30 September 2013

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Explained In Depth NSEL Rs. 5600 Crore Scam

Explained In Depth NSEL Rs. 5600 Crore Scam

Updated on Tuesday, October 01, 2013

National Spot Exchange Limited (NSEL) is defaulting on payments to investors. It owes
the market 5700 crores. It is a huge scam that is being carefully downplayed by the media
because when the cookie crumbles, big names will tumble.

NSEL is a commodity exchange, one assumes that all trading is backed up by stocks of
equivalent value. So they should be no cause for panic.
But the shocking truth is that the stocks don’t exist! Warehouse Receipts are all that exists.

The status of most ware houses is:

a. The warehouse doesn’t exist

b. In some cases the supposed Warehouses companies are totally fake with peons as

c. If they exist they do not have any goods

d. Some warehouses exist but they take no cognizance of the receipts claiming they are

Illegal Forward Trading thrived at NSEL

No Regulatory Control - Why Who blessed?

How did this happen?

The common man sleeps sound assuming that there are checksand balances for the share market and there would be even more stringent checks andbalances of commodity exchanges - especially those dealing in agricultural produce. Butthe shocking truth is the from the time NSEL began trading in 2008 end till around2012 there was absolutely no check on its operations, not even any monitoring.

NSEL was India’s foremost agricultural trading exchange, promoted by Jignesh Shah
whose impeccable credentials seem hollow now, and supported by the government
(through NAFED), whose complicity in the whole fraud is laid bare.

The crux of the matter is that in agricultural commodities “forward trading” is improbable
because you are actually buying/selling goods which are meant for timely consumption.
When NSEL, began a buyer was supposed to sell within two days “T+1” formula.

Butbetween 2009 and 2011 NSEL traded in T+25 and T+36 periods without any
questions! It is interesting that the Ministry of Consumer Affairs (MCA) which is the
only body to which NSEL reported, was led by Sharad Pawar during that period.

It is only in 2012 that the Department of Consumer Affairs (DCA) began questioning NSEL.
NSEL kept skirting DCA for almost a year until the scam came to light in July 2013
Illegal Hoarding of essential commodities - Exchange fuelled Inflation?

There is no sanction for such forward trading in agricultural commodities - in fact it
amounts to illegal hoarding of essential commodities!

World over queries are being raised whether commodities exchanges are fueling inflation. Experts and activists have stronglyadvocated against speculation on agricultural commodities:

“The  FAO  has   already  reported  that  enhanced  speculation  in  futures  of  agricultural
produce has led to at least  30 per  cent  rise in food prices  globally. 

How  the spot  market could be prevented from  the overwhelming sway  of  the capital in futures trading could be judged  from   the  following  facts:  India  produces  mentha  oil  worth  $250  million  odd  but futures  trade  in  this commodity  generally  goes up to  $2,500 million.  The case  of  guar  is most  interesting;  its  production  in  India  was  around  1.6  million  tone  last  year  while  its quantity  traded on the futures market  reached 169 million tone- around 1700 times more.”

Jaspal Siddhu, senior agriculture journalist.
The  Economic  Survey  (2007-08)  of  Indian  Government  clearly  underlined  that  "Direct
participation of  farmers in the commodity  futures market is somewhat difficult at  this stage
as  the large lot size, daily margins, high membership fees  etc work as deterrent to farmers
participation  in  these  markets.  Farmers   can  directly  benefit  from   the  futures   market  if institutions are allowed to act as aggregators on behalf of the farmers".


Jignesh Shah of Financial Technologies (India) Limited began MCX, India’s first
commodities exchange that traded in metal, bullion and energy.

Sharad Pawar became Agricultural Minister

November 2004
MCX signed MOU with FTIL and NAFED to start an agricultural commodities spot

May 2005
FTIL & NAFED launches NSEL

MCA gives sanctions to NSEL to do one day trading in agricultural commodities.
Interestingly NSEL is exempted from regulation from The Forward Contract (Regulation)
Act (1954), FCRA*.

October 2008
NSEL began trading. Interestingly its initial work was conducting E-auctions for NAFED,
FCI, MMTC, PEC, and Hindustan Copper, all public sector organizations.


NSEL starts trading in T+25 and T+36 formats without any approval. Here we need to
understand the nature of trading

NSEL did not give warehouse receipts of T+1 transactions to the investors but kept with
the warehouse receipts on behalf of the customers. It was treated as early pay-ins for T
+25 transactions and thus encouraged traders for futures trading. So traders never got
warehouse receipts, the only tangible proof of their commodities. NSEL seems to have
benefitted in two ways from this - they did not have to furnish the actual proof of the
commodity and they blatantly forced double transactions on the traders.

The unsuspecting traders went with NSEL’s assurance that goods are under the custody &
control of the exchange so there is no risk. And that NSEL will release the receipts to the
final buyer on getting full payment. Since NSEL is counter party for all settlements of trade,
people did not mind. NSEL gave assurance in writing guaranteeing the quality, quantity
and weight of the goods. Most important, all goods were allegedly covered by

The Woes

February 2012
The Consumer Affairs Ministry issued an notification appointing Forward Markets
Commission (FMC) as the designated agency to which all information or returns relating to
the trade shall be provided by NSEL.

April 2012 to April 2013

NSEL received letters from DCA but did not disclose the content. When brokers
questioned the contents of the letter NSEL claimed they were some queries which had
been adequately responded too.

July - August 2013

However, in July 2013 when the brokers became jittery of the going ons, there was a
meeting between Secretary of Company Affairs Pankaj Agarwal and NSEL where it
became clear DCA was not allowing forward trading in the T+25 and T+36. NSEL reduced
the forward trading to T+10.
But by now the investor confidence was shaken and trading volumes fell, causing what
seemed like a liquidity crunch at NSEL. The situation reached a peak when NSEL failed to
meet 31st July pay outs.

NSEL assured brokers that all payouts will be made. They said they would merge the
payouts and share a revised calendar. The brokers demanded to know if there were any
serious defaults. But there was no disclosure made. Instead NSEL assured them saying
they had 6200 crores worth of goods and a settlement guarantee fund of 840 crores.

On 4th August there was a meeting of  FMC, NSEL, Brokers, and Borrowers. NSEL
assured they will pay 5% of outstanding on a every week over 30 weeks. They also
assured that they would pay ___% interest if there were delays.

By now the brokers had begun independent searches into the wareshouse and were
alarmed to discover that there were goods!

As per the settlement calendar the first payment was due on 20th August  of 174.72 
crores. NSEL has only been able to pay 92.12 crores


Investors cheated: The promoters, directors, and shareholders of NSEL have
deliberately tricked investors 13000 investors await payment of 5700 crores.

Inflation: The forward trading has led to serious price hikes in the price of commodities.
The hoarding in warehouses would have led to shortages and now, the disappearance
of the stock itself will lead to further shortages.

Insider information: NSEL has been running an exchange without any regulatory
controls simply because those close to the Minsiter for Agriculture are on its Board.

Chairman Shankarlal Guru is a leading expert on who the Government of India relies
to make policy decision regarding trading of agricultural commodities.
He has served as Chairman of a high powered committees on agricultural marketing set up by GoI.

In fact the Guru Committee Report recommended scrapping of Essential
Commodities Act (1955) and review of other 27 legislations to make them facilitative
towards free trade. (Exhibit Guru Committee Recommendations).
Undoubtedly there is a conflict of interest wherein a GoI Advisor is a Chairman of an exchange -
his recommendations will be skewed to protect the exchange.

Chairman Shankarlal Guru and Director B D Pawar are also directors in Center
For International Trade In Agriculture & Agro - Based Industries (CITA) wherein
Supriya Sule, daughter of Sharad Pawar is a director. “CITA is a non - profit
organization founded by Great Visionary Shri. Sharad Pawar committed for services
to farmers and rural population.
Our mission is to guide the farmers, stakeholders, policy makers and other related organizations..... in particular to encourage farmers to sell their products profitably in domestic and export markets.”
There is a direct conflict of interest here - the Chairman and Director of NSEL are directors of CITA which influences policy and farmers. CITA has always been led by Sharad Pawar’s
close coterie - Anuradha Desai, Vijay Mallya, KD Goenka.

Loot: NSEL intially tried to protect the names of the defaulters. Out of the defaulters  NK
Proteins Ltd which has defaulted payment of 952 crore belongs to the
ChaiRman’s son in law!

Name of borrower          Outstanding amount

a)Mohan India Pvt Ltd/ Tavishi Enterprise    Rs 952 cr

b)N K Proteins Pvt Ltd        Rs 930 cr

c)Ark Imports Pvt Ltd          Rs 730 cr

d)Loil Health Foods Ltd / Loil Overseas Foods  Rs 690 cr

e)P D Agroprocessors Pvt Ltd      Rs 618 cr

f)Yathuri Associates           Rs 460 cr

g)Lotus Refineries           Rs 247 cr

h)Aastha Minmet India Pvt Ltd      Rs 236 cr

Other defaulters are NCS Sugars Ltd, Spin Cot Textiles Pvt Ltd, and Vimladevi Agrotech

Updated on Tuesday, October 01, 2013

A complaint in this regard was made to the EOW by Pankaj Saraf of the NSEL investors’ forum, based on which a FIR was registered after the inquiry.

Mumbai Police, on Monday, registered an FIR against National Spot Exchange Ltd. (NSEL) promoter Jignesh Shah and others in connection with the Rs.5,600-crore payment crisis

An FIR was registered by the Economic Offences Wing (EOW) this morning against the NSEL promoters, directors and defaulters on charges of cheating, forgery and breach of trust among others,” Joint Police Commissioner Himanshu Roy said.

The FIR included officials, namely,
1)Joseph Massey

2)Jignesh Shah

3)Anjani Sinha

4)Shantilal Guru

5)B. D. Pawar

6)Amit Mukherjee

7)M. C. Pandey

8)Shrikant Jawalgekar

9)Neerav Panday

10)company’s auditor Mukesh Shah

11)R Devarajan

12)Jai Bahukhundi

Reality views by sm –

Monday, September 30, 2013

Tags – NSEL Rs.5600 Crore Scam


Kirtivasan Ganesan October 01, 2013  

Jignesh Shah and NSEL and FTIL are no cheats. Only thing is people were not grown up enough for this idea. Moreover our country does not have enough to satiate the greed of a few.
There is a thin line between legal and illegal activities. Harshad Mehta was a hero to many and a cheat to the system. Jignesh Shah too is facing the heat.
If you call the intention to control inflation as cheating. Then yes, NSEL is a cheat. If you say seller should not strive for good prices, Then yes, NSEL is a cheat. If you say buyer should not strive for timely delivery of goods, then yes NSEL is a cheat.
India has not grown up to take such initiative as positive. India is still a baby in diapers. And a fat greedy system does not hesitate to throw stone at such a relevant idea.