Nearly five years after the NSEL scam came to light with SEBI’s probe, the question arises that why FMC’s the then chairman Ramesh Abhishek suppressed the report of Rajvardhan Sinha? Why the then Head, EOW-Mumbai (Additional Commissioner of Police) had not taken action against the brokers despite having full power through gazette notification of August 2013? Now, Rajvardhan’s report is filed by SEBI as a response to the brokers’ petition as an annexure.
In a complaint application submitted to the sessions court in Mumbai on March 2015 by Pankaj Ramnaresh Saraf, one of the investors who suffered a loss to the tune of Rs 2.2 crores, alleged that during the period from October 2008 to July 2013, NSEL allowed 25 members, to trade on the exchange as sellers. It is also alleged that in authenticating these companies due diligence was not followed. It is further alleged that during the relevant period, these 25 members (sellers) in connivance with NSEL, traded fictitious stocks on the exchange for which they raised fake documents.
During the initial contracts between these Member Companies as sellers and buyers, the companies squared off the contracts on the date of maturity, but later on when the investments in the company grew substantially, they did not honour their commitment and thereby, caused wrongful loss of approximate Rs 5,600 crores to the other investors which include a number of more than 13,000.
National Spot Exchange Ltd. (NSEL) is a company registered under The Companies Act, 1956, on May 18, 2005, in Mumbai. The company provides an electronic platform for spot trading in commodities and operates from 16 States across the country. The Company is promoted by M/s. Financial Technologies (India) Ltd. (FTIL), which holds 99.99 per cent of the total share capital of the Company.
The board of directors of NSEL consisted of Shankarlal Guru, Chairman, Jignesh Shah, the Vice Chairman, BD Pawar, Director, Joseph Massey, Director, Anjani Sinha, Director (MD & CEO), Shreekant Javalgekar, Director, Ramanathan Devarajan, Director. The key officials of NSEL are Amit Mukherjee, Jai Bhaukhundi, Maneesh Chandra Pandey, Santosh Mansingh, HB Mohanty, Shashidhar Kotian, Nirav M Pandya, the Auditors of NSEL: Mukesh P Shah.
The Founder Chairman and Group CEO of FTIL is Jignesh Shah. Jignesh Shah along with Joseph Massey and Anjani Sinha is in charge of the overall management and affairs of NSEL. The key officials of NSEL listed above are very central to the operations of the NSEL. The key officials are the “arms” of the NSEL whilst Jignesh Shah, Anjani Sinha, Joseph Massey are the “brains” behind NSEL.
There are 25 defaulters viz. Mohan India Pvt. Ltd., N. K. Proteins Pvt. Ltd., ARK Imports, LOIL Health Foods Ltd., LIOL Overseas Foods Ltd., LIOL Continental Ltd., PD Agro Processors Pvt. Ltd., Lotus Refineries, Jaggurnaut Projects Ltd., Top Worth Steel & Power Pvt. Ltd., Metkore Alloys & Industries Ltd., White Water Foods Pvt. Ltd., NCS Sugars Ltd., Namdhari Food International Pvt. Ltd. Shri Radhey Trading Corporation Pvt. Ltd. Spin Cot Textiles Pvt. Ltd., Vimladevi Agrotech, Namdhari Rice & General Mills, Swastik Overseas Corporation, Tavishi Enterprises Pvt. Ltd., MSR Food Processing, Sankhya Investment, Yathuri Associates, Aastha Minmet India Pvt. Ltd., Brinda Commodity Pvt. Ltd.,
Based on the FIR of Pankaj Ramnaresh Saraf, an offence was registered at PS MRA Marg vide against the aforesaid persons. Unit-V, EOW, took over the investigation of this case. During the course of the investigation, it was revealed that the transactions between the NSEL and borrowers were not fully supported with the actual delivery of goods. Prima facie, it was unveiled that there are many accommodation entries which emerged during this financial mishap due to collusion between the NSEL and borrower accused.
However, during the investigation of this offence, the main accused Amit Anandkishor Rathi (Anand Rathi Commodities Ltd.), Cherassary Parmeshwaram Krishnan (M/s Geojit Comtrade Ltd.) and Chintan Rajeshkumar Modi (IICL) were arrested on March 2015 when they had visited the EOW for the investigation.
The facts revealed during the investigation are false assurances to the investors as regards NSEL with wrongful and misleading statements leading to enticement for investments in NSEL products, the possible nexus between NK Proteins (defaulter accused) and ARCL or perhaps a possible tie suspected between NSEL and ARCL and suspicious transactions of funding through multiple accounts.
The small brokers who are wrongfully stuck into the matter despite having no evidence, raise their concern that this being a matter between the client and exchange, how can they be dragged into this fraud case? And what will the small brokers do to come out of this legal matter? How will the small brokers manage to afford the manipulating and delaying of the case just like the main accused? They believe that the government failed to take firm action and delayed the matter.
CEO of one of the commodity brokerage firms Sanjay Parikh shared, “My 20 lakhs are at stake with NSEL. SEBI hasn’t managed to take the case in the right direction. All main accused are basically delaying this matter. Ultimately, they are going to get in a soup, there is no doubt about it. But how does a broker become involved in this? As a broker, I am supposed to advise my clients; I am not inducing them wrongly. How am I to be held responsible if the exchange goes broke? Apart from that, the clearing agency also has to pay 2 lakh to me. However, Congress at that point of time allowed the illegal exchange to function even after knowing all.”
Small brokerage firms involved in the case also suggest SEBI that they must take action against such brokers against whom the clients have complained. If a client has complained, investigate both the reports, the client may be wrong, as may be the broker. There is no evidence with SEBI that all the 300 brokers are involved in this scam. Five or six brokers might have induced their clients wrongly, that is what the EOW and the SFIO report says.
However, after over two years of a probe launched against some brokers for alleged misselling of products with the promise of assured returns in connection with the Rs 5,600 crore NSEL payment fiascos. Now on January 3, 2019, the SEBI issued a supplementary show-cause notice (SCN) to equity markets brokers, including Motilal Oswal Financial Services, Anand Rathi Shares and Stockbrokers Ltd. and India Infoline in the case.
Criminal lawyer Pankaj Jadhav commented, “Among the frauds, the biggest name was of Jignesh Shah. The case was of 2013, but the charge sheet has been filed in 2018, now with the court proceedings, more accused will be punished and the victims will get justice. The High Court has already ruled that all the investors are to be given back their money.”
The probes conducted by various investigating agencies and market regulator, namely EOW-Mumbai, SFIO, and SEBI, reveals that top five leading broking firms were involved in misselling of NSEL product, KYC manipulation, Client Code Modification and infusion of black money through their NBFCs.
CA Uttam Agarwal stated, “The report of EOW is already there in media and known to the public at large. Hence, the respective department should investigate the matter further and faster.”
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