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NSEL: May have to Sell Commodities to Return Money, and There are Related Parties

Economic Times has two investigative pieces on NSEL. First, Avinash Celestine hunts down the list of the 24 entities that own money to NSEL. And finds something interesting:

Mohan India is essentially a shell company. In 2011-12, the last date for which its financials were available, the company earned a net profit of Rs 2,044, and had revenues of Rs 72,400. Its balance sheet size was about Rs 17 lakh. Yet Mohan India, along with a sister concern Tavishi Enterprises (which was incorporated this year and whose financials are not yet available) together owe the National Spot Exchange Ltd (NSEL) Rs 952 crore.

A company with revenues of Rs. 72K, owes Rs. 952 crore? Apparently, this money they had “borrowed” from NSEL wasn’t used in any way connected to the business.

And will they return the money? Here’s a hint:

ET Magazine spoke to Balbir Singh Uppal, CMD of Lakshmi Energy and Foods

According to NSEL, group companies related to Lakshmi owe around Rs 689 crore, against stocks of paddy held in a godown in Punjab. "We’ve settled about Rs 240-250 crore worth of dues to NSEL," says Uppal.

"For the remaining amount NSEL will have to sell the stocks and recover the dues," he adds.

That is going to hurt on August 14, or whenever this news actually becomes official.

And worse, in another article, ET mentions some of the people that owe money are related to officials of the exchange:

Interestingly, the company with the second-highest liability is related to the exchange’s chairman Shankarlal Guru, a former MLA from Unjha, now in his eighties.

Nilesh Patel, the managing director of Ahmedabad-based NK Proteins, which has an outstanding liability of Rs 929.9 crore, is the son-in-law of Guru, who had chaired the government-constituted high-powered committee on agri marketing in 1992 and later headed an expert panel on strengthening and developing agri marketing in 2000.

And sadly, NSEL now seems to say the settlement guarantee fund consists mostly of commodities. Which switches back from the “there was only 60 cr.” that the CEO mentioned earlier. (FE)

“The slump in the SGF is a misconception and it’s just the composition that has changed. Since members are also allowed to provide cash, warehouse receipts, FDs or guarantees as margin, some members have provided warehouse receipts instead of cash. So there is around Rs 720 crore in the SGF but the cash component has fallen,” Sinha explained.

There is another new week coming.

  • ARP says:

    I hope the commodities actually exist in the warehouses, and there are actually commodities in it – not sand and rocks.
    Reminds me of the “Salad Oil Scandal” in the US in 1960’s whereby salad oil (soybean oil) was used as collateral for loans from banks for commodity trading.
    Oil floats on water, and the perpetrators figured out that no one would realize if they filled the oil tanks with water and adding a couple of feet of soybean oil on the top.
    It worked out well till the scam was unearthed and a few banks nearly went bankrupt.
    Given that we Indians have a flair for twisted creativity … the contents of the warehouse would not amuse me.

  • Rajeev says:

    The guys who owe so much actually must be owing it to some investors who has put in money, most probably public & brokers. In my view these guys should be arrested for cheating and bailed only when they commit dates for return!

  • JustSaying says:

    Rs 952 cr outstanding on a balance sheet size of just Rs 17 lakhs. Where is the corporate governance? What was the auditor doing? The fault also lies with SEBI equally. SEBI should step up and notify some strict rules for corporate governance and strict penalties and imprisonment for non-compliance/ defaults.
    This may be just a tip of iceberg and who knows what is going on in MCX.

  • Ganesh says:

    I need your opinion on spot exchange e-series. I have some gold,silver,platinum and nickel in e-series. Now the tradingis stopped and I was asked by my broker to take physical delivery of gold and silver . For platinum and nickel I have very less so I can not take physical no idea what can be done with that.
    ConsideringI am a long term investor say 1 to 3 years. Can I continue to hold in demat form ?. Would the trading open again ?.
    Appreciate if you can share your views on this.