Warehouses that exist only on paper. A politically connected promoter with a charmed existence. And protesters alighting from bmws and Mercs to complain that they have been bilked. As a government-appointed committee looks into the multi-crore National Spot Exchange (NSEL) scam, one thing is clear—this one is a beauty. There is blatant playing of the system by NSEL promoter Jignesh Shah and the unhealthy stench of a politician-businessman nexus.
Many rules have been broken. For instance, under the rules, NSEL has to complete trades within 10-11 days, but it was giving contracts for 25-34 days, allowing speculation in trade and ensuring abnormal returns to traders.
Wrongdoings At NSEL
How did all this happen? Well, it is obvious that Shah exercised enormous clout in government and was reportedly close to powerful political leaders. His parent company, Financial Technologies (FT), is also reported to have money from some top politicians and industrialists riding on it. Interestingly, Anil Ambani-owned Reliance Capital Trustee recently offloaded its stake in FT. And it’s well-known that Mukesh Ambani inaugurated MCX, the commodity exchange set up by Shah in 2003. Why, it was then finance minister Pranab Mukherjee who finally gave the permission to set up MCX-SX and the current FM P. Chidambaram who inaugurated it this year (see picture above).
Given his clout, it is not surprising that Shah’s critics were unceremoniously shown the door, including former SEBI chairman C.B. Bhave and SEBI whole-time director K.M. Abraham. He and his SEBI colleague M.S. Sahoo were sidelined and Bhave’s term not extended. Even economist Ajay Shah was dragged to court for defamation because of his criticism. But with the spotlight now firmly on Shah, it may get difficult for him to run to his friends and somehow mastermind a bailout. What is appalling here is that there was no action from the government or any of the regulatory bodies despite the Forward Markets Commission (FMC), which monitors this sector, alerting the Union ministry of consumer affairs in April 2012 that NSEL was violating rules.
The fact is that there is no particular body to regulate spot commodity trading and there is total ambiguity about the guidelines and rules under which it is supposed to function. Even the FMC, which is the regulator of forward trading in India, has no teeth or powers to take corrective or punitive action. Says former NCDEX chairman P.H. Ravikumar, “One of the reasons for this scam is that the exchange, the warehouse and the clearing agency as well as the futures exchange were all owned by the same party. This should have come to the notice of the authorities.”
Complicating matters is the fact that many SEBI and FMC officials now work in MCX; some MCX officials have also found their way into SEBI. In fact, Paul Joseph, who signed the 2007 order exempting NSEL from regulator’s purview, is now a principal advisor with MCX. There was also least interference from the ministry with officials rarely attending NSEL meetings, allowing Shah a free hand. For instance, he introduced practices like gold trading till midnight, which led to speculative practices and increased its turnover dramatically. It also increased NSEL’s exposure in metals and non-agro commodities. According to sources, 80 per cent of NSEL’s activity was in non-agricultural commodities.
In 2007, the government exempted NSEL from all regulatory control and allowed it to function freely. “There is a vast scale of illegalities going on. The 2007 notification itself is illegal as the law doesn’t give the government the power to change rules,” says an expert who has been rallying against NSEL’s irregularities. What also added to the ambiguity was the fact that spot markets are a state subject.
There has also been a turf war going on between the ministries of finance and consumer affairs and agriculture, with both trying to retain control over this activity, which connects with millions of agricultural farmers in the country and is thus a lucrative votebank. While looking at the financial nature of the exchanges’ transaction, the finance ministry under Chidambaram (from his previous tenure as FM in UPA-I) had been trying to vest control over spot exchanges and bring it under SEBI. But the consumer affairs ministry had successfully thwarted such attempts.
In 2004-05, the government had appointed consultancy firm KPMG to do a study on whether the FMC should merge with SEBI. They had recommended the merger; but the then consumer affairs (and agriculture) minister Sharad Pawar shelved it. Now with Chidambaram back at North Block and the ministry of consumer affairs having a less powerful head in T.K. Thomas, the NSEL scam has provided the finance ministry solid ground to go for the kill.
For, even as two government committees look into this matter, some key questions remain unanswered: where has the money actually gone, how were NSEL buyers and sellers getting 15 per cent returns, and how were brokers involved in a spot exchange meant only for buyers and sellers? Explains agricultural expert Devinder Sharma, “Spot exchanges were set up to ensure that physical commodities would be traded and there would be no speculation. But the government and the ecosystem was pushing a market-determined price through speculation which has led to this situation.” This also defeated the purpose of discovering prices.
While there’s a lot of anger at the moment, in a country where commissions and investigations rarely bear fruit, the outcome can be predictable. That is the concern. Last year, the government had promised a CBI inquiry into a scandal involving trading in Guar seeds. Does anyone remember what happened?
Sept 11: Edited online: Because of a typo, an earlier version of this article erroneously referred to NSEL as National Stock Exchange Limited
Fair Name Sullied I am a subscriber of Outlook Business and Traveller and strongly object to your using my surname in the headline The Shah of Fraud. By doing so you have depicted and generalised all Shahs as fraudsters. This is sheer irresponsibility on the part of the media. I hope you will correct this at once and recall all copies of the magazine in circulation.
Ashok Shah, on e-mail
Apropos your article on Jignesh Shah, it’s daylight looting of public money by smooth, suit-wearing, English-speaking fraudsters.
Sujith Nair, Pune
Sharad Pawar is the man behind all this. He is the one who operates from the background whether it is real estate or commodity hedging or cricket.
S.V. Acharya, Bangalore?
The business of government is run by the business of parliament. The parliamentarian is supposed to look at the economic stability and prosperity of the nation. The citizen is complaining, that people who help the politician to be elected, is being helped particularly by the politician, in economic stability and prosperity. The politician is the representative of economic stability and prosperity, and he might want to not exclude himself/herself from stability and prosperity. What is the offense to the Indian who is not a politician, in these state of affairs?
NSEL is the National SPOT Exchange Limited, not the National Stock Exchange Limited.
Please don't slander the latter - it has nothing to do with Shah or his shenanigans.
KishoreDasMunshi>> Jignesssssssssssssss, latest in the long list of crooks like Harshad Mehta and Ketan Parikh
The list of politicians behind all these crooks is very short - Jawahar, Indira, Rajiv, Sonia .
The SIL of Nehru (Firoz Gandhi) rightly exposed the first of these crooks way back in 1950s but sadly this one honest man (and one of the few gems in the dynasty family) died early and left us with a widow who went to destroy democracy in India (with prompt mentoring by her dear daddy).
Sujith Nair >> immedately ,chidambaram blamed because he is rahul gandhis men, you media shouting about corruption where you has been so far, when things gone out of control you people starting to blame chidambaram
Are you an e-NREGA worker who is upset that yet another scam is coming up under the worthless CON party rule? PC, Sonia and Rahul have to be blamed for this one as well and so is the doormat called MMS.
its daylight looting of public money by these suit wearing english speaking frauds,they buying properties abroad their children studying abroad laundering money abroad,these people put behind the bars immedately ,chidambaram blamed because he is rahul gandhis men, you media shouting about corruption where you has been so far, when things gone out of control you people starting to blame chidambaram,jignesh gives crores to these so called media as advertisement right mr mehta?
We at Outlookindia.com welcome feedback and your comments, including scathing criticism
1. Scathing, passionate, even angry critiques are welcome, but please do not indulge in abuse and invective. Our Primary concern is to keep the debate civil. We urge our users to try and express their disagreements without being disagreeable. Personal attacks are not welcome. No ad hominem please.
2. Please do not post the same message again and again in the same or different threads
3. Please keep your responses confined to the subject matter of the article you are responding to. Please note that our comments section is not a general free-for-all but for feedback to articles/blogs posted on the site
4. Our endeavour is to keep these forums unmoderated and unexpurgated. But if any of the above three conditions are violated, we reserve the right to delete any comment that we deem objectionable and also to withdraw posting privileges from the abuser. Please also note that hate-speech is punishable by law and in extreme circumstances, we may be forced to take legal action by tracing the IP addresses of the poster.
5. If someone is being abusive or personal, or generally being a troll or a flame-baiter, please do not descend to their level. The best response to such posters is to ignore them and send us a message at Mail AT outlookindia DOT com with the subject header COMPLAINT
6. Please do not copy and paste copyrighted material. If you do think that an article elsewhere has relevance to the point you wish to make, please only quote what is considered fair-use and provide a link to the article under question.
7. There is no particular outlookindia.com line on any subject. The views expressed in our opinion section are those of the author concerned and not that of all of outlookindia.com or all its authors.
8. Please also note that you are solely responsible for the comments posted by you on the site. The comments could be deleted or edited entirely at our discretion if we find them objectionable. However, the mere fact of their existence on our site does not mean that we necessarily approve of their contents. In short, the onus of responsibility for the comments remains solely with the authors thereof. Outlookindia.com or any of its group publications, may, however, retains the right to publish any of these comments, with or without editing, in any medium whatsoever. It is therefore in your own interest to be careful before posting.
9.Outlookindia.com is not responsible in any manner whatsoever for how any search engine -- such as Google, Bing etc -- caches or displays these comments. Please note that you are solely responsible for posting these comments and it is a privilege being granted to our registered users which can be withdrawn in case of abuse. To reiterate:
a. Comments once posted can only be deleted at the discretion of outlookindia.com
b. The comments reflect the views of the authors and not of outlookindia.com
c. outlookindia.com is not responsible in any manner whatsoever for the way search engines cache or display these comments
d. Please therefore take due caution before you post any comments as your words could potentially be used against you
10. We have an online thread for our comments policy:
You are welcome to post your suggestions here or in case you have a specific issue, to directly email us at Mail AT outlookindia DOT com with the subject header COMPLAINT