National Spot Exchange Limited (NSEL) case relates to a payment default at the National Spot Exchange Limited that occurred in 2013 involving Financial Technologies India Ltd, when a payment default took place after a commodities market regulator, the Forward Markets Commission (FMC), directed NSEL to stop launching contracts. This led to the closure of the Exchange in July 2013.
Three spot exchanges, NSEL, NSPOT and National APMC were exempted by the government under Section 27 of FCRA to conduct forward trading in one day contracts. This was done to boost volumes so that their economic viability improved. While Financial Technologies (India) promoted NSEL, it was granted general exemption on 5 June 2007, whereas, NSPOT and National APMC received exemptions under the same provisions on 23 July 2008, and 11 August 2010, respectively. On the flawed recommendations of the FMC, the Ministry of Consumer Affairs ordered NSEL to settle all existing contracts and not launch any fresh contracts, which led to the crisis.
Investigations led by the Enforcement Directorate and Economic Offences Wing (EOW) revealed the role of brokers and defaulters in the NSEL case. The brokers mis-sold NSEL products to their clients by assuring them fixed returns. The defaulters hypothecated stocks, produced fake warehouse receipts and siphoned the entire default money.
Initially, it was projected that there were 13,000 trading clients affected by the NSEL crisis. The genuineness and entitlement of these 13,000 trading clients is questionable. The brokers have not shown the Know Your Customer details of any of the clients. The Bombay High Court suggested that brokers should furnish this data to NSEL in order to protect interest of genuine claimants. Considering this aspect, SFIO which is also investigating the case, has recently asked brokers and trading clients to provide various information in a specific format which also includes KYC related information.
On 30 July 2019, The Bombay High Court summoned P. Chidambaram, the former Union Finance Minister and two other bureaucrats, K.P. Krishnan and Ramesh Abhishek, regarding the ₹10,000 crore damage suits filed by 63 moons technologies and their role in the NSEL payment default crisis. The Bombay High Court has accepted the plea and allowed 63 Moons to sue Chidambaram and the others.
History Pursuant to the then Prime Minister's vision to create a single market across the country for both manufactured and agricultural produce, NSEL (National Spot Exchange Limited) was conceptualized in the year 2004. According to the Economic Surveys of the government done in 2003–2006, 3 consecutive years of survey also recommended setting up a national-level, integrated market for agricultural products, as did the planning commission, which was aware of the benefits of the spot markets. This was followed by the Rangarajan Committee, which too sought a national spot market.
Following the invitation from Ministry of Consumer Affairs (MCA), the Multi Commodities Exchange Ltd. (MCX) which was earlier a sister company of NSEL, submitted a project report for establishing a nationwide spot market for commodities. NSEL was set up as a company incorporated under the Companies Act, 1956 on 18 May 2005 with its registered office in the State of Maharashtra. NSEL was incorporated by MCX and the nominees of FTIL.
Subsequently, in view of the regulatory concerns between regulated commodities exchanges holding equity shareholding in spot exchanges, the shareholding of MCX and nominees were transferred and consolidated later in 2005 with FTIL. On 5 June 2007, NSEL was approved as a Spot Exchange by Department of Consumer Affairs. National Spot Exchange Limited (NSEL), commenced live trading on 15 October 2008, and was the first commodity spot exchange of the country. Within a few years, as many as six state governments issued licences under the model Agricultural Produce Market Committees (APMC) Act to NSEL, because their own APMCs mostly short-changed the poor farmers. NSEL turned out to be a boon for such farmers because they could now sell their produce at competitive rates and make better profits.
The Exchange was promoted by National Agricultural Cooperative Marketing Federation of India. In August 2011, FMC was appointed as the ‘designated agency’ to fill the regulatory vacuum in the commodities market. A series of bizarre actions by the FMC spooked the market and as a result NSEL had to suspend the trading of all contracts on 31 July 2013
Investors' activisms The investors of NSEL formed an organization by the name of NSEL Investor's Forum (NIF) in the month of August 2013. However investors who were dissatisfied with brokers' role in NIF formed a pure investors' organization by the name of NSEL Investors' Action Group (NIAG). Many writs, PILs, Suits have been filed in Mumbai HC against NSEL/FTIL and Jignesh Shah.
Bankruptcy
Investigation by EOW Mumbai As of 2019, the EOW (Economic Offences Wing) of Mumbai Police was investigating this crisis and the Mumbai police has conducted various raids. On 9 October 2013, Amit Mukherjee, the Assistant Vice-president (Business Development) of NSEL, was arrested by the EOW of the Mumbai police marking the first arrest in the payment crisis. Subsequently, a day later on 10 October 2013, the EOW of Mumbai Police arrested Jai Bahukhandi, the former Assistant Vice-president of NSEL. Former CEO and MD, Anjani Sinha, was arrested a week later on 17 October 2013. The EOW has since invoked the MPID (Maharashtra Protection of Investors Deposit) Act, under which it can attach properties and assets of the accused, for the interest of the investors. Nilesh Patel of NK Proteins Ltd., the biggest borrower from the NSEL, was arrested on 22 October 2013 who got out on bail subsequently. Surinder Gupta of PD Agroprocessors was arrested by EOW on 5 March 2014.
The EOW also arrested Rajesh Mehta of Swastik Overseas Ahmedabad who was one of the borrowers on 1 April 2014. On 6 January 2014, the EOW of Mumbai's crime branch submitted its first chargesheet in connection with NSEL payment crisis. The chargesheet mentions the names of the following five accused: Amit Mukherjee (Former VP, Business Development at NSEL) Jay Bahukhandi (former AVP at NSEL) Anjani Sinha (Former Chief 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 the process, EOW attached defaulters' properties worth close to ₹4,500 crore across the country, and the MPID court initiated procedures to liquidate them so as to recover dues of depositors. The ED has attached properties of defaulters, worth around ₹800 crores in NSEL case.
The EOW arrested defaulter borrowers Nilesh Patel (NK Proteins), Arun Sharma (Lotus Refineries), Surinder Gupta (PD Agro) and Indrajit Namdhari (Namdhari Foods). On 11 August 2014, the EOW arrested the following officials from six defaulting companies on NSEL: Kailash Aggarwal (Ark Imports) Narayanam Nageswara Rao (NCS Sugar) B V H Prasad (Juggernaut Projects) Varun Gupta (Vimladevi Agrotech) Chandra Mohan Singhal (Vimladevi Agrotech) Ghantakameshwar Rao (Spin-cot Textiles) Prashant Boorugu (Metcore Steel and Alloys)
The EOW arrested Shah and Shreekant Javalgekar on 7 May 2014, on charges of non-cooperation NSEL case: Law Finally Catches up with Jignesh Shah , Jignesh Shah's arrest Reports however suggested that Shah was fully cooperative with EOW and had gone to EOW office 21 times against being summoned 7 times. Not only that, in order to facilitate the probe, NSEL had also deployed server in EOW office.
He was released on bail on 22 August 2014, by the Bombay High Court. The court observed that "…the names of 25 different companies who are the defaulters have been mentioned in the FIR itself". Thus, though projected payment default of ₹5,600 Cr, the ill-gotten amount has not gone to the applicant (Jignesh Shah), or for that matter, to NSEL.
The Enforcement Directorate arrested him on 12 July 2016 for assisting NSEL defaulters in money laundering.ED arrests Jignesh Shah , ED arrests Jignesh Shah for assisting defaulters in money laundering A special PMLA court granted bail to Shah terming the arrest by ED was ‘illegal’. After hearing both sides, Judge P.R. Bhavake, Special PMLA Court, Mumbai, ruled: "The learned counsel for the ED failed to satisfy me that this arrest is for a separate crime… I do not find any force in the contention that the ED wanted to file a supplementary complaint against the applicant (Shah) in respect of the investigation made against him as Chairman of FTIL. The ED has come with specific averments that the applicant is not arrested in special PMLA case no 04/2015 but in other Enforcement Case Information Report (ECIR). The ED has failed to satisfy the Court how the applicant’s arrest is legal in different ECIR....."
On 18 January 2021, the EOW arrested Anjani Sinha, former CEO of National Spot Exchange Ltd, for fictitious trading on the exchange and for creating false stocks.
Sucheta Dalal's knowledge of NSEL case It was discovered that even 15 months before the NSEL case went public, India's financial journalist Sucheta Dalal knew all major aspects of the fraud. An email dated 8 May 2012 from Sucheta to Jignesh Shah, Anjani Shah etc. came in public domain which revealed that Sucheta knew about illegality and lack of safety of NSEL product. A complaint has been filed with Mumbai police by NSEL Investors' Action Group to investigate Sucheta Dalal's role. Sucheta knew about illegality of contracts, role of IBMA and the fact that the warehouses were in so called borrowers' own premises.Role of Sucheta Dalal in NSEL Scam 'NSEL Investors Letter to Mumbai police to investigate the role of Sucheta Dalal in scam'
Investigation by Central Bureau of Investigation The Central Bureau of Investigation raided NSEL and borrowers' offices as well as the residence of Jignesh Shah. An FIR was booked under prevention of corruption act for the funds that MMTC and PEC, two public sector units, were made to invest in NSEL.CBI books FIR in NSEL case , Jignesh Shah and Joseph Massey have been booked in this FIR. The investors have argued that CBI has taken no action against politicians/bureaucrats involved in the case. The CBI has filed a charge sheet where they have charged 20 entities, including Jignesh Shah and FTIL, for cheating PSUs, PEC and MMTC in the NSEL case.CBI Charges Jignesh Shah and others in NSEL scam, CBI chargesheet on Jignesh Shahand others
Investigation by Serious Fraud Investigation Office In 2016, the Government of India ordered Serious Fraud Investigation Office probe on FTIL and its 18 associates, brokers and defaulters pertaining to irregularities on NSEL.
Forensic audits by Choksi and Choksi After petition by certain investors who wanted to derail the Eseries settlement by NSEL, the Bombay High Court directed the FMC to appoint a forensic auditor for Eseries products of NSEL. An audit firm by the name of Choksi and Choksi was given this assignment and their audit report had given a clean chit regarding the Eseries contracts on NSEL, which made the FMC give a NOC for Eseries settlement and over 40,000 genuine claimants of Eseries benefitted eventually.
Allegation on investigative agencies and the government The investors of NSEL formed an organization by the name of NIF in the month of August 2013. However investors who were dissatisfied with brokers’ role in NIF formed a pure investors’ organization by the name of NIAG (NSEL Investors Action Group). The NIAG has written multiple letters to Enforcement Directorate and CBI alleging lax and compromised investigation.