NSEL case: HC bail order jolts investors

Observes Investors are actually traders, along with brokers were knowingly participated in illegal activities on the exchange

The high court’s observations while granting bail to Jignesh Shah, group head of Financial Technologies in the National Spot Exchange (NSEL) payments scam could have a big impact on the cases filed and the ongoing probes into the Rs 5,600-crore fiasco. So far, it is the exchnage’s many investors who were considered the parties defrauded and needing the law’s succour - the police and other probes were on their complaints. However, judge Abhay Thipsay’s order raps them hard, too. He has said those terming themselves as investors were actually traders. And, so, the judge also questioned whether the Maharashtra Protection of Interests of Depositors (in Financial Establishments) Act was at all valid in this case.

The judges says the fact that transactions in question were not genuine ones of sale or purchase was known to both sides. The so-called investors and their brokers were pursuing high returns without bothering about the legalities of the trades in question. That these trades were fictitious were quite clear to the investors, too, said the judge, and they’d “entered into the transactions purely as financial investments”.

As for whether such people could seek the protested of the said law, termed the MPID Act, his order said: “Whether the monies paid by the buyers for purchasing the commodities would amount to ‘deposit’ as defined in  the Act would need serious consideration.” Significant, as the police cases in question were registered under the MPID law and all the properties attached were done by using the powers under this law.

The court also said, “Whether NSEL can be termed as a ‘financial establishment’ as defined under (the) Act would need equally serious consideration.”

He also said there was a lack of evidence till date in linking Shah to the charges of being part of the illegal money trail. “The only real allegation against Shah is that he allowed NSEL to violate the rules and regulations, and its own business model, which enabled the ‘borrowers’ to dupe the ‘investors’,” said Thipsay.

The NSEL Investors Forum is exploring the possibility of challenging the order and, specifically, the observations against them. Pankaj Saraf, an investor who intervened in the case, asked: “If investors are not genuine as the court has observed, then were even the two public sector undertakings which invested in NSEL also not genuine investors?”