The Economic Offences Wing (EOW) of the Mumbai Police on Wednesday arrested Jignesh Shah, Chairman and group chief executive of Financial Technologies (India) Ltd, in connection with the Rs 5,574.34 crore payments crisis at National Spot Exchange Ltd (NSEL) here.
The arrest of 46-year-old Shah is the tenth and most significant in the case since the crisis began in August. FTIL owns 99.9 per cent of NSEL. Also arrested with Shah was former Multi Commodity Exchange of India (MCX) Chief Executive Officer Shreekant Javalgekar. Shah and Javalgekar will be produced in court on Thursday. “During the interrogation, we found that these people are not co-operating and their replies are evasive. So we realised that these people need to be placed under custody,” said Rajvardhan Sinha, additional commissioner of police, at a media briefing.
“They were not cooperating enough, which was crucial for the investigation and revelation of the truth,” Sinha said, adding that investigations had revealed that Shah, who was also director of NSEL and a member of the audit committee of the exchange, as a director approved all the entries of borrowers at NSEL.
“Shah also approved the T+2, T+20 and T+33 (settlement period for) contracts launched by NSEL and represented to the government regarding the scheme of NSEL, which was nothing but a platform for running an NBFC (non-bank financial company),” Sinha said, adding, “It was also revealed during the investigation that the defence of not having knowledge of the fraud is not correct.”
He pointed out that though NSEL is a commodities exchange, there are no warehouses in existence where physical goods could be stored. Bogus warehouse receipts were allegedly being issued and trading was done only on paper, Sinha said. It may be noted that Shah and his family together hold around 45.5 per cent of FTIL. Shah had set up FTIL 18 years ago.
The settlements crisis at NSEL came to light on July 31 when the exchange suspended trading in all but its ‘e-series’ contracts. These too were suspended a week later. The suspension may have been prompted by an instruction from the Ministry of Consumer Affairs to the exchange asking it not to offer futures contracts.
Subsequent investigations highlighted the possibility of fraud. According to the Forward Markets Commission, the involvement of promoters was not ruled out. On August 14, NSEL proposed a payout plan, but has been unable to stick to the schedule and has not made a single successful payout ever since.
“Finally, divine justice prevails. Though delayed, we appreciate the move. We hope investors money will come back,” said Ketan Shah, an investor in NSEL.
In the case of former MCX CEO Javalgekar, EOW found that his role as the financial controller of the exchange put him at the centre of the crisis. FTIL holds 26 per cent in MCX.
“During the course of our investigation, we found that Javalgekar, who was financial controller and controlled the finances of FTIL, NSEL, IBMA (Indian Bullion Markets Association) and other FTIL subsidiaries, was fully in control of IBMA for a very long time and NSEL as well. Javalgekar was in criminal conspiracy with others accused in the NSEL crisis,” Sinha said.
