The preliminary report prepared by the Registrar of Companies (RoC) has listed at least 15 instances of violations of the Companies Act by the board of directors of the National Spot Exchange (NSEL). According to the report, the directors failed in their fiduciary duties at a time when the financial statements of the company clearly showed an unusual rise in profits.
Sources say the report will be submitted to the ministry of corporate affairs (MCA) later this week. The final report on the matter will, however, take at least a couple of months, they say. NSEL has suspended trading in all contracts and is struggling to fulfil its settlement obligations amounting to nearly R5,600 crore.
According to sources, the RoC report has found the board guilty of violating various provisions of the Companies Act, including Sections 211, 217, 292, 227 and 299. These Sections pertain to rights and responsibilities of board members during board meetings. Section 227 lays down powers and duties of auditors.
For instance, Section 211 deals with the form and contents of the balance sheet and profit & loss account and lays down that the statements should ?give a true and fair view of the state of affairs of the company as at the end of the financial year?.
?If one looks at the financial statements, the net profit of the company rose from around R26 crore in FY12 to R125 crore in FY13. Did the directors bother to check how there was such a sudden enhancement in the profit in one single financial year? This is part of their fiduciary duties,? said a person privy to the development.
The RoC has prepared its report after examining the board meeting minutes of NSEL along with certain other documents. The report is believed to have stated that the minutes of the meeting of the audit committee show that the panel never bothered to discuss the affairs of the company.
The report is also believed to have highlighted the fact that NSEL failed to constitute as many as nine oversight committees while indulging in NBFC activities. Incidentally, the showcause notice (SCN) issued by the Forward Markets Commission (FMC) has also listed these charges while challenging the ‘fit & proper’ tag of FTIL along with that of Jignesh Shah, Joseph Massey and Shreekant Javalgekar.
While it could not be independently ascertained, the report is believed to have stated that since Financial Technologies-India (FTIL) is the parent entity of NSEL, the directors of FTIL should have exercised ?prudence? while discussing the affairs of the spot exchange. At one point of time, Shah, Massey and Javalgekar were the common directors on the board of NSEL and FTIL.
FTIL can cross-examine Grant Thornton: FMC
FMC has allowed FTIL to cross-examine officials of Grant Thornton, which prepared the forensic audit report related to the NSEL crisis. It is believed that the FMC will release its final order on the ‘fit & proper’ tag of FTIL, along with that of Shah, Massey and Javalgekar, only after the process of cross-examination is completed. Grant Thornton, in its report, pointed out various instances of lack of proper systems and controls at the spot exchange, which led to the settlement crisis. The demand for cross-examination was made by FTIL during its personal hearing with FMC on Tuesday.
