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Mumbai: Mumbai police’s economic offences wing (EOW) said on Friday that a loan given by a unit of Financial Technologies (India) Ltd (FTIL) to one of the top borrowers of National Spot Exchange Ltd (NSEL) showed that FTIL had been aware of the unfolding crisis at the commodities spot exchange.

The agency said the National Bulk Handling Corp. Ltd (NBHC) had loaned 40 crore to PD Agroprocessors Ltd, one of the defaulters of NSEL, at the insistence of Anjani Sinha, former CEO of NSEL. The loan was given before the crisis surfaced. “This particular fact shows that Financial Technologies was fully aware of the happenings at NSEL," said Rajvardhan Sinha, additional commissioner of EOW. NBHC is a unit of FTIL.

Since the crisis surfaced, the FTIL has been claiming that it had not been aware of the problems at the commodity spot exchange. PD Agroprocessors owe 644.55 crore to NSEL. EOW said the NSEL, its brokers and investors together want to form a committee to negotiate with the defaulters over repayment and fix their liability.

According to an NBHC official who did not wish to be named, it was not a direct loan from NBHC to PD Agroprocessors. This person said NBHC had given an advance to NSEL for a transaction with PD Agroprocessors as part of NSEL’s buying/selling activity. This advance was given against securitised commodities that PD Agroprocessors claimed to possess, the person said. The transaction was of a larger amount but around 42 crore was not realised from PD Agroprocessors, the person said.

The settlement crisis at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. These, too, 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. 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 and has not made a single successful payout ever since.

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