Mumbai: The Central Bureau of Investigation (CBI) has charged 20 entities and some of their officials for cheating state-owned commodities trading firms PEC Ltd and MMTC Ltd in connection with the Rs5,600 crore payments fraud that surfaced in 2013 at the National Spot Exchange Ltd (NSEL).
The entities include NSEL, its parent Financial Technologies India Ltd (FTIL), PD Agro Processors Ltd, Dunar Foods Ltd and Mohan India Ltd.
CBI, in a chargesheet filed with a special court in Mumbai in December, accused Jignesh Shah, former chairman of FTIL, of cheating and criminal conspiracy, and breaching the prevention of corruption act. Mint has a copy of this chargesheet. Shah and FTIL, now known as 63 Moons Technologies Ltd, denied these charges. Hearing in this case is scheduled on 3 May.
The December chargesheet made CBI the third agency to file a chargesheet in the NSEL case. The Economic Offences Wing of Mumbai police filed a chargesheet in 2014, and the Enforcement Directorate in 2015.
According to the 150-page chargesheet, CBI has found a fund trail that led to losses of Rs120 crore for PEC and Rs105 crore for MMTC.
CBI had first registered a first information report in the case in February 2014, alleging that a “conspiracy was hatched” by the accused to cheat PEC and siphon off its funds by floating “accommodative and fraudulent paired contracts”.
Paired contracts entail investors, through brokers, buying a spot contract and selling a futures one for the same commodity, and pocketing the difference.
Paired contracts violate the Forward Contracts Regulation Act (FCRA) as they are financial transactions. NSEL was allowed to deal only in spot delivery contracts to be exempt from FCRA.
In the chargesheet, CBI has alleged that FTIL was the major beneficiary of the revenue earned by NSEL and that paired contracts were the major source of income for the commodities bourse.
“All the minutes of the board meetings of NSEL were vetted and approved by FTIL before issuance,” said the CBI chargesheet.
In an emailed response sent on 10 March through its lawyers, FTIL said that it is yet to receive a copy of the chargesheet.
“However, assuming your information is correct, our client strongly denies such charges, which have no legal or factual basis. Our client is confident to come out clean through the judicial process,” said Manik Joshi from Crawford Bayley and Co, the lawyers representing FTIL, in an emailed response.
The email added that NSEL was a separate company with its own board of directors. It said NSEL became a “material subsidiary” of 63 Moons only from April 2011.
“The duly approved board minutes of any such material subsidiaries for all listed companies for compliance purpose are required to be placed on a ‘post-facto’ - ‘for your information’ basis before the board of the parent company. In any event, none of these board minutes of NSEL raised any red flags,” the email said.
FTIL also said that it did not derive any benefits as NSEL never declared any dividends or issued bonus shares.
The CBI chargesheet highlighted that FTIL received a sum of Rs90.69 crore from NSEL as software maintenance charges during 2011-13.
The specific allegations against Shah pertain to his presence in board meetings where launch of contracts was approved.
The CBI also alleged that Shah was also named as a key management personnel (KMP) of NSEL during 2008-12 when the concept of paired contracts was introduced.
The chargesheet said that Shah had also made a presentation to the Forward Markets Commission (FMC) and consumer affairs ministry on adequacy of stocks a mere 20 days before the settlement crisis erupted.
The mail from FTIL lawyers said that Shah was never a KMP at NSEL and he had just delivered the presentation that was prepared by NSEL executives.
“Shah has informed that he has never met or interacted with any officials of PEC or MMTC, therefore the question of connivance does not arise. Shah was non-executive vice-chairman of NSEL. He never received any compensation nor any salary and not even the sitting fees from NSEL,” the mail said.
To be sure, CBI also mentions that Shah was briefed by Anjani Sinha, former CEO of NSEL, before the presentation was made. According to CBI, Sinha was responsible for creating paired contracts—a “financing mechanism”. Sinha also devised a system which encouraged parties to engage in financial transactions without underlying stocks.
“He was the sole approving authority for all the limits granted to the defaulters PD Agro Processors and Mohan India and others who subsequently siphoned off the huge public money without having sufficient collateral/ commodities,” CBI said in the charge sheet.
Sinha did not respond to an email sent to him by Mint.
A spokesperson for Mohan India and its group companies Tavishi and Brinda told Mint that the companies never interacted with the government entities directly.
“Interactions were limited to NSEL only. We are ready to refund the dues of investors by selling assets which are not attached by enforcement agencies and some assets that are being released by the income tax department,” said the spokesperson. PD Agro and PEC did not respond to emails sent to them.