Speedy justice needed

Legal process should not dilly-dally in Jignesh Shah case

Jignesh Shah, the controversial businessman who heads Financial Technologies (India) Limited, or FTIL, was arrested on Wednesday by the Economic Offences Wing of the Mumbai police. Mr Shah and his close associate, Shreekant Javalgekar, were arrested because the police felt they were being uncooperative in the investigation into the mammoth accusations of fraud at the National Spot Exchange Limited, or NSEL. The magnitude of that fraud may be as much as Rs 5,600 crore. Since the payment crisis broke out when NSEL defaulted on its payouts in August last year, the number of arrests made so far has risen to 11, including those taken into police custody on Wednesday. Mr Shah's descent from the peaks of the finance business has gathered speed of late. FTIL and Mr Shah have been declared "unfit" to run an exchange, according to the Securities and Exchange Board of India. He had already lost control of the Multi-Commodity Exchange of India Limited, or MCX, and FTIL has been ordered to reduce its stake in MCX.

The nature of the NSEL fraud shocked many, and undermined confidence in India's financial system. Essentially, Mr Shah has been accused of setting up a giant confidence trick in which regulators were duped into believing that immediate settlement was taking place - when nothing of the sort was happening. In fact, though NSEL was supposedly a spot exchange, it attracted traders who had no interest in spot trading at all. It was instead being used by producers as an easy way to raise money. Many investors had put money into NSEL not knowing that they were, in effect, lending to doubtful agricultural producers with no security. It is this money that has disappeared. While NSEL promised to pay back investors on a regular schedule, it has been unable to keep to that schedule. As many as 13,000 investors may have lost money in NSEL. And their concern, as expressed through various investor forums, is that the government took too long to act. Had regulators acted earlier, the losses would have been lower; had the legal process moved on Mr Shah earlier, more money might have been returned.

Whether or not that supposition is true, this is exactly the sort of thing that can hurt confidence in an already struggling emerging economy. Thus, it is doubly important that Mr Shah's belated arrest be followed up by a swift investigation. Naturally, nobody can question the need for the law to take its course, and due caution. But the delivery of justice should be fast. The NSEL problem blew up as long ago as August last year. It has taken the police this long to arrest Mr Shah. Now, there is every reason to suppose the police will imagine that incarceration will do the job that investigation should, and wait for Mr Shah to reveal everything. But that is not the way out. Many still remember the Satyam Computer case, in which the company's founder-head had confessed to falsifying the firm's accounts for several years, landing the company in a financial scam. While the company has been salvaged through quick action, the trial against the perpetrators of the financial fraud is still going on, more than five years after it first surfaced. The legal process, clearly, was not as efficient as it should have been. In the Jignesh Shah case, those errors should not be repeated.