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NSEL crisis: EOW files chargesheet against FTIL chairman Jignesh Shah

A file photo of Jignesh Shah. Shah’s lawyer has contested Shah was not aware of the crisis at NSEL, which was perpetrated by some NSEL employees, including its former chief executive Anjani Sinha. Photo: Abhijit Bhatlekar/MintPremium
A file photo of Jignesh Shah. Shah’s lawyer has contested Shah was not aware of the crisis at NSEL, which was perpetrated by some NSEL employees, including its former chief executive Anjani Sinha. Photo: Abhijit Bhatlekar/Mint

Shah has been in custody since 7 May in connection with the `5,574.35 crore fraud at the National Spot Exchange

Mumbai: The economic offences wing (EOW) of the Mumbai police on Monday charged Jignesh Shah, chairman of Financial Technologies India Ltd (FTIL), with criminal misappropriation, forgery, criminal conspiracy, inducement for cheating and forgery of documents among others in connection with the 5,574.35 crore fraud at the National Spot Exchange Ltd (NSEL).

FTIL holds 99.99% stake in NSEL.

In a 9,360 page charge sheet against Shah, the EOW has recommended 270 people as prosecution witnesses, said Rajvardhan Sinha, additional commissioner of police (EOW). This is the third chargesheet by EOW in the NSEL case.

Sinha said, “Many borrowers, brokers and investors have been named as a witness in the charge sheet. Shah has been also charged for violation of the rights of depositors under the Maharashtra Protection of Interest of Depositors (MPID) Act."

In an emailed statement, NSEL said the company will defend the charges against Shah legally. FTIL didn’t respond to an e-mail, calls, and text messages seeking comment.

Shah has been in custody since 7 May in connection with the NSEL crisis. He has applied for bail in the Bombay high court.

Sinha added that so far, the EOW has attached assets worth 4,902.18 cr in the NSEL case.

“Additionally, at least 356 crore has been deposited in the escrow account," he said.

Last week, Justice Abhay Thipsay, the judge on the case, deferred the hearing of Shah’s bail application till 5 August. Thipsay wanted to go through the charge sheet before pronouncing the order.

The 13,000-odd investors who have lost money in the NSEL scam, through their lawyer, have claimed that Shah was aware of the unfolding crisis at the commodity spot exchange.

Shah’s lawyer Mahesh Jethmalani maintains that Shah had no knowledge of the crisis as it was perpetrated by a clutch of NSEL employees and its brokers, including its former chief executive Anjani Sinha.

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.

On Monday, Sinha of EOW said the agency has submitted more than 50% of the attached assets to a court-appointed competent authority for liquidation under the MPID Act.

“The charges against Shah are serious but the onus is now on the police to successfully prove them in the court because the test under the criminal law is stringent," said R.S. Loona, managing partner of law firm Alliance Corporate Lawyers.

If the charges against Shah are proved, they can attract a punishment of five years of imprisonment under the Indian Penal Code, said Loona, a former official at the capital markets regulator.

Additionally, under the MPID Act, assets of a person or entity can also be liquidated to recover depositors’ money.

“We are happy that finally the EOW charge sheet against Shah is comprehensive. We just hope that the court will not rule in his favour till a payment plan is brought on the table for investors," said Ketan Shah, founder of NSEL Investors’ Action Group.

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