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.
[1] 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.
Investigations led by EEE and Economic Offences Wing (EOW) revealed the role of brokers and defaulters in the NSEL case.
The Mumbai High Court suggested that brokers should furnish this data to NSEL in order to protect interest of genuine claimants.
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.
[7] 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.
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.
[23][24] 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 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.
[28] 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.
Ketan Shah, the man leading NSEL investors' association NIAG, has leveled charges on the investigating agencies of misleading the court.
The EOW of Mumbai Police has appointed Mahindra Defence Arm as the digital forensic auditor to probe the NSEL crisis.
In the notice, SEBI has conveyed to these errant brokers that ‘it is alleged that your continuance as a market intermediary in the securities market is detrimental to the interest of this market…’ In the first show-cause notice, the allegations include several irregularities/violations such as false assurances to investors, wrong and misleading statements, arbitrage products sold with assured returns and as risk-free products, funding of clients and client code modification for those trading on NSEL.
[39] The Economic Offences Wing (EOW) of Mumbai Police also found evidence of large scale irregularities on the part of these brokers in the NSEL case.
A forensic audit by the EOW also revealed hawala transactions, benami trades and client code modifications by these brokers.
Bombay High Court in its judgment dated August 22, 2014 also observed that "...brokers do have their own legal team and a full knowledge of how the market operates.
In his custodial statement to the EOW authorities, Anjani Sinha squarely blamed Jignesh Shah and even called him ‘mastermind’ of the entire crisis.
Sinha also claimed that Shah forcibly took away the passports belonging to him and his wife and made them sign confessional statements which were allegedly drafted by FTIL.
Besides, Mumbai police has confirmed that most companies of 'Rawal Group' where La Fin Financial Services P. Ltd. (promoter of FTIL) had a stake were registered at NSEL at the address of Mukesh Shah and Mukesh Shah was the auditor of all these companies which traded on NSEL to the tune of ₹1352 Crores and moved out in May–June 2013 without losing a penny showing their knowledge of the case.
[63] In a show cause notice dated April 27, 2012, the Ministry of Consumer Affairs asked NSEL certain clarifications regarding the trades.
On July 19, 2013, the FMC revised its position and wrote to the Department of Consumer Affairs (DCA), stating that the exemption notification did not clarify whether it applied to all or only specific provisions of the FCR Act.
[64] On 21 October 2014, invoking Section 396 of the Companies Act, 1956, the Ministry of Corporate affairs announced a draft order for merger of NSEL, a subsidiary of FTIL.
Hearing an application filed by the government, the Bench comprising Justices SC Dharmadhikari and BP Colabawala granted the govt time till 15 February 2016.
Based on MCA's own circular dated April 20, 2011, it is a known fact that for any merger to materialize, permission of 100% shareholders and 90% creditors needs to be obtained.
[65][66] In a significant judgement, the apex court decided against the forced merger of NSEL and FTIL that was ordered by the Ministry of Corporate Affairs,[67] which was the first ever instance of invocation of Section 396 of the Companies Act 1956.
[72] In 2016, FIU (under Finance Ministry) held that NSEL came under the purview of Forward Contracts (Regulation) Act (FCRA) and therefore guilty of failing in several of these obligations under the law.
[74] This is the latest update in response to an earlier FIR filed by Mumbai Police raising questions of insider trading at MCX.
[75] The court in its findings cited an audit report conducted by PWC, ruling that it was based on hearsay and dismissed the protest petition.
Hence, under the MPID Act, all notifications for attachment of the company's assets including bank accounts and properties stand quashed.
NSEL emphasized that the assets currently attached under the MPID Act, valued at approximately ₹2,500 crore, were more than adequate to cover the proposed settlement.