NSEL crisis: Investors' forum to move Bombay HC next week

The forum seeks court-monitored probe into the payment crisis

Kirit Somaiya, national secretary of the Bharatiya Janata Party and president of the Investors' Grievances Forum (IGF), would move the Bombay High Court on Monday against National Spot Exchange Ltd (NSEL), its promoter Financial Technologies (FT) and its board of directors, seeking a court-monitored investigation into the entire payment crisis.

"We want a special audit and visit by independent auditors reporting to court, the inspection of godowns and relief to small farmers through investors selling MCX, FT and NSEL assets. We also want action against the big brokers who sold wrong products to small investors by promising high returns," he said.

Somaiya said the commodities market and small farmers and investors were feeling cheated. "They (investors) have lost confidence and faith in NSEL, its promoter Jignesh Shah and other associates companies, the Forward Markets Commission (FMC) and the ministry."

Somaiya alleged NSEL and FT had used their influence on the United Progressive Alliance (UPA) government to secure exemption to launch forward products, despite being a 'spot' exchange. "They created fraudulent products, based their trades on bogus stocks, started an illegal badla (forward) system and used NSEL to get money at 16 per cent interest. The money was used for speculation and other business activities," he said, adding small farmers and investors were carried away by the business tactics of FT and NSEL and misled by broking firms such as Motilal Oswal, Anand Rathi, IIFL and Asit Mehta.

Recalling the Harshad Mehta scam of 1992-93, Somaiya said NSEL and other MCX group companies had adopted Mehta's model of forged bank receipts. "Here, too, a lot of trading took place based on forged warehouse receipts with zero stocks," he said.

The execution of the scam started in 2010, he said, adding at that time, NSEL and group companies had started the illegal vyaj badla system and so far, this had generated Rs 8,000 crore in cash. "The consumer affairs ministry knowingly allowed the abuse of the system. The FMC remained quiet, despite knowing about the scam for the last one year."

"Actually, the government and FMC were informed in 2011. And, the reports were confirmed by February 2012. But political and corporate pressure allowed the scam to continue till August 2013, till the amount rose to Rs 8,000 crore," he said.