Fears of a widespread default as early as 2011-12 forced the NSEL management to concede buyers’ every demand, including designing contracts to suit their needs and rollover of positions fully aware there were no stocks and that any rollover would increase exposure by at least 20% every year.
According to Sinha, Mohan India wanted to use the NSEL “platform for T+2/T+25 contracts and also for the purpose of developing Delhi-based sugar contracts based on delivery”.
In May 2013, according to Sinha, NSEL realised that the “entire story is a farce” and that Mohan India “availed of funds through (NSEL) platform and invested in land.”
Even then, NSEL allowed Mohan India to raise funds to the extent of Rs 300-350 crore so that it could “repay the same amount by December 2013 along with a profit of around Rs 200 crore for NSEL SGF, which could be used towards settling the dues of Lotus Refineries who was defaulting since long.”
NSEL also allowed Jai Shrivastava, director of Mohan India, to hold two memberships in the name of Tavishi and Brinda Commodities and raise Rs 347 crore to buy land near Delhi farmers. While denying that he benefitted personally, Sinha says he did tell Shrivastava that if “he can bail us out of Lotus problem, I will be obliged.” According to the affidavit, Shrivastava gave Amit Mukherjee (head of business development at NSEL) Rs 35 crore, which was used to buy luxury cars like Bentley and Porsche.
In the case of Lotus Refineries which has an outstanding of nearly Rs 253 crore, Sinha said the entity “did a big fraud by manipulating his stock record and by issuing fake bills etc.” NSEL staffers Manish Pandey and Jai Bahukhandi – both were sacked on August 20 – played key roles in getting Lotus on NSEL.
“We were trapped in the rollover mechanism... we were forced to use margin deposits to declare pay outs. The problem was that if we declare Lotus as defaulter, the entire system comes to a halt. If we continue his trading, liability was increasing day by day due to the rollover effect,” states Sinha, adding the “exchange staff were virtually requesting him to continue trading.”
Another borrower N K Proteins that has the largest outstanding of Rs 970 crore came up with the concept of T+3 and T+36 contracts in castor seed. “By end of December 2011, it was known to us that he was not having stock to back the exposure. Still, we allowed him to continue because of the fear of widespread default, if we choose not to allow him to roll over,” says Sinha in his 13-page affidavit.
Audit finds defaults were on for years
Preliminary findings of a forensic audit conducted by Grant Thornton into the dealings at the National Spot Exchange Limited (NSEL) suggest that defaults at the exchange had been taking place for years. The audit found hundreds of cases of default over the years from the same set of borrowers, say sources. The final report is likely to be submitted to the Forwards Markets Commission (FMC) on Wednesday. Meantime, sources also suggest that the FMC continues to examine whether the “fit & proper” status of the promoters of NSEL should be revoked. The regulator is not entirely convinced by the affidavit filed by former CEO Anjani Sinha, which tries to absolve the promoters and the board of NSEL by suggesting they were unaware of the wrong-doings at the exchange, say sources.