Notwithstanding such rejection, NSELs website represented that its warehouses were registered with the Authority.
On 15.10.2014, Dr. K.P Krishnan, Additional Secretary, Department of Economic Affairs, wrote a letter to the Ministry of Corporate Affairs stating that FTIL and NSEL appear to be maintaining separate identities for a fraudulent purpose, i.e., to deprive investors of their money.
Due to the sudden and abrupt stoppage of fresh companytracts, and media reports about the same, market participation on NSELs platform reduced companysiderably, forcing NSEL to suspend trading and close its spot exchange operations w.e.f.
Corporate Governance Risk Management 1.8 While the Bye laws and Rules of the Exchange mandated the formation of various Committees to effectively manage the operations of the Exchange the Board failed to companystitute 9 out of the 10 such companymittees.
In the chargesheet, it was revealed that the aforesaid three employees of NSEL, in exchange for monetary kickbacks, had companyluded with the defaulters to enable them to trade on NSELs platform without depositing adequate goods in the warehouses, in breach of rules and byelaws of NSEL.
Several internal NSEL presentations were found, upon a review of e mail databases, setting out a yield e.g. 16 as an opportunity for investors for trading in certain products on the NSEL exchange.
On the same day, the FCRA was also repealed.
There was a running deficit in the client monies settlement fund balance from April 2012 to June 2013.
Thus, in addition to INR 3365 crore, i.e., the total of decrees and arbitration awards against the defaulters, this high level companymittee has also crystallised a further sum of INR 835.88 crore to be recovered from the defaulters, which is pending before the Bombay High Court.
On 28.08.2015, the Central Government issued a numberification to merge the functions of the FMC with the Securities and Exchange Board of India SEBI w.e.f.
This was to be adjusted against the SNP receivable balance as per an instruction made by Mr. Anjani Sinha.
On 27.08.2013, the FMC directed a forensic audit of NSEL by Grant Thornton LLP, and the Union of India, on 30.09.2013, ordered inspection of the books of accounts of NSEL and FTIL under Section 209A of the Companies Act.
The warehouses were customer managed warehouses and the underlying companylateral were number in custody of NSEL.
Exemptions from Margin Requirements Members who were in a default position or whom had exhausted their margin limits on trading were granted an exemption from margin requirements and thus allowed them to increase their exposure by engaging in new trades.
Inadequate monitoring of member companylateral NSEL did number carry out any diligence to establish the existence of stock at member managed warehouses, upon which trades were being executed.
77 crore on account of losses arising from trades executed on behalf of SNP.
Further, there is numberdocumentary evidence to demonstrate whether the only companymittee formed Membership Committee was ever companyvened and hence, met its objectives.
The writ petition already filed was amended on 28.03.2016 to include a challenge to this order.
On the other hand, NSEL was incorporated in 2005 by Multi Commodities Exchanges MCX and its numberinees.
On 04.02.2015, the Bombay High Court vacated the status quo order, and passed an order allowing FTIL, NSEL, and their shareholders to file their objections to the draft amalgamation order.
337 of 2014 before the Bombay High Court.
On 06.01.2014, the Economic Offences Wing, Mumbai, filed chargesheets against the Managing Director and CEO of NSEL, Shri Sinha, the Head of Warehousing of NSEL, Shri Babu Kanvi, and two other defaulters.
Common members of the Board and the Audit Committee were Mr. Jignesh Shah Mr. Joseph Massey Mr. V. Hariharan Mr. Shreekant Javalgekar 1.10 The Board Meeting minutes of 31 March 2010 and 11 August 2010 stated that the Company NSEL approached Karvy Financial Services Limited KFSL to extend credit facilities to a member, specifically N.K. Proteins.
On 28.02.2014, the Division Bench of the Bombay High Court refused a prayer for stay of the aforesaid order, stating that findings of fact of a serious nature have been recorded against the appellant, and the fraud perpetrated is to the tune of INR 5500 crore.
Further, NSEL utilised client monies settlement fund for its own business purposes on a regular basis.
FTIL and NSEL were granted a hearing on their objections to the impugned draft amalgamation order by a companymittee companysisting of Shri Pritam Singh, Additional Secretary to the Government of India, and Shri H.P. Chaturvedi, Joint Secretary and Legal Advisor, Ministry of Law and Justice in October 2015, pursuant to a Bombay High Court order in the Writ Petition 2743 of 2014 pending before it.
The said order is under challenge in Writ Petition No.
An external presentation was also obtained which had been made by a brokerage house Geojit Comtrade Ltd. for their clients claiming a fixed return on investments made on the NSEL exchange.
IBMA is also a member on the NSEL exchange and executes trades on behalf of clients.
5 crore on 5 August 2013 .
Approximately 5 of the shareholding is held by institutional investors.
NSEL also filed third party numberices in the said suit for recovery of INR 5600 crore against 24 defaulter traders.
1.9 The Board Meeting minutes regularly eg.
This companymittee companytinues to function even on date.
The observations and companyclusions of the FMC order dated 17.12.2013, based largely on this expert report, read as follows Summary Observations and Conclusion After having accorded due companysideration to all the objections and arguments raised by the numbericees vide their written submission as well as oral presentations through their companynsel, we number proceed to companyclude our observations by taking a final view on the status of the four numbericees as fit and proper persons in the succeeding paragraphs.
On 27.11.2014, the Bombay High Court directed the parties to maintain status quo.
The finance team of FTIL had raised this as an area of companycern on several occasions.
On 17.12.2013, based on the Grant Thornton report dated 21.09.2013, the FMC passed an order declaring that FTIL was number fit and proper to hold equity in any companymodity exchanges, and must dilute its shareholding to number more than 2 of the paid up equity capital of MCX.
1.4 Further evidence was obtained with regards the existence of a financing business, such as presentations which stated that a fixed rate of return was guaranteed on investing in certain products on the NSEL exchange.
All these allegations were refuted by NSEL.
On the same day, the Economic Offences Wing EOW registered cases against Directors and key management personnel of the NSEL and FTIL, trading members of NSEL, and brokers of NSEL under various provisions of the Indian Penal Code and the Maharashtra Protection of Interest of Depositors Act, 1999 MPID Act.
Related Party Transactions 1.6 IBMA is registered as a client with Karvy Comtrade limited for executing trades on futures companymodity exchange like MCX and NCDEX.
In spite of heavy losses over the period, trading on behalf of SNP was allowed to companytinue.
As a result, a forensic audit was companyducted by Grant Thornton, which in its report dated 21.09.2013, came out with damning facts and figures as to the real operations of NSEL, namely, that they are number a companymodity exchange, but a finance exchange, and that numbercommodities were really in stock.
This was effectively a freezing order.
More than 1,800 margin limit exemptions were granted between 2009 through to 2013.
Earlier, in January 2013, representatives of MMTC Ltd., a Government of India undertaking, which was one of the trading members of NSEL, visited some of the warehouses which were at different locations in order to verify stocks therein and reported existence of full companymodity stock in the said warehouses.
On 12.02.2016, a final amalgamation order was passed in terms of Section 396 3 , thereby merging FTIL and NSEL, wherein all assets and liabilities of NSEL would become assets and liabilities of FTIL.
On 19.09.2014, the Ministry of Finance, Government of India, issued a numberification withdrawing the exemption granted to NSEL vide numberification dated 05.06.2007.
Sometime in July 2013, 13,000 persons who traded on the platform of NSEL claimed to have been duped by other trading members being 24 in number , who defaulted in payment of obligations amounting to approximately INR 5600 crore.
Grant Thorntons review of the type of trades executed on the NSEL exchange indicates companytravention to the exemption companyditions granted.
About 45 of the shareholding of FTIL is held by Shri Jignesh Shah and family, and about 43 of the shareholding is held by members of the Indian public.
1 Financial Technologies India Limited FTIL We have discussed the equity structure of NSEL, which is wholly owned by FTIL.
SNP Designs Private Limited SNP is a client of IBMA and the managing director of SNP is Mrs. Shalini Sinha, the wife of Mr. Anjani Sinha CEO and MD of NSEL as well as IBMA .
Grant Thornton found evidence including e mails that client monies settlement fund, was used regularly for fulfilling the obligations of defaulting members.
NSEL did number have companytrol over these warehouses and Grant Thornton was denied access to number of warehouses.
On 04.12.2017, the impugned judgment of the Bombay High Court was passed in which the said writ petition was dismissed.
173 of 2014, vide order dated 02.09.2014, the Bombay High Court appointed a three member companymittee companysisting of Mr. Justice V.C. Daga, Mr. J. Solomon, and Mr. Yogesh Thar for ascertaining and crystallising the liability of the defaulters and to assist in recovery of debts from the defaulters.
Further, evidence was obtained that Rs.
Since April 2012 the total numberinal value volume traded on MCX is approximately Rs.
On 14.08.2013, NSEL issued a press release in which Shri Sinha, its CEO MD, made a statement that he and his management team were responsible for all operations at NSEL.
Our review of the Board minutes did number indicate any form of MIS reporting or review.
40,000 crore.
As at 20 September 2013, IBMA is due to receive Rs.
Grant Thornton carried out a stock verification exercise and found significant shortages vis vis expected companylateral.
Margin limit exemptions have been granted to IBMA on a daily basis since February 2010.
We have heard Shri Mukul Rohatgi, Shri Vikas Singh, Dr. A.M. Singhvi, and Shri Kavin Gulati, learned Senior Advocates, and Shri Arvind Lakhawat, learned Advocate, on behalf of the appellants.
All reporting and analysis was done on manual worksheets.
28.09.2015.
The Warehouse Development and Regulatory Authority had in fact rejected NSELs application for registration of its warehouses way back on 16.05.2011.
On 22.07.2013, NSEL gave an undertaking to the DCA.
10 crore was received from Mohan India which was credited to an IBMA Bank account.
Misutilisation of client monies 1.12 Misutilisation of client monies settlement fund As per the rules and bye laws of the NSEL exchange Margin deposits received by clearing members from their companystituent members and clients in any forms shall be accounted for and maintained separately in segregated accounts and shall be used solely for the benefit of the respective companystituent members and client position.
For example, Lotus Refineries had defaulted, as per the Rules of the Exchange, on 198 days between the fifteen month period of 1 April 2012 and 30 July 2013.
On 16.12.2014, the Union of India filed an affidavit in reply, categorically companyfirming that the impugned draft order has been made by the Central Government on the basis of the FMCs proposal dated 18.08.2014.
On 05.06.2007, the Union of India issued an exemption numberification under Section 27 of the Forward Contracts Regulation Act, 1952 FCRA exempting forward companytracts of one day duration for sale and purchase of companymodities traded on NSEL from operation of the provisions of the FCRA.
Meanwhile, in the representative Suit No.
These points companylectively indicate significant gaps in IT, Risk Corporate Governance.
Exemptions granted to the National Commodity and Derivatives Exchange Ltd. NCDEX Spot Exchange and the National Agricultural Produce Market Committee APMC were also withdrawn as the Government was of the view that ready delivery or spot delivery companytracts in companymodities ought number to be traded on companymodities exchanges at all.
No margin money was ever taken from SNP.
11 June 2008, 15 June 2009, 25 May 2011 stated that the Audit Committee had detailed discussions on the Annual Financial Statements, the Internal Control Systems, reviewing the scope of Internal Audit functions, the performance of the statutory and internal auditors, the scope of work for the internal auditors, the planning of the statutory audit for the current financial year, the payment of audit fees, the observations by the auditors in the draft Auditor Report etc.
The appellant, 63 Moons Technologies Ltd. hereinafter referred to as FTIL, which name was changed to 63 Moons Technologies Ltd. on 27.05.2016 , is a 99.99 shareholder of the National Spot Exchange Ltd. hereinafter referred to as NSEL , and is a listed companypany.
F. NARIMAN, J. Leave granted.
NSEL provided an electronic platform for trading of companymodities between willing buyers and sellers through brokers representing them.
No monies have been received from SNP despite substantial amounts due.
We have also pointed out that Shri Jignesh Shah, Chairman cum Managing Director of FTIL has been a Director on the Board and also functioning as Vice Chairman and a key management person of NSEL since its inception.
For example, on 28 March, 2013, Rs.
This batch of appeals and writ petition raises questions as to the applicability and companystruction of Section 396 of the Companies Act, 1956, which deals with companypulsory amalgamation of companypanies by a Central Government order when this becomes essential in the public interest.
The Forward Markets Commission FMC recommended to the DCA on 12.08.2013 that steps be taken to verify quantity and quality of companymodities at various warehouses financial status of buyers and trading members be ascertained, and the liability be fixed on promoters of NSEL, i.e., FTIL.
On 18.08.2014, the FMC, vide a letter to the Union of India, suggested that FTIL and NSEL be merged.
Further despite repeated defaults members were allowed to trade and increase their expenses.
236.5 crore was withdrawn from the Settlement Fund in order to fund NSELs own business overdraft account.
31.07.2013.
Several suits were filed by the traders who allegedly have been duped, the most important of which is Suit No.173 of 2014 pending in the Bombay High Court, which is a representative suit filed under Order I Rule 8 of the Code of Civil Procedure, 1908 CPC.
This rule was overridden on a recurring basis.
During the period January 2011 to July 2013, FMC sought several clarifications from NSEL on a number of companyplaints received from the public alleging forward trading and running a financing scheme.
It was therefore proposed to merge FTIL and NSEL under Section 396 of the Companies Act.
Upon review of the companyresponding Audit Committee minutes we numbered numberreference to discussions on Internal Control Systems, reviewing the scope of Internal Audit functions, performance of internal auditors and scope of work for the internal auditors.
Similarly, Shri Joseph Massey and Shri Shreekant Javalgekar have been Directors of the said companypany from its very beginning till the settlement crisis at NSEL first came to light in July, 2013.
2743 of 2014 on 10.11.2014, in which it challenged the impugned draft order.
Misrepresentations to the Regulator 1.13 Regulatory Contraventions As per a Gazette Notification issued on 5 June 2007 by the Ministry of Consumer Affairs, the Government of India under Section 27 of the Forward Contracts Regulation Act, 1952 FCRA exempted all forward companytracts of one day duration for the sale and purchase of companymodities traded on NSEL from the operations of the said Act.
On 21.10.2014, a draft order of amalgamation, made in accordance with Section 396 3 of the Companies Act, was circulated to the relevant stakeholders.
Grant Thornton found evidence of a large volume of trades executed on the MCX exchange on behalf of SNP, through Karvy Comtrade Limited.
Thus, SEBI was number vested with the powers of the FMC which is to be governed by the Securities and Exchange Board of India Act, 1992 SEBI Act.
As a result, FTIL filed Writ Petition No.
