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CBI set to probe NSEL crisis

September 27, 2013 09:29 IST

CBIWith Finance Minister P Chidambaram on Thursday saying the Central Bureau of Investigation, the Forward Markets Commission and the Ministry of Corporate Affairs will look into the payment crisis at National Spot Exchange Ltd, the probe net on the exchange looks set to widen.

Chidambaram said the three would look into different aspects of the troubles at NSEL, ‘which flouted rules from Day-1’, and take action under their respective jurisdictions.

He added the income tax department was also checking the financial details of NSEL investors to see if any black money was involved.

A committee headed by Economic Affairs Secretary Arvind Mayaram on Monday given its report on NSEL to the finance minister.

“The Mayaram panel report has suggested CBI, FMC and MCA must take appropriate action.

“They have listed the irregularities. . . They will take action,” Chidambaram said at a press conference in New Delhi.

FMC might file its report in a couple of days, after which the three bodies would decide on the action, he said.

A CBI official said the agency was in the process of verifying the NSEL complaint.

It was looking into the aspect of criminal offence to find out if there was an instance of fraud or cheating.

The government had received a complaint from investors but not referred the matter to CBI yet.

The agency, therefore, was also trying to establish whether the probe in this matter came under its jurisdiction, a senior CBI official said.

Ruling out similarities between the crises at Satyam and NSEL, Chidambaram dropped hints that the government might not bail out the people that had put their money in the exchange, saying they invested with open eyes, knowing full well they were investing in an unregulated entity. “The government does not come into the picture at all,” he added.

Chidambaram said NSEL was not a registered or recognised association under FMC; it got exemption even before it started its business.

“In the way NSEL started business, there’s much more than meets the eye. People seem to have given money to NSEL promoters, knowing fully well that it is not a regulated entity. . . Many of them made money in initial stages and some lost money now... I have seen the exemption order.

“Now, whether it is valid or not has to be examined.” he said.

Of the 17,000 investors who put their money in NSEL -- which is now grappling with a Rs 5,600-crore payment crisis -- 9,000 traded through eight top brokers, including Anand Rathi, Motilal Oswal, India Infoline and Systematix.

According to the finance minister, the investors would definitely move court, as it is a matter between them and the company.

The government had in 2007 exempted NSEL from provisions of the Forward Contracts Regulation Act to operate one-day forward commodity contracts.

The exemption was given on some conditions, including delivery of commodities within 11 days and a bar on short-selling

by members of the exchange.

“From Day-1, NSEL was violating the very conditions under which it claimed it could do business,” he said.

The Mayaram panel had suggested NSEL’s troubles had no systemic risk of an impact on other markets.

However, Chidambaram said he had asked both the Securities and Exchange Board of India and FMC to keep a careful watch.

NSEL, part of the Jignesh Shah-led Financial Technologies group, had to suspend trading on July 31 after a government directive.

It had committed itself to clearing its dues to investors in tranches through weekly payments.

But it has so far defaulted on its weekly obligations for six weeks in a row.

Two other trading platforms -- Multi Commodity Exchange and MCX-Stock Exchange -- are also Financial Technologies-promoted entities.

On whether the government was looking at changing the management of other entities with the same promoters, Chidambaram said: “Let us wait for the regulator’s report.”

Supreme Court order on tainted MPs: FM accuses BJP of changing stand Under attack from the Opposition for bringing an ordinance to protect lawmakers from immediate disqualification, the Centre on Thursday hit back, accusing Bharatiya Janata Party of changing its stand on overturning a Supreme Court judgment on the issue.

Finance Minister P Chidambaram had said in an all-party meeting on August 13 that there was a ‘unanimous demand’ that something be done in relation with the Supreme Court judgment on Sections 62(5) and 8(4) of the Representation of People Act.

“They are entitled to change their mind but they should not ask everybody to do so,” he said on Thursday.


• Jul 10: MCA seeks undertaking from NSEL not to launch new contracts
• Jul 31: NSEL suspends trading in all one-day forward contracts
• Aug 1: FMC questions the rationale of suspension, seeks information from NSEL
• Aug 3: NSEL declares annulment of three-day trade (July 29-31)
• Aug 4: FMC convenes borrowers’ meeting to take stock of the situation
• Aug 6: E-series contracts suspended
• Aug 7: Govt empowers FMC to deal with the NSEL payment crisis
• Aug 14: NSEL gives weekly settlement calendar to FMC
• Aug 20: NSEL’s first settlement default
• Aug 21: FMC warns the NSEL board on fit-and-proper status
• Aug 22: Exchange declares first list of nine defaulters
• Aug 27: FT comes to NSEL’s rescue, lends Rs 190 cr to pay small investors
• Aug 29: Investors protest outside FT office
• Aug 31: Kirit Somaiya files a PIL in Bombay High Court
• Sep 9: FMC comes under the finance ministry
• Sep 11: Anjani Sinha files an affidavit in a metropolitan court
• Sep 18: Investors file joint complaint in EOW against Jinesh Shah, NSEL
• Sep 24: Deloitte questions FT annual report over NSEL crisis

BS Reporter in New Delhi