EOW finds faults with NSEL auditors

Sights several violations by accounting watchdogs

Mumbai police has now found that even auditors of the NSEL has violated several norms and some of them are punishable under the Indian Penal Code. Police has found some discrepancies since inception of the exchange in 2007 which suspended trading last July and later faced default of Rs.5574 crore.

EoW has so far done such a comprehensive work that even CBI, a latest entrant in investigating NSEL scam has approached them for taking cues.

Economic Offences Wing of Mumbai police has nailed the modus operandi of every groups associated with the beleaguered spot exchange owned by the Jignesh shah controlled Financial Technologies (FTIL). First borrowers and employees, then directors and later brokers of NSEL and now even auditors of the exchange have been found flouting norms.

Giving details of the role various auditors played in the NSEL, EoW official said that NSEL auditors, Mukesh P Shah & Company and SV Ghatalia & Associates have not fulfilled many of the audit responsibilities specified by Institute of Chartered Accounts of India (ICAI) while auditing the books of NSEL.

In one instance, Rajvardhan Sinha, ACP of EOW, Mumbai police said that the auditors' comments stated that the company (National Spot Exchange) has adequate internal control and the commensurate the size of company and the nature of the business. Whereas, the reality was that NSEL had no control over the collaterals and stocks in the warehouses and many of the warehouses were in the name of borrowers.

EOW also found that the third party stocks was not verified by the company which is a violation of the code of conduct of ICAI. This makes them liable for Penal Provisions of the Indian Penal Code.

Similarly when SV Ghatalia & Associates did the audits, they never verified the delivery chalans and gate passes of the third party against which warehouse receipts were issued.

The auditor stated that, "during the course of our audit no major weaknesses has been noticed in the internal control system". However, the actual scenario, as disclosed by EoW, was the complete opposite of what was stated by the auditor. "Third party stocks against which warehouse receipts were issued were not verified by the auditor of NSEL," said Sinha.

In 2009-10, when SV Ghatalia & Associates made comments that the spot exchange has not given any guarantee for loans taken from other banks and financial institutions, while the actual situation was that bank guarantees were given to various state Agriculture Produce Market Committees (APMCs) for obtaining licenses for private electronic market under them as against fixed deposit receipts placed as security.

Rajwardhan Sinha also said that the process of scrutiny is still on and will call auditors with papers and audit notes and will now decide further course of action. It is clear that the report by auditors does not go with the actual ground reality.

EoW has so far attached properties of borrowers of NSEL, including even brand owned by one of them, directors of NSEL apart from assets of tainted NSEL employees and its former MD market price of which is estimated at Rs.5500 crore, amount which is 98 per cent of the original scam amount. So far, Rs.518 crore has already been paid to the investors who now hope for the police to move respective courts to auction attached properties and start making payment to the investors which is at present on a slow track.