NSEL Scam

The NSEL scam or NSEL fraud is a systematic and premeditated fraud perpetrated in the commodity market on the National Spot Exchange that is based in Mumbai, India.The NSEL is a company promoted by Financial Technologies India Ltd and the NAFED (only 100 shares given for misusing the NAFED brand). The NSEL scam is estimated to be a Rs. 5600 crore (around US$ 0.95 billion) fraud that came out to light after the National Spot Exchange failed to pay its investors in commodity pair contracts after 31 July 2013.

It was discovered after the exchange defaulted on 31st July 2013 that most of the underlying commodities did not exist and the buying and the selling of commodities like steel, paddy, sugar, ferrochrome etc. was being only conducted only on paper. The pair trades in various commodities were offered in one-day forward contracts of T+2 and T+25 (sometimes even T + 35) payment terms (bought and sold at the same time).

Such pair trades offered an arbitrage opportunity of about 12-15% return per annum. The investors, who honored the T+2 payment obligation, found that the National Spot Exchange neither had the money, nor the commodities, to honor their T+25 dues. Around 24 borrowers were given the funds by the NSEL, without any underlying commodity deposited by those borrowers. One of those borrowers who borrowed around Rs. 1000 crores is a company named NK Protein Ltd., and is owned by the son-in-law of the former Chairman Shankarlal Guru of NSEL.

An estimated number of 15000 investors, along with public sector units like MMTC and PEC, were victims of this NSEL scam. The ROC report on NSEL fraud has come down heavily on the promoters and the FTIL, as it was found that a majority of minutes of meetings of the NSEL board were fabricated, as cell phone location data of the said board members did not match to the meetings’ locations. Some of the warehouses mentioned on the NSEL website were found to be physically non-existent, and the SGF (Settlement Guarantee Fund) – of around Rs 839 crores (about US $140 Million), as on 29 July 2013, vanished into thin air.

Anjani Sinha, the sacked CEO and the MD of the company, attempted to take the blame for the fraud in order to exonerate other promoters, and filed an affidavit. Mr. Anjani Sinha's wife, Shalini Sinha, though being a related party, traded on MCX for about Rs. 40000 crores in one year through her company SNP Designs P Ltd. However Anjani Sinha after arrest retracted his earlier affidavit and filed a fresh affidavit pinning the blame on the board of NSEL stating that they fully knew what was going on at NSEL.  Anjani Sinha in his police statement however claimed that his wife Shalini Sinha is a small garment designer and the trades done by IBMA under the name SNP Designs were actually speculative trades done on MCX by Jignesh Shah himself. He also claimed there was no financial dealing between IBMA and SNP designs whatsoever. Surprisingly Anjani Sinha whom the promoters blamed as the main culprit was kept with NSEL by Jignesh Shah for almost 12-13 weeks after the scam as a 'special office recovery' showing the collusion between the two.

The Economic Offences wing of Mumbai police finally arrested Jignesh Shah along with his trusted lieutenant Shreekant Javalgekar who were all along believed to be the masterminds of the scam on 7th May 2014 As per Mumbai police the arrests were required as Jignesh Shah and Javalgekar did not cooperate in interrogations. They diverted questions and always laid the responsibility on the former NSEL CEO whle actually it was found that Jignesh Shah approved all fraudulent contracts. The immediate cause of arrest of Jignesh Shah was his knowledge of various dealings of Indian Bullion Markets Association (IBMA) a subsidiary of NSEL which was predominantly used in money laundering and bogus trades. The investors' counsel on 16th June 2014 produced before MPID court hard evidence of involvement of Jignesh Shah in the scam. Various emails sent among Anjani Sinha, Shreekant Javalgekar and Jignesh Shah were produced before the court where there was a talk about dehiring NSEL warehouses to remove cost burden, profit adjustment and bogus profits received from NK protein -one of the key borrowers at NSEL.

in the charge-sheet filed by Mumbai police it is confirmed that Jignesh Shah knew about the scam and was actually the mastermind of it. It was also found that a company close to Jignesh Shah withdrew all its investments just before the scam.