The income-tax probe into the settlement crisis at the National Spot Exchange Ltd (NSEL) has revealed that the bourse was used as a platform only to raise ‘long-term finance’ by entities that were not interested in the underlying commodities, say persons familiar with the initial investigations.
Sources tell FE that the I-T department is of the view that money was raised through the exchange platform to meet the working capital requirement and some entities have also channelised the money towards personal assets rather than business assets.
“The purpose was to raise long-term finance and there was never an intent of selling or buying the underlying commodity. Everyone within the system was aware of this. Entities also used fictitious papers (receipts) to take loans,” said a person familiar with the IT investigations, adding that it will take at least a couple of months for the probe to be completed.
The IT department is also probing the role of brokers and the investors that traded through these brokerages. The tax sleuths are examining the money trail to ascertain whether the money was properly audited in the books of investors.
“There are some entities with large exposure in NSEL. The probe will look into the genuineness of the investors, origin of funds and also if the profits/losses were recorded in the books of accounts. These investors were trading on NSEL because brokers were promising them 12-15% assured returns,” said the source.
The IT department has already sought details of all investors from brokerages and will check if some of the larger entities have accounted for the money in their books. Meanwhile, reports suggest that the IT department will soon issue notices to more than 20 borrowers that entered into trades without being backed by commodities.
The IT department is not the only government agency that is probing the NSEL matter. The Economic Offences Wing is looking into the aspect of criminal intent, cheating and misappropriation of funds.
The Centre has also formed two committees to look into all the violations by NSEL. The committee has representations from the Reserve Bank of India, the Securities and Exchange Board of India, Department of Revenue Intelligence, Enforcement Directorate, Forward Markets Commission, the consumers affairs ministry and the corporate affairs ministry.