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BW Businessworld

Law Catches Up With Jignesh Shah In NSEL Scam

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Financial Technologies (FTIL)and Multi-Commodities Exchange (MCX) promoter Jignesh Shah and former MCX head Shreekant Javalgekar were on Wednesday (7 May) arrested in the Rs 5,600-crore National Spot Exchange (NSEL) scam case, seven months after an FIR was lodged.

"Financial Technologies chief Jignesh Shah and former managing director and chief executive of MCX Shreekant Javalgekar were today arrested in the NSEL case. Both are also members of board of directors of NSEL and members of the spot exchange's audit committee," Rajvardhan Sinha, chief of the Economic Offence Wing of Mumbai Police, told reporters here this evening.

Both will be produced before the court on May 8, Sinha said, adding the total number of arrested persons in the case is now 11. NSEL chief executive Ajnani Sinha had been arrested on October 17 last year.

"During our long probe, it was uncovered that Shah and Javalgekar had hatched a criminal conspiracy with the other accused who were running this particular exchange as a non-banking financing company and this led to the default of Rs 5,600 crore payment to over 11,000 investors," the Additional Police Commissioner said.

The FT Group owns 99.99 per cent stake in the now crippled commodities spot exchange which was ordered to be closed by the government on July 31 last year following a payment crisis.

The arrests came seven months after an FIR was registered by the Economic Offences Wing (EoW) of Mumbai police against Shah (promoter-director of the NSEL) and others on charges of cheating, forgery, breach of trust and criminal conspiracy to make quick profit.

Former MCX head and CEO Joseph Massey is also an accused in the NSEL scam.

Shah's arrest is likely to cripple the FTIL and delay its plan to get is 26 percent stake in the country's largest commodities exchange reduced to 2 percent. FTIL was asked both by Sebi and FMC to divest its stake after the company and its promoter Shah were declared unfit to run any exchange in the country following the NSEL scam.

Government ordered the shutdown of NSEL, promoted by FTIL, on July 20 last year after its new contract could not be renewed.

"Normally, FTIL was a financial technology firm which was supposed to be providing technology to the exchange and royalty was supposed to be given to FTIL. However, it was subsequently changed; volume on NSEL was linked to FTIL so that its profit increased. So, the more you traded on NSEL, the more profit would go to the parent FTIL.

"Shah has linked the volume of transactions on NSEL to the percentage of income to FTIL and this was in a way leading to wrongful gains whereby FTIL was substantially gaining brand value which led to launching of other exchanges by FTIL.

"During the probe, Shah and Javalgekar were not co-operating with us. They were evasive and shirking responsibility. So, we realised that their custodial interrogation was required," the officer said.

The EoW made the first arrest in the case on October 9 when it took into custody Amit Mukherjee, an Assistant Vice-President of the exchange. Two days later, it arrested Jay Bahukhundi, another Assistant Vice-President.

Shah (46) is the chairman and Group Chief Executive Officer of FTIL. He and his family hold around 45.5 percent stake in the company which he set up in 1999. FTIL holds 26 percent stake in MCX and 99.99 percent in NSEL.

The settlement 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 was prompted by an instruction from the Ministry of Consumer Affairs to the exchange asking it not to offer futures contracts.

On August 14 last, NSEL had proposed a payout plan but it could not stick to the schedule and has not made a single successful payout ever since.

Sinha, who is supervising the probe, said "it was also revealed that NSEL subsidiary Indian Bullion Markets Association (IBMA) had a large chunk of bogus clients, whose addresses, etc, could not be traced, which leads to suspicion of inflow of black money in the exchange's circuit."

"Shah supervised the entry of borrowers and memberships into the NSEL....He represented to the government regarding the scheme of NSEL, which was nothing but a platform for running an NBFC," he said.

Talking about the brokers, he said "brokers' role is also under investigation for their malpractices. Brokers have charged certain percentage on fake warehouse receipts, we also found certain broking houses used client accounts without their knowledge for doing purchases in the morning and thereafter those purchases were bifurcated into different clients. Many rules were modified for their gain."

The EoW has so far frozen movable and immovable properties worth Rs 5,100 crore and securitised them, Sinha added.

Shah, a first-generation entrepreneur, was earlier actively involved in the automation of the trading systems at the BSE.