Now that NSEL?s jailed ex-CEO Anjani Sinha has recanted his earlier affidavit and put the blame for the way the exchange was run on NSEL?s board, it has to be seen what the Economic Offences Wing (EOW) investigators make of this. Certainly, unless the EOW is able to unearth hidden assets, Sinha is on strong ground when he says he did not personally benefit fromNSEL becoming a para-banker. Instead of being a platform for trading commodities, NSEL became a financing hub with few commodities either changing hands or even being there. Sinha?s lawyers will also take into account the Grant Thornton forensic study, ironically contracted by NSEL?s board to investigate the goings on in the exchange after Sinha was sacked.
While the report is clear the board was grossly negligent in its supervision?nine of the 10 committees to be set up to manage NSEL were never ever put in place?there are several instances that suggest the board was also in the know of things. Presumably, this is what the EOW will quiz FTIL chief Jignesh Shah about since NSEL was promoted by FTIL. So, in 2010, the board minutes state NSEL approached Karvy Financial to give credit facilities to a member?NK Proteins, which was run by the NSEL chairman Shankerlal Guru?s son-in-law?and then, in turn, extended a guarantee to Karvy. In effect, this means the board was aware of the shortfalls in settling payments by trading members and was willing to give a guarantee to help finance the transaction; the same thing was done for IBMA, a subsidiary of NSEL?that a subsidiary was trading on the exchange raises its own set of questions. But there are equally damming findings about NSEL run by Sinha and the board continues to argue it knew little about this. These include using client money and the settlement guarantee fund for NSEL?s own business, reporting transactions on manual worksheets open to change later and the exchange?s investor presentations specifying the yield on various products being offered ? a clear no no for an exchange ? among many others.
While the NSEL endgame will play out as it will, especially since many of the defaulting members?there are R5,600 crore of defaults?have different stories to tell, there is a larger issue here. And that is regulators like Sebi, the Department of Company Affairs, even the exchanges which are the second line of defence for investors?the first being the auditors?need to have a more active forensic division. Few of the details of the NSEL saga ? both the board and the management?s role ? after all, would have come to light had it not been for the Grant Thornton report. Random forensic accounting of companies, especially the ones with greater systemic risk, is something that needs to be considered. Sebi has made a small beginning but a lot more needs to be done.
