Good news for NSEL investors as government mulls funds recovery

The victims of the National Spot Exchange Limited (NSEL) scam may soon get their lost money back. After attaching properties worth more than the scam amount of Rs 5,600 crore, the government is now considering setting up a special court of Maharashtra Protection of Interest of Depositors (MPID) or a Special Competent Authority with independent infrastructure to fast-track the recovery process.

At a high-level meeting held on Tuesday between senior officials of the central government and the state government, and several intelligence agencies, they discussed a concrete action plan to facilitate liquidation of assets attached by Economic Offence Wing (EOW) of Mumbai police and the Enforcement Directorate (ED). The meeting was attended by Jayant Sinha, minister of state for finance and senior officers from EOW, ED and CBI.

NSEL, a pre-meditated countrywide commodity scam, had affected 13,000 retail investors across the country. The commodity exchange had been grappling with a payment crisis since suspending trade in July 2013.

Following a government order, multiple agencies probed NSEL's activities and assets of defaulters were attached. The exchange had also sought the intervention of Modi government to recover the dues from related entities.

BJP MP Kirit Somaiya, who was part of the meeting, said this was the first high-level joint meeting held for NSEL scam. "We discussed concrete action plan to fast-track the liquidation of assets attached by EOW and ED. We expect next phase of action from February onwards. All related departments have been asked to do their homework and come up with a detailed report by February first week. Meanwhile, we have next round of meeting too with Maharashtra chief minister Devendra Fadnavis once he is back from Davos," said Somaiya.

Total amount of assets attached by EOW, ED?
So far, EOW has attached Rs 6,000 crore of assets -- both movable and immovable, whereas ED has attached assets worth around Rs 500 crore. But none of these agencies were authorised to liquidate the assets and give money back to the investors who lost their earnings.

How does one auction assets?
As per provision, the assets attached by EOW can only be liquidated and auctioned by MPID court. Similarly, ED also does not liquidate assets as it is not formulated in Prevention of Money Laundering Act (PMLA).

Is it good news for investors?
NSEL investors, who began losing hope on the recovery front, have now got another chance to cheer up, as nothing much have done in more than one and half years after the scam was exposed. Ketan Shah, president, NSEL Investor Forum (NIF), told dna, "Indeed, this is a welcome step. We are expecting concrete action plan now. We have faith in the new government. EOW has not done much on recovery side, but we hope that with the new government, we will get our money back."

What are the efforts so far to recover money?
Last year, a competent authority has been assigned by the MPID court to look into the sale proceedings of the attached assets of defaulting members. The authority, headed by the deputy collector, has not been given any deadline to complete the liquidation process. However, it is working closely with the Monitoring and Auction Committee constituted by the commodity markets regulator Forward Markets Commission (FMC) for the recovery of money from defaulters at the earliest.

Last September, the ministry of corporate affairs had proposed to merge FTIL and NSEL under section 396 of the Companies Act. The ministry's proposal of a merger was aimed at repayment of Rs 5,600 crore to the investors. FTIL cleared its stand said that merger will transfer by the default its subsidiary to its books and hence they challenged the proposal in court. The Bombay High Court extended a stay on a merger of NSEL and its erstwhile parent, FTIL till February 4.

Details of the attached properties?
So far, EOW has attached 206 properties worth around Rs 3,000 crore of the NSEL's 24 borrowers. Apart from this, EOW's hefty attachment, worth around Rs 800 crore, came from Jignesh Shah, former managing director, FTIL. This includes his 1,19,000 shares in FTIL, two flats in Mumbai -- including one in Juhu, and a plot of land in Pune, five demat accounts and shares in Indian energy exchange. These agencies have also attached assets worth Rs 4.5 crore from Anjani Sinha, former CEO, NSEL. This includes three flats in Mumbai and one in Navi Mumbai.

Another official at NSEL, facing the wrath is Amit Mukherjee, former, VP of NSEL. He has been attached properties worth 5.68 crore, two flats in thane and one in Mumbai, with one Range Rover Evoque SUV being attached. Four flats in Mumbai owned by Shrikant Javalgekar, former CEO of MCX, worth Rs 11.2 crore, were also frozen by EOW of Mumbai police.

What are the challenges in the sale process?
Most of the attached assets are real estate properties. This is why the liquidation process takes more than three years, said a real estate consultant who is aware about the liquidation process.
The biggest challenge in the recovery process is the legitimisation of the assets. "The government also has the same view on this. To overcome this, we require clarification on some norms of MPID as well as in PMLA," said ED officials.

Why some investors are losing hope?
However, some investors have already given up with the slow pace. "We are so disheartened with the way the government is dealing with the case. We met both old and new government officials but nothing has been done so far," said Arun Dalmia, an investor of NSEL.

Recently, NIF had given a presentation to Jyant Sinha, minister of state for finance, on January 7, 2015, intimating him of the entire scam. They also raised the voice to supersede Financial Technology (FTIL) management before merging the two entities. They alleged that NSEL was a bogus commodity exchange floated by FTIL with 99.99% ownership.