Here is a curious case of an official clarification of a news story confirming it definitely. Outgoing finance secretary Rajiv Mehrishi, said a story in The Financial Express, wrote to the finance minister criticising the Revenue Department opposing the proposed amalgamation of scam-struck National Spot Exchange Ltd (NSEL) with its promoter company, Financial Technologies (India) Ltd (FTIL). One arm of the government was thwarting another arm was the letter’s nub. The government has clarified that Revenue based its opinion on advice from the Enforcement Directorate, which felt that its investigation would be impeded by the proposed amalgamation, and that it was quite possible for different arms of the government to have different points of view without any desire to favour anyone being at work. Fair enough.

The clarification does not contest the rest of the reported letter, which reveals poor understanding of the NSEL scam and cavalier disregard for the damage to investor confidence in the stability of India’s legal and policy framework arising from breaching a listed company’s limited liability, even as its promoters’ deemed culpability is still under investigation and sub-judice. When the regulator abruptly terminated some contracts on NSEL, certain traders defaulted on their obligation to pay another set of traders on the exchange. NSEL’s settlement guarantee fund has the liability to pay for the trades guaranteed by the exchange, but not for the amounts borrowed to finance the badla-like trades carried out on the exchange. The Mumbai High Court and Maharashtra’s Economic Offences Wing have frozen assets of the defaulting traders, who traded contracts with non-existent underlying stock. The right thing to do is to recover the money from the defaulters to pay off their dues.

NSEL must be penalised for its faults, whose precise identification should be a priority for Sebi. It would a grievous error for the government to force the amalgamation and rob FTIL shareholders to let the defaulting traders off the hook.