NSEL Crisis: Manufactured for whose benefit?

The recent action by the Economic Offense Wing on NSEL's parent company smacks of a quid pro quo for an interested party

Mr. Modi! Wake up and smell the coffee!!! If this is how companies are going to be treated in India, then you might as well advertise to the world, “Don’t come to India! I did not mean a word of what I said when I invited the world to Make in India. Startup India does not suggest a thing since my courts have deemed that the Corporate veil can be broken at will”. I hope this is not what you are saying to the world. If I look at the happenings in the corporate world in the past few weeks, this is the message I am hearing…

This barbaric move to deny FTIL of its operational accounts for conducting day-to-day business is an attempt to cut off oxygen to Shah and must be called for what it is – a witch hunt.

First, the shocking move by the Economic Offense Wing (EOW) of Mumbai Police[1] to attach the operational accounts of 63 Moons Technologies (formerly known as FTIL) reminds one of a similar move made by the Securities Exchange Board of India (SEBI). SEBI accused 13 current and former executives of FTIL and MCX of alleged insider trading. Froze their bank accounts, which had to be undone after appealing to the Securities Appellate Tribunal (SAT). Now the move to freeze the operational accounts of 63 Moons. Is this being done to try and deny FTIL the required finances to fight their case in the Supreme Court?

Second, the judgment handed down by the Bombay High Court in the Writ Petition of 63 Moons Technologies Ltd. (formerly Financial Technologies (India) Ltd.) vs The Union of India was another bombshell. For the first time, in the corporate history of India, two private concerns were being asked to merge under Section 396 of Companies Act, 1956. Until now, this was used to merge government companies with their consent[2].

Did the bench consider the implications of such a move, which was effectively a piercing of the Corporate veil of companies and essentially throwing the concept of Limited Liability out the window? Would this not scare away the already skeptical Foreign Institutional Investor (FII) and the Foreign Direct Investor (FDI) especially when it comes to investing in parent companies with subsidiaries? It has been proven the world over that the spirit of entrepreneurship is essential to create a vibrant economy. With a stroke of the pen, the High Court has sent shivers up and down the spine of the Venture Capital community.

Is there more going on in this crisis than meets the eye? Is 63 Moons and by implication Jignesh Shah being singled out for punishment? If so, for what reason? Is Chidambaram calling in favors from his minions to ensure that FTIL is finished?

What is the NSEL crisis?

Let us go over some facts, as shown in Figure 1. This is a broad timeline of events that transpired at the National Spot Exchange Limited (NSEL).

There are three Commodity Spot Exchanges that are functioning in India – The NSEL, the NCDEX Spot Exchange and Indian Bullion Stock Exchange Limited[3]. The Forward Markets Commission (FMC), the then commodity markets regulator, misrepresented facts to the Ministry of Consumer Affairs (MoCA) by alleging that NSEL was violating certain terms and conditions pertaining to an exemption granted to it under section 27A of Forward Contracts Regulation Act (FCRA). Though the exemption was general in nature, the FMC recommended to the MoCA following which it issued a show cause notice to NSEL on April 27, 2012.

NSEL promptly replied to the show cause notice and MoCA went quiet. There were no follow up questions, not a peep. But on July 12, 2013, it issued a letter to the NSEL asking it to stop issuing any future contracts and to settle existing ones by July 31, 2013.

Timeline of NSEL events
Fig 1. Timeline of NSEL events

The FMC created the crisis and took no action against the defaulters or to resolve the crisis despite having all the powers. It acted only against NSEL, FTIL and Jignesh Shah, initiating all actions against the FTIL Group on the instructions of Chidambaram which were executed through K P Krishnan and Ramesh Abhishek, the then FMC Chairman. The regulator became the Destroyer.

As the majority of actions by the regulators and other government agencies were concentrated only against NSEL, FTIL and Jignesh Shah, the defaulters swindled the goods from the warehouses, hypothecated certain stocks to banks and in some cases they reported partial stocks in connivance with Anjani Sinha, the then MD & CEO of NSEL.

However, the defaulters received full money and once the Exchange stopped functioning, they not only dishonored their contract to purchase back the goods but also did not deliver the stocks.

Who is trying to recover from the defaulters?

All the recovery work done till now has been by NSEL and NSEL alone. As Figure 2 shows, about 8% of the money has been recovered thus far from the 24 defaulters as of Nov 2017[4]. Since the EOW and ED have already attached the assets of the defaulters, what is the need for freezing the FTIL operational accounts? Just on the basis of the Bombay High Court judgment?

NSEL Recovery process
Fig 2. NSEL Recovery process

Something is rotten

This barbaric move to deny FTIL of its operational accounts for conducting day-to-day business is an attempt to cut off oxygen to Shah and must be called for what it is – a witch hunt. On a day when the Finance Minister is fighting for his life, this short-sighted move by the EOW is only going to make matters worse – a lot worse. It is high time the Prime Minister stepped in to ensure that justice is done. Mr. Modi, are you listening?


[1] NSEL scam: Mumbai police attach FTIL’s operational accountsApr 6, 2018, Livemint.com

[2] Bombay HC upholds NSEL merger order; 63 Moons to move Supreme CourtDec 4, 2017, Economic Times

[3] Spot Exchanges in India – arthapedia.in

[4] Date-wise payment realised from buying membersNov 24, 2017, NationalSpotExchange.com

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An inventor and out-of-the-box thinker, Sree Iyer has 37 patents in the areas of Hardware, Software, Encryption and Systems.

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  1. After reading the article, feeling cheated, betrayed and depressed. More depressed because I have to accept Rahul gandhi or Mamata Banerjee as prime Minister. and the Result? well, beyond your Imagination.

  2. Modi led BJP would be reminded crudely by 2019 or even earlier if it dares to prepone early union elections for its second term an old Chinese proverb which goes by:
    ” Don’t tell me how hard U work, Tell me how much U get done”
    And results would shock the party drastically.
    For People were up until now thinking despite of so many complaints against several ministers including Modi himself that “it doesn’t matter if the cat is dark or white as long as it catches the mice” but not anymore with so many recent glaring U-turns, allegations of high profile scamsters easily fleeing the country like Lalit Modi,Mallya ,nirav Modi/Choksi etc
    Not anymore….

  3. All Hindu Nationalists look up to BJP to transform our nation into a great nation. But what is happening after they get power? Lutyen’s power brokers cast a spell on the BJP top brass and the steel frame nurtured by the Congress rules the roost to maintain status quo. During Vajpayee’s time it was Mahajan, who was pointsman of the brokers and now it is Jaitley. I thought Modi and Shah are intelligent to break the shackles of Lutyen Influence but I am thoroughly disappointed that they are hell bent on alienating their trusted supporters with garibi hatao slogans. Instead of pursuing a pro market economic philosophy of Swatantra Party, the draconian Indira Nehru socialism is ruling the roost now under the BJP regime. Poverty can go only with wealth creation not with profligate schemes like Modi care, employment guaranty schemes etc. At least Trump is clear about his agenda and Modi seems confused. Only aggressive Hindu consolidation around Ram temple plank and massive privatisation without supporting cronies like Ambanis and Adanis will help BJP to really transform India into a great nation. If BJP loses in 2019, BJP has a lot to explain to Nationalists for their failure to govern the country despite given a solid majority to transform India.


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