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Mumbai: The Mumbai Police’s Economic Offences Wing (EOW) on Tuesday made its fourth arrest in connection with the 5,574.35 crore settlement crisis at National Spot Exchange Ltd (NSEL) by detaining the head of a company named by the exchange as its biggest defaulter.

Nilesh Patel, managing director of NK Proteins Ltd, was questioned and cross-examined since the morning, and was arrested in the evening. Patel is the son-in-law of NSEL’s former chairman Shankarlal Guru, who resigned from his post on 19 August.

His arrest was announced by EOW’s additional commissioner Rajvardhan Sinha. Gujarat-based NK Proteins is the biggest defaulter with dues of about 970 crore, according to NSEL.

Sinha told reporters that NK Proteins had entered into a castor oil joint venture with the Adani group in which it had deployed 335 crore, using investors’ funds.

“NK Proteins was aware that they would not be able to honour commitments. Yet, they continued expansion of business with investors’ money, in connivance with NSEL officials," added Sinha.

He said EOW had also questioned the directors of another defaulter buyer, Mohan India Pvt. Ltd, and they will be called again later for questioning.

Incidentally, NK Proteins had a meeting with NSEL on Monday evening to figure out if a settlement plan was feasible and if the former could make a repayment commitment. The meeting was also attended by a few NSEL investors. Patel said on Monday evening that a decision was likely by Tuesday or Wednesday.

Patel is the first among the buyers on NSEL to be arrested in connection with the crisis at the exchange. NSEL’s former chief executive officer Anjani Sinha, former assistant vice-president of warehousing Jai Bahukhandi, and former assistant vice-president of business development Amit Mukherjee were arrested earlier as part of the investigation into the payments crisis.

The crisis at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. The e-series contracts were suspended a week later.

The closure of trading 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.

All trading on NSEL, it later emerged, happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity. They pocketed the difference.

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 had proposed a payout plan, but it has been unable to stick to the schedule.

NSEL is owned 99.99% by Financial Technologies (India) Ltd, which also controls Multi-Commodity Exchange of India Ltd, or MCX.

In a separate development on Tuesday, MCX said after a board meeting that Praveen Singhal, the present deputy managing director of the exchange, will oversee the managing director’s functions until the position is filled. On Saturday, MCX said its managing director and chief executive officer Shreekant Javalgekar had resigned, without specifying a reason.

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