The presentation is based on the NSEL SCAM in India.

1. NSEL SCAM – CASE
STUDY

2. CONTENTS
: Introduction – What is NSEL?
NSEL Scam Briefing
2
EOW Mumbai Police Action
Lapses of Regulatory Bodies
Effects of the Fraud

3. NATIONAL SPOT EXCHANGE LIMITED (NSEL)
• National Spot Exchange Limited, was incorporated in May 2005
• The Government of India granted permission to NSEL to start operations
• A gazette notification was issued by the government of India, dated 5 June 2007
• In October 2008, NSEL started providing an electronic trading platform

4. SERVICES OFFERED BY NSEL
• Circulars Related to E-Series,
• Stock Audit Certificates,
• Rematerialization and Financial Closure,
• Stock Details,
• Delivery Center Details,
• Bidding Summary,
• Bid Documents,
• Stock for bidding,
• Remittance Details,
• FAQs.

5. E-SERIES PRODUCTS OFFERED BY NSEL
 e-Gold
 e-Silver
 e-Copper
 e-Zinc
 e-Lead
 e-Nickel
 e-Platinum.
• NSEL has introduced e-Series products for the first time in India, in the form of commodities for retail investors.
• NSEL’s e-series products include:

6. NSEL (NATIONAL SPOT EXCHANGE LIMITED) SCAM
• NSEL was conceptualized in the year 2004, pursuant to the then Prime Minister’s vision to create a single
market
• The NSEL became the country’s first ever electronic commodity exchange for ‘spot delivery’ of contracts,
including agricultural products
• Against the regulations, short-selling, too, was allowed in many cases
• The regulator FMC, then intervened and asked NSEL to wind down existing contracts, this ended in
payment default

7. CONT…
• The crisis came to light when the physical commodities were short of the record
• The investigation paced, large brokers and financial players came under the radar
• The primary allegation against the brokers was that they had made false promises to the clients in order
to attract their investment in commodities
• They have suggested to ban them from commodities derivatives trading and also initiate prosecution for
the irregularities

8. EOW MUMBAI POLICE ACTION
● On 9 October 2013, Amit Mukherjee, the Assistant Vice-President (Business Development) of NSEL,
was arrested by the EOW of the Mumbai police marking the first arrest in the payment crisis.
● Subsequently, a day later on 10 October 2013, the EOW of Mumbai Police arrested Jai Bahukhandi, the
former Assistant Vice-President of NSEL. Former CEO and MD.
● Mr. Anjani Sinha, was arrested a week later on 17 October 2013.
● Jignesh Shah along with trusted assistant Shreekant javalgekar were arrested on 7th May 2014.
● On 18th Jan 2021, the EOW arrested Anjani Sinha, former CEO of National Spot Exchange Ltd, for
fictitious trading on the exchange and for creating false stocks

9. LAPSES OF REGULATORY BODIES
• The government and different regulatory bodies had made quite a few lapses in taking action in spite of
having knowledge of the wrongdoings going on at NSEL.
• First and foremost, there was no clearly defined regulatory body made by the Central Government with
regard to spot exchanges that time.
• FMC remained quiet, despite knowing about the scam for the last one year (2 years before declaring the
scam officially).
• FMC, DCA and FSDC all communicated over the months of June till August, 2011 regarding NSEL issues
but could not find common ground to take any regulatory action.

10. CONT…
• Due to lack or lapse of governance and not taking any actions quickly, and political and corporate pressure
allowed the scam to continue till August 2013, till the amount rose to Rs 5,600 crore.
• The very crisis of NSEL surfaced due to the abrupt and sudden stoppage of activity by the regulatory
authority.
• In a letter dated July 12, 2013, the Department of Consumer Affairs (DCA), pending legal advice, directed
NSEL to halt launching of fresh and further contract till further instruction.
• And because of the abrupt manner in which the trade on NSEL was stopped, the payment crisis of Rs 5,600
crore cropped up.

11. CONT…
• A gradual halt to trading, would have averted the default of Rs 5,600 crore.
• But, a major fact remains that NSEL was not at all under supervision and it did as it pleased.
• Even regular audits were also missing by the regulators leading to the mishappenings.
• Some investors had claimed that regulators went easy on NSEL and took no action despite full knowledge
of what was going on.
• Even so, the SEBI and FMC had to find the path to payback thousands of investors who were waiting over
a year since the scam was first announced.

12. EFFECT OF THE FRAUD
● As an effect of the NSEL fraud, the share prices of its promoter company FTIL crashed by 60-70% resulting
in massive erosion in the company’s market cap
● The share prices of the sister company MCX (Multi Commodity Exchange Ltd) and FinTech also took a
beating
● The FMC has already issued an order on FTIL, Jignesh Shah, Joseph Massey etc. that they are not fit and
proper to run any exchange in India
● Motilal Oswal Financial Services and IIFL Holdings commodity arms were given not ‘fit and proper’ status
by SEBI.

13. THANK YOU