letter from nif re sale of shares (130913)

7/29/2019 Letter From NIF Re Sale of Shares (130913)

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(BY PERSONAL DELIVERY & COURIER)

September 13, 2013

ToMr Jignesh Shah,Director and Vice-Chairman National Spot Exchange Limited (NSEL),FT Tower, CTS No. 256 & 257, 4th Floor,Suren Road, Chakala,Andheri (East),

Mumbai - 400 093

Dear Sir,

Re: Disposal and/or creation of rights and/or interest over assets of Mr. Jignesh Shahand/or Financial Technologies (India) Limited (FTIL)

1. We have reliably learnt that Mr. Jignesh Shah is presently in advanced discussions with a

prospective investor for sale of substantial part of his shareholding in Financial

Technologies (India) Limited (FTIL). Further, we understand that as part of the proposed

commercial arrangement, Mr. Jignesh Shah is also likely to grant the prospective investor a

preemptive right over the assets of FTIL including the shareholding and interest of FTIL in

its subsidiary companies.

2. It is now clear that a well scripted fraud has been perpetrated by FTIL along with the board

of directors and senior management of National Spot Exchange Limited (NSEL) in

complicity with the defaulting members.

3. The press release issued by NSEL on September 10, 2013 confirms the position of the

stock and expressly states that as per the audit of the NSEL warehouses conducted by

SGS, significant stock shortage has been found in 9 so-called NSEL accredited

warehouses relating to 7 defaulters and SGS audit team was not even allowed inside

the premises of the majority of the NSEL warehouses, i.e. 29 warehouses relating to 11

defaulters. Accordingly, it is now clear that NSEL, a commodities exchange, in factoperated without any underlying commodities. The widespread shortage of goods in the

NSEL designated warehouses confirms that a large scale fraud has been committed.

4. The fraud perpetrated in the present instance percolates to the very root of the transaction,

the first step of the entire trade on NSEL being the deposit of the commodities in the so-

called NSEL accredited warehouses. It is now clear that the NSEL accredited warehouses

did not have the requisite storage capacity to hold the quantity of the stock collateral for the

trades on NSEL to begin with. Therefore, it would be an irrefutable conclusion that such a

basic, schematic and systemic fraud was within the knowledge of Mr. Jignesh Shah.

5. Further, the fact that (a) majority of the NSEL accredited warehouses were not independent

properties but merely designated areas within the premises of the defaulting members; (b)

in majority of the trades, the seller or a group company of the seller in the first settlement

cycle was the buyer in the second settlement cycle and thus, the same entity was trading in

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both positions; and (c) the 24 defaulters are themselves registered as members of NSEL

and therefore, Mr. Jignesh Shah, the board of directors and senior officials of NSEL were

well aware that these thinly capitalized entities would have a limited ability to honour their

settlement obligations; points to a premeditated and well-planned scam to dupeunsuspecting investors.

6. We are also certain that M/s Mukesh P. Shah, Chartered Accountants, Mumbai, a related

party, was deliberately appointed by Mr. Jignesh Shah as the statutory auditors of NSEL to

ensure that the fraudulent activities of NSEL do not come to light.

7. As the Chairman and Chief Executive Officer of the Financial Technologies Group,

Chairman and Managing Director of FTIL and the Vice-Chairman and Director of NSEL, Mr.

Jignesh Shah has been the moving force and directing mind behind NSEL. NSEL is nothing

but the alter ego of Mr. Jignesh Shah. Mr. Jignesh Shah has been responsible for evolving

several products which were marketed by NSEL through the NSEL officers and he was a

substantial benefactor of NSEL. Therefore, it was within the knowledge and with the

consent of Mr. Jignesh Shah that all aspects of the execution and subsequent follow-up

were implemented.

8. Mr. Jignesh Shah has also actively promoted and marketed the NSEL as a commodities

exchange and made several assurances to investors and members on the basis of which

they participated in the NSEL Exchange. In fact, the NSEL brochure entitled The new Face

of Commodity Market (NSEL Brochure) contains the photograph of Mr. Jignesh Shah and it

is touted that Mr. Shah is often credited as the Innovator of Modern Financial Markets

for his role in creating successful public-private partnership (PPP) model for building world-

class financial institutions in emerging economies. Therefore, it is irrefutable that Mr.

Jignesh Shah was a key functionary and key member of the NSEL management team and it

is inconceivable that he was not aware of the manner in which the affairs of NSEL were

being conducted. In fact, given the all pervasive control exercised by Mr. Jignesh Shah, it is

an inescapable conclusion that he designed, executed and perpetrated the fraud.

9. FTIL is the promoter of NSEL, holding a controlling stake of 99.99% in NSEL. FTILs track

record in domestic as well as foreign exchanges was marketed by FTIL and Mr. Jignesh

Shah, as the basis for obtaining more investors for NSEL. In the NSEL brochure entitled

The new Face of Commodity Market, NSEL has claimed that FTIL was a global leader in

creating and operating technology centric next generation financial markets that are

transparent, efficient and, most importantly, liquid. Further, the experience of the Financial

Technologies Group in operating a network of 9 exchanges connecting Africa, Middle East

and South East Asia, as well as India is also trumpeted in the NSEL Brochure.

Mr. Jignesh Shah is the promoter, Chairman and Managing Director of FTIL. FTIL and

NSEL also had common directors at the relevant time, namely Mr. Jignesh Shah and Mr. R.

Devarajan. Given that NSEL contributes to approximately 50-60% of the overall profits of

FTIL and is a material and profitable subsidiary of FTIL, it is only natural that its affairs were

closely monitored by FTIL. Therefore, it is an inescapable conclusion that FTIL was

knowingly a party to the carrying on of the business of NSEL in a fraudulent manner.

10. The inaction of the board of directors of FTIL in supervising and directing the affairs of

FTIL appropriately has resulted in FTIL directing NSEL to operate through

misrepresentations, acts of cheating, criminal mis-appropriation of assets, issuance of

warehouse receipts without ensuring their being underlying goods, forgery in issuance of

false warehouse receipts. The board of directors of FTIL, was in fact the custodian of the

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assets of FTIL, which included NSEL, and there has been complete failure by the FTILboard to manage such assets commensurate with its fiduciary duties. We strongly hold

FTIL liable for the fraud perpetrated in the operations of NSEL.

11. Ever since the present crisis has arisen, Mr. Jignesh Shah has deliberately misstated,

misrepresented and given contradictory details of the stock lying in the exchange

certified warehouses and have engaged in and continued with deception and trickery.

12. In light of the above, it is clear that offences have been committed by FTIL, Mr. Jignesh

Shah, the board of directors and senior management of NSEL, inter alia under the Indian

Penal Code of 1860, the Companies Act of 1956, the Forward Contracts (Regulation) Act of

1952, Warehousing (Development and Regulation) Act, 2007 and the Prevention of MoneyLaundering Act, 2002.

13. The present attempt by Mr. Jignesh Shah to dispose part of his shareholding in FTIL while

the default continues is very evidently an attempt to intentionally distance himself from the

on going crisis and absolve liability for the systematic fraud perpetrated by NSEL. In fact,

we strongly apprehend that such a proposed sale of shares of FTIL and creation of interest

over the assets of FTIL, is not a genuine transaction and is merely a clever ruse to deflect

attention from the liability for the present fraud. Given the consistent failure by NSEL in

satisfying the first, second and third pay-out as per the payment schedule, the magnitude of

the amounts involved and the seriousness of the issues, it is imperative that the assets of

Mr. Jignesh Shah are not frittered away so as to frustrate recovery of outstanding amounts.

14. Any disposition of assets by FTIL, as the promoter of NSEL, or Mr. Jignesh Shah, the key

functionary of NSEL, in the present circumstances will seriously put at peril recovery of

investor funds of over Rs. 5,500 crores. Given that the amount involved is large, it is

absolutely necessary to safeguard and preserve these assets till such time as the

outstanding amounts are not paid to the investors.

15. Accordingly, you are hereby directed to take notice that pending settlement of the

outstanding contracts and fulfilment of the outstanding payment obligations, you are

precluded from undertaking any of the following:

i. dispose off, directly or indirectly, any assets of Mr. Jignesh Shah and/or FTIL,whether pursuant to an agreement or otherwise, which would result in frustration of

any recourse by the investors to the assets of FTIL and Mr. Jignesh Shah;

ii. offering or creating any rights or interest, whether directly or indirectly, over the

assets of Mr. Jignesh Shah and FTIL, including specifically the shareholding or

interest of FTIL in its subsidiaries, whether pursuant to an agreement or otherwise.

16. We will be compelled to take appropriate legal action, including criminal action, against you

if you proceed to dispose off or create any rights/interest in any assets owned by Mr.

Jignesh Shah and/or FTIL, whether pursuant to an agreement or otherwise, pending the

settlement of the outstanding defaults.

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17. We are also by this letter putting the entire Board of Directors of FTIL on notice. We reserve

our rights to proceed against other Board members in accordance with law.

Please note that this letter is without prejudice to the other rights available to us under law,

equity or otherwise.

Yours faithfully,

For and on behalf ofNSEL Investors Forum

Sd/-

Arun DalmiaSecretary

Mobile: 9821013308Email:[email protected]

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letter from nif re sale of shares (130913)

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