EOW probing NSEL borrowers' books, attaching properties

So far, the police have made five arrests in the NSEL payment crisis that surfaced in July-end

After the Income Tax Department and the Enforcement Directorate, now, the Economic Offenses Wing (EOW) of the Mumbai police, too, has started looking at the books of accounts of National Spot Exchange Ltd (NSEL) borrowers.

Police sources said they were studying the books of LOIL Overseas Food, though they declined to divulge the details.

Now, the police is attaching properties of NSEL borrowers-— the attached properties can be sold and the money distributed to investors.

So far, the police has made five arrests in the NSEL payment crisis that surfaced in July-end, when trading was suspended on the exchange. Among the five arrested are three former NSEL officials, including former managing director Anjani Sinha, and two borrowers, including the largest borrower — Nilesh Patel, managing director of N K Protein, who had an exposure of Rs 970 crore. Arun Sharma of Lotus Refinery, with Rs 247 crore of dues, was also arrested.

So far, under the Maharashtra Protection of Investors Deposit (Financial Scheme) Act, the police has already attached 166 properties, including immovable ones (luxury vehicles used by a few former NSEL officials, as well as their residences). The most valuable properties attached are those of NK Proteins (which accounts for 12 of the 166 properties attached) and Mohan India. Just a few weeks ago, Mohan India had entered into a settlement with NSEL and its investors’ body, NSEL Investors Forum (NIF). Subsequently, the Enforcement Directorate had raided Mohan India properties and attached Rs 100 crore of its property. It had also identified other properties worth Rs 600 crore, which could be used to repay investors.

Many of these properties seem to have been attached by EoW. Unlike the Mumbai police, the Enforcement Directorate will not be able to sell and distribute proceeds from the attached properties to investors, under the Prevention of Money Laundering Act.

The Mumbai police has also attached bank accounts of NSEL promoters, including Jignesh Shah, as well as borrowers. The overall amount in frozen bank accounts is Rs 145.57 crore.

EoW has questioned several borrowers, including ARK imports, LOIL Overseas Food, Mohan India, Astha Group and Yathuri Associates. It has questioned NSEL directors at least twice.

Settlements
Mohan India had signed an agreement to settle 15 per cent of the dues. However, as its properties were raided and attached by the Enforcement Directorate, the settlement process could be slow. Police sources said irrespective of whoever sought settlements, EoW should be kept in the loop. N K Proteins, too, had expressed its intention to settle the case.

The police has, however, said with EoW in the loop, settlements will not have sanctity. This is because as NSEL is a defaulter, no settlement signed with it would have sanctity.

To ease the settlement process, it was suggested a committee of the representatives of NSEL, NIF, EOW and the regulator be formed. The proposal is being considered by the Mumbai police.

The Enforcement Directorate, meanwhile, is investigating the trail of borrowers’ money and probing whether this had been diverted.

The Income Tax Department has already detected tax evasion by NSEL borrowers---they had borrowed funds for business interests; other expenses were claimed as expenses. However, the funds were diverted to other uses. The Income Tax Department has treated this as evasion and raised demand notices. While its probe of borrowers has been completed, investigations relating to investors are underway.

The Registrar of Companies under the Ministry of Corporate Affairs has initiated an inspection of Financial Technologies (or FTIL, the promoter of NSEL) group companies, including all exchanges and other companies since the inception of the respective companies. It is learnt irregularities have been found in this regard.

Earlier, a task force set up by the Ministry of Finance in August had suggested FTIL was running a network of companies around an exchange ecosystem and, therefore, the management and ownership of FTIL be separated.

The Forward Markets Commission and Sebi have already directed the respective exchanges — MCX and MCX-SX — to ensure the board-nominated committee manages the exchanges and both exchanges appoint new managing directors.

Meanwhile, the Bombay High Court has empowered FMC to regulate and oversee the settlement of NSEL’s e-series contracts.