NSEL auditor in the dock over stock positions

Association to also complain to ICAI, against the auditor

An association of brokers led by Motilal Oswal and Anand Rathi is planning to take the auditors of National Spot Exchange Ltd (NSEL) to court for providing an incorrect picture of the exchange’s stocks. It would also lodge a complaint with The Institute of Chartered Accountants of India.

“We will take legal action against the auditor, as even after July 12, we were given auditors’ certificates stating there were enough stocks to back the trades,” said Motilal Oswal, chairman of Motilal Oswal Financial Services. This would be part of the action planned against NSEL promoter Financial Technologies and group chairman Jignesh Shah.

Mumbai-based Mukesh P Shah & Co, the auditor of NSEL, had certified there were enough stocks at the company’s godowns. When contacted, Shah, the auditing company’s head, said the firm had certified stocks only till March 31 this year; it hadn’t issued any certificate after that. “The exchange, by itself, did not have much stock as on March 31 this year. NSEL sold that stock after March this year and had realised funds,” Shah said, asking, “Where is the question of blaming us?”

IN A SPOT

• Brokers, NSEL investors to move against auditors
• Brokers to complain to ICAI
• Brokers say auditors certificate was misleading
• Auditor denies any wrong-doing
• Auditor says certificate valid till March 31

The auditor’s role in the payment crisis is important, as based on its certificates, investors were told there were enough stocks across the company’s warehouses. This assurance by NSEL was maintained even after July 31, when all contracts were closed.

Brokers say they were misled into believing there were enough stocks to back trades, and if defaulters didn’t pay up, the stocks would be auctioned. “But till date, no action has been taken either to lock the stocks or secure the premises,” said Oswal. Brokers say now, the stocks of defaulting companies were suspect and it would be difficult for the exchange to sell stocks to raise funds. The only way out, they say, is carrying out a forensic audit and identify the money trail.

Kirit Somaiya, national secretary of the Bharatiya Janta Party and president of Investors’ Grievances Forum, says the auditor would have to take responsibility for the missing stocks. He had visited the exchange’s godowns in Delhi to ascertain whether there were sugar stocks, as claimed by the exchange. He said these warehouses had no stocks, adding the sugar stock announced by NSEL and the Forward markets Commission was bogus. The two companies, under which the warehouses were registered, belonged to two people---Jag Mohan and Jai Shankar Shrivastav. Somaiya said one of the companies was formed on January 24 2013; its paid-up capital was a mere Rs 1 lakh.

“I found many of these godowns empty and the shocking facts are these godown sizes are 20,000 sq ft each---maximum capacity of storage is 50,000 bags,” Somaiya said, adding, “I wonder what the basis was for the auditor’s certificate on the stocks held.”

Somaiya said it was sad instead of taking criminal action, freezing bank accounts and seizing assets against NSEL, the United Progressive Alliance government was engaging in a cover-up operation.