IPMOERTANT PLEASE READ AND RESPOND. ALL INVESTORS ARE REQUESTED TO WRITE INDIVIDUALLY TO ALL MEDIA, FMC , MCA , SEBI ,FM . TO ANY BODY WHO IS PROPAGATING MERGER OF FTIL + NSEL NSEL Investors Forum Technocraft House, A-25, MIDC Industrial Area, Road No. 3,Opp. ESIC Hospital, Andheri (East), Mumbai- 400 093. Tel: 022-4098 2222 I 4098 2340 Fax: 022-2836 7037 I 2835 6559 Helpline No. 022-4098 2338 Email: nselinvforum@nselinvforum Date : October 25, 2014 To: All Members of NIF Dear Fellow Victims, You might have read with dismay the negative reporting done in Editorials of several important newspapers on 23rd October 2014. We are giving below our views in response to the Editorials. We regret very much the unsubstantiated arguments put forth by the editors. We hope our clarifications should enlighten them about the ground realities. Regards, Team NIF -------------- The Editor Business Standard / Economic Times / Financial Express Mumbai. Dequ Sub: Merger of NSEL with parent company FTIL Please refer to the Editorial in your esteemed newspaper dated 23rd October 2014. The Editorial contains certain statements which we feel are contrary either to the facts or to the established legal position. We would like to clarify the statements made in your Editorial as under: 1) The draft Order passed by Ministry of Corporate Affairs is certainly not Governmental activism. It is a prudent application of law. Ministry of Corporate Affairs (MCA) has invoked Section 396 of Companies Act 1956 after considering many Forensic Audit Reports as well as Reports of Registrar of Companies, Mumbai and Chennai. All the Reports including “Not Fit and Proper” Order passed by regulator Forward Markets Commission (FMC) have clearly established that Financial Technologies (India) Ltd. (FTIL) had promoted National Spot Exchange Limited (NSEL) only to perpetrate the fraud. FTIL was well aware all the fraudulent transactions being done by NSEL from the very beginning. Hence if proper and timely action as per law was not taken, it would prompt other corporates also to promote subsidiary companies to carry out frauds and scams hiding behind the corporate veil. Hence the Order will not taint India’s record on respecting the basic principle of limited liability, but on the contrary will establish case of good governance, transparency and accountability by parent company. 2) The move does not in any way amount to Contempt of Court, since the Suit filed by investors in Bombay High Court is also basically to lift the corporate veil. The process of recovering all the amount from defaulters through the Committee set up by Bombay High Court will continue to do its work without any interference due to the merger Order. The merger Order does not transgress on Mumbai High Court Order in any manner whatsoever. 3) Similarly, the assets seized by EOW will also continue to be controlled under MPID Act of Government of Maharashtra. The said Order does not in any way jeopardize or interfere in the action of EOW. 4) The warehouses in which the commodities were to be stored were under control of NSEL and it was their responsibility to monitor the stocks, which were the underlying security for the investors. The Exchange failed in its responsibility and collusion of Exchange with the defaulters cannot be ruled out. Similarly, the culpability of defaulters is also not affected by the merger Order and FTIL is free to recover the dues from the defaulters. FTIL all along managed the affairs of NSEL. The promoter Mr. Jignesh Shah was the common key management person in FTIL and NSEL. NSEL was nothing but an alter ego of FTIL. There are enough evidences to prove that FTIL and NSEL were hand in glove and hardly at an arms length to establish their claim on limited liability. 5) Nearly 82% profits of FTIL’s consolidated profits during FY 2013 came from NSEL operations. Major portion of this profit was siphoned by the main promoter Mr. Jignesh Shah and was used to fund various other loss making operations of FTIL. In fact, apart from this, Mr. Jignesh Shah also siphoned off funds from NSEL using several dummy companies carrying out wash trades and other fraudulent and dubious transactions. There is a clear linkage of most of the defaulters with NSEL and its promoters. A legal note on NSEL scam is attached for your ready reference. All the facts mentioned in the statement are borne out of various Forensic Audits and other Reports in public domain. 6) The draft Order for merger is a part of legal process. The very existence of Section 396 in Companies Act is to prevent corporate from establishing subsidiaries only for committing frauds. The Government has done enough home work in last fifteen months before issuing the draft Order. If this Order was not issued, then the culprits could have easily got away with the loot of 13,000 investors thereby causing a serious blow to investor confidence in Commodity and Capital market exchanges. 7) Media Reports have also alleged that the investors in NSEL were fully aware of the risks involved in all such products. This assumption is far from the truth. No investor will risk his hard earned money if he was aware of the risk of FRAUD. The investors were promised by Exchange the availability of stocks, Security Guarantee Fund, various agreements and safety measures they had taken from the borrowers, etc. The investors had no knowledge about the defaulters, since they were dealing with the Brokers/Exchange which acts like a wall between borrower and the investor. They depend on the KYC carried out by the Exchange and integrity of the Exchange. Furthermore, the investors believed in the governance of FTIL, who had also successfully promoted and managed MCX, IEX and other businesses. NSEL was promoted by FTIL to carry out the fraud knowing fully well that there were no stocks in the warehouse, which was controlled by the Exchange. 8) It is also incorrect to say that the investors were getting substantially higher returns. The Exchange gave uniform return between 14 to 15% which is equivalent to the prevailing inter-corporate deposit rate, but at the same time supposedly carrying much better safety of funds. The Government action of merging NSEL and FTIL is not only to effect the compensation to the investors but also to bring about good governance, transparency and accountability of parent organization, so that they desist from floating subsidiaries for carrying out frauds. Even though defrauding parties may be partially beneficiary of NSEL fraud, but as far as investors are concerned, it is the responsibility of NSEL and their parent company FTIL to recover the money from the defaulters, since it was they who placed the funds with the defaulters. 9) The investors did not expect FTIL to pay the entire due amount of Rs. 5300 Crores but FTIL certainly has the resource to recover the funds from the defaulters. They have also immensely benefited from the fraud, since nearly 82% of their consolidated profits came from NSEL. 10) The investors would not have objected if they had lost due to volatility in the commodity prices. They were well aware about the volatility and the risks involved therein. However, what they were not prepared for is the outright fraud, where the Exchange failed to do its duty of checking the collateral security. 11) The draft merger Order is not only to give justice to the 13,000 investors but it is also in greater public interest . The Commodity and Capital markets are the backbone of any economy and confidence of investors is certainly a matter of grave public interest. So-called protection to the 55,000 investors in FTIL, it may be noted that 96.39% shareholders own only 6.84% of equity. Only 133 shareholders of FTIL own 86.35% of equity. Most of the 133 shareholders are large shareholders, which include Mr. Jignesh Shah and those close to him. The shareholders of FTIL have benefitted immensely from the fraudulent profits derived from NSEL activities. The large shareholders of FTIL like Mr. Jignesh Shah and his associates knew of the fraud very well and hence the merger is well within the letter and spirit of Section 396 of Companies Act, 1956. The fact that this section has been rarely used by the Government clearly shows that the Government has proper respect for the principles of limited liability, but at the same time will not permit any corporate to establish a subsidiary simply to carry out fraud on the public. 12) Lastly, subsidiaries are meant to carry out legitimate business with due care and governance. It is the responsibility of parent company to ensure that its subsidiary does not carry out fraudulent transactions and it is only for this purpose that they get the benefits of profits from the subsidiary company. The Section 396 is a controlling section which should be read by all corporate desirous of promoting subsidiaries. The Government is well within its powers to use the law available in order to install confidence of investors and prevent corporate from carrying out scams under the protection of corporate veil. We will be highly obliged, if you could kindly give due publicity to our views also. Otherwise, your Editorial will appear to be a one-sided view. Best regards, Yours sincerely, For NSEL Investors Forum Sd/- Sharad Kumar Saraf Chair
Posted on: Sun, 26 Oct 2014 11:31:01 +0000
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