Tuesday, December 17, 2013

Complaint Filed Against NSEL in ED

NSEL Investors’ Forum has lodged a complaint against NSEL with the Enforcement Directorate (ED) arguing that this establishment is going to face a payment crisis of Rs 5500 crore, thus affecting the country’s finances. As per the complaint NSEL severely lacks strict regulatory control due to which the establishment has full rights over funds and commodities. The company has been given some relief by the government of India under section 27 of the FCRA, 1952 (Forward Contract Regulation Act) due to which NSEL and its management as well as Financial Technologies India Limited (NSEL’s promoter and largest shareholder company) started issuing fake warehouse receipts to trade in items that they never possessed. The payment crisis that has emerged in NSEL will negatively affect the entire financial market of India because Rs 5500 crore of funds have gone into the hands of the companies. This means the real investors will not have their money now, negatively affecting the market’s liquidity.

In its complaint, the investors’ forum has said NSEL has 24 defaulters under its management out of which, at least six companies were formed in the past three years. One company was in fact founded as early as in April 2013. Of these, the paid share capital of five companies is less than one crore whereas five other companies have a share capital ranging between Rs 1 to 1.5 crore. These six companies alone have outstanding dues of nearly Rs 1420 crore. In such a situation, how can any recovery be expected from them, the forum has asked. The outstanding amounts on all the companies add up to over Rs 5500 crore.

On 14 August NSEL refused to make the payments, saying it had not been able to gather margin money, guarantee etc. This shows the complicity and fraud between the management of this company, FTIL and the 24 companies involved. This is why the real investors are unable to get back their money.

The investors have written to ED that NSEL is not able to make the right decisions due to close personal relations shared by senior NSEL officials with these operator companies. Take for example, A.K. Proteins Ltd, which currently has NSEL’s Rs 1000 crore in its kitty. Its chairman is Shankerlal Guru’s son-in-law.

Similarly, Indian Bullion Market Association (IBMA) Ltd. is an auxiliary company of NSEL and its 60 percent partnership is with NSEL. Recently, it was revealed that IBMA has been terminating business with a number of its members. This means NSEL is doing business among them. It clearly shows that its risk management system is entirely unsuccessful.

The investors’ forum has also accused NSEL of misleading investors. NSEL had on August 5, 2013, announced the setting up of an independent committee to advise in the matter of making the payments and monitoring. However, none of the investors were ever informed about the committee’s meetings and its decisions; thus making it seem that the entire issue was sorted out merely on paper and all decisions were taken by Jignesh Shah alone.

NSEL Investors’ forum had requested for a probe in the matter and demanded that the bank accounts of Jignesh Shah and other senior officers of NSEL be forfeited. The forum says they have also presented the issue before consumer affairs department and the minister (?? which minister?). The forum has also requested ED to intervene immediately in the matter and also promised all kind of help in case the directorate needs any. The forum has also given intricate details of all the companies and its members in its letter.

NSEL’s contradictory statements
  • Investors’ Forum claims that the credibility of NSEL and its promoter FTIL is under doubt because of their contradictory statements. 
  • The statements given by its officials are also paradoxical. On July 10, 2013, Jignesh Shah submitted before the Consumer Affairs Ministry secretary that NSEL model offers its investors 100 percent parallel stock, 10 to 20 percent margin money and 100 percent post-dated cheques apart from high-level security. 
  • Similarly, on July 31, NSEL published on its website that there were Rs 839.53 crore rupees in it’s the SGF (Settlement Guarantee Fund). 
  • However, in the MMC meeting held on August 4, Shah said the SGF had only 65 crore rupees left in it. Such and other ambiguous statements have given rise to doubts in credibility of the organisation.
by Rajeev Kumar ( rajeev.kumar@gulail.com)  

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