Did NSEL investors' money never reach borrowers?

Ledger entries in NSEL books show no record of T+2 leg of the paired trades with borrowers

Contrary to National Spot Exchange Ltd (NSEL)’s claims that a default by 24 borrowers and their clients had resulted in the Rs 5,600-crore payment crisis, more and more borrowers are claiming the money invested by about 13,000 investors never reached them. And, in what supports this argument, some of the ledgers provided by the exchange do not contain any details of the trades settled on the T+2 cycle. In fact, some borrowers claim the exchange has to pay back the margin money they had remitted for T+25 trades.

Investors transacted through paired trades through which they opened positions by buying commodity on T+2 settlements and squared these off by taking a reverse position in T+25 settlements. On the borrowers’ side, these trades would have been a ‘sell’ on T+2 and a ‘buy’ for the same quantity on T+25.

On July 31, NSEL had deferred the settlement by 15 days. A couple of days before the scheduled settlement on August 15, it sent some ledgers and reports to borrowers, showing their transactions and outstanding dues.

In arbitration petition filed with the Bombay High court, Tavishi Enterprises, the company promoted by Harimohan, brother of Mohan India’s Jagmohan, has said NSEL provided a ledger containing the details of Tavishi transactions for the period between April 1 and August 12. NSEL claimed Mohan India and Tavishi together owed about Rs 1,000 crore.

The petition said, “Upon review of the said ledger, the petitioner was shocked and surprised to learn about the entry in the ledger for the dates August 8 and August 9 …being member delivery obligations for Rs 168, 35,39,433 and Rs 179, 75,23,990, totalling Rs 348,10,63,243.”

Tavishi argued since the settlement was deferred to August 15, these entries weren’t valid. “In any case, no delivery of the commodity sugar, for whatsoever amount, has been made to the petitioner.”

The petition added if it was the exchange’s position that a delivery was made on August 8 and 9, it would have been in violation of its own circular deferring settlements by 15 days. Calling the entries by the exchange “fictitious”, Tavishi said if these were removed, it was not liable to pay any amount to the exchange. It argued the exchange had unilaterally fixed the outstanding and payment schedule on August 14. However, the exchange had, in releases, suggested the schedule was agreed to by the borrowers. Tavishi said it “was shocked” at such unilateral announcements.

S S Dhingra, a Delhi-based NSEL investor who had studied the petition and ledger entries of NSEL, said these clearly showed the money hadn’t come to the so-called borrowers at all. “In the ledger account, the only entries are of commodity payout and funds pay-in settlement, which is the accounting entry for the borrower’s T+25 transaction. My question to NSEL is where is the T+2 transaction entry for the borrower?” he asked, adding the ledger entries showed the exchange’s claims were far from the truth. “It is evident from the documentary evidence NSEL’s claim that the borrower of Sugar Delhi (being the commodity I have invested in) having the investor’s money and that it is their obligation to pick up the commodity (sugar) and pay to the investor is all bogus and manipulated,” he added.

Holding Jignesh Shah, promoter of the Financial Technologies group that promoted NSEL, responsible for the crisis, Dhingra said he was planning to move court for fixing criminal liability on Shah and winding up of Financial Technologies.