The Rs 5,600-crore NSEL scam could have been averted had its top management and other functionaries "performed their duties and exercised due diligence" to check the dubious activities of defaulting firms which have been alleged to have cheated numerous investors, investigation by Enforcement Directorate (ED) has revealed.
The central probe agency which registered a criminal FIR in this case in October last year to probe money laundering instances scanned the business transactions and financial connections of a majority of the defaulting firms and then recorded in its charge sheet that trading at the National Spot Exchange Limited (NSEL) was being conducted "only on paper and no actual commodity was procured or sold". "If NSEL and the top management and others had performed their duties and exercised due diligence this fraud of Rs 5,600 crore would not have happened. It shows failure on the part of statutory bodies and the others," the ED said in its charge sheet, accessed by PTI.
The agency, which is conducting a parallel probe in this case under the Prevention of Money Laundering Act (PMLA) alongside the Mumbai police and other agencies, said the scam was unleashed as right from NSEL's former CEO Anjani Sinha to the business development section and warehousing section of NSEL had "individually and collectively committed breach of trust and the basic object of the Exchange". The ED, which has so far attached assets to the tune of over Rs 500 crore of the defaulting firms, said the Income Tax searches, which led to the revelation that majority of the defaulting firms were allegedly running on empty warehouses, were important to stop the "loot".
Otherwise this would have gone unnoticed, thereby defrauding several more depositors. "If the Income Tax authorities had not stepped in, the loot in the name of commodity trading would have continued unabated resulting in huge loss to the financial market of the country," the probe agency said, adding the taxman found out that all the rules were "flouted" by the warehousing and other wings of NSEL.
The agency, which has recorded in its earlier charge sheets that NSEL funds were fraudulently used to procure high-end vehicles, pricey plots and flats, said the probe in the scam showed that "defaulting members were in collusion with the warehousing staff of NSEL and that they manipulated the stock and duped the entire exchange mechanism".
"The members (defaulters) submitted false and fabricated stock offer, letters, false sale bills without actually offering physical stock in connivance with NSEL warehousing team," the probe report said. NSEL's payment troubles started after it was ordered by regulator Forward Markets Commission (FMC) in July last year to suspend spot trade in most of its contracts due to suspected trading violations. The exchange could not settle the outstanding trades, sparking investigations by the police and regulators to find out whether the exchange had defrauded traders by not enforcing rules requiring sufficient collateral to be set aside. Financial Technologies India Ltd (FTIL) blamed NSEL executives and the trading parties for the default. There were 24 members who defaulted payment to about 13,000 investors. FTIL owns 99.9 per cent of NSEL, which has suspended all trading operations since the payment shortages.