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The NSEL (National spot Exchange Ltd) scam or NSEL fraud was a systematic and premeditated fraud perpetrated in the commodity market from 2007 to 2013 by the Jignesh Shah owned National Spot Exchange (NSEL), a private company based in Mumbai, India.
The NSEL was a company promoted by Financial Technologies India Ltd and the NAFED (only 100 shares given for misusing the NAFED brand who was touted as a co-promoter). The NSEL scam was a Ponzi scheme and is estimated to be a Rs. 5600 crore (around US$0.95 billion) fraud that came out to light after the National Spot Exchange failed to pay its investors in commodity pair contracts after 31 July 2013. 13000 investors from India lost about Indian Rupees 5600 Crores when the fraud was discovered and it was found that NSEL had neither the money nor the stocks to pay them back.
- 1 Background
- 2 History
- 3 EOW Mumbai police action
- 4 Jignesh Shah's arrests by EOW Mumbai and Enforcement Directorate
- 5 NSEL and borrowers' hidden nexus
- 6 Allegation on investigative agencies
- 7 Suspected foul play in detecting NSEL-FTIL email data/severs
- 8 CBI Action
- 9 Role of the Ministry of Consumer Affairs, FMC & the UPA Government
- 10 Forensic audits by Grant Thornton, Choksi and Choksi and PWC
- 11 The role of the Promoters/FTIL/Jignesh Shah
- 12 The role of Brokers/Arrests
- 13 Role of auditors/Mukesh P Shah
- 14 Anjani Sinha's custodial statement
- 15 NSEL investors' action/grievances
- 16 NSEL–FTIL merger
- 17 MCA's move to take over FTIL board
- 18 Financial Intelligence Unit (FIU)'s Observation
- 19 Action by Enforcement Directorate (ED)
- 20 SFIO Probe on FTIL and NSEL
- 21 MCX fraud
- 22 Sucheta Dalal's knowledge of NSEL scam
- 23 References
The Forward Markets Commission in July 2013 asked NSEL to stop all trades extending 11 days settlement (which were illegal). This led to less interest form investors and renewing their contract and the wheel of roll-over trades came to a halt as NSEL could not raise fresh investor funds to pay old investors whose funds were maturing. It was discovered after the exchange defaulted on 31 July 2013 that most of the underlying commodities did not exist and the buying and the selling of commodities like steel, paddy, sugar, ferrochrome etc. was being conducted only on paper. The pair trades in various commodities were offered in one-day forward contracts of T+2 and T+25 (sometimes even T + 35) payment terms (bought and sold at the same time).
Such pair trades offered an arbitrage opportunity of about 12-15% return per annum. The investors, who honored the T+2 payment obligation, found that the National Spot Exchange neither had the money, nor the commodities, to honor their T+25 dues. Around 24 borrowers were given the funds by the NSEL, without any underlying commodity deposited by those borrowers. One of those borrowers who borrowed around Rs. 1000 crores is a company named NK Protein Ltd., and is owned by the son-in-law of the former Chairman Shankarlal Guru of NSEL.
An estimated number of 13000 investors, along with public sector units like MMTC and PEC, were victims of this NSEL scam. The ROC report on NSEL fraud has come down heavily on the promoters and the FTIL, as it was found that a majority of minutes of meetings of the NSEL board were fabricated, as cell phone location data of the said board members did not match to the meetings' locations. Some of the warehouses mentioned on the NSEL website were found to be physically non-existent, and the SGF (Settlement Guarantee Fund) – of around Rs 839 crores (about US $140 Million), as on 29 July 2013, vanished into thin air.
Anjani Sinha, the sacked CEO and the MD of the company, attempted to take the blame for the fraud in order to exonerate other promoters, and filed an affidavit. Mr. Anjani Sinha's wife, Shalini Sinha, though being a related party, traded on MCX for about Rs. 40000 crores in one year through her company SNP Designs P Ltd. However Anjani Sinha after arrest retracted his earlier affidavit and filed a fresh affidavit pinning the blame on the board of NSEL stating that they fully knew what was going on at NSEL. Anjani Sinha in his police statement however claimed that his wife Shalini Sinha is a small garment designer and the trades done by IBMA under the name SNP Designs were actually speculative trades done on MCX by Jignesh Shah himself. He also claimed there was no financial dealing between IBMA and SNP designs whatsoever. Surprisingly Anjani Sinha whom the promoters blamed as the main culprit was kept with NSEL by Jignesh Shah for almost 12–13 weeks after the scam as a 'special office recovery' showing the collusion between the two.
NSEL was promoted as a spot commodity exchange by FTIL and only token 100 shares were given to NAFED so that the brand of NAFED can be used and the exchange could be touted as a 'farmer's market'. Even before NSEL commenced business it was given a specific exemption from Forward Contracts Regulation Act (FCRA) 1952 by ministry of Consumer affairs in 2007 headed by Shri Sharad Pawar.This exemption was only for all one day forward contracts up to 11 days. Mr.Paul Joseph who signed this exemption later was known to have joined the FTIL group. The business between 2007-2009 was lackluster and that is when NSEL with full knowledge of Jignesh Shah and other board members introduced fraudulent 'paired contracts' where investors could buy short duration contract and sell a long duration contract at the same time (usually T+2 and T+25). NSEL in 2010 applied to FMC for registration of these NTSD (Non Transferable Specific Delivery ) paired contracts exceeding 11 days under section 14A of FCRA. The FMC did not approve or reject this application till the scam broke out in 2013. Without waiting for the FMC regulation approval or registration, NSEL went ahead and sold these contracts rampantly through brokers. The FMC-Ministry of consumer affairs fully knowing these contracts were illegal (they were collecting NSEL data from early 2012) did not stop them and let the scam balloon into an astronomical amount.
In early 2012 the FMC was appointed as 'designated agency' to collect data from NSEL and protect investors' interest. In April 2012 the Ministry of Consumer affairs issued a show cause notice to NSEL that it was violating the conditions of 2007 exemption like 'no short sale', 'no stock verification mechanism' and ' conducting trades beyond 11 days'. So from early 2012- July 2013 the FMC knew about fraudulent NTSD contracts rampantly being conducted without registration under section 14A-14B of FCRA but for reasons unknown did not act. NSEL kept operating outside the realms of law and in March 2012, it notched up a mind-numbing Rs. 45,500 crore (about 7.5 Billion USD) turnover, the highest ever monthly average.
EOW Mumbai police action
The EOW (Economic Offences Wing) of Mumbai police is presently investigating this fraud and the Mumbai police has conducted various raids. An FIR (First Information Report) has been filed against the directors of the NSEL, and the directors of their promoters i.e. Financial Technologies India Ltd, along with various other brokers allegedly involved in the fraud. On 9 October 2013, Amit Mukherjee, the Assistant Vice-President (Business Development) of NSEL, was arrested by the EOW of the Mumbai police marking the first arrest in the scam. Subsequently, a day later on 10 October 2013, the EOW of Mumbai Police arrested Jai Bahukhandi, the former Assistant Vice-President of NSEL. Former CEO and MD, Mr. Anjani Sinha, was the third arrest in the case; he was arrested a week later on 17 October 2013. The EOW has since invoked the MPID (Maharashtra Protection of Investors Deposit) Act, under which it can attach properties and assets of the accused, for the interest of the investors. Mr. Nilesh Patel of NK Proteins Ltd., the biggest borrower from the NSEL, was arrested on 22 October 2013 who got out on bail subsequently. Mr. Surinder Gupta of PD Agroprocessors who owns Dunar brand rice has been arrested by EOW on 5 March 2014. Mr. Gupta tried various delaying tactics with EOW, NSEL and investors.
The EOW also arrested Rajesh Mehta of Swastik Overseas Ahmedabad who was one of the borrowers on 1 April 2014.
On 6 January 2014, the EOW of Mumbai's crime branch submitted its first chargesheet in connection with NSEL payment crisis. The chargesheet mentions the names of the following five accused:
- Amit Mukherjee (Former VP, Business Development at NSEL)
- Jay Bahukhandi (former AVP at NSEL)
- Anjani Sinha (Former Chief Executive of NSEL)
- Nilesh Patel (MD of NK Proteins)
- Arunkumar Sharma (Promoter & Director of Lotus Refineries)
In October 2013, EOW registered a case under the MPID Act in the NSEL scam. In the process, EOW attached defaulters' properties worth close to Rs. 4,500 crore across the country, and the MPID court initiated procedures to liquidate them so as to recover dues of depositors.
"The scope of the probe is huge. It has been going on since October last year. There have been numerous complaints from investors that the accused are moving around scot-free. We want to conduct the probe in the manner of the 26/11 case, and hence have formed a special investigation team. We have increased the number of investigators, compartmentalized responsibilities, and given them a target of four months," Maria said.
The EOW arrested defaulter borrowers Nilesh Patel (NK Proteins), Arun Sharma (Lotus Refineries), Surinder Gupta (PD Agro) and Indrajit Namdhari (Namdhari Foods). On 11 August 2014, the EOW recently arrested the following officials from six defaulting companies on NSEL.
- Kailash Aggarwal (Ark Imports)
- Narayanam Nageswara Rao (NCS Sugar)
- B V H Prasad (Juggernaut Projects)
- Varun Gupta (Vimladevi Agrotech)
- Chandra Mohan Singhal (Vimladevi Agrotech)
- Ghantakameshwar Rao (Spin-cot Textiles)
- Prashant Boorugu (Metcore Steel & Alloys)
Rajvardhan Sinha, ACP, EOW of Mumbai Police said in an interview that the defaulters were not forthcoming with information pertaining to certain money flows, etc. The investigating official felt that custodial interrogation would help in tracing the fund flow. "The maximum money has been invested in immovable properties, some money has been used for payment of previous debt and some has just disappeared in a sense that it has been spent. Rs. 5,600 crore is gone. But most of the amount has been turned into assets," Rajvardhan added.
Jignesh Shah's arrests by EOW Mumbai and Enforcement Directorate
The Economic Offences wing of Mumbai police finally arrested Jignesh Shah along with his trusted lieutenant Shreekant Javalgekar who were all along believed to be the masterminds of the scam on 7 May 2014. As per Mumbai police the arrests were required as Jignesh Shah and Javalgekar did not cooperate in interrogations. They diverted questions and always laid the responsibility on the former NSEL CEO although it was found that Jignesh Shah approved all the fraudulent contracts. The immediate cause of arrest of Jignesh Shah was his knowledge of various dealings of Indian Bullion Markets Association (IBMA)a subsidiary of NSEL which was predominantly used in money laundering and bogus trades. The investors' counsel on 16 June 2014 produced before MPID court hard evidence of involvement of Jignesh Shah in the scam. Various emails sent among Anjani Sinha, Shreekant Javalgekar and Jignesh Shah were produced before the court where there was a talk about dehiring NSEL warehouses to remove cost burden, profit adjustment and bogus profits received from NK protein -one of the key borrowers at NSEL.
in the charge-sheet filed by Mumbai police it was confirmed that Jignesh Shah knew about the scam and was actually the mastermind of it. It was also found that a group of companies called 'Rawal group' led by 'Dynamatic Developers Limited' traded on NSEL for 1352 crores and withdrew all investments before June 2013 just before the scam. La-Fin Financial Services Pvt Ltd (owned by Jignesh and the promoter of FTIL) had about 90% stake in Dynamatic Developers Ltd at one time. Another company Tezas Trading Limited also gave a 5 crore loan to NBHC (National Bulk Handling Corporation Ltd). The EOW I.O. confirmed in court that all these Rawal group companies were bogus with no genuine business.
In a fresh FIR filed in Delhi it is proven that Jignesh Shah and his brother Manjay Shah were a part of the NSEL conspiracy where along with dodgy borrowers (Mr. Jagmohan Garg of Mohan India here) they deceived investors into putting money in NSEL sugar showing bogus warehouses and warehouse receipts.
The Enforcement Directorate arrested Jignesh Shah on 12 July 2016 for assisting NSEL defaulters in money laundering.
While the NSEL management all along kept distancing itself from various defaulting borrowers, it was learnt that NSEL management was hand-in-glove with them. NSEL management made a last-ditch attempt to secure funds for the very defaulters who precipitated the Rs 5,600-crore fraud. Amit Mukherjee, AVP Business Development at NSEL negotiated a loan proposal on behalf of National Spot Exchange (NSEL) with Online Finance And Investment Pvt Ltd – a Chandigarh-based company. Strangely, but NSEL tried to help the defaulting borrowers raise money almost to the tune of Rs 4900 crores by acting as a guarantor in the last week of the scam.
Allegation on investigative agencies
The NSEL investors association has alleged slow investigation by Mumbai police, purposely going slow on FTIL group,Auditors of NSEL,defaulting borrowers and brokers who sold the ponzi scheme. It is being alleged that the data of crashed email server of FTIL-NSEL was not purposely being recovered by Mumbai police. The investors' association NIAG (NSEL Investors' Action Group)has written multiple letters to Enforcement Directorate and CBI alleging lax and compromised investigation. It is alleged that EOW wing of Mumbai police is not acting on inputs and no action has been taken on key FTIL directors like Devang Neralla, Paras Ajmera, manjay Shah etc. who all played pivotal role in the fraud.
Suspected foul play in detecting NSEL-FTIL email data/severs
There are serious allegations on Mumbai Police EOW of tampering with NSEL-FTIL email servers maintained by Pratap Polkam of FTIL. While earlier it was confirmed by Rajvardhan Sinha of Mumbai EOW that the mail server of NSEL/FTIL has crashed and has been sent to Bangalore for investigation, in a surprising about turn now the Mumbai police denies any such happening. Ketan Shah the man leading NSEL investors' association NIAG has leveled charges on the investigating agencies of misleading the court. 
India's premier investigation agency The Central Bureau of Investigation raided various NSEL and borrowers' offices as well as the residence of Jignesh Shah and booked an FIR under prevention of corruption act for the funds that MMTC and PEC -two public sector units were made to invest in NSEL. Jignesh Shah and Joseph Massey have also been booked in this FIR.However investors have complained that CBI has taken no action against politicians/bureaucrats involved in this scam and FTIL group.
The CBI conducted searches at 15 locations to unravel the conspiracy to get Project & Equipment Corporation (PEC), a PSU, to trade on NSEL. The fraud by a group of people resulted in an alleged loss of Rs. 120.75 crore to PEC, said the CBI in a press release on 13 March 2014. The CBI agency conducted simultaneous searches at 11 locations, including offices of brokers, PEC officials and traders in New Delhi and Karnal. The CBI also registered a case against certain officials of PEC on allegations that the accused were party to a criminal conspiracy to cheat PEC.
Kirit Somaiya – former BJP MP and President of Investors' Grievances Forum – had filed a Public Interest Litigation (PIL) in the Bombay High Court on 30 August 2013 seeking a CBI probe into the alleged refusal by NSEL to pay dues to 17,000 small investors. The respondents named in the PIL include Union Ministry of Consumer Affairs, Food & Public Distribution, Ministry of Finance, Forward Markets Commission (FMC), Central Board of Direct Taxes (CBDT), NSEL, and its promoter Jignesh Shah.
However, the Bombay High Court on 2 April 2014 allowed withdrawal of a PIL seeking a CBI probe into the alleged scam after the CBI informed that its Banking Securities & Fraud Cell had filed a case against NSEL and its promoters. A bench headed by Justice PV Hardas then allowed the Petitioner Ketan Tirodkar to withdraw the PIL as his request for a CBI probe had been considered. Shah, the bourse and the Sebi officials were charged for alleged criminal conspiracy and violations under the Prevention of Corruption Act. Rao, Dangeti and More worked under J N Gupta, who was responsible for the market regulation department. While Gupta has quit and floated a proxy advisory firm, Rao has been promoted as executive director. More, a visually challenged officer, was often seen in the rooms of the Bombay High Court during the high-profile legal battle between Sebi and MCX-SX in 2010. The agency said Shah and MCX-SX “in connivance with Sebi officials, deliberately suppressed” certain buy-back agreements the promoters had entered into with a public sector bank.
Role of the Ministry of Consumer Affairs, FMC & the UPA Government
In a show cause notice, on 27 April 2012, based on the data provided by the Forward Markets Commission (India), the Ministry of Consumer Affairs asked the NSEL to answer why legal proceedings should not be carried out against the company given it was conducting illegal trades, and that there the company did not provide any apparent mechanism to verify commodity stocks. However, until 12 July 2013, that is close to 15 months after the show cause notice, no action was taken by the Ministry. The lack of early government intervention allowed the scam amount to balloon to Rs. 5600 crores.
The FMC also has played a dubious role in the scam as the ex chairman of FMC Mr.B.C. Khatua (whose son is employed with FTIL group) knew about NSEL's application for registration of NTSD (paired) contracts but neither accepted nor rejected them. The dubious exemption to NSEL from FCRA was given in 2007 within weeks of Mr.B.C. Khatua assuming office when the Ministry of Consumer Affairs was headed by Sharad Pawar. Another ex FMC chairman Mr. Venkat Chary also works for FT group raising doubts about the working of FMC and their possible complicity collusion in NSEL scam.
It has been claimed that heavy political maneuvering was done by Jignesh Shah with various government entities to keep this SCN in abeyance and that cost the investors their hard-earned money. Interestingly, a committee headed by Shri Arvind Mayaram suggested that the entire system was an 'unregulated exchange' and the HNIs (High Net-worth Individuals) invested with open eyes, pointing out the scam was the fault of the investors. However, the committee ruled so ignoring the role of FMC - the designated agency to supervise NSEL from early 2012. It does not even mention that the NSEL has in 2010 already applied for registration of NTSD contracts. Apparently, FMC was aware of 'NBFC like activities' going on at NSEL and it is also claimed that FMC declined to file FIR against NSEL in spite of being aware of SGS finding that there were not enough commodities in the NSEL warehouses.
A formal complaint against the role of officials of FMC and Ministry of Consumer affairs has been filed with CBI by NSEL Investors' Action Group (NIAG).
A panel of high-level officials, and headed by the Economic Affairs Secretary Arvind Mayaram, submitted to the Finance Minister P. Chidambaram its report on the alleged irregularities at the NSEL. However, the report did not reveal key shortcomings and acts of omission and commission by the bureaucrats of DCA and FMC was claimed to be more of a cover up.
Forensic audits by Grant Thornton, Choksi and Choksi and PWC
At the behest of the Forward Markets Commission (FMC), the NSEL asked Grant Thornton to conduct a forensic audit of the books of NSEL. The report, though not complete and with insufficient cooperation from NSEL, brought out various glaring irregularities. On the basis of the Grant Thornton report, the FMC served a show cause notice to the promoters of NSEL about their 'fit and proper' status to run exchanges.
There are still wide differences between the books of the NSEL, and those of the most borrowers. The Grant Thornton report also pointed out how Mr. Anjani Sinha wrote an internal email to stop using IBMA for rigging MCX prices, and to use SNP Designs P Ltd (his wife Shalini Sinha's company) to conduct proprietary speculative trades on the exchange.
As an inference, it was clear that the whole group NSEL/IBMA/MCX and FTIL were working in tandem and cooking books. Subsequent to a court petition by some investors of NSEL, FMC has been directed by the Mumbai High Court to conduct a forensic audit of Eseries bullion contracts of NSEL.
After petitions from certain NSEL pair trade investors, the Bombay high court directed the FMC to appoint a forensic audit of Eseries products of NSEL. An audit firm by the name of Choksi and Choksi was given this assignment and their audit report has damning revelations against the promoters and FT group. It was found that FTIL in 2011-12 had conducted a ProSys (Process and System) audit of NSEL and glaring risks/irregularities were found. Surprisingly these irregularities were never plugged and this report never finalized.
The FMC also asked PWC to conduct an audit of MCX where after the audit a lot of related party trades and other deviations were found which raised serious questions about the integrity and functioning of the FTIL group.It was learnt that MCX paid Rs 2.25 crores as dubious donations to Mukesh P Shah (Jignesh Shah's uncle and NSEL auditor) and Rs 17.76 crore either as donations or as professional charges to entities to which Sunil Daga Khairnar – former director of NBHC and NSEL.
NSEL also appointed SGS to carry out quantity and quality inspection of the commodities lying in various warehouses. The audit indicated that significant stock shortage was found in 9 warehouses relating to 7 defaulters. In respect of 29 warehouses relating to 11 defaulters, the SGS audit team was not allowed inside the premises.
The role of the Promoters/FTIL/Jignesh Shah
The EOW Wing of Mumbai police filed an FIR against all the directors of the NSEL and Financial Technologies India Ltd including Jignesh Shah, Joseph Massey and Shreekant Javalgekar. The Grant Thornton forensic audit report also indicted the board of directors/promoters including Mr. Jignesh Shah who were present in all the crucial meetings, including the ones where fraudulent pair trade contracts were introduced, and money was allowed to be sanctioned to NK Protein Ltd. It is worthy to note that the owner of NK protein Ltd is also the son-in-law of the then Chairman Shankarlal Guru. It has also come to light in forensic audit that FT the promoter company had conducted a system/process audit of NSEL in 2011-2012 but the report was never finalized even after finding high risk irregularities.
The FMC in their show cause notice, and the Registrar of Companies (ROC) in their interim report, have held the promoters including Mr. Jignesh Shah, squarely responsible for the fraud. Jignesh Shah also came on TV on 5 August 2013, and promised a financial settlement. Interestingly, he said, "What will investors do with commodities, that's why we have decided to go for financial settlement" – which made people believe that he knew there were no underlying commodities in the NSEL warehouses, contrary to what was shown on the NSEL website. Mr. Jignesh Shah also promised a committee of three to look into the scam. The committee was to include the retired police commissioner Sivanandan, but it was merely a whitewash and was never formed. Various forensic audits by Grant Thornton, PWC, Chokshi and Choksi confirmed the involvement of the board of NSEL in the scam and dubious role of Financial Technologies Group Anjani Sinha's custodial statement squarely puts the blame on Jignesh Shah who he claimed was the mastermind of this whole NSEL fraud and the motive was to sustain profitability and market cap of FTIL which was dwindling as a result of loss making foreign exchanges that it floated.
It seems most exchanges being run and promoted by FT group have been mired in mismanagement, fraud and deceit. The fact that the parent company Financial Technologies India Ltd (FTIL)which owns 99.998% of NSEL had conducted an audit of NSEL systems/processes and did nothing even after knowing about NSEL shortcomings confirms the fact that the board of NSEL and FTIL knew much more about the scam then what is being made out.Soon after the news of the scam broke, FTIL claimed that the server that housed sensitive data related to the company has crashed. This seems more like a planned move on the part of the promoters.
The FMC also held FTIL, Jignesh Shah, Shreekant Javalgekar and Joseph Massey to be complicit in NSEL fraud and not 'fit and proper' to run any exchange in India.
The latest revelations from EOW investigation and the police charge-sheet on Jignesh Shah confirm that a company associated with Jignesh Shah pulled out its money just before the exchange went bust. Jignesh has been charged with insider trading on NSEL and also MCX exchanges.
An email between NSEL and NCS Sugar which was first sent to FTIL outbox (FT outbox)and then relayed by FTIL clearly shows FTIL's knowledge of launching of bogus T+2 - T+25 contracts on behalf of NCS sugar to 'liquidate old outstanding dues'.It was explicitly clear that these contracts were mere bogus contracts and the monies generated from investors will have to be given back to NSEL. This clearly underlines FTIL's complicity in the fraud.
The role of Brokers/Arrests
The economic offences wing (EOW) of Mumbai Police has found evidence of some irregularities on the part of the brokers in the National Spot Exchange Ltd (NSEL)scam. An interim report on the police's forensic audit had thrown up evidence of hawala transactions, benami trades and client code changes at some of the brokers. The interim report also states some of the brokers were aware of the impending danger at NSEL; the EOW found volumes of the spot exchange saw a sudden fall in April and May 2013. The report mentions evidence of illegal and unauthorised changes at the back-end of NSEL severs, where brokers may not have any control. The names of clients on NSEL servers were found to be different from those in brokers' ones. Anjani Sinha's police statement also confirmed that the brokers associated with Jignesh Shah/FTIL were conducting bogus trading in overseas exchanges of FTIL through their overseas subsidiaries. The NSEL brokers have been charged by investors with giving away their clients' monies without even securing the title of the goods i.e. the 'warehouse receipts' resulting in 'criminal breach of trust'.
The NSEL Investors' Action Group (NIAG) – a forum of NSEL investors has alleged that top brokers involved in NSEL scam have been privy to the scam from earlier. NIAG, in a letter to Mumbai police, has requested them to take strict action against brokers involved in the scam. "Most NSEL brokers were wealth managers to the investors and they falsely sold NSEL as an 'arbitrage product' on wrong assurance of safety and existence of stocks in NSEL warehouses. Most key brokers including Motilal Oswal took Power of Attorney to buy/sell/receive/deliver NSEL commodities on behalf of the investors and also open DMAT (dematerialized) account to handle warehouse receipts of commodities in electronic form. It is alleged that in criminal breach of trust the brokers parted with investors' monies without securing these warehouse receipts as promised," said the NSEL investors in a letter to the Commissioner of Mumbai Police.
It is also alleged that the brokers charged warehouse receipt transfer and delivery charges when actually there was no underlying delivery of goods and warehouse receipts. The investors' association also charged the brokers for falsely assuring them of NSEL being a regulated exchange and that their investment was secure.
Besides, the Hon'ble Bombay High Court observed that "…brokers do have their own legal team and a full knowledge of how the market operates. The legalities of the transactions were quite expected to be known to the brokers … the brokers being quite experienced, and the investors being informed persons, it is apparent that the issue of illegality of the transactions raised by them is not out of their concern to adhere to legalities, but in order to project the applicant as the main offender, rather than the defaulting parties.
The EOW wing of Mumbai police on 3 March 2015 arrested 3 top brokers in NSEL scam.Those arrested were Amit Rathi, managing director of Anand Rathi Financial Services Ltd; C P Krishnan of Geojit Comtrade Ltd; and Chintan Modi of India Infoline Ltd (IIFL).The three have been charged with mis-selling NSEL products, cheating, forgery and criminal conspiracy, among other charges.
Role of auditors/Mukesh P Shah
Mukesh P Shah who is a maternal uncle of Jignesh Shah has been internal as well as external auditor of NSEL from time to time. Mumbai police while opposing his anticipatory bail confirmed that he was doing insider-trading in FTIL shares and by virtue of possession of FTIL shares alone he should have been disqualified as an auditor. Besides,Mumbai police has confirmed that most companies of 'Rawal Group' where La Fin Financial Services P. Ltd. (promoter of FTIL) had a stake were registered at NSEL at the address of Mukesh Shah and Mukesh Shah was the auditor of all these companies which traded on NSEL to the tune of 1352 Crores and moved out in May–June 2013 without losing a penny showing their knowledge of the scam.
Anjani Sinha's custodial statement
In a custodial statement to the EOW authorities, Anjani Sinha the former CEO and MD of NSEL put the blame squarely on Jignesh Shah and charged him as the mastermind of the whole conspiracy. Anjani claimed that the whole idea of creating 'financing pair trades' (Vyaj Badla) on NSEL was of Jignesh Shah of FTIL as the other overseas exchanges of FTIL were not making money and he desperately needed to show profits to maintain his market cap and credibility and NSEL brought more than 50% to the consolidated profits of FTIL. Jignesh also fraudulently misused the name of NAFED a semi government organization by just giving them 100 shares (without representation) and claimed them as a co-promoter to induce investors. Anjani in his statement also claimed that his boss Jignesh Shah forcibly took away the passports belonging to him and his wife and made them sign forcibly confessional statements which were actually drafted by FTIL legal team. Anjani also claimed that the FTIL group changed the hard-disk of NSEL email servers between 15–25 September 2013 to hide the traces of Jignesh Shah's involvement in the fraud.
In his statement Anjani confirmed that Jignesh Shah, Manjay Shah (Jignesh Shah's brother), Shreekant Javalgekar, Mukesh P. Shah (Jignesh's uncle and auditor of NSEL)were fully aware of the NSEL scam and he was merely made a scapegoat.
NSEL investors' action/grievances
The investors of NSEL formed an organization by the name of NIF in the month of August 2013. However investors who were dissatisfied with brokers' role in NIF formed a pure investors' organization by the name of NIAG (NSEL Investors' Action Group). NIAG has submitted a strong letter to the EOW Mumbai to investigate the role of Jignesh Shah and FTIL. Many writs, PILs, Suits have been filed in Mumbai HC against NSEL/FTIL and Jignesh Shah.
On 21 October 2014 the Ministry of Corporate affairs announced a draft order for merger of NSEL which is the subsidiary company with its holding company, viz., FTIL. The govt by announcing this merger has exercised its power under sec. 396 of the Companies Act,1956. All stakeholders have been given 60 days to report to MCA and the order may get finalized after this. As of now FTIL has challenged this merger in Mumbai HC and the last date of merger allowed by Mumbai HC is 31 October 2015. In October, the court had set December 31 as the deadline. The Bombay High Court has extended the deadline till February 15 for the Union Ministry of Corporate Affairs (MCA) to pass the final order for the merger of the National Spot Exchange Ltd (NSEL) with the Financial Technologies India Ltd (FTIL). Hearing an application filed by the government, the Bench comprising Justices SC Dharmadhikari and BP Colabawala said time until 15 February 2016 is being granted, but with the condition that there will be no further extension. On 12 February 2016 the ministry of corporate Affairs India passed the final order of merger between FTIL and NSEL. The order was sigend by Shri Pritam Singh Additional Secratry to Ministry of Corporate Affairs. This order has been challenged by FTIL in Mumbai High Court and it is stayed till the arguments will be heard on merit.
MCA's move to take over FTIL board
On 28 February 2015,The ministry of corporate affairs convinced about FTIL's fraudulent activities, moved a CLB application to take over the board of FTIL and replace it with govt. nominated directors. This move is being contested by Jignesh Shah appointed FTIL board. On 30 June 2015 the Company Law Board (CLB) barred FTIL from selling its assets. FTIL got a stay from Chennai High Court on this CLB order. On 19 April Supreme Court of India reversed this stay and froze all assets of FTIL barring day to day expenses 
Financial Intelligence Unit (FIU)'s Observation
FIU (under Finance Ministry) held that NSEL came under the purview of Forward Contracts (Regulation) Act (FCRA) and therefore guilty of failing in several of these obligations under the law. The black money watchdog has slapped a penalty of Rs 1.66 crore for several counts of violating the provisions of Prevention of Money Laundering Act (PMLA) on NSEL. The watch dog further held that failures is deliberate and willful and hence, invite penalties. NSEL is fined Rs.1 lac for each failure and the collective fine was Rs.1.66 crore. 
Action by Enforcement Directorate (ED)
The ED has attached properties worth around 800 crores in NSEL scam. On 13 July 2016 the ED arrested Jignesh Shah under PMLA (Prevention of Money Laundering act)
SFIO Probe on FTIL and NSEL
The Government of India ordered SFIO (Serious Fraud Investigation Office) probe on FTIL and its 18 associates pertaining to irregularities on NSEL. The Serious Fraud Investigation Office (SFIO), which is a multi-disciplinary organisation that probes serious financial frauds, has been asked to submit its investigation report in six months time.
A fresh FIR has been filed by Mumbai police on court order against Jignesh Shah/all FTIL directors and Mukesh Shah (Uncle of Jignesh Shah and an auditor of NSEL as well as MCX) for siphoning of 900 crores from MCX (Multi Commodity Exchange of India Ltd. The PWC audit of MCX books showed 900 crores being siphoned from this public company.
Sucheta Dalal's knowledge of NSEL scam
It was discovered that even 15 months before the NSEL scam went public, India's leading financial journalist Sucheta Dalal knew all major aspects of the fraud. An email dated 8 May 2012 from Sucheta to Jignesh Shah, Anjani Shah etc came in public domain which revealed that Sucheta knew about illegality and lack of safety of NSEL product. A complaint has been filed with Mumbai police by NSEL Investors' Action Group to investigate Sucheta Dalal's role. Sucheta knew about illegality of contracts, role of IBMA and the fact that the warehouses were in so called borrowers' own premises.
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- Role of Sucheta Dalal in NSEL Scam 'NSEL Investors Letter to Mumbai police to investigate the role of Sucheta Dalal in scam'