The Central Bureau of Investigation, on Thursday, registered a case against top functionaries of the National Spot Exchange Limited (NSEL) and the Projects and Equipment Corporation (PEC) for allegedly causing a loss of Rs.120 crore to the public-sector unit on the pretext of investments through the exchange.
Searches were carried out at four places in Mumbai, two in Karnal and nine places in Delhi. Premises of the NSEL and PEC officials were also searched, following registration of the FIR under the relevant provisions of the Indian Penal Code and the Prevention of Corruption Act.
Among those named are NSEL promoter Jignesh Shah, former NSEL Chief Executive Officer Anjani Sinha and director Joseph Massey besides the then Chief General Manager and the former General Manager of public-sector unit PEC, said a CBI official. “The case of cheating, forgery, conspiracy and corruption has been registered on allegations of criminal conspiracy to cheat the public-sector unit by floating fraudulent paired contracts for trading of agro commodities on NSEL platform without actually undertaking any genuine trade and in the process, causing losses to the exchequer. In this case, NSEL had approached PEC offering to trade in commodities,” said the official.
Operations of the NSEL promoted by Jignesh Shah-headed Financial Technologies India Limited was suspended last July after it failed to clear dues of about Rs.5,600 crore to 13,000 big and small investors. Investigations have revealed that NSEL purportedly claimed to have its own designated warehouses where the listed commodities for sale by producers were supposed to be deposited in advance, in lieu of which the exchange would issue scanned ‘warehouse receipts’.
Under a contract, the producer would sell commodity to the buyer through transfer of the ‘warehouse receipt’ in favour of the buyer against simultaneous delivery of funds, which would usually be realised the same day. And then, under a separate contract, the investor would sell the purchased commodity to the second-tier investor.
However, there was a gestation period for the effective exchange of ‘warehouse receipts’ and the payment of due funds by the second-tier buyer/investor. The crisis befell after 24 buyers and their clients defaulted on payment of due to the exchange. When the first-tier investors made enquiries, they discovered that the exchange allegedly had virtually no designated warehouses or any backup in terms of actual commodity stock that could be liquidated as recovery against the investments.