NSEL runs risk of shutdown as tax probe progresses - Livemint

Mumbai: National Spot Exchange Ltd (NSEL), may be shut down if the income-tax department, which is looking into the source of funds traded on the spot exchange, finds anything "adverse", a government official directly involved in the matter, said.

NSEL, which suspended trading in most contracts on 31 July, thereby triggering a settlement crisis, is being investigated by several government agencies.

"The I-T (income-tax) probe is on. It will take time. The probe involves scrutiny on possible cases of hiding incomes by NSEL-related entities. An action by Enforcement Directorate (ED) is also awaited. In the worst case scenario, NSEL could be shut down," said the official who asked not to be identified.

A senior tax department official in Mumbai said that notices had been issued to all 13,000-odd investors on NSEL and the 148 brokers through whom they traded, asking them to reveal the source of funds used.

"The main aim of the probe is to find out the quantum of unaccounted money in the dealings. One thing is clear— the brokers were aware of the problem much before the suspension of trading," added the tax official, expressing surprise at the quantum of the brokers' exposure despite this knowledge.

An NSEL spokesperson declined comment.

The investors have been given 15 days to respond to the notice by the tax authorities but preliminary findings suggested that 90% of the investors, who took exposure to NSEL trades, did not have permanent account numbers, or PAN, said the tax department official.

To be sure, a tax probe is a long-drawn affair and could take months.

On Tuesday, Mumbai police's economic offences wing (EOW) froze bank accounts of NSEL and its former managing director and CEO Anjani Sinha, a day after conducting searches at more than 50 locations in connection with the Rs.5,600 crore payment crisis at the exchange.

NSEL's parent Financial Technologies (India) Ltd said in a statement that the frozen accounts included those pertaining to settlement of dues owed to investors, explaining that this was why the exchange couldn't meet its payout obligations.

The payment was NSEL's seventh in a scheduled repayment plan put forth by the exchange itself. The exchange has defaulted on all previous payments.

FTIL, promoted by Jignesh Shah, controls 99.99% of NSEL.

On Monday, police searched the Mumbai residences of Shah, chairman and managing director of FTIL, and Joseph Massey, chief executive officer and managing director of MCX Stock Exchange Ltd, and another entity promoted by Shah. Police also raided the residence of Sinha.

The raids followed the filing of a first information report against the entities in connection with the crisis. The complaint automatically triggered a case under the Prevention of Money Laundering Act (PMLA), bringing the Enforcement Directorate, which looks into this, into play.

The two officials said NSEL's promoters and directors have been summoned by the EOW for an interrogation and have been given five days to appear before it.

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