State-owned MMTC has told the Attorney General of India (AG) that National Spot Exchange Ltd (NSEL) promoter Jignesh Shah, board members of the exchange, its management, led by Anjani Sinha, and even the so-called defaulters had acted in collusion to dupe investors.
In a case for opinion given to AG Goolam E Vahanvati, MMTC, which had about Rs 220 crore stuck in the troubled bourse, said, “It is inconceivable that Jignesh Shah and Anjani Sinha did not have knowledge of the true state of affairs of NSEL and the fraud being perpetrated on the querist and their clients.”
The firm, which falls under the administrative control of the ministry of commerce and industry, said, “The suspension of the key management team and the heads of departments is clearly an eye-wash by the NSEL board, which is itself complicit in the fraud that appears to have been committed by the management of NSEL in collusion with other parties such as the defaulters.” It added the misrepresentation by NSEL wasn’t limited to investors alone. “The management led by Jignesh Shah has, in fact, not even hesitated to make such misrepresentations before the FMC (Forward Markets Commission) and the government.”
According to NSEL, 24 of its borrowing members owe Rs 5,572 crore to the exchange. The exchange has defaulted on payments to about 13,000 investors such as MMTC, citing non-payment of dues by the 24 defaulters. So far, the 24 members have collectively paid about Rs 160 crore, or about three per cent, of the total dues.
Supporting the charges against Shah and others, MMTC referred to a circular issued by FMC on August 20. The circular said in a presentation before the secretary in the department of consumer affairs on July 10 and during the meeting with FMC, Jignesh Shah had said, “NSEL offers a high level of safety for participants, as the model has over 100 per cent stock as collateral, 10-20 per cent as margin money and is backed by 100 per cent of post-dated cheques from participants.” This presentation by Shah and Anjani Sinha merely six days before the circular dated July 16, which triggered the exchange’s collapse, showed they had full knowledge of the situation, MMTC said.
“Over and above this, there are allegations there has been conspiracy and collusion between NSEL, Jignesh Shah, the management of NSEL and the 24 defaulters and their clients. I was given a list of defaulters in a conference held yesterday,” Vahanvati said on September 21, replying to the MMTC query.
When contacted, an NSEL spokesperson said in an email response, “We are not privy to any opinion of the AG. In any case, NSEL filing a complaint on the basis of the AG’s opinion does not arise.” MMTC officials did not respond to calls and text messages.
Vahanvati has advised the trading firm to proceed on the basis that it was the owner of the stock, though the stocks were being held in trust by NSEL. “The querist would, therefore, be entitled to proceed against NSEL, claim the amount from NSEL, and also proceed to recover the stocks purchased by them,” he said.
“I do not think the querist can afford to wait till the outcome of the government action. Because several government agencies are involved, that, by itself, would not be a reason for the querist not to take steps to protect itself in its own interest and secure its position,” he said. He advised against a class action suit in response to a specific query, saying though this would be ideal, it would be better for MMTC to proceed on its own.