NSEL scam: Why caged parrot SFIO may not dig deep enough

The NSEL settlement crisis has snowballed into a scam with alarming proportions and as events unfold, skeletons are likely to tumble out of the closets of a few high and mighty.

According to a report in the Economic Times, Chairman Shankarlal Guru has resigned from the board of the troubled exchange, which has now stopped functioning after the government asked it to stop trading in the illegal contracts.

What is more interesting is that Guru is father-in-law of Nilesh Patel, whose NK Proteins has Rs 900 crore dues to the exchange, which is struggling to pay off its members.

ARK Imports Pvt Ltd, Moil Overseas Foods Ltd, Lotus Refineries Pvt Ltd, and Vimladevi Agrotech Ltd are other defaulters, according to a PTI report.

The income tax department on 22 August raided the premises of all the clients who have defaulted on payments to the exchange, including NK Proteins and Swastik Overseas.

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“Stocks shown in the cases of defaulters on record in NSEL-accredited godowns is found to be non-existent or short in maximum number of cases,” the PTI report quoted sources as saying.

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The exchange has about Rs 5,500 crore of dues to its members and doesn’t have enough stocks or settlement guarantee fund to meet the huge fund requirement.

The exchange has committed to pay about Rs 174. 72 crore every week for the next five months to 148 members. However, the bourse is likely to default in the first instalment itself.

A PTI report said the bourse has managed to collect only Rs 8.50 crore until Friday, which was the last day for pay-in. It has to make the pay-out of Rs 174.72 crore on Tuesday.

For the first settlement (for the August 20 week), the exchange will be able to settle only Rs 92.12 crore.

Guru’s resignation comes in the wake of these developments and brings to the fore the dangerous net of connections and conflicts of interest in the exchange.

Guru is also known to be close to Farm Minister Sharad Pawar. An earlier _Firstpost_ report said Guru and one of its Pune-based directors, BD Pawar, are serving as directors on the board of the Centre for International Trade in Agriculture and Agro-based Industries (CITA) that was launched by Sahrad Pawar to lobby for the domestic agri-business industry.

BD Pawar has now resigned from the board of the exchange.

However, the crisis has now deepened and there are indications that it may hit MCX, the flagship company of NSEL’s parent Financial Technologies.

According to another ET report today, the National Stock Exchange has sold its stake in the MCX in the wake of the scam as it seeks to distance itself from the company. Kotak may be interested in buying out Financial Technologies in MCX, the report said.

The future of the exchange, the largest commodity futures exchange in India by turnover, now depends on the outcome of a meeting of the financial institutions the Forwards Markets Commission has called on Tuesday.

With the developments pointing to a large scam, the government may finally order a probe by the Serious Fraud Investigation Office of the corporate affairs ministry, a ToI report says today.

But it remains to be seen how far this investigation will get to the bottom of the problem. One reason for this is that SFIO too is a caged parrot, just like CBI. Though the new Companies Bill has accorded statutory powers to the investigative agency, it can still probe only those cases that are referred to it by the government.Moreover, it is doubtful whether the SFIO has enough facilities to do a thorough investigation.

Moreover, the commodity trading business in India is the hands of a few cartels. It is the traders and speculators who make money here and not the farmers.

Unfortunately most of the players in the market are well connected. In this scenario, it will be too much to expect that the SFIO, a caged parrot like the CBI, will be successful in digging deep into the NSEL debacle.