The Economic Offences Wing (EOW) of Mumbai Police on Tuesday moved to recover a substantial part of the Rs 5,575 crore owed by National Spot Exchange Limited (NSEL) to investors, attaching properties and shares of promoters and directors of the exchange - inclusive of Jignesh Shah properties.
Separately, sources suggest that the Forwards Market Commission (FMC) is likely to issue a show-cause notice to the auditors of NSEL, asking them to clarify their role in the NSEL fiasco. It is believed that notices could be sent to Mukesh P Shah — the statutory auditor of the spot exchange for 2012-13 — and SV Ghatalia & Associates, an Ernst & Young (E&Y) affiliate, which audited the NSEL books for the previous two financial years.
Sources added that even E&Y may be served a notice for a report prepared by the firm on the risks associated with the spot exchange in September 2012 at the behest of Geojit Comtrade.
Among the assets attached on Tuesday are three properties owned by Jignesh Shah, chairman and group CEO of Financial Technologies India Ltd (FTIL), the promoter of NSEL. Two of these properties are in Mumbai’s Juhu and Aarey Colony areas while the third is in Pune. No value has been ascribed to these properties.
In addition, 1.19 lakh shares of FTIL and 5 lakh shares of the Indian Energy Exchange that are held by Shah have also been attached. Based on the closing price of R169.50 per share, the attached FTIL stock is worth Rs 2 crore. Shah held 83.29 lakh shares of FTIL as of September 30, amounting to an 18.03% stake in the company.
“We have also seized Jignesh Shah’s fixed deposits worth Rs 11 crore with HDFC Bank and five demat accounts whose value is still being evaluated,” said Rajvardhan Sinha, additional commissioner of police, EOW.
The EOW also attached two flats owned by Joseph Massey — the former MD and CEO of MCX-SX — along with 98 lakh shares that Massey held in MCX. In the case of former MCX CEO Shrikant Javalgekar, four flats and shares worth Rs 1.2 crore have been attached.
“The estimated value of the assets attached stands at Rs 2,985.9 crore,” said Sinha. So far, the total number of assets seized and attached by EOW stands at 206 while 322 bank accounts with a total amount of Rs 170.91 crore have been frozen.
In its report, E&Y had stated that all the warehouses linked to NSEL trades were accredited by Warehousing Development and Regulatory Authority (WDRA) whereas NSEL’s application for registration of its warehouses with WDRA was rejected in 2009. According to persons aware of the matter, the notice would ask the auditors to clarify why they shouldn’t be debarred from auditing other entities regulated by the FMC. On Tuesday, FMC officials also presided over a cross-examination of Grant Thornton, which conducted a forensic audit on NSEL after the settlement scam broke. FTIL had asked that it be allowed to cross-question some of the findings of the audit, based on which the regulator had challenged the “fit & proper” status of FTIL and Shah. If the status is revoked, FTIL and Shah would need to sell their 26% holding in MCX. A final decision from FMC is still awaited. It is believed that FTIL raised 10 issues on the Grant Thornton report. According to sources, FTIL questioned whether Grant Thornton followed the process of equal justice while filing the report. In response, Grant Thornton clarified that the draft report was submitted with five officials including Shah, Massey, Javalgekar, Anjani Sinha — the former CEO of NSEL — and PR Ramesh, the officer in charge of NSEL. These officials had the opportunity to discuss the findings and any concerns regarding their correctness before the final report was submitted, Grant Thornton said.
Further, FTIL noted that the report in a disclaimer says it does not have the same level of accuracy as that of a statutory audit. To this argument, Grant Thornton replied that while a statutory audit follows accounting standards, a forensic audit is done based on internationally accepted norms. Grant Thornton further clarified that since the audit was completely based on documents and records provided by NSEL, its reliability is higher than that of a statutory audit where the auditor relies on certain judgements.