MUMBAI, July 22: The National Stock Exchange (NSE) has withdrawn the requirement for its members to furnish personal indemnity bonds following stiff opposition from the members of the exchange. The exchange has also decided to withdraw the facility of the clearing corporation paying upfront the dues of members who introduce bad papers in transactions.

These decisions were taken at a hurriedly-convened board meeting of the NSE late on Monday evening. The move to withdraw its decision comes barely nine days before the expiry of the deadline to furnish personal indemnity bonds against the introduction of fake or forged shares.

The NSE management has admitted that opposition to the move by a large number of its members has forced it to review its decision which had been aimed at eliminating the menace of fake, forged or counterfeit shares.

According to the NSE, the concept of personal indemnity recognises the fundamental principle that individuals are personally responsible for the actions of the entities they own and control. There has been considerable debate and misconception about the limited liability of shareholders of corporates. This mechanism is well accepted in the Indian corporate world and is often the basis for project financing by banks and financial institutions in the country.

``There are circumstances which warrant and justify lifting of the corporate veil so that individual shareholders in control of management of the corporate entity are held liable for the acts of the corporate particularly where fraud and gross negligence are involved,'' the exchange said in a statement.

``The proposal on personal indemnity as originally framed was modified by the exchange in response to representations made by the trading members. Regrettably, however, the exchange continues to encounter resistance from its trading members. Efforts made by the exchange to dispel the misgivings do not seem to have yielded the desired results. Representations are being continuously received and minor procedural issues often cited as the reason for non-execution of personal indemnities,'' NSE said.

``The NSE's counterparty guarantee scheme was intended primarily to guarantee the completion of the settlement up to the normal pay-out. The NSE later voluntarily decided to extend a facility for the replacement of bad paper or payment of its equivalent financial value from a close-out as per which replacement or payment was made upfront by the clearing corporation in cases where the introducing member did not do so within the prescribed time,'' the NSE statement released here said.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.