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NSEL scam: Corporate Ministry allows SFIO to prosecute everyone involved

PALAK SHAH Mumbai | Updated on January 17, 2019

Recommends strict action by SEBI against brokers including declaring them 'not fit and proper’

The Ministry of Corporate Affairs (MCA) on January 15 gave its nod as requested by the Serious Fraud Investigation Office (SFIO) to prosecute all those involved in the NSEL scam, including the top management, board members and promoters of the now defunct spot exchange.

The MCA also recommended strict action by SEBI against brokers, including declaring them ‘not fit and proper’ and verification of genuineness of claims and positions of traders and investors to be done by the Income Tax department. Copy of the MCA’s staff memo, which was reviewed by BusinessLine, also said the Ministry was trying to expedite the merger between NSEL and its parent.

The MCA’s memo the prosecution request has been granted against Jignesh Shah, Joseph Messy, V Hariharan, BD Pawar, R Deverajan, Shreekant Javalgekar and Anjani Sinha — all board members of NSEL — under various criminal sections ranging from conspiracy to cheating. The nod for prosecution has also been given for other key employees of the exchange and all the large borrowers who defaulted, leading to the payment crisis. The nod for action against NSEL’s auditors Mukesh P Shah and SV Ghatalia was also approved.

Parallel investigation

SFIO conducted its parallel investigation in the 2013 scam apart from Mumbai police. While the police chiefly proceeded under Maharashtra Protection of Investor Deposits Act, which authorises seizure of property of the accused, the SFIO was perusing criminal charges. Police is yet to attach assets of brokers named as accused.

“Case of brokers may be referred to SEBI for necessary stringent action, including preventing directors of these companies from accessing money market and, if required, declaring them not fit and proper,” SFIO had demanded.

Further, SFIO also sought examination of 148 brokers for violation of various Sections of the Income Tax Act, and the section pertaining to black money and ‘benami transactions’. Investigations alleged that brokers laundered money and had dummy clients. Brokers have challenged these findings. The MCA not only approved the action against brokers but also gave its nod to share the SFIO report with police for action under criminal conspiracy. The SFIO had recommended that their report be shared with authorities for service tax and VAT violations committed by those acting as clearing and forwarding agents.

The MCA also approved sharing of PAN data of 13,000 traders with the tax department for verifying their existence and claims. The recommendation also suggests that in such cases where genuineness of PAN was doubtful, these be examined under same tax Act that was initiated against the other accused.

Replying to a BusinessLine query, 63 moons, NSEL promoter, said, “Nothing new in the MCA memo. Needless to say, currently merger proceedings and NCLT orders are stayed. We have not received any summons so far from court regarding any alleged prosecution by SFIO. As and when it is received, we will appear before the court and present our case. Even we want the matter regarding merger under Section 396 of the Companies Act to be expedited.”

Published on January 17, 2019

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