NSEL top brass faces legal heat, asset seizures by ED in 180 days

New Delhi: A fuller picture of the entire set of consequences that will be faced by individuals and entities responsible for the scam at National Spot Exchange Ltd (NSEL) has become apparent with the findings of a government report that lists out dozens of violations that will result in stringent action.

Government sources have told CNBC-TV18 that the board of directors of NSEL, as well as management and other yet to be unmasked participants in the scam would face criminal prosecution on at least 17 charges related to forgery, criminal conspiracy, misappropriation, criminal breach of trust, cheating, deceit, and submission of false documents.

Victims of a scam. PTI

The government appointed panel of four secretaries headed by economic affairs secretary Arvind Mayaram has collated a long list of violations in its report that submitted to the government over a month ago. These inputs are being "heavily relied" upon by the Economic Offences Wing (EOW) of the Mumbai Police, the Enforcement Directorate (ED) as well as the Serious Fraud Investigation Office (SFIO) in their ongoing probes.

The provisions of the Indian Penal Code that are listed include Section 120B, 403, 405, 407, 415, 418, 420, 421, 424, 467 and 463 among others. Six separate violations of the Companies Act have also been listed, including Section 397, 398, 408, 542, 211, and 217. The latter three sections are extremely serious - as they relate to carrying out business of a company with the intent of fraud and failure to furnish a true and fair view of the accounts.

The report has found NSEL, associate entities and participants to be complicit in most violations.

There are also six charges relating to the Prevention of Money Laundering Act (PMLA), 2002, which will attract attachment of assets. This action is being undertaken by the Enforcement Directorate. After a probe under the PMLA starts, the ED can provisionally attach assets for a period of 180 days, so as to prevent the proceeds of the crime being transferred or concealed by the accused.

At the moment, the scam is estimated at around Rs 5,500 crore and only a negligible portion of these outstanding dues of NSEL investors and trading members have been repaid so far. However, the catch here is that the assets seized by the ED may not be immediately available for recovery and repayment of investor dues. This, because there is no provision, such as the ones with respect to the Securities laws administered by Sebi, for disgorgement of the recovered proceeds back to investors.

In effect, while Jignesh Shah's empire faces all possible legal and regulatory action, the possibility of any immediate relief for the estimated 13,000 NSEL investors is remote.

NSEL is also set to be held liable as a 'reporting entity' under Section 12, 12A of the PMLA. The Financial Intelligence Unit has initiated action in this regard.

Finally, a decision on the 'fit and proper' status of the people common to NSEL and other related companies is underway at the Forward Markets Commission. Sources have told CNBC-TV18 that given the existing guidelines of the Ministry of Consumer Affairs in this regard, it is quite likely that all the involved individuals would fail the fit and proper test.