The Securities and Exchange Board of India (SEBI) in two separate orders have declared commodity brokerage arms of Motilal Oswal and IIFL (India Infoline) among others as 'not fit and proper' in its action in the NSEL (National Spot Exchange Limited) fraud case.

Following its investigation, SEBI has charged as many as 300 brokers on charges of colluding with the spot exchange in defrauding investors. The case involved, NSEL's failure to comply with the norms which include maintaining sufficient underlying stock on the trades that it allowed, even as the brokers sold these lucrative products to the investors. The exchange had defaulted on payments worth Rs 5,600 crore by July 2013.

In its order uploaded on its website on Friday, SEBI said that the brokers had close association with NSEL by allowing themselves to become 'channels.'

"The Noticee, by virtue of being a broker, and by its own admission, has facilitated transactions in the said paired contracts for its clients on the NSEL platform. This in itself establishes a close association between the Noticee on the one hand and paired contracts and NSEL on the other. Over and above this, the Noticee, by its own admission allowed himself to become a channel and instrument for NSEL to promote paired contracts amongst its clients," it said.

"Thus... the noticee is not a fit and proper person to be granted registration/to operate as a commodity derivatives broker".

It said that the noticees would have to immediately cease to act as commodity brokers. In a similar order issued to the IIFL, it said that the clients of the commodity broking firms have been asked to withdraw or transfer the securities they hold with the brokers within 45 days of the order and with no additional costs.