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Business News/ Companies / News/  Jignesh Shah ‘bulldozed’ Anjani Sinha to move NSEL profits to FTIL: EOW
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Jignesh Shah ‘bulldozed’ Anjani Sinha to move NSEL profits to FTIL: EOW

Mumbai police finds a number of cases of wash trades to jack up NSEL's volume and report excessive profit

A chargesheet against Jignesh Shah in the NSEL crisis was filed on Monday. Photo: Abhijit Bhatlekar/MintPremium
A chargesheet against Jignesh Shah in the NSEL crisis was filed on Monday. Photo: Abhijit Bhatlekar/Mint

A chargesheet filed by the economic offences wing (EOW) of the Mumbai police has alleged that Jignesh Shah, chairman of Financial Technologies (India) Ltd, “bulldozed" Anjani Sinha, former chief executive of National Spot Exchange Ltd (NSEL), to transfer profits of the commodity spot exchange “by way of AMC (annual maintenance contract) to FTIL".

Mint has reviewed a copy of the EOW chargesheet against Shah in connection with the 5,574.35 crore payment crisis at NSEL. The chargesheet was filed on Monday.

The EOW said it accessed email exchanges between Shah, Sinha, Paras Ajmera, a director of FTIL, and Shah’s brother Manjay Shah. The email exchanges reveal that Jignesh Shah knew about the projected profits of NSEL for 2012-13 and 2013-14 and wanted to divert them to FTIL by way of an increase in the value of the annual maintenance contract, the EOW said.

“As per this email, they wanted to change the agreement with new algorithm to transfer a net increase of 23.07 crore to FTIL," the chargesheet said.

Shah has been in custody since 7 May. He has applied for bail in the Bombay high court. On Tuesday, the high court adjourned the hearing of Shah’s bail application to 6 August after the EOW submitted a copy of its 9,360-page chargesheet in the court.

“We would be deeply examining the charges and appropriately defending it legally. We have full confidence in the Indian Judiciary and that justice would be done," the NSEL spokesperson said in a statement on Tuesday.

The chargesheet has also alleged that in 2010 Shah had “arranged for a corporate guarantee to the tune of 14 crore in favour of Karvy Financial Services to provide loan to NK Proteins Ltd, which is the largest defaulter" of NSEL, despite knowing the company had defaulted at NSEL.

“Although NK Proteins had defaulted in NSEL and was just rolling over its liability without actually paying any amount, still Jignesh Shah made such arrangement knowing fully well that NK Proteins was not having good financial record," the chargesheet said.

The EOW further alleged that it has found a number of cases of wash trades (fictitious trades) “to jack up the volume of NSEL and to report excessive profit for the sake of increasing profitability and valuation".

The chargesheet adds that since Jignesh Shah was the head of the audit committee of NSEL, he “could have taken various steps to avoid NSEL fraud by way of not allowing exposure to a party beyond his financial strength".

According to the chargesheet, the EOW has attached movable property of Shah worth 750 crore. Additionally, the agency has also attached two bungalows, a row house and a plot of land owned by Shah.

On 31 July last year, what was then considered a settlement crisis at NSEL came to light when the exchange suspended trading in all but its e-series contracts. E-series contracts were meant to allow retail investors to buy and sell commodities in dematerialized form. These, too, were suspended a week later.

The suspension may have been prompted by an instruction from the ministry of consumer affairs to the exchange, asking it not to offer futures contracts.

A spot exchange isn’t supposed to do so, but NSEL was doing that. NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading.

It later emerged that all trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.

The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.

On 14 August, NSEL proposed a payout plan, but it has been unable to stick to the schedule.

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Published: 06 Aug 2014, 12:30 AM IST
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