Arrested by Vimladevi Agrotech

NSEL case - Luís Arias (boxer)

NSEL case refers to a default on the National Spot Exchange Limited that occurred in 2013 Financial Technologies India Ltd ordered the Forward Markets Commission (FMC) NSEL to stop entering into contracts when a default occurred under a commodities regulator. This led to the stock exchange closing in July 2013.

Three cash exchanges, NSEL, NSPOT and National APMC, have been exempted by the government under Section 27 of the FCRA to conduct forward trading in one-day contracts. This was done in order to increase the quantities and improve their economy. While Financial Technologies (India) promoted NSEL, it was granted a general exemption on June 5, 2007, while NSPOT and National APMC received exemptions under the same provisions on July 23, 2008 and August 11, 2010, respectively. Following the flawed recommendations of the FMC, the consumer ministry ordered NSEL to regulate all existing contracts and not to conclude new contracts, which led to the crisis.

Investigations led by the Enforcement Directorate (ED) and the Economic Offenses Wing (EOW) found that brokers and defaulters play a role in the NSEL case. The brokers have falsely sold NSEL products to their customers by promising them fixed returns. The defaulting mortgageed stocks and falsified warehouse receipts and exhausted all of the standard money.

Initially, it was forecast that 13,000 retail customers were affected by the NSEL crisis. The authenticity and legitimacy of these 13,000 retail customers is questionable. The brokers did not display a customer's know your customer (KYC) details. The Mumbai Supreme Court suggested that brokers should share this information with NSEL to protect the interests of real claimants. With this in mind, SFIO, which is also investigating the case, recently asked brokers and trade clients to provide various information in a specific format that also includes KYC-related information.

On July 30, 2019, the Bombay High Court called P. Chidambaram, the Union's former Treasury Secretary, and two other bureaucrats, KP, together Krishnan and Ramesh Abhishek over crore damage lawsuits of 10,000 filed by 63 Monde Technologies Rupees and their role in the NSEL default crisis. The Bombay Supreme Court accepted the request and allowed 63 Moons to sue Chidambaram and the others.

history

Following the vision of the then Prime Minister to create a nationwide single market for manufactured and agricultural products, NSEL (National Spot Exchange Limited) was conceived in 2004. According to the government's economic surveys from 2003-2006, three consecutive survey years were also recommended building an integrated market for agricultural products at the national level, as well as the planning commission, which was aware of the advantages of the spot markets. This was followed by the Rangarajan Committee, which was also looking for a national spot market.

At the invitation of the Ministry of Consumer Affairs (MCA), the Multi Commodities Exchange Ltd. (MCX), which was formerly a sister company of NSEL, submitted a project report to create a nationwide spot market for raw materials. NSEL was incorporated on May 18, 2005 as a company under the Companies Act of 1956, with its registered office in the state of Maharashtra. NSEL was founded by MCX and the nominees of FTIL.

In light of regulatory concerns among regulated commodity exchanges that hold stakes in cash exchanges, MCX and Nominees' interests were transferred and consolidated later in 2005 with FTIL. On June 5, 2007, NSEL was approved as a Spot Exchange by the Department of Consumer Affairs (DCA). National Spot Exchange Limited (NSEL) began live trading on October 15, 2008 and was the country's first commodity spot exchange. Within a few years, up to six state governments granted licenses to NSEL based on the model law of the Agricultural Produce Market Committees (APMC), because their own APMCs changed the poor farmers mostly at short notice. NSEL turned out to be a boon to such farmers as they could now sell their products at competitive prices and make better profits.

The exchange was sponsored by the National Agricultural Cooperative Marketing Federation of India (NAFED). In August 2011, FMC was named “Designated Agency” to fill the regulatory vacuum on the commodities market. A series of bizarre actions by the FMC frightened the market and as a result, NSEL had to cease trading in all contracts on July 31, 2013.

EOW Mumbai Police Action

The Mumbai Police Department's EOW (Economic Offenses) Wing is currently investigating this crisis and the Mumbai Police Department has carried out various raids. On October 9, 2013, Amit Mukherjee, Vice President (Business Development) of NSEL, was arrested by EOW police in Mumbai, the first arrest in the payments crisis. A day later, on October 10, 2013, the Mumbai Police Department EOW arrested Jai Bahukhandi, former NSEL deputy vice-president. Former CEO and General Manager, Mr. Anjani Sinha, was arrested a week later, on October 17, 2013. The EOW has since enacted the MPID (Maharashtra Protection of Investors Deposit) Act, according to which it sells property and assets of the accused for the interests of investors. Mr. Nilesh Patel of NK Proteins Ltd., NSEL's largest borrower, was arrested on October 22, 2013 and subsequently released on bail. Mr. Surinder Gupta of PD Agroprocessors was arrested by EOW on March 5, 2014.

The EOW also arrested Rajesh Mehta of Swastik Overseas Ahmedabad, who was one of the borrowers on April 1, 2014. On January 6, 2014, the EOW of the Mumbai Criminal Police filed its first indictment sheet related to the NSEL payments crisis. The indictment mentions the names of the following five defendants:

  • Amit Mukherjee (former Vice President for Business Development at NSEL)
  • Jay Bahukhandi (former AVP at NSEL)
  • Anjani Sinha (former boss) Executive of NSEL)
  • Nilesh Patel (MD of NK Proteins)
  • Arunkumar Sharma (Promoter and Director of Lotus Refineries)

In October 2013, EOW registered a case under the MPID Act in the NSEL case. In doing so, EOW appended the properties of defaulters near Rs. 4,500 crore across the country and the MPID court initiated proceedings to liquidate them to reclaim depositors' fees. The ED has attached properties from defaulters worth around Rs. 800 crores in the NSEL case.

The EOW arrested debtors Nilesh Patel (NK Proteins), Arun Sharma (Lotus Refineries), Surinder Gupta (PD Agro) and Indrajit Namdhari (Namdhari Foods). On August 11, 2014, the EOW arrested the following officers from six defaulting companies on NSEL:

  • Kailash Aggarwal (Ark Imports)
  • Narayanam Nageswara Rao (NCS Sugar)
  • BVH Prasad (Juggernaut) projects)
  • Varun Gupta (Vimladevi Agrotech)
  • Chandra Mohan Singhal (Vimladevi Agrotech)
  • Ghantakameshwar Rao (Spin-Cot Textiles)
  • Prashant Boorugu (Metcore Steel and Alloys)

The Mumbai Police Department's white-collar crime wing arrested Jignesh Shah and Shreekant Javalgekar on May 7, 2014 for non-cooperation. However, reports indicated that Shah was fully cooperating with EOW and had gone to the EOW office 21 times against being called 7 times. Not only did NSEL provide servers in the EOW office to facilitate the investigation.

He was released on bail by the Bombay High Court on August 22, 2014. The court found that "... the names of 25 different companies that are the defaulters were mentioned in the FIR itself". Thus, although the projected default was Rs. 5,600 Cr, the unlawful amount did not go to the complainant (Jignesh Shah) or to NSEL.

The enforcement agency arrested him on July 12, 2016 for helping NSEL defaulters with money laundering. A special PMLA court that gave Shah bail for ED's arrest was "illegal". After hearing both sides, Judge PR Bhavake of the PMLA Special Court in Mumbai ruled, "The learned attorney for the ED has not convinced me that this arrest is a separate crime. I find no strength in the claim that the ED wanted a complementary one To lodge a complaint against the complainant (Shah) in relation to the investigation launched against him as chairman of the FTIL The ED has provided specific information that the complainant was arrested in a different enforcement case rather than a specific PMLA case 04/2015 becomes Information Report (ECIR). The ED has not convinced the court that the appellant's arrest is legal in various ECIRs. "

Allegation against investigation agencies

NSEL's investors founded an organization in August 2013 under the name NIF. However, investors who were dissatisfied with the role of brokers in NIF formed a pure investor organization called NIAG (NSEL Investors Action Group). The NIAG has written several letters to the enforcement agency and the CBI alleging lax and compromised investigations.

A PMLA appellate court in Delhi on September 17, 2019 ordered that a preliminary attachment by the Enforcement Directorate in 2016-2017 of over Rs.1,000 of assets of Jignesh Shah under the direction of 63 Monde Technologies be lifted and the assets should be released. The lawsuit was filed in response to a complaint filed by the company. The order was passed by Judge Manmohan Singh, Chairman of the Tribunal, along with Member GC Mishra.

Suspicion of foul play in the detection of NSEL-FTIL e-mail data / servers

There are serious allegations against Mumbai Police EOW of tampering with NSEL-FTIL email servers. While Rajvardhan Sinha from Mumbai EOW confirmed earlier that the NSEL / FTIL mail server had crashed and was sent to Bangalore for investigation. Ketan Shah, the man of the leading NSEL investor association NIAG, has brought charges against investigating authorities for misleading the court. The Mumbai Police Department EOW has appointed Mahindra Defense Arm as a digital forensic examiner to investigate the NSEL crisis.

The role of the promoters / FTIL / Jignesh Shah

Jignesh Shah came on TV on August 5, 2013, saying that all defaulters had promised a financial settlement before the FMC and brokers. If the defaulters fail to meet their obligation, the FMC would take the necessary action against them. Jignesh Shah was arrested by EOW Mumbai Police on May 7, 2014 for his role in NSEL fraud, but was released on bail by the Bombay High Court on August 22, 2014 as there was no money trail to Jignesh Shah / NSEL / FTIL and Von EOW returned all of the money to 22 defaulters.

CBI action

The Central Bureau of Investigation raided NSEL and borrower offices as well as Jignesh Shah's residence. Under the Corruption Prevention Act, an FIR was booked for the funds that MMTC and PEC, two public sector entities, had provided for investments in NSEL. Jignesh Shah and Joseph Massey were booked in this FIR. Investors have argued that CBI took no action against the politicians / bureaucrats involved in the case. The CBI has filed a charge sheet indicting 20 companies, including Jignesh Shah and FTIL, of fraud against power supplies, PEC and MMTC in the NSEL case.

Role of the Department of Consumer Affairs, FMC and the UPA government

In a notice dated April 27, 2012 about the reasons for the exhibition, the consumer ministry asked NSEL for certain clarifications with regard to the transactions. NSEL responded promptly to the notification, but no action was taken by the ministry a year and a half after being informed about the reason for the exhibition. Instead, on the recommendation of the FMC, it ordered the sudden and abrupt closure of NSEL on July 12, 2013. Amazingly, the same FMC made a U-turn and wrote to the Department of Consumer Affairs (DCA) on July 19, 2013, arguing that the indemnity notice made no statement as to whether the exemption was applicable to all or certain provisions of the FCR Act was. According to the instructions of the DCA, NSEL ceased trading on July 31, 2013. This sudden and abrupt closure of the stock market resulted in a late payment of Rs 5600 crore.

Forensic exams by Choksi and Choksi

Following a petition from certain investors seeking to derail NSEL's Eseries settlement, the Bombay Supreme Court ordered the FMC to appoint a forensic examiner for NSEL's Eseries products. An accounting firm by the name of Choksi and Choksi won the contract, and their audit report had given a clear overview of Eseries contracts with NSEL, which resulted in the FMC issuing a NOC to run Eseries and ultimately benefiting over 40,000 real Eseries applicants.

Observation of the Financial Intelligence Unit (FIU)

The FIU (under the Treasury) determined that NSEL falls under the scope of the Forward Contracts (Regulation) Act (FCRA) and is therefore guilty of failing to meet several of these obligations under the law. The black money guard imposed a fine of 1.66 billion rupees on NSEL for several violations of the provisions of the Money Laundering Act (PMLA). The watchdog also believed that mistakes are deliberate and willful and therefore result in penalties. NSEL will be fined Rs. 1 lac for each failure and the total fine was Rs. 1.66 crore.

The role of brokers / arrests

SEBI gave advertisements to the five best brokers, namely Anand Rathi Commodities, India Infoline Commodities (IIFL), Geofin Comtrade, Motilal Oswal Commodities and Phillip Commodities because of the bad sale of NSEL contracts by promising insured returns without guarantee of delivery.

Since brokers were also accused of massively manipulating customers' KYCs, changing customer codes on a large scale to close multiple deals, and infusing unrecorded money through their NBFCs, SEBI asked them why they shouldn't be declared "fit and." correct "because they were found to have violated securities regulations. In the press release, SEBI advised these flawed brokers that "it is alleged that your continued existence as a market broker in the securities market affects the interests of that market ..."

In the first notice of issuance reasons allegations include various irregularities / violations such as false reassurances to investors, false and misleading statements, arbitrage products sold with insured returns and as risk free products, financing customers and changing customer code for those trading at NSEL.

"For the issue of a registration certificate, the application must be a suitable person within the meaning of the regulation of the stockbroker regulation, as can be read in Appendix II of the SEBI regulation (intermediary) of 2008. Furthermore, the conditions stipulate this to adhere to the rules, regulations, articles of association of the exchange and the code of conduct set out in Appendix II of the exchange regulations. It is alleged that your continued existence as a market intermediary in the securities market is detrimental to the interests of this market, "explains the SCN. "Hence, it is claimed that you are no longer the right person to hold the certificate of registration in the securities market."

In the second communication about the reason for the exhibition, according to media reports, SEBI sent notifications to five brokerage firms because it was not satisfied with the explanation they offered regarding the allegations of bad sales. The SEBI officials believed that brokers should not be granted licenses to operate in the commodities business.

The Mumbai Police's Economic Offenses Wing (EOW) also found evidence of major irregularities on the part of these brokers in the NSEL case. A forensic review by the EOW also revealed hawala transactions, Benami trades and changes to customer code by these brokers. The NSEL Investors' Action Group (NIAG) - a forum of NSEL investors - urged the EOW to take strict action against these brokers who "falsely sold NSEL as an" arbitrage product. "Several key brokers, including Motilal Oswal , have taken over the power of attorney to buy / sell / receive / deliver NSEL goods on behalf of the investors and opened DMAT accounts (dematerialized accounts) to process receipts of goods in electronic form. "These brokers were also accused of the criminal Breach of trust due to separation from the investors' funds without securing the promised warehouse receipts, "said the NSEL investors in a letter to the police commissioner of Mumbai.

The Hon. Bombay High Court in its judgment dated August 22, 2014 also found that "...Realtors have their own legal team and extensive knowledge of how the market works. It was expected that the legality of the transactions would be known to the brokers. Since the brokers are very experienced and the investors are informed people, it is obvious that the question of the illegality of the transactions they have collected is not out of their interest in complying with the law, but in order to have the complainant (Mr Jignesh Shah) as the main culprit and not to project as defaulting parties.

On March 3, 2015, EOW, Mumbai, arrested three top brokers in the NSEL case. Those arrested were Amit Rathi, general manager of Anand Rathi Financial Services Ltd; CP Krishnan of Geojit Comtrade Ltd; and Chintan Modi from India Infoline Ltd (IIFL). The three were charged with mis-selling NSEL products, fraud, counterfeiting and criminal conspiracy, among other charges.

On December 21, 2018, SEBI 300 brokers issued supplementary notices proposing revocation of the license if the broker was unable to provide the necessary explanations for misconduct identified by the SFIO. SEBI will use the 2015 EOW report to corner brokers. The detailed investigation report was shared by EOW in 2015 with the then market regulator FMC, with particular emphasis on the role of brokers. The top brokers were even named for the first time in the additional cost sheet submitted by EOW.

In the last week of February 2019, SEBI declared 5 major brokers as a commodity derivative for "not fit and right" brokers through multiple orders. In the first two separate orders, the market regulator stated that the reputation of Motilal Oswal Commodities Broker and India Infoline Commodities has been "seriously eroded" which is "not" essential for declaring "fit and right" for commodities trading.

Within a few days, Geofin Comtrade and Anand Rathi Commodities were also declared "not fit and correct" in the second order set. The same orders were issued against Phillip Commodities India. These companies were found guilty of violating the former Forward Contract and Regulation Act (FCRA) of 1972.

As a result, these companies are prohibited from acting as brokers, either directly or indirectly.

Role of the examiner / Mukesh P Shah

Mukesh P Shah, a maternal uncle of Jignesh Shah, has been NSEL's internal and external auditor from time to time. Mumbai Police confirmed that he was insider trading in FTIL stocks and should have been disqualified as an auditor for defying his early bail simply because he owned FTIL stocks. In addition, Mumbai Police have confirmed that most of the Rawal Group companies in which La Fin Financial Services P. Ltd. (Sponsor of FTIL) were registered with NSEL at the address Mukesh Shah and Mukesh Shah was the auditor of all these companies, companies that traded 1352 crores on NSEL and moved out from May to June 2013 without losing a cent showing her knowledge of the case.

Anjani Sinha's contradicting statement

Anjani Sinha, the dismissed CEO and managing director of the company, confessed in his first affidavit the entire responsibility of the crisis and took it on. However, after his arrest, he made a complete U-turn and withdrew his previous affidavit. In his custody declaration to the EOW authorities, Anjani Sinha accused Jignesh Shah and even called him the "mastermind" of the entire crisis. Sinha also alleged that Shah forcibly stole his and his wife's passports and got them to sign denominational statements allegedly drawn up by FTIL.

However, Sinha later, in a statement to the enforcement agency, declined his declaration of custody to the EOW and admitted to the content of his first affidavit.

On October 21, 2014 with reference to Sec. In 396 of the Companies Act of 1956, the Department of Corporate Affairs announced a draft merger of NSEL, a subsidiary of FTIL. All parties involved had 60 days to report to MCA. FTIL contested this merger in Bombay HC. After hearing a motion submitted by the government, the bank, consisting of Judges SC Dharmadhikari and BP Colabawala, granted the term until February 15, 2016.

On February 12, 2016, the MCA passed the final merger resolution between FTIL and NSEL. The order was challenged and upheld by FTIL in the Bombay High Court.

Based on MCA's own circular dated April 20, 2011, it is known that for any merger the approval of 100% of the shareholders and 90% of the creditors must be obtained. By forcing the merger of 63,000 FTIL shareholders without giving them the opportunity to approve / raise objections, MCA violated not only its own circular, but also Article 14 of the Constitution. The forced merger violates the sacrosanct concept of "limited liability" and is not in the public interest. Third, the "corporate veil" between NSEL and FTIL can only be lifted once the so-called "parental fraud" has been proven by FTIL in a court of law.

In a significant ruling, the Apex Court ruled against the forced merger of NSEL and FTIL ordered by the Department of Corporate Affairs. This was the first time that Section 396 of the Companies Act 1956 had been invoked. The Union Department had mandated the amalgamation of National Spot Exchange Ltd (NSEL) and its parent company Financial Technologies India Ltd, currently known as 63 Moons Technology Limited. Justice Rohinton Fali Nariman and Justice Vineet Saran overturned the Bombay Supreme Court ruling on the merger of the two companies. In the light of the public interest, the center had issued a final decision on the merger. However, the Supreme Court found that the merger failed to meet the “public interest” criteria and set out a number of guidelines on how the “public interest” would work.

Actions / complaints from NSEL investors

NSEL's investors formed an organization called NIF in August 2013. However, investors who were dissatisfied with the role of brokers in NIF formed a pure investor organization called NIAG (NSEL Investors'). Action group). NIAG has put a strong letter to EOW Mumbai to investigate the roles of Jignesh Shah and FTIL. Many letters, PILs and lawsuits have been filed against NSEL / FTIL and Jignesh Shah in Mumbai HC.

MCA's move to take over the FTIL board

On February 28, 2015, the MCA, despite having pushed its idea of ​​a forced merger, submitted a petition to the now known Company Law Board as the National Company Law Tribunal (NCLT) to take over the board of FTIL and replace it with the government. nominated directors. FTIL has questioned this as well. On June 30, 2015, the NCLT prohibited FTIL from selling its assets, which was immediately suspended by the Madras High Court on an appeal by FTIL. However, on April 19, the Supreme Court overturned his stay and froze all FTIL assets except daily expenses.

SFIO probe

The Indian government ordered SFIO (Serious Fraud Investigation Office). Investigation of FTIL and its 18 employees, brokers and defaulters in connection with irregularities at NSEL.

Sucheta Dalal's knowledge of the NSEL case

It was found that India's leading financial journalist Sucheta Dalal was already aware of all the major aspects of the NSEL case 15 months before the NSEL case was published. An email dated May 8, 2012 from Sucheta to Jignesh Shah, Anjani Shah, etc. was made publicly available and revealed that Sucheta was aware of the illegality and unsafe conditions of NSEL products. A complaint has been filed with the Mumbai Police Department by NSEL Investors' Action Group to investigate the role of Sucheta Dalal. Sucheta knew about the illegality of contracts, the role of IBMA and the fact that the warehouses were located on the borrower's own premises.

The court overturns the allegations against MCX

A Metropolitan Court overturned a 900 on Cr case at MCX. This is the latest update in response to a previous FIR filed by the Mumbai police that raises questions about insider trading at MCX. The court cited in its findings an audit report conducted by PWC which found it was based on hearsay and denied the petition to protest. However, it accepted the C summary report submitted by the investigating officer.

Charges from authorities in the NSEL case

The CBI has filed charges against FTIL, Jignesh Shah, NSEL and various Shell companies in NSEL cases. EOW of Mumbai Police have also filed a lawsuit against Jignesh Shah detailing how he cooked NSEL's books. On December 27, 2018, EOW-Mumbai submitted an additional fee sheet for the first time against 63 companies, including top brokers.

Bombay High Court declares the MPID Act inapplicable

Under the MPID Act, NSEL officials and 24 defaulters were posted by the Economic Offenses Wing to police in Mumbai. The EOW had relied primarily on the MPID Act to recover the money from traders that had been lost in the attachment of the promoter's assets. In August 2019, the Bombay High Court ruled that NSEL is not a financial institution. According to the MPID Act, all reports on the seizure of company assets, including bank accounts and real estate, are therefore canceled.

Petitions were then filed against the order of the Bombay High Court. The Supreme Court asked 63 Moons Technologies for an answer. However, she urged the organization to maintain the status quo on its assets.

credentials