BackJignesh Shah granted bail in NSEL case
Shah told to submit bail surety of `5 lakh in cash and will have to be appear before EOW twice a week until further orders
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Mumbai: The Bombay high court on Friday granted bail to Jignesh Shah, promoter of Financial Technologies (India) Ltd, or FTIL, who has spent more than 100 days in custody after being arrested in connection with the ₹ 5,574.35 crore fraud at the National Spot Exchange Ltd (NSEL).
The court granted Shah bail on cash surety of ₹ 5 lakh and ordered him to appear before the Economic Offences Wing (EOW) of Mumbai Police twice a week, on every Monday and Thursday.
“I am granting him (Jignesh Shah) bail, but with conditions," Justice A.M. Thipsay said. “Since there is no possibility of him absconding, let him give a cash surety of ₹ 5 lakh today (Friday) and a solvent surety of an equal amount within two weeks." A solvent surety is to ensure that the person is financially capable of paying the bond amount.
Shah, whose FTIL holds a 99.99% stake in NSEL, was arrested by EOW of Mumbai Police on 7 May in connection with the fraud at NSEL, which has affected his other businesses. EOW has charged Shah with criminal misappropriation, forgery and criminal conspiracy.
The 13,000-odd investors who have lost money in the NSEL scam, through their lawyer, have claimed that Shah had been aware of the unfolding crisis at the commodity spot exchange before it surfaced at the end of July last year.
“In the last two months, while he (Shah) was in jail, the investigation had picked up and several people were arrested," said Pramod Todi, an NSEL investor. “Now we only hope the momentum will continue as far as the investigation is concerned."
Shah’s lawyer Mahesh Jethmalani has argued in court that Shah had no knowledge of the crisis, saying it was perpetrated by a clutch of NSEL employees and brokers, including Anjani Sinha, former chief executive of the commodity exchange.
On Friday, Jethmalani said in a statement: “After a very prolonged custody, Mr. Jignesh Shah was granted bail by Bombay High Court...there was no possibility of tampering with any evidence of any nature was ascribed to him. Granting of bail in a matter like this is a rule of criminal law and justice has been done."
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 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.
In a separate development, the Securities Appellate Tribunal (SAT) directed FTIL to approach capital market regulator Securities and Exchange Board of India (Sebi) for an extension of the deadline for the divestment of its stake in MCX Stock Exchange Ltd (MCX-SX).
“...we permit applicant (FTIL) to move Sebi seeking extension of time. If such application is made, Sebi would consider it on its merit and pass appropriate order thereon," said the SAT order.
On 19 March, Sebi declared FTIL unfit to hold a stake in any stock exchange or clearing corporation and gave it 90 days to divest its holdings in such entities, following the fraud at NSEL.
FTIL appealed against the Sebi order before SAT, which on 9 July upheld the ruling and gave the company and its affiliates four weeks to comply. The four-week deadline ended on 7 August, but FTIL has failed to sell its stake in MCX-SX.
FTIL and Multi Commodity Exchange of India Ltd (MCX) hold about 5% each in the form of equity shares in MCX-SX.
Because the Sebi order also barred entities related to FTIL from holding a stake in any exchange, MCX was also required to divest its entire holding in MCX-SX.
FTIL held a 26% stake in MCX until last month when it sold a 21% stake in the commodity exchange to various entities including Kotak Mahindra Bank Ltd (15%) and billionaire investor Rakesh Jhunjhunwala (2%).
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