A state-owned company's tryst with NSEL

MMTC, with exposure of over Rs 220 crore, has consulted attorney general and is likely to file a criminal complaint against bourse

Madan Gopal Gupta and National Spot Exchange Ltd (NSEL) go back a long way. In 2009, Gupta, then chief general manager of MMTC (west zone), endorsed NSEL in the words: “We are happy to launch a black matpe MMTC contract on the National Spot Exchange platform. Using this platform has helped us achieve better price realisation than the physical tender system. This will help MMTC realise the most optimal price for black matpe at any point of time. We look forward to using National Spot Exchange for various other commodities in the near future.”

Gupta went on to become one of the five functional directors of the public sector unit. The trading major with a turnover of $10 billion (about Rs 62,000 crore today), administered by the ministry of commerce & Industry, has three directors handling marketing and one in charge of human resources. Gupta, who handles the crucial finance portfolio, was instrumental in getting the company to trade on NSEL. It largely traded in imported pulses on the exchange. Its website says the company deals in rice, wheat, sugar and edible oil—commodities that were available on NSEL as “items of trade”. Today, Rs 220 crore of its investments is stuck in the bourse, following the payment crisis triggered by suspension of trading, after several irregularities surfaced.

“Attorney general has been consulted to file civil and criminal case,” an official said adding, “All transactions have been approved through proper procedure as per delegation by the highest authority in the committee consisting all board members.”

Though no separate exchange announcement was made, a footnote explaining the NSEL exposure was added to the June quarter results, the official added.  

A month before the NSEL crisis broke out, the government had raised Rs 560 crore by selling 9.33 per cent in MMTC, which recorded a net profit of Rs 7.2 crore for the first half of this year. If the NSEL investments go bad, it could drive the company deep into the red.

According to MMTC’s annual report for FY13, “the company's domestic trading, including trade on the spot commodity exchange of agro products, was valued at Rs 1,604.11 crore”.

As if by instinct, the company added an interesting clause to its accounting policy. In its annual report dated May 30 this year, MMTC said it had added clause 2.2 e, which said, “Purchase/sale is booked in respect of trade done through a commodity exchange like National Spot Exchange, which is backed by physical delivery of goods.” Only two months later, it was pretty much clear there was hardly any physical commodity to give or take delivery.

Gupta and NSEL had another connection, too. Gupta's son, Vineet Gupta, was employed in NSEL's business development. Vineet Gupta joined the bourse in 2012 and was looking after the sugar contracts from his base in Chandigarh, NSEL insiders said. M G Gupta and MMTC Chairman and Managing Director D S Dhesi didn’t reply to emails sent by Business Standard on a potential 'conflict of interest' issue here. An official at Dhesi's office said he was away on a foreign tour. The Guptas did not answer several calls on their mobile phones.

MMTC hasn't filed a formal complaint against NSEL yet. According to public sector undertaking procedures, any financial loss above a threshold has to be reported to the Central Bureau of Investigation (CBI). Though MMTC's loss is much higher than this threshold, it hasn't carried out this step, too. Officials are frantically calling up fellow investors to keep themselves updated. “We can't do much, but wait,” said one of them.

Besides the functional directors, the board has two government nominees and several independent directors. In a notice for the annual general meeting to be held later this month, it said it was moving a resolution to reappoint M G Gupta as director (finance). “Being eligible, he has offered himself for re-appointment as director (finance),” the resolution said.