Attorney General Goolam E Vahanvati has advised state-owned MMTC to initiate criminal proceedings against National Spot Exchange Ltd (NSEL) along with civil proceedings. The top legal officer’s opinion could bring fresh trouble for the Jignesh Shah-promoted Financial Technologies (India) Ltd (FTIL), which promotes NSEL.
MMTC had sought the AG’s opinion on the way forward. Rs 220 crore of MMTC investment is stuck with NSEL. The AG has observed that Jignesh Shah is “the brain, trust and alter ego of NSEL”.
In his opinion given on September 21, the AG said MMTC “should also consider adopting criminal proceedings”, and the funds and assets of NSEL’s promoters and the defaulters should be identified through a “tracing action” to realize the loss. “Tracing” is a legal process which allows claimants to make a claim over the assets or funds of the defaulter.
“This is... a serious case of diversion of illegal and fraudulent funds and the querist (MMTC) would be entitled to include further prayers instituting a “Tracing Action” for tracing the diverted funds and assets in the hand of the 24 defaulters which are said to have engaged in the conspiracy for diversion of funds,” the AG has said.
MMTC had asked whether it should wait for the outcome of the two task forces comprising senior RBI, ED and government officials. The AG has said that pending government action is no ground for not taking legal recourse, and has advised MMTC to proceed on its own, and not go for a “class suit”.
More than 13,000 investors, including corporate houses and investor forums, have complained to Mumbai Police about a default of approximately Rs 5,600 crore by NSEL. While this would make a case for a class suit, the AG has clarified that a conflict of interest might arise.
According to preliminary findings of various investigating agencies and complaints of investor forums to authorities, NSEL has issued allocation letters for non-existent stock to multiple investors. The AG’s advice has come in this context.
“The querist (MMTC) would itself claim ownership of the stocks which are the subject matter of the allocation letters, there may be a conflict of interest between the querist and other investors and therefore it would be better if the querist proceeds on its own,” he has said.
NSEL started defaulting on MMTC from the trading period June 26 to July 26 this year.