FinTech, board worst hit in NSEL case: Jignesh Shah

The NSEL crisis is a classic case of management fraud and NSEL board is its biggest victim, says Jignesh Shah in an exclusive interview to CNBC-TV18. While he understands and is sensitive to the pain of investors, the worst hit is Financial Technologies. To ease investor pains, NSEL is focussed on recovery of funds. "We are making all efforts within our capabilities to solve the crisis,” he added.

In the interview, Shah blatantly reiterated that NSEL is a trading platform and borrowers are to be blamed for the default. Shah clarified that he has no plans to sell stake in MCX. Hit by payment crisis, NSEL, part of the Jignesh Shah-led Financial Technologies group, had to suspend trading on July 31 after a government directive. Since then, it has defaulted six times in its weekly payment commitment to its investors. Financial Technologies (India) also promotes two other trading platforms -- the Multi Commodity Exchange of India Ltd and MCX Stock Exchange Ltd. Financial Techniologies’s stock slipped another 13 percent in the afternoon trade taking MCX lower with it. At 13:32 hrs Financial Technologies was quoting at Rs 133.45, down Rs 17.35, or 11.51 percent. Also Read: CBI, other bodies to take action against NSEL, says Chidambaram Below is the edited transcript of Jignesh Shah’s interview with CNBC-TV18 Q: Where is the money? This is a huge amount of money Rs 5,600 crore, has someone made of with any part of this money? Are you investigating that as well? A: We are investigating. First, on the default side, it is those 23 members who are at default and we have initiated the default proceeding on the same. The new management which board has put up, they have done everything whatever is within the framework of rules, regulations and by-laws and the legal framework. All the court cases are filed, police complaint has been done, default proceedings have started, joint recovery process has been initiated and there are many such things. There are 20 steps which have been taken. It took us one month to take a grip thereafter very strict steps have been taken. So efforts are on to recover from these 23 brokers or buyers. We are very sensitive to the pain of investors. Anyone who has benefitted will be booked. There is internal investigation and a police investigation which is on. We will see to it that wholeheartedly and are committed to reach a conclusion, but that doesn’t stop us from going after recovery. Q: It is a little difficult to believe that you as the group chairman of Financial Technologies was not aware of anything that was going on. For one thing NK Proteins which is one of the bigger defaulters- Rs 969 crore and with a networth of Rs 108 crore. It is headed by Nilesh Patel who is a son-in-law of a person who was the chairman of NSEL – were you not aware of this. This is a serious conflict of interest and why did you not therefore nip it in the bud? A: If one has sees Anjani Sinha’s confession or whatever affidavit, it was not known. It is very difficult to believe but it is a reality that the chairman Shankarlal Guru, who is very much pro-market development in terms of APMC automation, he himself has given report to modernize APMC. The whole process when we associated with him was towards bringing transparency in the physical market. Now in ’12 or ’11 when NK Proteins management lead by Mr Sinha has put up this T+2, T+24 and when NK took that detail, neither Guru nor the board knew about things Sinha himself has admitted. Q: Chairman did not know that his son-in-law who was the biggest clientele customer of NSEL did not have the kind of stocks that he was betting on? A: He was not knowing about this NK lending nor the board. Truth will prevail a day, there can be clouds, but reality will surface. This is a classic case of a management fraud. But at this moment, our focus and energy is to chase and get it back as much we can. At this moment, what is the solution and how we can take away pain of the investor is by recovery. More than 100 percent focus should go towards it and we are focusing on it. Whether it requires doing dharna against NK industries or calling for meetings, reconciliation and court cases. It is very important and we want to do that. But, neither the board, nor Guru himself was in knowledge that this has happened. _PAGEBREAK_ Q: How come the settlement guarantee fund fell from Rs 800 crore to Rs 60 crore and you didn’t come to know about it and we didn’t have any kind of similar drop in the obligation? A: As the promoter group would say that we need to chase this, we need to put the new management, our commitment is complete, recovery is our focus and we want to work with the investor forum. Every detail which is going to unfold now - because there are parallel investigations which are on – now handling micro issue – I only request that let that come out in the detailed investigations rather than me personally answering. Q: Even if we stick to macro issues where you as the group chairman suppose to know, IBMA, the Indian Bullion Market Association is a 26 percent subsidiary of the group and they are traders in NSEL. Is not that very clear conflict of interest? A: It is not the Financial Technologies which is holding subsidiary etc. it is NSEL subsidiary, it was handled by NSEL. Q: NSEL’s subsidiary is in a sense your subsidiary. A: We have nine exchanges across the world which is run by parallel management. The managements are expected to run it within rules, regulations and the law of land. For any reason, if some management decides to do some violation intentionally, unintentionally or otherwise, at the group level - I am not denying that we have to assume what is responsibility but at the same time micro issue by the local management in a demutualised exchange is responsibility of them. If there is any violation, a strict action will be taken. Q: It is a little difficult that this is so micro, after all this company also holds 26 percent in MCX, it is too seriously a group company. A: No FT holds 26 percent of MCX and NSEL is separate, it is of Indian Bullion Market Association-IBMA. So when some violation happens and everyday new discoveries come in, and wherever there is a violation action has to be taken and will be taken. However, if at a subsidiary level and it is NSEL and management, whether there are 10 violations or 50 only investigations can reveal it and we will have to go into depth and find out what is the issue. But life should not just stop there. At this moment, while that is going on parallel we want to see to it that our major focus goes on what is the solution. At the group level and at board level we are genuinely focusing on that. We at the group level, directors and I personally are the biggest victims, but that doesn’t take away our commitment to find a solution. Q: In August, for the first time FMC, you, entire board, brokers, buyers, borrowers, all of them met. At that point of time there was a press statement which said that eight borrowers have agreed to pay Rs 2200 crore by mid September. But in the last six-eight weeks, only Rs 200 crore has come in. When you made this statement, I am focusing on the borrowers right now and FMC was a party to it, you were there in the board meeting. What happened to that Rs 2200 crore in which everyone discussed that post dated cheques (PDC) will be paid after 15-20 days? A: Those buyers gathered from all over the country, even members were being called and there was a meeting. These people agreed by themselves, the buyers, committed in front of everyone, based on that plan I think the press disclosure or whatever was done at that time that they will be doing it. They gave PDCs also. Now legal proceedings have been taken regarding PDCs. I am saying that these members have defaulted and default proceeding actions have been taken on them. In that meeting where the larger masses where there, 18-19 parties came also and they committed in front of everyone that they are going to do it and based on that only the announcement was made. They have defaulted. We have taken all possible legal actions without even wasting one day. This is all an institute can do. _PAGEBREAK_ Q: Everyone is unable to understand that out of that 5,500 crore, it is not even 10 percent which is recoverable in the last one-two months. Yes there was a problem and you are doing everything on the ground to recover it, but the reality says that not even Rs 200 crore was paid in the last six-eight weeks. So, is there nothing in the warehouses which you can go and liquidate? A: Warehouse inspections were done by and very serious actions are going even on that front. Whatever are the possible liquidable goods are getting liquidated, but at the same time, complete financial liability is with these buyers – these 23 parties. Action has to be taken on violations. But, I am saying that money recovery is of paramount importance and based on money trail, it has to be followed. We appeal and we request that it has to be jointly done. We are putting all efforts which are within our capability. In the 45 days all the time and all the while I am here, more than 50 meetings have been done. Mr. Massey and the whole board is active, new management has come. There is a complete management vacuum because we have removed everyone – at the same time lot of queries are there that doesn’t take away the pain in the problem, but at the same time please appreciate that we have been the victim. Also, we want to come up with a solution and we are disclosing transparently whatever is happening and we will continue to disclose. Q: One is that the auditors withdrawing the report of your results for last year. Second, the Mayaram panel has suggested Satyam like takeover of NSEL – your reaction to that? A: We took a more conservative view when auditors said that. Auditors had signed the report at FTIL and NSEL was the only subsidiary where they sighted any issue. So, I am saying that we have taken a conservative that okay, we will allow them what they want to do, but it will go through a proper process of legality because it was a signed report by both. We will go by the professional advice. We took a conservative view at that time, okay, if auditors has taken this view we will satisfy them or follow the process which is right and advised by legal or CFO fraternity. As far the takeover thing is concerned, if it is to go forward in that path or if it is having resolved that way – atleast I have not heard that. To my knowledge, press was quoting this, but this case and Satyam can’t be compared and it was by a very honourable minister. I have not read what you are saying because Mayaram report has not come. Q: This was attributed to sources and our correspondent heard this. A: We have to respect regulators and government’s view. Two, as the group, we run nine exchanges and many times a local management issue has happened. Very recently, JP Morgan had a London Whale issue, so I am saying that local management issue had to be dealt with. If violations are there, they need to be booked, punished, but we will not overlook the solution. We don’t want to overlook the solution whatever we are capable and whatever we are permitted we will do at FTIL, but as FTIL we are custodian of two constituencies, one is FTIL shareholders, minority shareholders or the shareholder which are 55,000 in number and we have promoted NSEL. Management fraud has happened which has to be handled, tackled, analyzed, investigated and booked. Q: I take your point that those who defaulted are those 23 entities but you are the owner and the manager of NSEL as the owner of that exchange, so will it not be the moral and the practical problem of FT to make good the losses if those 23 entities don’t make good the losses? A: I am saying that yes, we have promoted this entity – and forget legality – considering the goodwill and without prejudice I am saying that we did whatever we could do for the small investors immediately on the second-third week as I said that whatever is capable and whatever we have permitted. But, it is a company which is owned by 55,000 shareholders. So unless we have whatever we have permitted, whatever to be done, we will have to have their 100 percent consent for that. Secondly, yes, as a promoter whatever are our responsibilities and whatever is within our powers will be persuaded at NSEL. So, on one hand we are saying we are corporate entities on the other end we are going on a prop side of the story. That also is not the case. I again repeat that we are not going away from our responsibility and secondly, we understand the pain. This pain will go if there is a solution and the solution is in focusing on those 23 entities together with investor forum’s support. Q: FT investors have these questions – 50 percent of your revenues come from NSEL as well what about the previous years’ accounts of FT because the auditors have withdrawn this one but Anjali Sinha’s affidavit says that for two-and-a-half year this product of assured returns is going on which is now under default. Are you expecting previous auditor reports also to be withdrawn? What happens to the profit and loss (P&L) of FT? A: FT has not benefited; there was no dividend, no bonus.