National Spot Exchange Ltd (NSEL) ScamQuick Remedial Actions NeededPresentation to Shri Jayant Sinha

7th January 2015

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The Scam A premeditated countrywide commodity scam of Rs 5,600 crores (appx 1 Billion US$) affecting 13,000

retail investors spread across the country.

NSEL was a commodity exchange floated by Financial Technologies (India) Ltd (99.9999% owner) andNAFED. Only token 100 shares were given by FTIL to NAFED with an idea to misuse and exploitNAFED’s brand and to pitch it as a farmer friendly exchange to credulous investors.

Huge monies of PSUs like MMTC/PEC also stuck along with retail investors.

Scam masterminded by FTIL (NSEL was an alter-ego of FTIL) and its CMD Jignesh Shah as evident byvarious forensic audit reports and charge-sheet filed by Mumbai Police EOW Wings.

About 90% of the investors in this Ponzi Scheme-Scam are retail investors sucked in by brokersworking in cahoots with Jignesh Shah/FTIL who induced investors by false promises of safety.

Fixed returns were assured to investors by brokers/NSEL with knowledge of FTIL.

T+2 (short duration buy) and T+25 (long duration sell) contracts were to be executed simultaneouslyby the investors generating arbitrage profits of 13-14% per annum (pre-tax) and 9-9.5% post tax.

On 31st July 2013 when the exchange went bust, NSEL had neither money nor the goods to payinvestors for which it was a counter-guarantor. Promoter FTIL tried to wash its hands off calling it anemployee scam and hiding behind ‘corporate veil’.

No warehouse receipts were ever printed and the warehouse allocation reports and QC certificatesissued by NSEL turned out to be bogus.

Out of the total scam, Rs 2,510 crores is spread over 11,755 small investors which works out to anaverage of Rs 22 Lakh per investor. This contradicts the very fact that only HNIs are affected.

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Key Players FTIL : The promoter of NSEL. NSEL: The bogus and fraudulent exchange floated by FTIL. IBMA: A subsidiary of NSEL used for bogus trades and money laundering. Jignesh Shah: Promoter, Chairman & Managing Director of FTIL and Vice Chairman and Key Managerial

Personnel in NSEL (arrested and charge-sheeted). Shreekant Javalgekar : Finance Director of FTIL, Director NSEL , MD and CEO of MCX, Director in IBMA , Group

CFO FTIL (arrested out on bail). Anjani Sinha: CEO at NSEL (arrested out on bail). Joseph Massey: A close confidant of Jignesh Shah and a director and KMP on NSEL, CEO of MCX. Shankarlal Guru: The Chairman at NSEL appointed by FTIL board whose son-in-law is the biggest defaulting

borrower. Mukesh P Shah: Jignesh Shah’s uncle and an auditor of NSEL and MCX and other Exchanges of the Group. Sunil Daga Khairnar: Jignesh Shah’s liaison man in Delhi and a director at NSEL. 19 defaulting borrowers: Given money as term loans by NSEL board/FTIL. Massive cash withdrawals and real

estate investments. Most also conducted bogus (wash) trades on MCX. Anand Rathi, Motilal Oswal, IIFL and other brokers: Peddled this NSEL ponzi scheme assuring safety and some

even assured falsely existence of stocks. Most brokers very close to Jignesh Shah. Forward Markets Commission: National regulator of commodity future contracts under FCR Act. Was

appointed as an agency to collect information from NSEL in February 2012. Ministry of Consumer Affairs: Then parent body of FMC which exempted 1 day forward contracts of NSEL

even before it started its operations. NAFED : Marketed as a promoter by giving a meager 100 shares.

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How It Happened FTIL ran multiple exchanges around the world (most exchanges were loss making) including MCX,

MCX-SX and NSEL.

About 46% of FTIL is owned by Jignesh Shah and his family company La-Fin Financial Services Pvt. Ltd.

An exchange with ‘National’ in its name started by FTIL group to hoodwink investors and NAFEDbrand was used to give it ‘quasi government’ look.

By a gazette notification dated 5 June 2007, the Ministry of Consumer Affairs exempted one dayforward contracts at NSEL from FCRA subject to certain conditions. Ironically Mr. Paul Joseph whosigned this exemption (even before NSEL started functioning ) subsequently joined the FTIL group.

In 2008 NSEL started functioning as a delivery based spot exchange but had no significant businessand was making huge losses.

In 2009 fraudulent ‘paired trades’ were launched to generate business and profits for NSEL/FTIL.These contracts were ab-initio illegal as the exemption provided to NSEL was only for contracts up to11 days where as pair trades extended till 25 or 35 days.

The first borrower in 2009 that was loaned money was NK Proteins Ltd, a company owned by Mr.Nilesh Patel, the son-in-law of then chairman Mr. Shankarlal Guru. This shows the complicity ofpromoters/board with borrowers.

NBFC-Lending Activities started much before Anjani Sinha became the CEO. This is thus a fraudmasterminded by FTIL Board.

In 2010 Anjani Sinha was appointed as CEO of NSEL and he applied U/S 14A of FCRA for registration ofNTSD (Non Transferable Specific Delivery) contracts with Forward Markets Commission.

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In Early 2011 Finance Ministry raised the flag stating that NSEL was operating in regulatory vacuumwith neither SEBI nor FMC regulating the Exchange.

On 6 February 2012 The Ministry of Consumer Affairs to protect investors’ interest, designatedForward Markets Commission to collect ‘all information or returns’ and supervise trades on NSEL.

Based on information provided by FMC about violation of exemption conditions of 2007 gazette, theMinistry of Consumer Affairs issued a show cause notice to NSEL mainly because there was short saleat NSEL, NSEL did not have mechanism to ensure stocks being deposited and 55 contracts at NSELextended beyond 11 days. This 15 day SCN to NSEL was not acted upon by MCA for 15 months.

On 12 July 2013 the Ministry of Consumer Affairs wrote to NSEL to stop and settle all contractsextending 11 days.

The ponzi scheme peddled by NSEL came to a screeching halt as NSEL could not find new investorswho would be interested in newly launched T+10 day contracts. Without new investors coming in,NSEL could not pay old investors whose amounts were due for payment.

On 31st July NSEL unable to meet payment obligation merged all its settlements and promised that anew settlement calendar will be announced after 15 days.

A settlement plan proposed by NSEL and announced by Jignesh Shah was approved by FMC on 16August 2013. In spite of this, NSEL defaulted on every installment promised in the settlement plan.

It was found by investors that their Rs 5,600 Crores was distributed among 24 borrowers (19borrowers minus sister companies) sans any collateral or any significant stock (found in SGS audit).

It was found that NSEL was conducting NBFC like activity and most defaulting borrowers were giventerm loans under the garb of commodity trade.

All NSEL warehouses were in the premises of the defaulting borrowers themselves with no controlof NSEL or its management , fact known to FTIL as MIS monthly reports (including status ofWarehouses) from NSEL CFO were sent to FTIL CFO and emails have come in Public domainthrough the MCX Audit. 5

Cui Bono? Role of FTIL-Jignesh Shah The whole NSEL scam was meticulously planned by Jignesh Shah along his cronies and flawlessly executed with the help of

borrowers and brokers and blessings of bureaucrats. Jignesh Shah owns about 46% of FTIL and FTIL almost 100% owns NSEL.All profits from NSEL went into consolidated balance sheet of FTIL. As most exchanges of FTIL-Jignesh Shah were loss making,FTIL needed cash to show a healthy bottom line and to maintain its market capitalization and market reputation. On the backof NSEL profits the value of the shares of Jignesh Shah in FTIL shot up manifold giving him the benefit of a spectacular marketcapitalization of his investment in FTIL running into thousands of Crores of Rupees.

FTIL had applied for exemption U/S 27 of FCRA , even before the trading commenced on the NSEL giving credence to the factthat Jignesh Shah wanted the Exchange to operate outside the reach of regulators.

The bogus profit of NSEL was padding up FTIL bottom line. Bogus software charges were pegged to the turnover of NSEL (Rs33.80 Crores in 2012-2013) and taken away by FTIL. NSEL income constituted 55% of FTIL income in 2012-13 and if we includethe bogus software charges it went up to 81% of FTIL consolidated income in 2012-13. FTIL was collecting 20% of tradingcharges generated on NSEL under the guise of ‘software charges’ and wanted that to go up to 30%.

Jignesh Shah himself used to draw hefty salary, dividend, commission and other perks linked to the profits of FTIL, which werelinked to NSEL profits. His Salary and Commission doubled from 2010-11 to 2012-13 as a result of strong NSEL profits.

Jignesh Shah was the key management personnel (KMP) at NSEL from 2006-2012 but conveniently removed his name in 2013fully knowing about the scam.

FTIL and NSEL functioned from the same building and shared common infrastructure including key IT infrastructure. All NSELservers were managed by FTIL.

FTIL conducted a system-process audit of NSEL in 2011-2012 but never acted on serious shortcomings found inluding thehigh risk of having no mechanism to check ‘delivery defaults’.

The bogus pair trades at NSEL were approved in the NSEL board meet of December 2009 where Jignesh Shah was present andthe same were also ratified by the FTIL board in January 2010 showing complicity of all FTIL/NSEL board of directors.

Mr. Mukesh P Shah, a Chartered Accountant and an uncle of Jignesh Shah is also the auditor of NSEL ,MCX and many otherCompanies in the group. He operates his professional services in the name of Mukesh P Shah & Company from DamodarNiwas, CP tank Mumbai which was the office address of La-Fin Financial Services Pvt. Ltd. (Holding company of FTIL which isowned by Jignesh Shah) showing collusion between the two.

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The funds of the initial margin account at NSEL were utilized for meeting the Exchange obligation for defaultingmembers and financial obligations of the other business operations at NSEL.

FTIL was fully aware of it but did not stop this activity as illustrated by an email from Devendra Agarwal of FTFinance and accounts to Shashidhar Kotian of NSEL dated 15 October 2010 with a copy to FTIL finance directorShreekant Javalgekar.

An email dated 29 June 2013 from Amit Mukherjee NSEL business development with a copy to FTIL says thatNSEL/Brokers should not send fixed return calculators related to T+25 and T+2 contracts. If at all such calculators areto be sent they should be sent from personal Email IDs. This shows FTIL was aware of unlawful acts of fixed returnsbeing promised.

IBMA (NSEL subsidiary) was trading on MCX in capacity of a client through Karvy Commtrade and Sarita PremSinghal which was patently illegal. The resolution for IBMA to trade as a client on MCX platform was approved in themeeting of Board of Directors of IBMA where Mr. Devang Neralla (Founder Director, FTIL) and Mr. ShreekantJavalgekar (Finance Director, FTIL group) were present showing full knowledge of FTIL and Jignesh Shah about illegalactivities.

The board minutes of NSEL on 11 August 2010 and 31st March 2010 state that NSEL approached Karvy FinancialServices Ltd to extend credit facilities to NK Proteins Ltd. The board extended guarantee of Rs 14 Crores to Karvy togive credit to NK Protein Ltd. Jignesh Shah and Joseph Massey both were present in these meetings. Board ofDirectors of NSEL approved corporate guarantees in favour of HDFC bank and financial institutions to allow creditfacilities to notorious fraudulent defaulting borrowers like Aastha Minmet and NK protein Ltd even after theirrepeated defaults.

Jignesh Shah headed the NSEL audit committee along with Shreekant Javalgekar and Joseph Massey but purposelyoverlooked glaring irregularities and the fraud.

Mukesh Shah (auditor) in his internal audit report of NSEL for the period April 2011 to 30th September 2011pointed out that NSEL was taking higher risk of credit default as it does not hold any security or line. The activityentailed funding of the transactions and attracted the provisions of NBFC. No action was taken by the board.

NSEL borrowers including NK protein , NCS Sugars , LOIL etc were also active on MCX platform and conductedspeculative trades.

The ‘fit and proper’ order of FMC has found Jignesh Shah and FTIL as largest beneficiaries and main culprits in theNSEL scam.

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Galaxy of Bureaucrats Associated with FTIL Group

Mr. Venkat Chary: Ex FMC chairman, Chief Secretary Maharashtra

Mr. Ashok Jha : Ex Finance Secretary

Mr. B.C. Khatua (his son works for FTIL group): Ex FMC Chairman

Mr. G.N. Bajpai : Ex chairman SEBI

Mr. Paul Joseph : Ex Senior Economic Adviser Department of Consumer Affairs , principal adviserPlanning Commission

Mrs. Dharmistha Rawal : Ex ED SEBI

Mr. S. Narayan : Ex Secretary Finance and Eco. Affairs, Secretary Department of Revenue ,Coal

Dr. Nitish Sengupta : Ex Revenue Secretary and Secretary Planning Commission

Justice S.U. Kamdar : Ex Mumbai HC Judge

Mr. Atul Rai : Ex Director Ministry of Finance

Mr. P.K. Singhal: Ex Director FMC and SEBI

Mr. Shashi Shekhar : Ex Joint secretary Mininstry of Power

Mr. S.N. Tuteja : Ex Secretary department of food and public distribution

Mr. P.R. Ramesh : Ex Director Legal SEBI

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Insider Trading on NSEL In the charge sheet filed by Mumbai EOW, it has been found that a

company promoted by La-Fin Financial Services P. Ltd. Was doinginsider trading on NSEL. La-Fin Financial Services P. Ltd had aninvestment of Rs 5 Crores in this Company and thisCompany/group conducted transactions worth Rs 1,352.70 Croreson the NSEL Platform without losing a penny.

The Group of Companies led by Dynamatics Developers Ltd (whereLa-Fin Financial Services P. Ltd. had a major ownership) stoppedtheir trading on the NSEL sometime in the middle of June 2013,weeks ahead of suspension of trading and consequent fraud at theexchange (showing total involvement of FTIL group).

Some companies with common Directors that were part of thisinsider syndicate:

Prathama Trading Ltd Tezas Trading Co . Ltd Zylog Commercial Pvt. Ltd Zodiac Trade Link Pvt. Ltd Sarba Mangalam Fintex Pvt. Ltd All these companies were registered on NSEL with the address of

Mukesh P Shah the auditor of NSEL and an uncle of Jignesh Shah. One of the companies also had connections with Riddhi Siddhi

Bullion Ltd (RSBL) known to be Hawala kingpin of India. RSBL also did wash trades worth Crores on MCX and is reported to

be very close to Mr. Jignesh Shah.

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FTIL Board Sending Huge Cash beyond Indian Jurisdiction

Loans of USD 144 Million Loan of USD 35 Million

Converted into Equity post Merger

USD 51 Million USD 36 Million USD 43.5 Million Usd 12 Million

Sold to a Company (Inc. in July 14) FTIL unilaterally decided to File for

With a Capital of Rs 2,000/- winding up and investment written off

Name Changed to Bourse Africa

All Subsidiaries of FT Group Mauritius have huge losses/ write offs and negligible income.

Investigations by Enforcement Directorate/ RBI is required into these loans.

FTIL

FT Group Investment (Mauritius )

FTL- Singapore

Global Board of Trade

Bourse Africa (Uganda)

Bahrain Exchange

USD 70 Million Loan

Equity Stakes

FT Middle East

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NSEL money suspected to be Siphoned to Passport Capital

It is suspected that money given to NK Proteins by NSEL through layered transactions was used tobuy equity shares of FTIL by Passport Capital (an FII) through one of its Sub Accounts based inMauritius.

NK Proteins has to recover over Rs 400 Crores from their cousin Darshan Baldev Patel who is cousin ofNilesh and Nimish Patel.

Passport Capital fund manager ( Dipak Patel) were involved in price rigging / front running in manystocks including FTIL through A Baldev Patel and Kanahiya Lal Baldev Patel both of whom werecaught by the surveillance team at NSE.

Interesting to note that the Senior Counsel currently representing FTIL in its legal battles representedDipak Patel in the appeal against the SEBI order with SAT.

Passport Capital did not disclose to the market the steep reduction of its stake in FTIL in 2011 andwas fined by SEBI.

Passport Capital had been investing into most Exchanges promoted by FTIL including MCX, DelhiStock Exchange, Dubai Exchange and was also represented on the Board of Singapore MercantileExchange.

Complaint has been filed with SEBI to investigate connection of Passport Capital with FTIL but noaction has been taken by SEBI on this issue.

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Operations Mis-management by FTIL Board at MCX - NSEL The board of Directors of FTIL is responsible for the fraud on NSEL. It is essential that the board of directors be

replaced with impartial and independent directors, who would ensure that legitimate claims of investors againstFTIL are not defeated by prolonged legal wrangling and who would act in accordance with public interest.

Resignation of Jignesh Shah and Manjay Shah is just an eye wash to protect the FTIL Board from takeover. Newboard members Berjes Desai, Partner at J Sagar & Associates has been legal advisor to FTIL over the years, while AnilSinghvi has been trying to broker a deal with various Investors/Brokers (who are also accused) to protect theinterest of FTIL and its Directors.

Senior Management of FTIL has played a key role in decisions pertaining to commercial terms between MCX andvarious FTIL group companies. KMPs of MCX stated that these decisions were directly taken by and instructionsreceived from the group Chairman’s office (Jignesh Shah).

Certain key individuals who were members of Directors Committee and other Committees at MCX were responsiblefor approving and reviewing transactions between MCX & FTIL, also held positions either as Directors or employeesat FTIL or other FT Group Companies.

Venkat Chary , current Chairman FTIL was Chairman MCX for 10 years and during that period Rs 900 Crores weresiphoned off from MCX by FTIL in related party transactions, bogus donations and payments to non existent entitiesas follows- MCX paid Rs 11.38 Crores to certain entities (Mihir, Alliance and Vardhman) who have been probed by tax

authorities for alleged involvement in being in the business of fictitious invoices for subsequent conversion ofmonies into cash. Some of these payments were authorized by Jignesh Shah’s brother Manjay Shah who wasnot even an employee of MCX.

MCX paid close to Rs 19.54 Crores to two entities (MPPL & Ovira) as placement fees for disinvestment ofMCX- SX shares. These 2 entities belong to group of entities of a related party, which is also a shareholder inFTIL group companies. No evidence of any services having rendered by entities in line with defined scope wasfound.

EX Director of NSEL- Sunil Khairnar (also questioned by CBI in Rail Gate) was liasoning for FTIL in New Delhi.Received 17.70 Crores in Bogus Donations from MCX most of which was post issuance of SCN.

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As Per Grant Thornton report SNP Designs had suffered losses of Rs 78 Crores while trading on theMCX platform. These were losses of Mr. Jignesh Shah trades on MCX to the extent of Rs 60,000crores.

Money of NSEL investors ( About Rs 30.50 Crores) was given by the borrowers like LOIL and MohanIndia Group as bogus consultancy charges to IBMA which used it to fund these trading losses.

These losses were conveniently parked in SNP Designs and had it been booked in IBMA, the equitycapital would have been wiped off and FTIL would have to disclose that in its Consolidated BalanceSheet. There are no banking transactions between IBMA & SNP Designs confirming that the activitywas a sham.

After the default at NSEL around Rs 80 Crores were repaid by NSEL to FTIL through NBHC against theinterest of investors. Besides around Rs 130 Crores was paid selectively to some unknown entitiesusing the Settlement Guarantee Fund after 30th July 2013.

The Legal expenses at FTIL have crossed Rs 100 Crores post the NSEL scam with a major portion beingspent on protecting FTIL and NSEL Board members from criminal liabilities at NSEL and no efforts torecover money from the defaulters. 1 % recovery in last 12 months is a testimony to this.

NSEL Counsel being paid by FTIL is now opposing the MPID Act in Mumbai High Court. The assets ofthe defaulters are attached by the Mumbai EOW under MPID and any adverse order from the HC,could derail the entire process. This shows that NSEL is acting to save the borrowers and against theinterests of investor community.

There is a massive media onslaught by FTIL against GOI’s merger order where some of the reporting isblatantly biased and planted by FTIL.

FTIL has falsely claimed the merger is an act of vendetta against it by the government.13

Why Government Help Needed Investors have received only about 6 % money back in last 15 months of the scam. Investors including senior citizens,

retired army veterans, retired government servants, students, widows, young budding entrepreneurs ,divorcees etc. areaffected who have put their nest egg in NSEL and are suffering abjectly for want of funds.

In last 12 months only 1% funds received back by investors in showing total inefficiency and lack of will on the part of NSELto recover investors’ funds (funds were lent by NSEL to defaulting borrowers as term loans).

There is no will or ability in NSEL which is working with demoralized, corrupt and skeletal staff to recover funds. Besides, theperpetrators of the fraud themselves cannot be entrusted with honest recovery of investors’ funds.

All perpetrators of the fraud and defaulting borrowers are at large on bail and unscathed, working in concert and are nowfighting investors in every legal forum with investors’ own funds.

All defaulting borrowers who have signed agreement to pay back have not honored it and are still roaming free.

The Assets of FTIL have not been secured by the EOW of Mumbai Police despite their role in orchestrating this fraud fromthe very beginning has been very well established.

No action against FTIL –Jignesh Shah by ED, CBI, SEBI, SFIO etc showing the clout and connections of Jignesh Shah/FTILdespite change of guard at the Centre/State.

MPID act used by Mumbai police which is so far the only hope of recovery for investors now being challenged in HC. Even ifthis act sustains , it takes 6-8 years on average to recover attachment proceeds due to litigation and inherent tediousnature of the process.

Investors as individuals (without government support) have no capacity or wherewithal to fight all these fraudsters acrossthe country.

The government of India is a benevolent democracy and should protect its law abiding citizens from such premeditated -systematic frauds and deliver justice. Nearly 13000 families living now in abject penury have ‘right to life’ which is afundamental right enshrined in the constitution.

PSU money to the tune of about Rs 400 Crores and Rs 1650 Crores of income tax set-offs will be lost by GOI sans recovery.14

Take Over of FTIL Board and Merger with NSEL

From various audits by Grant Thornton, PWC, Chokshi & Chokshi, Mumbai EOW’s forensic reports and emailsseized it is conclusive that Jignesh Shah and FTIL were the masterminds and biggest beneficiaries of thefraud. The Charge-sheet of Mumbai police even confirms insider-trading by Jignesh Shah on NSEL platform.

Take over and merger of FTIL-NSEL under various provisions of CLB and companies act needed as FTIL wasthe mastermind of the fraud and they are already sitting on about Rs 3,000 Crores liquid cash/reserves.

This is the quickest remedial measure which can bring immediate relief to 13000 innocent families.

FTIL –Jignesh Shah are clearly the masterminds of the fraud and Jignesh Shah and his cronies own majorityof FTIL.

FTIL is falsely hiding behind the cloak of ‘limited liability’ . As observed by Hon’ble Justice M. Katju in 20036 AWC5015 Sri Ram Gupta vs. Assistant Collector - “The concept of corporate entity was evolved toencourage and promote trade and commerce, but not to commit illegalities or to defraud people”.

FTIL has the financial and legal resources /manpower to handle recovery which NSEL does not.

Jignesh Shah on behalf of the FTIL group had promised on TV on 5th August 2013 return of NSEL investors’money within 6 months with 16% interest.

FTIL board in 2010 ratified these fraudulent NSEL ‘paired trades’ in their board meet and must take up theonus of settling them now.

It is clear that the corporate veil established by FTIL was abused for an unjust and inequitable purpose. SinceNSEL and FTIL have significant common directors and the management of NSEL reported to directors of FTIL,in essence, NSEL operated as the alter ego of FTIL and hence both must be merged.

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Merger in Public Interest/FTIL Shareholders In the present case, NSEL was established as a wholly owned subsidiary of FTIL. The affairs of NSEL were

conducted on a fraudulent basis to knowledge and benefit of FTIL. The directing mind of NSEL was FTIL andits KMPs. By allowing the amalgamation, the Government would create a single entity which would have thefinancial resources to mitigate or compensate for the prejudice that has been suffered by public on accountof the activities of NSEL. The equity interests of the shareholders of FTIL would not change since no shareswould be issued to any third parties.

81.87% of FTIL consolidated profits (after adjusting for bogus software charges) came from NSELoperations in 2013

The talk of about 60000 shareholders of FTIL is a mere eye wash. The shareholding pattern of FTIL clearlyshows how only 133 large shareholders (mostly close to Jignesh Shah) hold more than 86 % equity of FTILand less than 7 % shares are held by retail-small investors who hold 1-500 shares.

The power to order an amalgamation under Section 396 must be exercised where it is “essential in publicinterest”. If the Government fails to order the final Amalgamation, apart from the fact that FTIL and itsmanagement would be rewarded for the fraudulent conduct of their wholly owned subsidiary, thereputation of Indian markets and regulators to see through corporate charades would be severely dented.This could result in contagion into other securities markets and lead to a crisis in India.

As in the Satyam Case and certain global precedents demonstrate (e.g. American International Group Inc inUSA and Northern Rock in UK), Governments have routinely taken over failing assets where interests ofdepositors or other counterparties are to be protected. In this case, rather than making taxpayersresponsible for the actions of NSEL (By allowing PSU money go and permitting IT set offs) , it would beappropriate for the Government to order the amalgamation and let the obligations come home to roost atthe FTIL level, since NSEL is effectively a wholly owned subsidiary of FTIL.

It is a settled position under common law that any fraud or crime is against ‘public interest’. Therefore, byordering the Amalgamation and thereby mitigating / curing the ‘fraud’ would per se be in the public interest.

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Should the contrary view prevail, FTIL would, in effect, be permitted to escape liability for fraudperpetrated by it through its wholly owned subsidiary, NSEL, by relying on a technical argument of adistinct corporate veil or the investigations prevailing against it and thereby benefit by its ownunethical behavior.

Any inaction on the part of the Government will also have a negative effect on Indian bourses andlead to a loss in confidence of the market as a whole and set up a very bad precedent.

Once the Satyam Scandal broke out, the Government immediately reconstituted the board of Satyamunder Section 408 of the Companies Act, 1956. Grant Thornton & PWC Audit report have clearlybrought out in the open the fraudulent manner in which FTIL was running NSEL and MCX Exchangescause loss to investors and shareholders.

All original FTIL shareholders had 15 months to sell their holding and only speculative investors haveremained in FTIL. A lot of small investors even entered at the low price of Rs 100-125 to make a quickbuck. Besides, a lot of NSEL investors have also bought some shares in FTIL with a view to move CLBlater on (as a strategic instruction from Investors’ forum).

If no quick action is taken FTIL will siphon more and more funds abroad with every passing day andthe funds will go beyond the ambit if Indian agencies/courts.

Post the merger order FTIL has converted its loan aggregating to over Rs 800 crs given to its whollyowned Subsidiary ( FT Group Investment Pvt Ltd) in Mauritius into equity. This subsidiary hasincurred huge losses in the last few years . This seems to be only a ploy to siphon funds out of India.

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FTIL Minority Interest just a Bogey

24 .25 % of the equity changed hands within 6 trading sessions post the NSEL suspension of trading.

Mutual Funds and other large shareholders sold out, while small investors bought to take advantage of steep fall inprices.

Sheth Family (holds close to 8%) who were on the Board cannot be called as minority as they were aware of allwrong doings by FTIL.

3% stake was disclosed as being bought by an HNI around March 2014 which also cannot be called as minority as itwas bought with eyes well open with knowledge of Fraud at NSEL and money siphoning at MCX.

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No Action Against Jignesh Shah/FTIL Surprisingly no action has been taken so far by ED , CBI, SFIO, Ministry of Corporate affairs , SEBI or any central

government agency against FTIL-Jignesh Shah in spite of enough evidence of their criminal involvement in the NSELscam /MCX siphoning now being openly in public domain. Even after damning ROC reports no action by MCA onFTIL ( No SFIO inquiry called).

FTIL is diverting money abroad and in India under various garbs to its own subsidiaries. Loans and advances by FTILto its subsidiaries which was Rs 510 Crores in March 2013 became Rs 1392 Crores in March 2014 and is expected toincrease even further as there is no check by any agency on FTIL activities.

The ECB loans which FTIL prepaid immediately after the scam were suspect and believed to be their own funds.Even after repeated reminders ED has not investigated this aspect.

The special PWC audit of MCX (then held 26% by FTIL) ordered by FMC brought out glaring irregularities includingbogus purchases, bogus trades (Including by NSEL defaulters like NK protein Ltd on MCX platform), wash trades,bogus donations, non existing vendors etc. In spite of this siphoning of funds (estimated at about Rs 800 Crores)from a public listed company like MCX proven and the MCX audit report being on BSE website , no case booked onJignesh /FTIL by SEBI, MCA , ED, CBI or SFIO. There is not even an FIR by Mumbai police on this issue.

It is believed a lot of money from NSEL has gone abroad (about 100 crores by ARK imports to Dubai confirmed byMumbai EOW chief in a press conference). This aspect has not been investigated at all by ED.

For unknown reasons, Hawala links of Jignesh Shah with leading Mumbai based bullion king/Hawala dealer notbeing investigated fully by ED though the fact that they were partners in various deals has been found in ED raids in2013 and was out in press and a complaint has been lodged with ED.

Insider trading allegations in FTIL shares by people close to Jignesh Shah/FTIL management where the price crashedfrom about Rs 600 to nearly Rs 100 (post NSEL scam) are not being probed by SEBI for reasons unknown.

Investigation against Jignesh Shah and FTIL so far has been only superficial and perfunctory. Mumbai police did noteven challenge Jignesh Shah’s bail in SC. .

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Takeover of FTIL Board The current board of FTIL is doing everything possible to frustrate recovery at NSEL. They have challenged

MPID act which may have catastrophic effect on investors/recovery in case removed. Jignesh Shah and current FTIL board in spite of having the draft merger order in front of them decided to

hive off their Odin software as a separate company trying a major restructuring in a matter which is sub-judice.

By virtue of making payments to small investors/trading clients of NSEL, FTIL has acknowledged its liabilitytowards NSEL and now cannot run away from liabilities towards other investors.

Jignesh Shah has held various meetings with Investors Groups where an offer of Rs 1,111 Crores was madein lieu of taking back all civil/criminal cases against him and other FT Board Members.

If the current FTIL board is left unchanged (most of which is controlled by Jignesh Shah and friends) FTILwould be converted into a shell company with negligible profits and operations.

The process of recovery requires constant oversight and monitoring by a responsible board of directors whowould ensure that no further fraud is played by FTIL and the interests of both creditors of FTIL andShareholder are protected.

This seems a tall order given the composition of present board and it would be in public interest for theboard of Directors to be replaced by an honest and independent board appointed by the CentralGovernment.

The people who perpetrated the fraud on NSEL investors could not be entrusted with recovery at all. Actual Case:In Oriental Industries & Investment Corp. Ltd v. Union of India the Delhi High Court has observed the following inrespect of the powers of the Central Government to act under Section 408 ; “21....That section opens with thewords "notwithstanding anything contained in this Act. This is a non-obstante clause which vests over ridingpowers in the Government to nominate directors to prevent mismanagement or oppression.

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Positive Effects of NSEL -FTIL Merger/Take over of FTIL

A clear message to the country and the whole world that this government means business and haszero tolerance for scams and fraudsters.

Restoration of faith of Indian investors and FIIs in Indian markets and system.

GOI gets its PSU investments back (about Rs 400 Crores) and saves Rs 1,650 Crores in Income tax setoffs.

Commodity trade which has almost come to a standstill will get revived and GOI will get morerevenue by virtue of this.

All markets including equity markets will get a boost, if this situation is resolved resulting in overallgrowth and prosperity for all.

Corporate Delinquencies and NPAs in the Banking Sector will not reduce until government takessome harsh steps against Frauds.

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Measures Expected from Government of India A quick supersession of FTIL board which is frustrating and thwarting all recovery efforts by various dubious means. Amendment of PMLA act to allow restitution of rightful funds to investors. The origin of the funds in the NSEL scam

is clearly known, thousands of legitimate investors have invested their tax-paid monies. Establishment of a common fast track court in Mumbai to handle all NSEL related cases. Appointment of senior Counsels by GOI in all civil and criminal matters to help investors. In the writ filed by FTIL against proposed merger in Mumbai HC, either the Attorney General or the Solicitor

General should represent MCA to pursue the merger /remove roadblocks quickly and efficiently (status quogranted by Mumbai HC as of now).

GOI should intervene in various cases (including Criminal) on behalf of PSUs like MMTC/PEC and use the office ofthe Attorney General of India to legally strengthen the case against the fraudsters.

As the settlement guarantee fund (SGF) with NSEL is missing, the investors have written multiple times to FMC andNSEL for reconstitution of SGF under bye law no 12.9.2. FMC had directed NSEL to take a legal opinion on this clauseand after constant prodding NSEL has got a legal opinion which confirms the need to invoke this clause.Reconstitution of SGF by clearing members (brokers) who are solvent will immediately create about 850 Crorescorpus which can soothe the pain of investors.

Strict action by CBI/ED on defaulting borrowers on NSEL who are out on bail and enjoying spoils of the scam. SFIO investigation on FTIL group including operation of NSEL/MCX/NBHC/IBMA etc. ED investigation into all dubious foreign deals/affairs of FTIL. To impress upon the CM of Maharashtra to expedite MPID auctions and ensure swift police action on all culprits of

the scam. (some of the key players like Mukesh Shah, Manjay Shah, Devang Neralla etc are still untouched). Action against the brokers of NSEL who were hand in glove with FTIL/Jignesh Shah/Defaulters using ED/CBI/EOW.

Zero action so far on any brokers in spite of repeated complaints and evidence provided to various investigativeauthorities.

Draft Order Issued for Merger must be followed with a Final Order.

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INVESTORS’ ASSOCIATIONS:NSEL INVESTORS’ ACTION GROUP ( NIAG)

NSEL INVESTORS’ FORUM (NIF)NSEL INVESTORS JUSTICE GROUP (NIJG)

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