losses to ships at sea or in total theft situations. In this respect, marine insurance differs from non-marine insurance, where the insured is required to prove his loss. Traditionally, in law, marine insurance was seen as an insurance of "the adventure", with insurers having a stake and an interest in the

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vessel and/or the cargo rather than simply an interest in the financial consequences of the subject-matter's survival. Main article: Total loss

Average[edit]
The term "Average" has one meaning: Average in Marine Insurance Terms is "an equitable apportionment among all the interested parties of such an expense or loss." 1. General Average stands apart for Marine Insurance. In order for General Average to be properly declared, 1) there must be an event which is beyond the shipowners control, which imperils the entire adventure; 2) there must be a voluntary sacrifice, 3) there must be something saved. The voluntary sacrifice might be the jettison of certain cargo, the use of tugs, or salvors, or damage to the ship, be it, voluntary grounding, knowingly working the engines that will result in damages. "General Average" requires all parties concerned in the maritime venture (Hull/Cargo/Freight/Bunkers) to contribute to make good the voluntary sacrifice. They share the expense in proportion to the 'value at risk" in the adventure. "Particular Average" is the term applied to partial loss be it hull or cargo. 1. Co-insurance is the situation where an insured has under-insured, i.e., insured an item for less than it is worth, average will apply to reduce the amount payable. An average adjuster is a marine claims specialist responsible for adjusting and providing the general average statement. An Average Adjuster in North America is a 'member of the association of Average Adjusters' http://www.usaverageadjusters.org To insure the fairness of the adjustment an General Average adjuster is appointed by the shipowner and paid by the insurer.

Excess, deductible, retention, co-insurance, and franchise[edit]

An excess is the amount payable by the insured and is usually expressed as the first amount falling due, up to a ceiling, in the event of a loss. An excess may or may not be applied. It may be expressed in either monetary or percentage terms. An excess is typically used to discourage moral hazard and to remove small claims, which are disproportionately expensive to handle. In marine The term "excess" signifies the "deductible" or "retention". A co-insurance, which typically governs non-proportional treaty reinsurance, is an excess expressed as a proportion of a claim in percentage terms and applied to the entirety of a claim. Coinsurance is a penalty imposed on the insured by the insurance carrier for under reporting/declaring/insuring the value of tangible property or business income. The penalty is based on a percentage stated within the policy and the amount under reported. As an example: A vessel actually valued at $1,000,000 has an 80% coinsurance clause but is insured for only $750,000. Since its insured value is less than 80% of its actual value, when it suffers a loss, the insurance payout will

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be subject to the underreporting penalty. the insured will receive 750000/1000000th (75%) of the claim made less the deductible.

Tonners and chinamen[edit]

These are both obsolete forms of early reinsurance. Both are technically unlawful, as not having insurable interest, and so were unenforceable in law. Policies were typically marked P.P.I. (Policy is Proof of Interest). Their use continued into the 1970s before they were banned by Lloyd's, the main market, by which time, they had become nothing more than crude bets. A "tonner" was simply a "policy" setting out the global gross tonnage loss for a year. If that loss was reached or exceeded, the policy paid out. A "chinaman" applied the same principle but in reverse: thus, if the limit was not reached, the policy paid out.

Specialist policies[edit]
Various specialist policies exist, including: Newbuilding risks: This covers the risk of damage to the hull while it is under construction. Open Cargo or Shippers Interest Insurance: This policy may be purchased by a carrier, freight broker, or shipper, as coverage for the shippers goods. In the event of loss or damage, this type of insurance will pay for the true value of the shipment, rather than only the legal amount that the carrier is liable for. Yacht Insurance: Insurance of pleasure craft is generally known as "yacht insurance" and includes liability coverage. Smaller vessels such as yachts and fishing vessels are typically underwritten on a "binding authority" or "lineslip" basis. War risks: General hull insurance does not cover the risks of a vessel sailing into a war zone. A typical example is the risk to a tanker sailing in the Persian Gulf during the Gulf War. The war risks areas are established by the London-based Joint War Committee, which has recently moved to include the Malacca Straits as a war risks area due to piracy. If an attack is classified as a "riot" then it would be covered by war-risk insurers. Increased Value (IV): Increased Value cover protects the shipowner against any difference between the insured value of the vessel and the market value of the vessel. Overdue insurance: This is a form of insurance now largely obsolete due to advances in communications. It was an early form of reinsurance and was bought by an insurer when a ship was late at arriving at her destination port and there was a risk that she might have been lost (but, equally, might simply have been delayed). The overdue insurance of the Titanic was famously underwritten on the doorstep of Lloyd's. Cargo insurance: Cargo insurance is underwritten on the Institute Cargo Clauses, with coverage on an A, B, or C basis, A having the widest cover and C the most restricted. Valuable cargo is known as specie. Institute Clauses also exist for the insurance of specific types of cargo, such

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as frozen food, frozen meat, and particular commodities such as bulk oil, coal, and jute. Often these insurance conditions are developed for a specific group as is the case with the Institute Federation of Oils, Seeds and Fats Associations (FOFSA) Trades Clauses which have been agreed with the Federation of Oils, Seeds and Fats Associations and Institute Commodity Trades Clauses which are used for the insurance of shipments of cocoa, coffee, cotton, fats and oils, hides and skins, metals, oil seeds, refined sugar, and tea and have been agreed with the Federation of Commodity Associations.

Warranties and conditions[edit]

A peculiarity of marine insurance, and insurance law generally, is the use of the terms condition and warranty. In English law, a condition typically describes a part of the contract that is fundamental to the performance of that contract, and, if breached, the non-breaching party is entitled not only to claim damages but to terminate the contract on the basis that it has been repudiated by the party in breach. By contrast, a warranty is not fundamental to the performance of the contract and breach of a warranty, while giving rise to a claim for damages, does not entitle the non-breaching party to terminate the contract. The meaning of these terms is reversed in insurance law. Indeed, a warranty if not strictly complied with will automatically discharge the insurer from further liability under the contract of insurance. The assured has no defense to his breach, unless he can prove that the insurer,by his conduct has waived his right to invoke the breach, possibility provided in section 34(3) of the Marine Insurance Act 1906 (MIA). Furthermore in the absence of express warranties the MIA will imply them, notably a warranty to provide a seaworthy vessel at the commencement of the voyage in a voyage policy (section 39(1)) and a warranty of [3] legality of the insured voyage (section 41).

Salvage and prizes[edit]

The term "salvage" refers to the practice of rendering aid to a vessel in distress. Apart from the consideration that the sea is traditionally "a place of safety", with sailors honour-bound to render assistance as required, it is obviously in underwriters' interests to encourage assistance to vessels in danger of being wrecked. A policy will usually include a "sue and labour" clause which will cover the reasonable costs incurred by a shipowner in his avoiding a greater loss. At sea, a ship in distress will typically agree to "Lloyd's Open Form" with any potential salvor. The Lloyd's Open Form is the standard contract, although other forms exist. The Lloyd's Open Form is headed "No cure no pay"; the intention being that if the attempted salvage is unsuccessful, no award will be made. However, this principle has been weakened in recent years, and awards are now permitted in cases where, although the ship might have sunk, pollution has been avoided or mitigated. In other circumstances the "salvor" may invoke the SCOPIC terms (most recent and commonly used rendition is SCOPIC 2000) in contrast to the LOF (Lloyd's Open Form) these terms mean that the salvor will be paid even if the salvage attempt is unsuccessful. The amount the salvor receives is limited to cover the costs of the salvage attempt and 15% above it. One of the main negative factors in invoking SCOPIC (on the salvors behalf) is if the salvage attempt is successful the amount at which the salvor can claim under article 13 of LOF is discounted.

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The Lloyd's Open Form, once agreed, allows salvage attempts to begin immediately. The extent of any award is determined later; although the standard wording refers to the Chairman of Lloyd's arbitrating any award, in practice the role of arbitrator is passed to specialist admiralty QCs. A ship captured in war is referred to as a prize, and the captors entitled to prize money. Again, this risk is covered by standard policies.

Marine Insurance Act, 1906[edit]

Main article: Marine Insurance Act 1906 The most important sections of this Act include: 4: a policy without insurable interest is void. 17: imposes a duty on the insured of uberrimae fides (as opposed to caveat emptor), i.e., that questions must be answered honestly and the risk not misrepresented. 18: the proposer of the insurer has a duty to disclose all material facts relevant to the acceptance and rating of the risk. Failure to do so is known as non-disclosure or concealment (there are minor differences in the two terms) and renders the insurance voidable by the insurer. 33(3): If [a warranty] be not [exactly] complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date. 34(2): where a warranty has been broken, it is no defence to the insured that the breach has been remedied, and the warranty complied with, prior to the loss. 34(3): a breach of warranty may be waived (ignored) by the insurer. 39(1): implied warranty that the vessel must be seaworthy at the start of her voyage and for the purpose of it (voyage policy only). 39(5): no warranty that a vessel shall be seaworthy during the policy period ( time policy). However if the assured knowingly allows an unseaworthy vessel to set sail the insurer is not liable for losses caused by unseasworthiness. 50: a policy may be assigned. Typically, a shipowner might assign the benefit of a policy to the shipmortgagor. 60-63: deals with the issues of a constructive total loss. The insured can, by notice, claim for a constructive total loss with the insurer becoming entitled to the ship or cargo if it should later turn up. (By contrast an actual total loss describes the physical destruction of a vessel or cargo.) 79: deals with subrogation, i.e., the rights of the insurer to stand in the shoes of an indemnified insured and recover salvage for his own benefit. Schedule 1 of the Act contains a list of definitions; schedule 2 contains the model policy wording.

See also[edit]

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History of insurance Classification society Legal definitions of wreckage Inland marine insurance Seaworthiness (law)

References[edit]
1. Jump up^ J. Franklin, The Science of Conjecture: Evidence and Probability Before Pascal (Baltimore: Johns Hopkins University Press, 2001), 273-278. 2. Jump up^ Palmer, Sarah (October 2007). "Lloyd, Edward (c.1648 1713)". Oxford Dictionary of National Biography. Oxford University Press. doi:10.1093/ref: odnb/16829. Retrieved 16 February 2011. 3. Jump up^ see also: Bank of Nova Scotia v. Hellenic Mutual War Risks Association (Bermuda) Ltd. ("The Good Luck") [1991] 2 WLR 1279 and at 1294-5

External links[edit]

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UK case relating to legal definitions (The No. 1 Dae Bu)

Bibliography[edit]
Birds, J. Birds' Modern Insurance Law. Sweet & Maxwell, 2004. (ISBN 0421-87800-2) Donaldson, Ellis, Wilson (Editor), Cooke (Editor), Lowndes and Rudolf: Law of General Average and the YorkAntwerp Rules. Sweet & Maxwell, 1990. (ISBN 0420-46930-3) John, A. H. "The London Assurance Company and the Marine Insurance Market of the Eighteenth Century," Economica Ne w Series, Vol. 25, No. 98 (May, 1958), pp. 126 141 in JSTOR Roover, Florence Edler de. "Early Examples of Marine Insurance," Journal of Economic History Vol. 5, No. 2 (Nov., 1945), pp. 172200 in JSTOR Wilson, DJ, Donaldson (1997). Lowndes and Rudolf: General Average and the York-Antwerp Rules. British Shipping Law Library:.

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MARINE INSURANCE
2.0 INTRODUCTION This is the oldest branch of Insurance and is closely linked to the practice of Bottomry which has been referred to in the ancient records of Babylonians and the code of Hammurabi way back in B.C.2250. Manufacturers of goods advanced their material to traders who gave them receipts for the materials and a rate of interest was agreed upon. If the trader was robbed during the journey, he would be freed from the debt but if he came back, he would pay both the value of the materials and the interest.The first known Marine Insurance agreement was executed in Genoa on 13/10/1347 and marine Insurance was legally regulated in 1369 there. Insurance 1. Cargo 2. Hull 2.1 OBJECTIVES 1. 2. 3. 4. 5. Know the meaning of Marine insurance Buy the Marine insurance Settle the claim under Marine Insurance Know the inland transit/overseas transit. Know what is not covered under Marine insurance

2.2 MEANING OF MARINE INSURANCE A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the insured, in the manner and to the extent thereby agreed, against transit losses, that is to say losses incidental to transit. A contract of marine insurance may by its express terms or by usage of trade be extended so as to protect the insured against losses on inland waters or any land risk which may be incidental to any sea voyage. In simple words the marine insurance includes A. Cargo insurance which provides insurance cover in respect of loss of or damage to goods during transit by rail, road,sea or air. Thus cargo insurance concerns the following : (i) export and import shipments by ocean-going vessels of all types, (ii) coastal shipments by steamers, sailing vessels, mechanized boats, etc., (iii) shipments by inland vessels or country craft, and (iv) Consignments by rail, road, or air and articles sent by post. B. Hull insurance which is concerned with the insurance of ships (hull, machinery, etc.). This is a highly technical subject and is not dealt in this module. 2.3 FEATURES OF MARINE INSURANCE

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1) Offer & Acceptance: It is a prerequisite to any contract. Similarly the goods under marine (transit) insurance will be insured after the offer is accepted by the insurance company. Example: A proposal submitted to the insurance company along with premium on 1/4/2011 but the insurance company accepted the proposal on 15/4/2011.The risk is covered from 15/4/2011 and any loss prior to this date will not be covered under marine insurance. 2) Payment of premium: An owner must ensure that the premium is paid well in advance so that the risk can be covered. If the payment is made through cheque and it is dishonored then the coverage of risk will not exist. It is as per section 64VB of Insurance Act 1938- Payment of premium in advance.(Details under insurance legislation Module). 3) Contract of Indemnity: Marine insurance is contract of indemnity and the insurance company is liable only to the extent of actual loss suffered. If there is no loss there is no liability even if there is operation of insured peril. Example: If the property under marine (transit) insuranceis insured for Rs 20 lakhs and during transit it is damaged to the extent of Rs 10 lakhs then the insurance company will not pay more than Rs 10 lakhs. 4) Utmost good faith: The owner of goods to be transported must disclose all the relevant information to the insurance company while insuring their goods. The marine policy shall be voidable at the option of the insurer in the event of misrepresentation, mis-description or non-disclosure of any material information. Example: The nature of goods must be disclosed i.e whether the goods are hazardous in nature or not, as premium rate will be higher for hazardous goods. the person is having insurable interest at the time of loss. The insurable interest will depend upon the nature of sales contract. Example: Mr A sends the goods to Mr B on FOB( Free on Board) basis which means the insurance is to be arranged by Mr B. And if any loss arises during transit then Mr B is entitled to get the compensation from the insurance company. Example: Mr A sends the goods to Mr B on CIF (Cost, Insurance and Freight) basis which means the insurance is to be arranged by Mr A. And if any loss arises during transit then Mr A is entitled to get the compensation from the insurance company. 6) Contribution: If a person insures his goods with two insurance companies, then in case of marine loss both the insurance companies will pay the loss to the owner proportionately. Example; Goods worth Rs. 50 lakhs were insured for marine insurance with Insurance company Aand B. In case of loss, both the insurance companies will contribute equally. 7) Period of marine Insurance: The period of insurance in the policy is for the normal time taken for a particular transit. Generally the period of open marine insurance will not exceed one year. It can also be issued for the single transit and for specific period but not for more than a year. 8) Deliberate Act: If goods are damaged or loss occurs during transit because of deliberate act of an owner then that damage or loss will not be covered under the policy. 9) Claims: To get the compensation under marine insurance the owner must inform the insurance company immediately so that the insurance company can take necessary steps to determine the loss.

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2.4 OPERATION OF MARINE INSURANCE Marine insurance plays an important role in domestic trade as well as in international trade. Most contracts of sale require that the goods must be covered, either by the seller or the buyer, against loss or damage. Who is responsible for affecting insurance on the goods, which are the subject of sale? It depends on the terms of the sale contract. A contract of sale involves mainly a seller and a buyer,apart from other associated parties like carriers, banks, clearing agents, etc. Type of contract Responsibility for insurance Free on Board (F.O.B. Contract) : The seller is responsible till the goodsare placed on board the steamer. The buyer is responsible thereafter. He can get the insurance done wherever he likes. Free on Rail (F.O.R. Contract): The provisions are the same as in above. This is mainly relevant to internal transactions. Cost and Freight (C&F Contract) : Here also, the buyers responsibility normally attaches once the goods areplaced on board. He has to take careof the insurance from that pointonwards. Cost, Insurance & Freight (C.I.F. Contract) : In this case, the seller is responsible for arranging the in destination.He includes the premium charge as part of the cost of goods in the sale invoice. Practice in International trade The normal practice in export /import trade is for the exporterto ask the importer to open a letter of credit with a bank in favour of the exporter. As and when the goods are ready for shipment by the exporter, he hands over the documents of title to the bank and gets the bill of exchange drawn by him on the importer, discounted with the bank. In this process, the goods which are the subject of the sale are considered by the bank as physical security against the monies advanced by it to the exporter. A further security by way of an insurance policy is also required by the bank to protect its interests in the event of the goods suffering loss or damage in transit, in which case the importer may not make the payment. The terms and conditions of insurance are specified in the letter of credit. For export/import policies, the-Institute Cargo Clauses (I.C.C.) are used. These clauses are drafted by the Institute of London Underwriters (ILU) and are used by insurance companies in a majority of countries including India.

2.5 PROCEDURE TO INSURE UNDER MARINE INSURANCE A) Submission of form B) Quotation from the Insurance Company C) Payment of Premium D) Issue of cover note/Policy.

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A) Submission of form a) The form will have the following information: 1) Name of the shipper or consignor (the insured). 2) Full description of goods to be insured: The nature of the commodity to be insured is important for rating and underwriting. Different types of commodities are susceptible for different types of damage during transit- sugar, cement, etc are easily damaged by sea water; cotton is liable to catch fire; liquid cargoes aresusceptible to the risk of leakage and crockery, glassware to breakage; electronic items are exposedto the risk of theft, and so on. 3) Method and type of packing: The possibility of lossor damage depends on this factor. Generally, goods are packed in bales or bags, cases or bundles, crates, drums or barrels, loose packing, paper or cardboard cartons, or in bulk etc. 4) Voyage and Mode of Transit: Information will be required on the following points : i. the name of the place from where transit will commence and the name of the place where it is to terminate. ii. mode of conveyance to be used in transporting goods, (i.e.) whether by rail, lorry, air, etc., or a combination of two or more of these. The name of the vessel is tobe given when an overseas voyage is involved. In land transit by rail, lorry or air, the number of the consignment note and the date thereof should be furnished. The postal receipt number and date thereof is required in case of goods sent by registered post. iii. If a voyage is likely to involve a trans-shipment it enhances the risk. This fact should be informed while seeking insurance. Trans-shipment means the change of carrier during the voyage. 5) Risk Cover required: The risks against which insurance cover is required should be stated. The details of risks are discussed subsequently in this chapter. B) Quotation by insurance company Based on the information provided as above the insurance company will quote the premium rate. In nutshell, the rates of premium depends upon : (a) Nature of commodity. (b) Method of packing. (c) The Vessel. (d) Type of insurance policy. C) Payment of premium:

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On accepting the premium rates, the concerned person will make the payment to the insurance company. The payment can be made on the consignment basis. D) Issue of cover note /Policy document: i) Cover Note : A cover note is a document granting cover provisionally pending the issue of a regular policy. It happens frequently that all the details required for the purpose of issuing a policy are not available. For instance, the name of the steamer, the number and date of the railway receipt, the number of packages involved in transit, etc., may not be known. ii) Marine Policy: This is a document which is an evidence of the contract of arine insurance. It contains the individual details such as name of the insured, details of goods etc. These have been identified earlier. The policy makes specific reference to the risks covered. A policy covering a single shipment or consignment is known as specific policy. iii) Open Policy: An open policy is also known as floating policy. It is worded in general terms and is issued to take care of all shipments coming within its scope. It is issued for a substantial amount to cover shipments or sending during a particular period of time. Declarations are made under the open policy and these go to reduce the sum insured. Open policies are normally issued for a year. If they are fully declared before that time, a fresh policy may be issued, or an endorsement placed on the original policy for the additional amount. On the other hand, if the policy has run its normal period and is cancelled, a proportionate premium on the unutilised balance is refunded to the insured if full premium had been earlier collected.On receipt of each declaration, a separate certificate ofinsurance is issued. An open policy is a stamped document, and, therefore, certificates of insurance issued thereunder need not be stamped. Open policies are generally issued to cover inland consignments. There are certain advantages of an open policy compared to specific policies. These are: (a) Automatic and continuous insurance protection. (b) Clerical labour is considerably reduced. (c) Some saving in stamp duty. This may be substantial, particularly in the case of inland sendings. iv) Open Cover : An open cover is particularly useful for large export and import firms-making numerous regular shipments who would otherwise find it very inconvenient to obtain insurance cover separately for each and every shipment. It is also possible that through an oversight on the part of the insured a particular shipment may remain uncovered and should a loss arises in respect of such shipment, it would fall on the insured themselves to be borne by them. In order to overcome such a disadvantage, a permanent form of insurance protection by

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means of an open cover is taken by big firms having regular shipments. An open cover describes the cargo, voyage and cover in general terms and takes care automatically of all shipments which fall within its scope. It is usually issued for a period of 12 months and is renewable annually. It is subject to cancellation on either side, i.e., the insurer or the insured, by giving due notice. Since no stamps are affixed to the open cover, specific policies or certificates of insurance are issued against declaration and they are required to be stamped according to the Stamp Act. There is no limit to the total number or value of shipments that can be declared under the open cover. The following are the important features of an open policy/open cover. (a) Limit per bottom or per conveyance The limit per bottom means that the value of a single shipment declared under the open cover should not exceed the stipulated amount. (b) Basis of Valuation The Basis normally adopted is the prime cost of the goods, freight and other charges incidental to shipment, cost of insurance, plus 10% to cover profits, (the percentage to cover profits may be sometimes higher by prior agreement with the clients).

(c) Location Clause While the limit per bottom mentioned under (a) above is helpful in restricting the commitment of insurers on any one vessel, it may happen in actual practice that a number of different shipments falling under the scope of the open cover may accumulate at the port of shipment. The location clause limits the liability of the insurers at any one time or place before shipment. Generally, this is the same limit as the limit per bottom or conveyance specified in the cover, but sometimes it may be agreed at an amount, say, upto 200% thereof. (d) Rate A schedule of agreed rates is attached to each open cover. (e) Terms There may be different terms applying to different commodities covered under the open cover, and they are clearly stipulated. (f) Declaration Clause The insured is made responsible to declare each and every shipment coming within the scope of the open cover. An unscrupulous insured may omit a few declarations to save premium, specially when he knows that shipment has arrived safely. Hence the clause. (g) Cancellation Clause

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This clause provides for cancellation of the contract with a certain period of notice, e.g., a months notice on either side. In case of War & S.R.C.C. risks, the period of notice is much shorter. Distinction between Open policy and Open cover The open policy differs from an open cover in certain important respects. They are : (a) The open policy is a stamped document and is, therefore, legally enforceable in itself, whereas an open cover is unstamped and has no legal validity unless backed by a stamped policy/certificate of insurance. (b) An open policy is issued for a fixed sum insured, whereas there is no such limit of amount under any open cover. As and when shipments are made under the open policy, they have to be declared to the insurers and the sum insured under the open policy reduces by the amount of such declarations. When the total of the declarations amounts to the sum insured under the open policy, the open policy stands exhausted and has to be replaced by a fresh one. h) Certificate of Insurance A certificate of insurance is issued to satisfy the requirements of the insured or the banks in respect of each declaration made under an open cover and / or open policy. The certificate, which is substituted for specific policy, is a simple document containing particulars of the shipment or sending. The number of open contract under which it is issued is mentioned, and occasionally, terms and conditions of the original cover are also mentioned. Certificates need not be stamped when the original policy.

Types of Marine Insurance a) Special Declaration Policy This is a form of floating policy issued to clients whose annual estimated dispatches (i.e. turnover) by rail / road / inland waterways exceed Rs 2 crores. Declaration of dispatches shall be made at periodical intervals and premium is adjusted on expiry of the policy based on the total declared amount. When the policy is issued sum insured should be based on previous years turnover or in case of fresh proposals, on a fair estimate of annual dispatches. A discount in the rates of premium based on turnover amount (e.g. exceeding Rs.5 crores etc.) on a slab basis and loss ratio is applicable. b) Special Storage Risks Insurance This insurance is granted in conjunction with an open policy or a special declaration policy. The purpose of this policy is to cover goods lying at the Railway premises or carriers godowns after termination of transit cover under open or special declaration policies but pending clearance by the consignees. The cover terminates when delivery is taken by the consignee or payment is received by the consignor, whichever is earlier. c) Annual Policy

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This policy, issued for 12 months, covers goods belonging to the insured, which are not under contract of sale, and which are in transit by rail / road from specified depots / processing units to other specified depots / processing units. d) Duty Insurance Cargo imported into India is subject to payment of Customs Duty, as per the Customs Act. This duty can be included in the value of the cargo insured under a Marine Cargo Policy, or a separate policy can be I policy. Warranty provides that the claim under the Duty Policy would be payable only if the claim under the cargo policy is payable. e) Increased Value Insurance Insurance may be goods at destination port on the date of landing if it is higher than the CIF and Duty value ofthe cargo.

2.6 PROCEDURE OF CLAIM SETTLEMENT: As the risk coverages are different for import/export and inland (with in India) consignments, the procedure of claim settlement is explained separately. 2.6.1 For Import/Export consignments Claims Documents Claims under marine policies have to be supported by certain documents which vary according to the type of loss as also the circumstances of the claim and the mode of carriage. The documents required for any claim are as under:

a)Intimation to the Insurance company: As soon as theloss is discovered then it is the duty of the policyholder to inform the Insurance company to enable it to assess the loss. b) Policy: The original policy or certificate of insurance is tobe submitted to the company. This document establishes the claimants title and also serves as an evidence of the subject matter being actually insured. c) Bill of Lading : Bill of Lading is a document which servesas evidence that the goods were actually shipped. It alsogives the particulars of cargo. d) Invoice:

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An invoice evidences the terms of sale. It also contains complete description of the goods, prices, etc. The invoice enables the insurers to see that the insured value of the cargo is not unreasonably in excess of its cost, and that there is no gross overvaluation. The original invoice (or a copy thereof) is required in support of claim. e) Survey Report: Survey report shows the cause and extent of loss, and is absolutely necessary for the settlement of claim. The findings of the surveyors relate to the nature and extent of loss or damage, particulars of the sound values and damaged values, etc. It is normally issued with the remarks without prejudice, i.e. without prejudice to the question of liability under the policy. f) Debit Note: The claimant is expected to send a debit note showing the amount claimed by him in respect of the loss or damage. This is sometimes referred to as a claim bill. g) Copy of Protest: If the loss or damage to cargo has been caused by a peril of the sea, the master of the vessel usually makes a protest on arrival at destination before a Notary Public. Through this protest, he informs that he is not responsible for the loss or damage. Insurers sometimes require to see the copy of the protest to satisfy themselves about the actual cause of the loss. h) Letter of Subrogation : This is a legal document (supplied by insurers) which transfers the rights of the claimant against a third party to the insurers. On payment of claim, the insurers may wish to pursue recovery from a carrier or other third party who, in their opinion, is responsible for the loss. The authority to do so is derived from this document. It is required to be duly stamped. On payment of claim, the insurers may wish to pursue recovery from a carrier or other third party who, in their opinion, is responsible for the loss. The authority to do so is derived from this document. It is required to be duly stamped.

i) Bill of entry: The other important document is bill of entry issued by the customs authorities showing therein the amount of duty paid, the date of arrival of the steamer, tc., account sales showing the proceeds of the sale of the goods if they have been disposed of; repairs orreplacements bills in case of damages or breakage; and copies of correspondence exchanged between the carriers and the claimants for compensation in case of liability resting on the carriers. 2.6.2 Inland Transit Claims (Rail / Road) In regard to claims relating to inland transit, the documents

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required to be submitted to the insurers in support of the claim are: (a) Original policy or certificate of insurance duly endorsed. (b) Invoice, in original, or copy thereof. (c) Certificate of loss or damage (original) issued by carriers. (d) If goods are totally lost or not delivered, the original railway receipt and / or non-delivery certificate / consignment note. (e) Copy of the claim lodged against the railways / road carriers (By Regd. A.D.) (f) Letter of Subrogation, duly stamped. (g) Special Power of Attorney duly stamped. (Railway Claims). (h) Letter of Authority addressed to the railway authorities signed by the consignors in favour of consignees whenever loss is claimed by consignees. (i) Letter of Authority addressed to the railway authorities signed by the consignors in favour of the insurers. (k) Claim Bill, after adjusting salvage value proposed.

2.7 RISK COVERAGE For export/import policies, the-Institute Cargo Clauses (I.C.C.) are used. These clauses are drafted by the Institute of London Underwriters (ILU) and are used by insurance companies in a majority of countries including India. Exclusions All three sets of clauses contain general exclusions. The important exclusions are: i. Loss caused by willful misconduct of the insured. ii. Ordinary leakage, ordinary loss in weight or volume or ordinary wear and tear. These are normal trade losses which are inevitable and not accidental in nature. iii. Loss caused by inherent vice or nature of the subject matter. For example, perishable commodities like fruits, vegetables, etc. may deteriorate without any accidental cause. This is known as inherent vice. iv. Loss caused by delay, even though the delay be caused by an insured risk. v. Deliberate damage by the wrongful act of any person. This is called malicious damage and can be covered at extra premium, under (B) and (C) clauses. Under A clause, the risk is automatically covered.

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vi. Loss arising from insolvency or financial default of owners, operators, etc. of the vessel. Many ship owners, especially tramp vessel owners, fail to perform the voyage due to financial troubles with consequent loss or damage to cargo. This is not an accidental loss. The insured has to be cautious in selecting the vessel for shipment. vii. Loss or damage due to inadequate packing. viii. War and kindred perils. These can be covered on payment of extra premium. ix. Strikes, riots, lock-out, civil commotions and terrorism(SRCC) can be covered on payment of extra premium.

2.8 MISCELLANEOUS a) Duration of Cover-Import/export : Cargo policies are issued for specified voyage or transit whatever the time taken. It is necessary to be clear as to when exactly risk commences and terminates under a voyage pol The duration of cover is defined in the Transit Clause (popularly known as Warehouse to Warehouse Clause or WW clause) of the 1CC. The cover commences from the time the goods leave the warehouse at the place named in the policy, continues during the ordinary course of transit and terminates either a) On delivery to the consignees or other final warehouse at the destination named. b) On delivery to any intermediate warehouse used by the insured for purposes of storage or distribution or c) On the expiry of 60 days after discharge from the vessel at the final port of discharge whichever shall first occur. b) Duration of Cover-Inland consignments : Insurance attaches with the loading of each bale/ package into the wagon/truck for commencement of transit and continues during ordinary course of transit, including customary trans shipments and ceases immediately on unloading of each bale/package (a) at destination railway station for rail transits (b) at destination named in the policy in respect of road transits. c) Total Loss Goods may be totally lost by the operation of the marine peril. The measure of indemnity in the event of tota of the goods is the full insured value. The insurers are entitled to take over the salvage, if any. An actual total loss takes place where the subject matter is entirely destroyed or damaged to such an extent that it is no longer a thing of the kind insured. As against actual total loss, a constructive total loss, which is a total loss being inevitable, or where the expenditure to be incurred for repairs or recovery would exceed the value of the subject-matter after the repairs or recovery.

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d) Particular Average These are partial losses caused by marine perils. The particular average losses occur when there is a total loss of part of the goods covered, e.g., a consignment may consist of 100 packages of which 5 packages may be lost completely. Another way in which particular average loss occurs is when there is damage to destination, the percentage of depreciation is ascertained by a surveyor appointed for the purpose, by comparing on the one hand the gross sound market value and, on the other, the gross damaged market value on arrival of the goods at destination. e) General Average General Average is a loss caused by a general average act. An act is referred to as general average act when an extraordinary sacrifice or expenditure is made to save the entire ship. Such an act should be voluntary, and the expenditure reasonable. It should be undertaken with the sole idea of preserving the property imperiled in an adventure. Whenever there is a general average, the party on whom it falls, gets a rateable contribution known as general average contribution from the other parties, who are interested in the adventure and who have benefited by the voluntary sacrifice or expenditure. f) Salvage Loss When the goods insured are damaged during transit, and the nature of the goods is such that they would deteriorate further and would be worthless by the time the vessel arrives at destination, it would be a prudent and sensible way of dealing with the situation by disposing off the same at an intermediate port for the best price obtained. The term salvage loss refers to the amount payable which is the difference between the insured value and the net proceeds of the sale. This is a practical method of settlement. f) Salvage Loss When the goods insured are damaged during transit, and the nature of the goods is such that they would d arrives at destination, it would be a prudent and sensible way of dealing with the situation by disposing off the same at an intermediate port for the best price obtained. The term salvage loss refers to the amount payable which is the difference between the insured value and the net proceeds of the sale. This is a practical method of settlement. Any expenses incurred by the insured or his agents tominimize the loss or damage payable under the policy, the same are reimbursed by insurers. h) Extra Charges Under this expression come survey fees, settling agents fees, etc. They are payable if the claim is admitted. Whenever a marine survey is arranged, the fees are paid by the claimant initially and are reimbursed when the claim is paid. i) Recovery from Carriers As stated earlier, in many marine claims, there are possibilities of recovery from the carriers, i.e., road carriers, railways, steamer companies, etc. After payment of claim, the insurers are subrogated the rights and remedies available to the insured against the carriers or third parties responsible for the loss 2.9 SUMMARY

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Marine insurance deals with goods when these are being moved from one place to another by approved mode of transportation. The goods can be moved within the country and outside the country. The risks are involved in any type of transportation and to cover these risks marine (transit) insurance is developed. The risk coverage depends upon the nature of goods and packing and to cover the risks the price is to be paid which is known as premium. The consignment can be single or multiple and accordingly the marine insurance policy i.e single transit or open cover or open policy is issued by the insurance company. The risk coverage is defined by Institute of London Underwriters under the various clause ICC (A), (B), (C) and the same is acceptable to all throughout the world. Similarly the clauses for inland transit have beendefined as ITC (A),(B), (C).

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LESSON 2 -MARINE INSURANCE

Insurance on the risks of transportation of goods is one of the oldest and most vital forms of insurance. The value of goods shipped by business firms each year cost millions of rupees. These goods are exposed to damage or loss from numerous transportation perils. The goods can be protected by marine insurance contracts. It is an important element of general insurance. It essentially provides cover from loss suffered due to marine perils. In India the marine insurance is regulated by the Indian Maritime Insurance Act 1963, which is based on the original English Act.

HISTORY OF MARINE INSURANCE Marine insurance as we know it today can be described as mother of all insurances. It is believed to have originated in England owing to the frequent movement of ships over high seas for trade. In India, insurance has been in vogue for several centuries. History holds proof that these people had a system of pooling their contributions, if any one of their clan were to meet a tragedy in their voyages. Today marine insurance has assumed a vast canvas due to the expanding trade across the globe, which involves large shipping companies that require protection for their fleet against the perils of the sea.

DEFINITION

Marine insurance is a contract under which, the insurer undertakes to indemnify the insured in the manner and to the extent thereby agreed, against marine losses, incidental to marine adventures. It may be defined as a form of insurance covering loss or damage to vessels or to cargo during transportation to the high seas. It follows from the above discussion the marine insurance is a contract between the insured and the insurer. The insured may be a cargo owner or a ship owner or a freight receiver. The insurer is known as the underwriter. The document in which the contract is incorporated is called Marine policy. The insured pays a particular sum, which is called premium, in exchange for an undertaking from the insurer to indemnify the insured against loss or damage caused by certain specified perils.

The salient features of a contract of marine insurance are as follows: 1. It is based on utmost good faith. Both the insured and the insurer must disclose everything which is in their knowledge and can affect the contract of insurance. 2. It is a contract of indemnity. The insured is entitled to recover only the actual amount of loss from the insurer. 3. Insurable interest in the subject-matter insured must exist at the time of the loss. It need not exist when the insurance policy is taken. Under marine insurance, the following persons are deemed to have insurable interest:

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a) The owner of the ship. b) The owner of the cargo. c) A creditor who has advanced money on the security of the ship or cargo. d) The mortgagor and mortgagee. e) The master and crew of the ship have insurable interest in respect of their wages. f) In case of advance freight, the person advancing the freight has an insurable interest if such freight is not repayable in case of loss.

4. It is subject to the doctrine of causa proxima. Where a loss is brought by several causes in succession to one another, the proximate or nearest cause of loss must be taken into account. If the proximate cause is covered by the policy, only then the insurance company will be liable to compensate the insured. 5. It must contain all the essential requirements of a valid contract, e.g. lawful consideration, free consent, capacity of the parties, etc.

MEANING OF MARINE PERILS Maritime perils can be defined as the fortuitous (an element of chance or ill luck) accidents or casualties of the sea caused without the willful intervention of human agency. The perils are incidental to the sea journey that arises in consequence of the sea journey. There are different forms of perils, of which only a few are covered by insurance while others are not. Accordingly we have insured and uninsured perils. Insured perils are storm, collision of one ship with another ship, against rocks, burning and sinking of the ship, spoilage of cargo from sea water, mutiny, piracy or willful destruction of the ship and cargo by the master (captain) of the ship or the crew, jettison etc. Uninsured perils are regular wear and tear of the vessel, leakage (unless it is caused by an accident), breakage of goods due to bad movement of the ship, damage by rats and loss by delay. All losses and damages caused due to reasons not considered as perils of the sea are not provided insurance cover.

SUBJECT MATTER OF MARINE INSURANCE

The insured may be the owner of the ship, owner of the cargo or the person interested in freight. In case the ship carrying the cargo sinks, the ship will be lost along with the cargo. The income that the cargo would have generated would also be lost. Based on this we can classify the marine insurance into three categories: (a) Hull Insurance Hull refers to the ocean going vessels (ships trawlers etc.) as well as its machinery. The hull insurance also covers the construction risk when the vessel is under construction. A vessel is exposed to many dangers or risks at sea during the voyage. An insurance effected to indemnify the insured for such losses is known as

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Hull insurance.

(b) Cargo Insurance Cargo refers to the goods and commodities carried in the ship from one place to another. The cargo transported by sea is also subject to manifold risks at the port and during the voyage. Cargo insurance covers the shipper of the goods if the goods are damaged or lost. The cargo policy covers the risks associated with the transshipment of goods. The policy can be written to cover a single shipment. If regular shipments are made, an open cargo policy can be used that insures the goods automatically when a shipment is made.

(c) Freight Insurance Freight refers to the fee received for the carriage of goods in the ship. Usually the ship owner and the freight receiver are the same person. Freight can be received in two ways- in advance or after the goods reach the destination. In the former case, freight is secure. In the latter the marine laws say that the freight is payable only when the goods reach the destination port safely. Hence if the ship is destroyed on the way the ship owner will loose the freight along with the ship. That is why, the ship owners purchase freight insurance policy along with the hull policy.

(d) Liability Insurance It is usually written as a separate contract that provides comprehensive liability insurance for property damage or bodily injury to third parties. It is also known as protection and indemnity insurance which protects the ship owner for damage caused by the ship to docks, cargo, illness or injury to the passengers or crew, and fines and penalties.

TYPES OF MARINE POLICY There are different types of marine policies known by different names according to the manner of their execution or the risk they cover. They are:

1. Voyage Policy Under the policy, the subject matter is insured against risk in respect of a particular voyage from a port of departure to the port of destination, e.g. Mumbai to New York. The risk starts from the departure of ship

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from the port and it ends on its arrival at the port of destination. This policy covers the subject matter irrespective of the time factor. This policy is not suitable for hull insurance as a ship usually does not operate over a particular route only. The policy is used mostly in case of cargo insurance. 2. Time Policy It is one under which the insurance is affected for a specified period of time, usually not exceeded twelve months. Time policies are generally used in connection with the insurance of ship. Thus if the voyage is not completed with in the specified period, the risk shall be covered until the voyage is completed or till the arrival of the ship at the port of call.

3. Mixed Policies It is one under which insurance contract is entered into for a certain time period and for a certain voyage or voyages, e.g., Kolkata to New York, for a period of one year. Mixed Policies are generally issued to ships operating on particular routes. It is a mixture of voyage and time policies. 4. Valued Policies It is one under which the value of subject matter insured is specified on the face of the policy itself. This kind of policy specifies the settled value of the subject matter that is being provided cover for. The value which is agreed upon is called the insured value. It forms the measure of indemnity in the event of loss. Insured value is not necessarily the actual value. It includes (a) invoice price of goods (b) freight, insurance and other charges (c) ten to fifteen percent margin to cover expected profits. 5. Unvalued policy It is the policy under which the value of subject matter insured is not fixed at the time of effecting insurance but has to be ascertained wherever the subject matter is lost or damaged. 6. Open policy An open policy is issued for a period of 12 months and all consignments cleared during the period are covered by the insurer. This form of insurance Policy is suitable for big companies that have regular shipments. It saves them the tedious and expensive process of acquiring an insurance policy for each shipment. The rates are fixed in advance, without taking the total value of the cargo being shipped into consideration. The assured has to declare the nature of each shipment, and the cover is provided to all the shipments. The assured also deposits a premium for the estimated value of the consignment during the policy period. 7. Floating Policy A merchant who is a regular shipper of goods can take out a floating policy to avoid botheration and waste of time involved in taking a new policy for every shipment. This policy stands for the contract of insurance in general terms. It does not include the name of the ship and other details. The other details are required to be furnished through subsequent declarations. Thus, the insured takes a policy for a huge amount and he informs the underwriter as and when he makes shipment of goods. The underwriter goes on recording the

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entries in the policy. When the sum assured is exhausted, the policy is said to be fully declared or run off. 8. Block Policy This policy covers other risks also in addition to marine risks. When goods are to be transported by ship to the place of destination, a single policy known as block policy may be taken to cover all risks. E.g. when the goods are dispatched by rail or road transport for shipment, a single policy may cover all the risks from the point of origin to the point of destination.

ASSIGNMENT OF MARINE POLICY.

A marine insurance policy may be transferred by assignment unless the terms of the policy expressly prohibit the same. The policy may be assigned either before or after loss. The assignment may be made either by endorsement on the policy itself or on a separate document. The insured need not give a notice or information to the insurer or underwriter about assignment. In case of death of the insured, a marine policy is automatically assigned to his heirs. At the time of assignment, the assignor must possess an insurable interest in the subject matter insured. An insured who has parted with or lost interest in the subject matter insured cannot make a valid assignment. After the occurrence of the loss, the policy can be assigned freely to any person. The assignor merely transfers his own right to claim to the assignee.

CLAUSES IN A MARINE POLICY

A policy of marine insurance may contain several clauses. Some of the clauses are common to all marine policies while others are included to meet special requirements of the insured. Hull, cargo and freight policies have different standard clauses. There are standard clauses which are invariably used in marine insurance. Firstly, policies are constructed in general, ordinary and popular sense, and, later on, specific clauses are added to them according to terms and conditions of the contract. Some of the important clauses in a marine policy are described below:

1. Valuation Clause. This clause states the value of the subject matter insured as agreed upon between both the parties. 2. Sue and Labour clause. This clause authorizes the insured to take all possible steps to avert or minimize the loss or to protect the subject matter insured in case of danger. The insurer is liable to pay the expenses, if any, incurred by the insured for this purpose.

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3. Waiver Clause. This clause is an extension of the above clause. The clause states that any act of the insured or the insurer to protect, recover or preserve the subject matter of insurance shall not be taken to mean that the insured wants to forgo the compensation, nor will it mean that the insurer accepts the act as abandonment of the policy. 4. Touch and Stay Clause. This clause requires the ship to touch and stay at such ports and in such order as specified in the policy. Any departure from the route mentioned in the policy or the ordinary trade route followed will be considered as deviation unless such departure is essential to save the ship or the lives on board in an emergency. 5. Warehouse to warehouse clause. This clause is inserted to cover the risks to goods from the time they are dispatched from the consignors warehouse until their delivery at the consignees warehouse at the port of destination. 6. Inchmaree Clause. This clause covers the loss or damage caused to the ship or machinery by the negligence of the master of the ship as well as by explosives or latent defect in the machinery or the hull. 7. F.P.A. and F.A.A. Clause. The F.P.A. (Free of Particular Average) clause relieves the insurer from particular average liability. The F.A.A. ( free of all average) clause relieves the insurer from liability arising from both particular average and general average. 8. Lost or Not Lost Clause. Under this clause, the insurer is liable even if the ship insured is found not to be lost prior to the contact of insurance, provided the insurer had no knowledge of such loss and does not commit any fraud. This clause covers the risks between the issue of the policy and the shipment of the goods. 9. Running down Clause. This clause covers the risk arising out of collision between two ships. The insurer is liable to pay compensation to the owner of the damaged ship. This clause is used in hull insurance. 10. Free of Capture and Seizure Clause. This clause relieves the insurer from the liability of making compensation for the capture and seizure of the vessel by enemy countries. The insured can insure such abnormal risks by taking an extra war risks policy. 11. Continuation Clause. This clause authorizes the vessel to continue and complete her voyage even if the time of the policy has expired. This clause is used in a time policy. The insured has to give prior notice for this and deposit a monthly prorate premium. 12. Barratry Clause. This clause covers losses sustained by the ship owner or the cargo owner due to willful conduct of the master or crew of the ship. 13. Jettison Clause. Jettison means throwing overboard a part of the ships cargo so as to reduce her weight or to save other goods. This clause covers the loss arising out of such throwing of goods. The owner of jettisoned goods is compensated by all interested parties. 14. At and From Clause. This clause covers the subject matter while it is lying at the port of departure and until it reaches the port of destination. It is used in voyage policies. If the policy consists of the wordfrom only instead of at and from, the risk is covered only from the time of departure of the ship.

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WARRANTIES

Besides the three important principles i.e. good faith, indemnity, and insurable interest, it is necessary that all the marine insurance contracts must fulfil the warranties also. Warrantee means a condition which is basic to the contract of insurance. The breach of which entitles the insurer to avoid the policy altogether. If the warranty is not complied with by the insured, the contract comes to an end. There are two exceptions where the breach of warranty is excused and does not affect that insurers liability: (i) Where owning to change in the circumstance the warranty is inapplicable and (ii) Where due to enactment of a subsequent law the warranty becomes unlawful. Kinds of Warranties Warranties are of two types: (i) Express, and (ii) Implied. An express warranty is one which is expressed or clearly stated in the contract and it can be easily ascertained whether it has been fulfilled or not. For instance a marine policy usually contains the following express warranties: (i) The ship will sail on a specified day. (ii) The ship is safe on a particular day. (iii) The ship will proceed to the port of destination without any deviation. (iv) The ship is neutral and will remain so during the voyage.

The implied warranty, on the other hand, is not expressly mentioned in the contract but the law takes it for granted that such warranty exists. An express warranty does not exclude implied warranty unless it is inconsistent therewith. Implied warranties do not appear in the policy documents at all, but are understood without being put into words, and as such, are automatically applicable. These are included in the policy by law, general practice, long established custom or usage. The important implied warranties are discussed below: (a) Sea-Worthiness of the ship. A ship is sea worthy when it is in a fit condition as to repair, equipment, crew, etc. to encounter the ordinary perils of the voyage. This implies that the ship must be suitably constructed, properly equipped and manned, sufficiently fuelled and provisioned and capable of withstanding the ordinary strain and stress of the voyage. It must not be overloaded. (b) Legality of Voyage.

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The journey undertaken by the ship must be for legal purposes. Carrying prohibited or smuggled goods is illegal and therefore, the insurer shall not be liable for the loss. (c) Non-deviation of the ship route. It is assumed that the ship will maintain the same route as stated in the policy in ordinary course, but in case of peril it is permitted to deviate. If the ship does not follow the usual route, the insurer will not be liable even if the ship regains her route before any loss takes place. However, the insurer remains liable for any loss which might have occurred prior to the deviation.

TYPES OF MARINE LOSSES

A loss arising in a marine adventure due to perils of the sea is a marine loss. Marine loss may be classified into two categories: 1) Total loss A total loss implies that the subject matter insured is fully destroyed and is totally lost to its owner. It can be Actual total loss or Constructive total loss. In actual total loss subject matter is completely destroyed or so damaged that it ceases to be a thing of the kind insured. e.g. sinking of ship, complete destruction of cargo by fire, etc. In case of constructive total loss the ship or cargo insured is not completely destroyed but is so badly damaged that the cost of repair or recovery would be greater than the value of the property saved. e.g. a ship dashed against the rock and is stranded in a badly damaged position. If the expenses of bringing it back and repairing it would be more than the actual value of the damaged ship, it is abandoned.

2) Partial loss A partial loss occurs when the subject matter is partially destroyed or damaged. Partial loss can be general average or particular average. General average refers to the sacrifice made during extreme circumstances for the safety of the ship and the cargo. This loss has to be borne by all the parties who have an interest in the marine adventure. e.g. A loss caused by throwing overboard of goods is a general average and must be shared by various parties. Particular average may be defined as a loss arising from damage accidentally caused by the perils insured against. Such a loss is borne by the underwriter who insured the object damaged. e.g. If a ship is damaged due to bad weather the loss incurred is a particular average loss.

MARINE INSURANCE IN INDIA There is evidence that marine insurance was practiced in India since long time. In earlier days travellers by sea and land were exposed to risk of losing their vessels and merchandise because of piracy on the open seas. It was the British insurers who introduced general insurance in India, in its modern form. The first company known as the Sun Insurance Office Ltd. was set up in Calcutta in the year 1710. This followed by several insurance companies of different parts of the world, in the field of marine insurance. In India marine insurance is transacted by the subsidiaries of the General Insurance Corporation of India- New India

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Assurance, National Insurance, Oriental Insurance and United India Insurance. Marine and hull insurance contribute 20% to the total premium of the general insurance industry in India.

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