Findings on the brokers as per sfio 11

~.
t
t
ti
11.
Ii
II
Ii
ll
JI
di
It
.JI
J
,ll
JI
"'.II
,,
Ul
..D
,J
.J
JI
..Ji
,JI
·Ji,
,,J
<.J
I
I.,
,J
1:.J
..
5.13.1.
-l•HI
qoI sEcRET
RECOMMENDATION NO. 3: RECOMMENDATION TO SEBI FORTAKING
ACTION AGAINST BROKERS (NON-DEFAULTING)
The role played by brokers has been discussed in Chapter IV under Role of
Brokers (Non Defaulting).
During the course of investigation, the SFIO investigation team collected
information from 13000 traders who had entered into member client
agreement with 148 commodity brokers. These 13000 traders have lost
Rs.5600 Crore in the NSEL payment crisis. The SFJO investigation team
wrote to these 13000 individuaijentities and asked various questions about
awareness of risk parameters, trading patterns/parameter, mode and
manner of payment, VAT compliances and role played by their respective
brokers etc. Replies received from these traders were analyzed by the team
and the detailed analysis has been annexed with this report. The SFIO team
found that:
a) Most oJ the traders came to know about NSEL exchange platform
from their brokers only and were not commodity traders.
b) The risk parameters involved in commodity trading were not
explained to the client properly. The traders were given a printed
paper which was supposed to be signed by them. Even the place
where signatures were to be made was identified.
c) In most of the cases the brokers have mis-sold the contracts offered
at NSEL as investment product giving steady and assured fixed return
in the range of 12 to 14% to these traders.
d) These brokers induced their clients by making false mis-
representation suiting the greed of clients by offering funding to
extent of 80 to 90% without being concerned with the income
capacity oftheir clients.
e) In substantial number of cases the brokers assured these traders that
if NSEL does not pay the money than it will be paid by the broker.
/':JO

,.ff
J
J
,J
' ll"·
1J
di
..J
,JI
,J
,_o
-~~
,.~
--~,.JJ
,J1
' )1.,,..
..J
.")
,J
u
f)
g)
h)
i)
j)
q()2,. SECRET
Complaints made by the clients of the brokers alleging cheating,
criminal breach of trust, funding without authority, forgery of
documents, mis-selling, mis-representation, trades not appearing in
the name ofthe clients in the exchange records, unauthorized clients
code modifications etc.,
The brokers have also performed rampant client code modification
where the dummy / ghost client code were used to book trades and
later the client codes were modified. EOW have cited that the account
of Ms. Madhu Jain (relative of director at relevant time & the
promoter of India Infoline - Nirmal Jain) in the case of India Infoline
and Borosil in case ofAnand Rathi were used as ghost accounts.
The brokers did not inform these traders that commodity trades
involve purchase and sale of commodities and they were required to
·take deliveries from the designated warehouse. The traders were
expected to have a VAT number and file VAT returns on periodical
basis. Investigation revealed that hardly any trader was having VAT
number. For VAT compliance, the brokers on their own referred the
traders to IBMA, a subsidiary of NSEL acting as C&F agent. This was
done without any tripartite agreement and without any express
permission given by traders in favor of IBMA. Subsequently, some of
the brokers themselves became C&F agent.
In some cases, the brokers were found to be involved in unauthorized
funding to the clients by obtaining funds from their NBFC
subsidiaries.
The member client agreement between the traders and the brokers
entitled the traders to claim money from the broker for the trades
done by :th.em through the respective broker on NSEL exchange
platform. However, none of the brokers provided such
compensation/money to their clients.
797

,J
,JI
__p
J
JI
_J
di
',...D
'.0
,JI
,.
,J,
._,P
·J
·. ])
,Jt
. Jt,_
..J
5.13.2.
5.13.3.
5.13.4.
5.13.5.
5.13.6.
k)
qo:J:, SECRET
'
The SFIO investigation has revealed that these brokers colluded with
the Executive Management Team of NSEL and defaulters and
committed criminal breach oftrust to defraud their own clients.
The brokers promoted NSEL products to their clients in several ways. Some
of the brokers even assured foreign travel to their clients if they trade on
NSEL. Brochures were published by several brokers showing the following:
i) Fixed and Assured Returns
ii) Risk free trading
iii) Counter guarantee by the exchange
iv) Returns locked at the time oftrading
v) Comparison with bank FD's
Ultimately, they induced their clients claiming that NSEL trading is the best·
way to earn risk free fixed returns which are much more in comparison to
then available fixed return financial products.
Investigations also revealed that some of the Brokers allured their clients
for taking funds from the Brokers or their subsidiary NBFC company. They
were ready to fund the traders to the extent of 80% to 90% of the total
exposure taken by the trader. The inducement was so high that the clients
were ;nformed that if the clients opted for funding, the returns would be in
the range of 20 - 22% as against 14 - 16%, if they trade with their own
funds.
Post the NSEL Payment Crisis, there have been several complaints made by
the clients ofthe brokers alleging cheating, criminal breach oftrust, funding
without authority, forgery of documents, mis-selling, mis-representation,
trades not appearing in the name of the clients in the exchange records,
unauthorized clients code modifications etc.
During the course oftrading operations, the brokers in collusion with NSEL
had put in place ·a mechanism which did not require them to collect
798

h
5.13.7.
5.13.8.
golf'SECRET
warehouse receipts or physical commodities and give it to their clients
against pay-inofmoney made by them.
There existed a privity of contract between the broker and their clients by
virtue of member - client agreement. As per this agreement the broker is
bound to pay to its client as the clients are recognized by the concerned
Member Broker and not by the Exchange. Further, as per clause 12.9.2 ofthe
NSEL Bye-laws which states that
"If the cumulative amount under all the above heads is not
sufficient, the balance obligations shall be assessed against all
the clearing members in the same proportion as their total
contribution and deposit towards security deposit, and the
clearing members shall be required to contribute or deposit the
deficient amount in the Settlement Guarantee Fund within such
time, as the Relevant Authority may specify in this behalffrom
time to time".
Thus, in case of default it was the prime duty of the Brokers to pay to their
clients directly or make a contribution to the NSEL Exchange Settlement
Guarantee Fund through which the clients could be paid. In reality the
Brokers neither paid their clients directly nor contributed to the Exchange
Settlement Guarantee Fund. The Brokers by virtue of Exchange - Member
Agreement executed at the time oftaking membership ofthe NSEL Exchange
were bound by the rules, regulations, bye-laws and circulars issued by the
Exchange from time to time.
5.13.9. From _the above, it is established beyond doubt that the business of the
brokers (non-defaulting) indulged in mis-selling, in collusion with NSEL,
financial products designed as commodity traders contracts without any
underlying commodity.
5.13.10. Most of the brokers are corporate entities trading in securities market and
are already regulated by SEBI. The directors of these companies are also
799

,.D
]l
,.D
JI
,,II
J
~»
<D
<J
,.u
h
JI
-D
,i,Jl
i.
ii
SECRET
accessing the money market and raising money. On the basis of the above
the SFIO team is of the considered opinion that the cases of the brokers
(non-defaulting) may be referred to the SEBI for necessary stringent action,
including preventing directors of these companies from accessing the
money market and if required declaring them Not Fit and Proper.
800

,,u
J
<ll
,.ll
,O
J
.J
J
....u
.J
JI
.II
I. , 1
5.14.1.
~o~ SECRET
RECOMMENDATION NO. 4: RECOMMENDATION TO INCOME TAX
DEPARTMENT (IT) FOR TAKING ACTION AGAINST DEFAULTERS
.During the course of investigation, the SFIO investigation team requested
the defaulting members to produce their books ofaccounts and vouchers for
F.Y. 2011-12, 2012-13 and 2013-14 for verification. However, none of the
defaulting members submitted their books of accounts and vouchers. The
defaulters invariably stated that their books of accounts are not complete.
SFIO investigation team therefore could not verify the genuineness of the
expenses and other transactions undertaken by these companies / entities.
The three companies i.e. N.K Industries Limited, NCS Sugar Limited and
Metkore Alloys and Industries Limited who submitted their annual financial
statement revealed that the liability towards NSEL was not reflected in their
acco1rnts. In view ofthe above, the team recommends the following:
i) Re-opening of the cases under section 147 of the Income Tax Act,
1961 in case'of defaulter members.
ii) The money received by trading on NSEL has not been properly
accounted for and therefore liable for action under section 68 and
69 of the Income Tax Act, 1961.
iii) The money received by the defaulter has not been applied for
their business purposes and has been siphoned off to associate
companies and unrelated entities without disclosing whether
these associate companies or unrelated entities are filing their
income tax returns or not. The defaulters have shown huge cash
withdrawals.
The same may be examined by Income Tax Department under the Income
Tax Act, Black. Money and Imposition of Tax Act, 2015 and Benami
Prohibition Act, 1988.
801

,,
JI
J
·Ji
.J
,JI
--.D
:J
J
,..D
JI
JI
JI
..J
5.15.1.
SECRET
-·---·~·----..,...... - - - -
RECOMMENDATION NO. 5: RECOMMENDATION TO SEBI FOR TAKING
ACTION AGAINST DEFAULTERS
During investigation it is noted that some of the defaulting brokers
companies are part of the group having listed companies on the stock
exchange and having common directors._ The list of such companies are as
under:
Defaulting · DirectOrs/ 'Sr. ' oetauJting•
No.
Member's
• ' Member Name ·
Proprietors/Key Designation
Group Personnel
'' "
NIMISHBHAI MANAGING
KESHAVLAL PATEL DIRECTOR
NILESH KESHAVLAL MANAGING
NK PATEL DIRECTOR
1 INDUSTRIES
N K PROTEINS
LTD {GROUP)
LTD WHOLE·
KAMLESH LALBHAI
TIME
PATEL
DIRECTOR
MANISH P KELLA SECRETARY
BALBIR SINGH UPPAL DIRECTOR
LOIL
CONTINENTAL GURDEEP SINGH. DIRECTOR
FOODS LIMITED
ASHOK KUMAR ADDITIONAL
CHOPRA DIRECTOR
nALBIR SINGH UPPAL DIRECTOR
LAKSHMI
ENERGY & LOIL HEALTH ROSHAN LAL SOOD DIRECTOR2
FOODS LTD FOODS LIMITED
(GROUP)
GURDEEP SINGH DIRECTOR
BALBIR SINGH UPPAL DIRECTOR
LOIL OVERSEAS
SANJEEV SOOD DIRECTOR
FOODS LIMITED
GURDEEP SINGH
ADDITIONAL
DIRECTOR
802

·-11
[_
,a_
it
.ij
11
ell
II
l
I II
,u
,ff
,IL
.II
"°di
JI
-JI
II
I.
5.15.2.
SECRET
Sr.
Defaulti~r~
Defaulting
Directors/
No.
Member's
Member Name
Proprietors/Key , Des!gnation
Group Personnel
'
PRASHANT BOORUGU
MANAGING
DIRECTOR
GAJENDRAN S DIRECTOR
MALLIKARJUNA RAO
DIRECTOR
KUMMITHE
MYNAH METKORE
3
INDUSTRIES ALLOYS &
LIMITED INDUSTRIES VENKATA BHASKARA
(GROUP) LIMITED RAO MADDALA
DIRECTOR
RAJIV
SHAMSHERBAHADUR DIRECTOR
SAXENA
KALYAN RAMASWAMY SECRETARY
The investigation revealed that the individual directors are still holding
directorships in companies which are listed on stock exchanges. These
defaulter's companies and their directors have defrauded the traders to the
extent of Rs. 5600 Crore. The SFIO team therefore recommends that SEBI
may consider suspending the securities listed on the stock exchange of the
defaulter companies and its group and restrain the directors of the
defaulting companies and its group from accessing financial markets and
raising any money.
803

,.
11
JI
JI
-.J
.JI
,J
·-D
J
,J
Jl
.b
n
..JI
5.16.1.
5.16.2.
5.16.3.
5.16.4.
!3"5SECRET
RECOMMENDATION NO. 6: RECOMMENDATION TO CBEC FOR SERVICE
TAX AND VAT VIOLATIONS BY NSELAND IBMAAND NON-DEFAULTING
BROKERS WHO ACTED AS C&F AGENT.
During the course ofinvestigation, it was noted the NSEL had arrangements
with all the brokers (non-defaulting) to appoint IBMA as their C&F agent for
VAT compliance for commodity transactions. Several brokers (non-
defaultirig) like Anand Rathi, Motilal Oswal and India Infoline also acted as
C&F Agents for their clients. Investigation further revealed that no tripartite
agreement was prepared between traders, brokers (non-defaulting) and the
C&F Agent.
The investigation revealed that NSEL like other Exchanges i.e. MCX and
NCDEX used to collect VAT from the brokers (non-defaulting) and give it to
the C&F Agent for VAT compliance. Such act of NSEL falls under the category
of auxiliary/ancillary services and required charging of Service Tax
however, the same was not charged.
Investigation also revealed that those acting as C&F Agents were not
authorized to file VAT returns on behalf of traclers/clients but these C&F
Agents not only filed the returns but claimed the VAT input also which was
patently illegal. These C&F Agents also prepared vouchers without actually
receiving or giving delivery of commodities which were merely paper
transactions.
SFIO investigation ~earn therefore recommends that this report may also be
shared with CBEC for Service Tax and VAT violation committed by all those
acting as C&F Agents.
804

5.17.1.
5.17.2.
g10 SECRET
RECOMMENDATION NO. 7: RECOMMENDATION TO CBDTTO INITIATE
PROCEEDINGS UNDER INCOME TAX ACT AND BENAMI TRANSACTION
ACT, 1988 IN CASE OF NON-DEFAULTING BROKERS
During the course of investigation, the SFIO team examined the data
pertaining to Brokers (Non-Defaulting) and found the following:
a) In most of the cases the brokers have mis-sold the contracts offered at
NSEL as investment product giving steady and assured fixed return in
the range of 12 to 14% to these traders.
b) These brokers induced their clients by making false mis-representation
suiting the greed of clients by offering funding to extent of 80 to 90%
without being concerned with the income capacity of their clients.
c) In substantial number of cases the brokers assured these traders that if
NSEL does not pay the money than it will be paid by the broker.
d) The brokers have also performed rampant client code modification
"'- here the dummy/ ghost client code were used to book trades and later
the client codes were modified. EOW have cited that the account of Ms.
Madhu Jain (relative of director at relevant time &the promoter of India
Infoline - Nirmal Jain) in the case of India Infoline and Borosil in case of
Anand Rathi were used as ghost accounts.
e) In some cases, the brokers were found to be involved in unauthorized
funding to the clients by obtaining funds from their NBFC subsidiaries.
f) The member client agreement between the traders and the brokers
entitled the traders to claim money from the broker for the trades done
by them through the respective broker on NSEL exchange platform.
However, none of the brokers provided such compensation/money to
their clients.
In view of the above the SFIO investigation team recommends the Income
Tax Department to examine the 148 brokers under the Income Tax Act,
805

l
II
,n.
-n
JI
,It,
~u.
iJL
,u_
di.
.-,a
·1
:~ll
di
~IL
J
<U
·s.O
<.II
J
J
"Ji
,J
,,B
I' I!
SECRET
Black Money and Imposition of Tax Act, 2015 and Benami Transaction Act,
1988.
806

cJL
,ll
,II
1. .
,I[
di,
,U
,1
di.
,J_
"
,ll
J
<ll
,,R
·JI
(ll
,J.
JI
.JI
JI
ll
-II
J
,,J
S.18.1.
5.18.2.
gl'l.,. SECRET
RECOMMENDATION.NO. 8: RECOMMENDATION TO EOW, MUMBAI
POLICE TO INITIATE PROCEEDINGS UNDER SECTION 34, 409 READ
WITH SECTION 120B OF THE INDIAN PENAL CODE, 1860 IN CASE OF
NON-DEFAULTING BROKERS
During the course of investigation, the SFJO team examined the data
pertaining to Brokers (Non-Defaulting) and found the following:
148 Brokers (Nori-Defaulting) represent the traders i..vho have Jost money
amounting to Rs.. 5600_ Crore. These brokers were duty bound to carry out
necessary due-diligence on the risks of Trading in Commodities. These
brokers failed in their duty to inform their clients on the risk in trading.
Investigation revealed that rather than genuinely informing their clients, the
brokers asked their clients to sign on the dotted lines below the risk factors.
The brokers also allured their clients with substantial returns. The brokers
gave assurances of fixed and assured returns which as a market participant
they should refrain themselves.
The brokers promoted NSEL products to their clients in several ways. Some
of the brokers even assured foreign travel to their clients if they trade on
NSEL. Brochures were published by several brokers showing the following:
i) Fixed and Assured Returns
ii) Risk free trading
iii) Counter guarantee by the exchange
iv) Returns Jocked atthe time oftrading
v) Comparison with bank FD's
Ultimately they induced their clients claiming that NSEL trading is the best
way to earn risk free fixed returns whic.h are much more in comparison to
availa,ble financial products. The brokers were promising which was
807

I' I:,I
"'-
ll_
n_
·f
1
l 5.18.3.
.JL
1
1
5.18.4.
5.18.5.
5.18.6.
"
5.18.7.
SECRET
contrary to the circular issued by NSEL. Thus they were involved in mis-
representation and mis-selling of the product.
Investigations also revealed that some of the Brokers allured their clients
for taking funds from the Brokers or their subsidiary NBFC company. They
were ready to fund the traders to the extent of 80% to 90% of the total
exposure taken by the trader. The inducement was so high thatthe clients
were informed that if the clients opted for funding, the returns would be in
the range of20 - 22% as against 14 -16% ifthey trade with their own funds.
The Brokers used the presentation prepared by the business development
team of NSEL which was contrary to the circulars issued by NSEL. The
brokers did not verify the veracity of claim made in such presentation /
brochure.
Investigation also revealed that many of the Members / Brokers, issued
various presentations, brochures, advertisements etc.in spite of NSEL
rejecting such marketing materials which were in contravention to the
circular issued by NSEL.
Post the NSEL Payment Crisis, there have been several complaints made by
the clients ofthe brokers alleging cheating, criminal breach oftrust, funding
without authority, forgery of documents, mis-selling, mis-representation,
trades not appearing in the name of the clients in the exchange records,
unauthorized clients. code modifications etc.,
There is a privity of contract between the broker and their clients by virtue
ofmember - client agreement. As per this agreement the broker is bound to
pay to its client as the clients are recognized by the concerned Member
Broker and not by the Exchange. Further, as per clause 12.9.2 of the NSEL
Bye-laws which states that
"If the cumulative amount under all the. above heads is not
sufficient, the balance obligations shall be assessed against all
the clearing members in the same proportion as their total
808

! I
S.18.8.
'II/,f SECRET
contribution and deposit towards security deposit, and the
clearing members shall be required to contribute or deposit the
deficient amount in the Settlement Guarantee Fund within such
time, as the Relevant Authority may specify in this behalffrom
time to time".
Thus, in case of default it was the prime duty of the Brokers to pay to their
clients directly or make a contribution to the NSEL Exchange Settlement
Guarantee Fund through which the clients could be paid. In reality the
Brokers neither paid their clients directly nor contributed to the Exchange
Settlement Guarantee Fund. The Brokers by virtue of Exchange - Member
Agreement executed at the time oftaking membership ofthe NSEL Exchange
were bound by the rules, regulations, bye-laws and circulars issued by the
Exch,rnge from time to time.
From the above, it is established beyond doubt that the business was
conducted in a fraudulent manner and therefore the SFIO investigation team
recommends the Central Government to share the investigation report with
EOW of Mumbai Police to initiate prosecution under section 34, 409 read
with section 120B of the Indian Penal Code, 1860 The list of 148 brokers is
as under: -
Sr.No, Name of Brokers .
1 Vijay T. Patel
2 Chimanlal Popatlal Commodities Broker Pvt. Ltd.
3 Jhaveri Credits & Capital Ltd.
4 Purvag Commodity & Derivatives Pvt Ltd.
5 Narayan Commodity Brokers Pvt. Ltd.
6 CFA Broking Private Ltd.
7 Pinnacle Brocom Pvt. Ltd.
8 Religare Commodities Ltd.
9 SMC Comtrade Ltd.
10 SSE Commodities Pvt. Ltd.
11 Gandhi Commodities Pvt. Ltd.
12 Vijeta Multi Commodities Pvt. Ltd.
809

"
.J
II
JI
.JI
I
Sr. )'Ila.
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
SECRET
Name ofBrokers •
India lnfoline Commodities Limited
:chinmay Financial Services
Karvy Comtrade Limited
Indira Commodities Pvt. Ltd.
Chamunda Commodity Private Limited
Raghunandan Industries Private Limited
Milind Vijaybhai Thakkar
AUM Commodity Services Private Limited
HTS Commodities (P) Ltd.
Daga Commodities Pvt. Ltd.
Hitech BPO Solutions Pvt. Ltd.
!TL Commodities Pvt. Ltd.
S!HL Commodities Ltd.
Anand Rathi Commodities Ltd.
Dani Commodities Pvt. Ltd.
Ajay Natavarlal Commodities Private Limited
PCS Commodities Pvt. Ltd.
RR Commodity Brokers Pvt Ltd.
Hardik Multi-Com Broking Pvt. Ltd.
Chana Commodity Trading Services Pvt. Ltd.
Rainbow Commodity & Derivatives Pvt. Ltd.
Vachi Commodities and Derivatives Pvt Ltd.
Baljit Metals Pvt. Ltd.
Ashika Commodities & Derivatives Pvt. Ltd.
SSJ Commodities Pvt. Ltd.
Leo Global Commodities Pvt. Ltd.
R KGlobal Commodity Broking Ltd.
Time Leverage Instruments Pvt Ltd.
Gautam Labdhi Commodities Pvt. Ltd.
Eureka Commodity Brokerage Pvt. Ltd.
Lalkar Commodities Pvt. Ltd.
J.V. Commodity Pvt. Ltd.
.
Arihant Futures & Commodities Ltd.
Shree Bahubali Commodities Pvt. Ltd.
Acumen Commodities (India) Ltd.
Prithvi Broking Pvt. Ltd.
Suresh Rathi Commodities Pvt Ltd.
810

,,, SECRET
Sr.No. Name of Brokers ' '
' '' '
so Emkay Commotrade Ltd.
51 Narayandas Asawa And Company
52 Sincere Commodities & Derivetives Markets Ltd.
53 lnvestsmart Commodities Ltd.
54 Kedia Commodity Comtrade Pvt. Ltd.
55 Bonanza Commodity Brokers Pvt. Ltd.
56 Five Square Agro Gold Pvt. Ltd.
57 Mavji Haribhai Commodities
58 Vikson Commodities Pvt. Ltd.
59 Ohm Commodities
60 Banka Bullions Pvt Ltd.
61 Mansukh Commodity Futures Pvt. Ltd.
62 AB Commodities
63 Abans Commodities (I) Pvt Ltd.
64 Siddhi Vinayak Commodities Pvt. Ltd.
65 PEC Limited
66 Shreeji Kosh Services Private Limited
67 Ludhiana Commodities Trading Services Ltd.
68 Multigain Commodities Services Pvt. Ltd.
69 MMTC Limited
70 Aditya Birla Commodities Broking Limited
71 Indian Bullion Market Association Ltd.
72 Koma] Creation
" 73 Geojit Comtrad2 Ltd.
74 Sharewealth Commodities Pvt. Ltd.
75 Sharekhan Commodities Private Limited
76 Pace Commodity Brokers Pvt Ltd.
77 Fort Comtrade Pvt. Ltd.
78 Guiness Commodities Private Limited
79 Marwadi Commodity Broker Pvt. Ltd.
80 Nirmal Bang Commodities Pvt. Ltd.
81 Samriddhi Business Pvt Ltd.
82 Vertex Commodities and Finpro Pvt Ltd.
83 India Nivesh Commodities Pvt. Ltd.
84 Integrated Commodity Trades (P) Ltd.
85 Alpha Commodity Pvt Ltd.
86 EF Commodities Pvt. Ltd.
811

',..IJ
J
,.H
JI
JI
di
di
,.D
di
II
I
·--~
Sr.No,
87
88
89
90
91
92
93
94
95
96
97
98
')9
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
q11 SECRET
Name of Brokers '
Ashlar:Commodities Pvt Ltd.
Rohinton Eruch Shroff
SPFL Commodities Pvt. Ltd.
Balaji Commodity Futures Pvt. Ltd.
Progressive Comtrade Pvt. Ltd.
Hem Multi Commodities Pvt Ltd.
Joindre Commodities Ltd.
Parwati Commodity Market Pvt Ltd.
Ratnakar Commodities Pvt. Ltd.
Latin Manharlal Commodities Pvt. Ltd.
CD Commosearch Pvt. Ltd.
Excel Commodity & Derivative Pvt. Ltd.
Asit C. Mehta Commodity Services Pvt. Ltd.
Gigantic Commodities Pvt. Ltd.
Refined Metals
B.N. Rathi Comtrade Pvt Ltd.
Cosmopolitan Commodity Pvt. Ltd.
lndovision Commodities Ltd.
Ideal Commodities Pvt. Ltd.
Adroit Commodities Services Pvt Ltd.
Agrahar Commodities & Derivatives (P) Ltd.
Matalia Commodity
Sethia & Sons Private Limited
Northeast Commodities Pvt Ltd.
Systematix Commodities Services Pvt Ltd.
Modex Commodity Trades Pvt. Ltd.
VCK Commodity Services Pvt. Ltd.
Motilal Oswal Commodities Broker Pvt Ltd.
Phillip Commodities India Pvt. Ltd.
Shikago Trade Pvt Ltd.
Sushi! Global Commodities Pvt Ltd.
Ventura Commodities Pvt. Ltd.
NDA Commodity Brokers Pvt Ltd.
Airan Commodities Pvt Ltd.
CIL Commodities Pvt. Ltd.
Pune e Commodities Broking Pvt. Ltd.
JM Financial Commtrade Limited
812

I I
''
~--
U_
a SECRE7
u
lit
Sr.No. Name of Brokers
' 'I
124 Integrated Registry Services Limited
'°- 125 Arcadia Commodities And Trading
l
126 Goldcrest Securities &Commodities Pvt Ltd.
127 Greshma Commodities Pvt Ltd.
·H 128 Anugrah Commodities Pvt Ltd.
(0. 129 Goldman Gold Ltd.
130 K.N. Securities
.II 131 Inda Thai Commodities Pvt Ltd.
,JI 132 Sugai Commodity Brokers Pvt Ltd.
133 Skung Commxperts Ltd.
<:ll 134 Quadeye Trading
,,_n 135 GEPL Commodities Pvt Ltd.
136 Shri Parasram Commodities Pvt Ltd.
il 137 Dharita Stock Deals Pvt. Ltd.
zll 138 Choice Merchandise Broking Pvt. Ltd.
139 Celebrus Commodities Limited
(ll 140 MK Commodity Brokers Limited
cu 141 Atriwal Infrastructure Pvt Ltd.
(II
142 Bajaj Commodities Trading Pvt Ltd.
143 Bahubali Commodity Services Pvt. Ltd.
'ii
144 Way2Wea!th Commodities Pvt Ltd.
145 Veez Commodities Pvt. Ltd.
<ft 146 Anvil Commodities Pvt. Ltd.
(0 147 GCM Commodity and Derivatives Pvt. Ltd.
j
I 148 Pyne Commodities Services Pvt. Ltd.
J
,J
1
,J
(]
'-.D
.JI
:J
,.D 813
]I
j
·,..D
c.~.. -~111 ..,

J
Jl
dl
di
dl
,j
J
~R
~d
,J
<D
,J
.J
,J
,_p
,, ··~
' h,_v
J
<.J
,.J
.J
,J
-.J
, I
·-
,:._1
c...J
707 SECRET
permitted them to continue trading on NSEL platform without any
underlying commodities and despite their repeated defaults, which was
made good by using the Settlement Guarantee Fund.
Jignesh Shah, as he had substantial personal interest in FTIL, was interested
in showing improved performance for FTIL. He, therefore, pushed NSEL,
wholly owned subsidiary of FTIL, to increase its turnover. The agr~ement
between FTIL and NSEL with regard to payment of service charges for the
proprietary exchange trading software of FTIL was pre-maturely
terminated and forcibly changed, despite protests from Anjani Sinha, from
fixeJ rate to transaction based charges in 2009. To further this objective,
NSEL introduced and promoted the paired traders contracts.
Simultaneously, wash trades were also done in the e-series contracts
through IBMA. With increased turnover on account of the two measures,
the revenues from NSEL to FTIL grew substantially. This is evident from the
analysis of the financials of NSEL and FTIL in the earlier part of the
investigation report.
The investigation brings out in crystal clear terms that there is sufficient
evidence against the defaulters of having committed offence of cheating,
forgery, falsification and non-maintenance of books of accounts and other
procedural lapses under the Companies Act. The directors of the corporate
entities who have defaulted are not fit and proper to remain on the board of
any entity. They are liable to be charged for committing various offences,
which are punishable under various sections ofthe Indian Penal Code, 1860
and the Companies Act, 1956 and 2013.
4.2.10 ROLE OF BROKERS (NON-DEFAULTING)
The NSEL Exchange was a platform for the registered buyers and sellers to
trade in commodities. These buyers and sellers better known as Clients
were registered with a Member/ Broker. These Members/ Brokers were in
602

l
,ll_
iff_
(t
!ff.
&
(Il_
(-Il.
,Il.
i.ll
i._ll
([
. n,U
J
·.B
J
J
,]
'-.D
J
.J
,_:b
,J
'--..~
<J
,J
,J
:~)
)
,_)
.. )
•
708 SECRET
turn registered on NSEL Exchange and formed a link between the Exchange
and the Clients.
The Exchange recognized only Members / Brokers registered with it in
terms of trade and liability. The clients were however, recognized by their
respective Member / Broker for their trade and liability. The Member /
Brokers were allowed to trade in commodities for themselves as well as on
behalf oftheir clients. Thus, there were two types oftransactions, namely:
i) Proprietary Trades (Trades done by Members / Brokers for
themselves)
ii) Client Trades (Trades done by Members / Brokers on behalf of
their clients)
The.Trading on NSEL platform was however restricted between two sets of
Member / Brokers i.e. Brokers representing buyers and Brokers
representing sellers. In the NSEL Payment Crisis, the member-brokers could
be clearly classified into two categories. The 24 broker-members
representing the sellers, who have been discussed in the previous section,
have been classified as defaulting brokers. For sake of clarity, Member /
Brokers representing clients who lost approximately Rs. 5600 crore in the
NSEL Payment Default have been given the nomenclature - Broker-
members (Non-Defaulting)
Most of these Brokers (Non-Defaulting) in the commodity business are
registered with other Commodity Exchanges like MCX, NCDEX etc. also. A
large number, of Brokers are also dealing in securities directly / through
their associate / subsidiary broking company. There were approximately
148 Members / Brokers who represented 13000 clients involved in NSEL
Payment Default. These 148 Member / Brokers included some large
commodity and securities market broking companies. The large brokers
Anand Rathi Commodities Limited, Geofin Comtrade Limited, India lnfoline
603

l 1
-•._;,
.[
n_
,n
,_[
ll
,JI
J
,__o
J
J
,]
]
..U
J
J)
)
J
J
,J
,_J
'-~
,J
,.J
-·· "'
70'J SECRET
Commodities Limited, Motilal Oswal Commodities Brokers Pvt Ltd and
Phillip Commodities India Pvt Ltd, had an exposure of about Rs, 1,600 crore
out ofthe total exposure of Rs, 5,600 crore, when the scam broke out
Analysis ofFacts, Information & Documents
During investigation, the team had collected documentary and other
eviC::ences from NSEL, Brokers, Defaulters, EOW - Mumbai Police, SEBI as
well as the 13000 investor clients who were impacted on account of the
default and claimed to have lost approximately Rs, 5600 crore in the NSEL
Payment Default
After analyzing these evidences, the investigation team found that: -
i) NSEL' and the Brokers (Non-Defaulting) were advertising such
investment/arbitrage opportunities by way of pairing of short
term and long term contracts, In fact, the business development
team of NSEL issued various presentation to Brokers in
contravention to its own Guidelines and Policies, The business
development team head Amit Mukherjee was active in promoting
such presentations and he was duly supported by Anjani Sinha,
the then MD & CEO,
ii) A presentation titled "Trading Opportunities at NSEL" (Annexure
D-34) was made to the member-brokers, which presented the
paired short-term (T+Z) and long-term contracts (T+25) as a
financial investment product offering 'a net annual interest rate of
about 13-14% after deducting all expenses" and that 'income
arising out of such trades are treated as Business Income", The
presentation compared the returns with Bank FD rate of 9.25%
· for 390 days. The presentation also stated that the NSEL Trade
duration was 33-35 days and the individuals have an option of
rolling over their position as per. their convenience. The
presentation goes on to elaborate on the risk management
features, and also that the NSEL Exchange provides counter
guarantees on the contracts. This arbitrage opportunity was
604

[
1
(J1
(IL
(J1
(ll
ell'
<IL
-ll
'°J
J
J
J
-J
.J
J
J
,J
..D
J
''-b
--~
,_J
~J
' '__,
u
,_J
: l~-·
,.J
710 SECRET
offered to the clients of these Members / Brokers as Fixed /
Assured High Return product. Investigation also revealed thatthis
arbitrage opportunity earning fixed or assured return was widely
advertised also.
iii) Member - brokers (non-defaulting) based on the presentation
and material presented by NSEL and despite the circulars and
guidelines brought out their own brochures and information
flyers advertising to their clients on the opportunity to trade in
paired contracts as an investment contract and entered into
arrangements with their clients wherein the member-brokers
persuaded their clients despite their not having auy knowledge of
commodities market to invest and took all responsibility of
investment and reinvestment on behalf of their clients (refer to
complaints ofinvestors in Annexure D-96)
iv) In February 2012, immediately after FMC was notified as the
'designated agency', NSEL did issue a circular prohibiting its
members-brokers from advertising or suggesting that the
contracts offered at NSEL Exchange can be used for earning any
fixed or assured return (Annexure - D-87). Thereafter, in several
cases, where members had forwarded proposed advertisements
to the NSEL for approval, NSEL had rejected those proposals
which were not in consonance with its circular (Annexure - D-88).
Ho-Wever, NSEL itself continued to present to the brokers on the
investment opportunities through trading in paired contracts,
and:the member - brokers also continued to widely advertise the
paired contracts as an arbitrage opportunity offering attractive
assured returns of 14-16%. The NSEL management knew about
these promotional advertisements by the member-brokers but
did· not take action against erring member- brokers (Non-
Defaulting).
v) The fact that NSEL was aware ofthis can also be seen from the fact
that on August 6, 2012, the NSEL issued another Circular (Ref. No.:
605

I
'·
'
c..
C
L
l.
t
it
t
L
,ff
iff_
,n_
(fl
(0,
([
(0,
en.
C[
l
._[
--.R
ell
JI
dl
(_p
1_D
,J
' )·-
~J
I..
J
'-J
s..)
• lll·t II I
71/ SECRET
NSEL/MEM/2012/154) titled "Issuance of Advertisements and
D0's & Don'ts by the Members". In this Circular amongst other
things, the NSEL reiterated its earlier guidance on issuance of
advertisements and dos and don'ts. However, NSEL continued to
permit investors to trade in the paired contracts.
vi) During the course of investigation, it was noted that the EOW,
Mumbai Police had arrested the senior management
representatives of Anand Rathi Commodities Limited, Geofin
Gomtrade Limited and India lnfoline Commodities Limited and
filed its remand note dated 04.03.2015 before the Hon'ble. MPID
Court. A copy ofthe remand application is attached at Annexure -
D-94.
It is further noted that the SEBI issued show cause notice (SCN) to Anand
Rathi Commodities Limited, Geofin Comtrade Limited, India Infoline
Commodities Limited, Motilal Oswal Commodities Brokers Pvt. Ltd and
Phillip Commodities India Pvt. Ltd. for declaring them 'Not Fit & Proper' for
their alleged role in the NSEL crisis. The copy ofthe show cause notice issued
to one of the brokers is annexed as Annexure - D-95.
Also, there have been several complaints filed by the clients against their
brokers before the FMC, EOW Mumbai, Enforcement Directorate and Ld.
MPID Court. The copy of the complaints is annexed as Annexure - D-96.
There were certain FIRs filed by clients (Annexlire - D-97) against the;r
brokers in ½'.hich the brokers have been accused of having committed
criminal breach of trust and misappropriation of client's money by making
false representations in a pre-planned manner.
Further, the Hon'ble Mumbai High Court in its Order dated 2nd September
2014 has appointed a High Court Committee (HCC) to monitor the NSEL
settlement process (Annexure- D-98). The HCC in its order dated 31'' March
2016 (Annexure - D-99), observed that it has received complaints from
606 r

--,[
,JL
,fl
,.11
,l
',[
JI
1
,.Il
J
J
,U
J
,j
J
J
·'-~
<.0
.j
,..D
J
.J
.J
,J)
.J
,.J
,J
,J
.,)
,)
,)
(J
712- SECRET
trading clients against their brokers, who 'indulged in various malpractices
such as funding without authority, fabrication ofthe documents and threats
given' to furnish information as desired by the broker.
SFIO investigation team contacted the clients by issuing an open
advertisemen~ in the leading public dailies. Subsequently, a detailed
questionnaire covering all the aspects like source of information, risks,
trades, funding, and role played by their broker etc. was issued to the 13000
clients registered with 148 brokers. Copy ofthe questionnaire is enclosed as
Annexure D 113.
In response, 7217 out of 13000 clients responded. The response of these
clients-was analyzed by the investigation team. The response of the clients
tovarious questions in the questionnaire were analyzed by the investigation
team and are summarized below:
Q. No.1.5 Pltiase specify as to how you came to know about NSEL?
Description ·<;ount · % ,
a, Broker 2,885 39.98
b. Broker & others 1119 15.51
c.: DCB Bank 46 0.64
ct: Familv, Friends & Relatives 306 4.24
e,; Market & Media 1776 24.61
f. I NSEL 160 2.22
Grand Total 6292 87.20
From the above, it can be seen that more that 55% of the clients confirmed
that their primary source of information about NSEL and NSEL trading was
their Broker Ji employee ofthe Broker. This confirms that Brokers gave wide
publicity to NSEL and trading opportunities at NSEL as well as arbitrage
benefits.
607

-l
,IL
::n_
;[
:0
0
,,[
.[
J
-n
,.Il
J
.j
J
.Jl
J
,J
<B
.J
j
.J
,_]
,J
,J
,,J
,,J
J
<)
,)
••• •,_
.J
713 SECRET
The investigation team enquired whether the clients were regular traders
in commodities or they were allured by their brokers for fixed returns or
otherwise. This was vital as a regular business man in cmr.modities would
have known the nuances of commodity trading and the risk involved. The
analysis ofthe responses received from the clients is given below:
Q. No. 3.4 Do you deal in any type of commodities as your regular
business?
D
1
escriptio·n Count %' ,
a. No 6048 83.80
b. Reply not !'iven / inadequate - improper reply 977 13.54
C. Yes 192 2.66
From the above, it can be seen that 83.80% respondents were not into
commodity trading at all. This was very serious as such a person who is not
into business of commodity trading as his / her regular business would
naturally believe on the broker for decisions to be taken regarding trading
in commoditfes. Without any background, the promises made by trusted
person especially their own broker would prevail over their own decision
making process. Thus, the Brokers held a fiduciary relationship with their
clients and had a position of trust. The investigation revealed that this
position of trust was compromised and the clients were betrayed by false
promises.
Further, the Brokers were duty bound to inform/ making them aware about
the -Risks involved in Commodity trading on NSEL platform. In the
questionnaire, in question no. 2.1, the clients were asked about their
awareness about the risk factors involved on NSEL. The analysis of the
responses received from the clients is given below:
608

l
tl
t
,IL
[_
,,[
l
,u_
ll_
,ll
(fl
;.n_
(II
.u
.ll
J
._a
·]
,_n
jJ
,_D
·'-~
;J
.__D
,J
.J
J
•
7Jtr,,
SECRET
Q. No. 2.1 Were you aware about any risk factors on NSEL?
Description Count '%
a. No 3449 47.79
b. Reply not given/ inadequate - 1600 22.173
imorooer reolv
C. Yes 2168 30.04
From the above, it can be seen that around 70% ofthe clients confirmed that
they were not aware about the risks involved on NSEL. Clearly, the Member
/ Brokers failed miserably to inform their clients about the risk factor on
NSEL. Had these risks factors been informed to the clients, the clients would
have been in a position to decide independently to trade or not in
commodities on NSEL platform.
During investigation, it was noted that the Brokers informed their clients
about the arbitrage opportunities and earning of fixed returns using
commodity trades on NSEL. These clients were explained that commodity
trading on NSEL platform is akin to "vyaj badla" transactions. Further, they
were informed that the trades are in the nature of forward trades which can
be used to earn fixed returns. Therefore, the clients were asked whether the
Brokers explained the exact nature of these trades and did he assure fixed
return.
The analysis ofthe responses received from the clients is given below:
Q. No. 2.4.1 Whether your broker assured you that trades will give
Fixed Returns or Vyaj Badia or the trades are Ready Forward trades
Description · · 'Count, %
a. N0 2698 37 39
b. Reply not given / inadequate · improper
932 12.91
reply
C. Yes 3587 49.70
609

J
l
"n
,J
J]
CU
]
,j
J
,_n
,.D
._n
:J
;J
,_D
,]
Jl
J
J
J
,J
..J
'...)
,J
:_J
,J
:.,J
,,,)
,J
)
l
:,J
l.J
7/~ SECRET
From the aboye, it can be seen that almost 50% of the respondents have
stated that the commodity transactions explained to them by their Brokers
were to earn Fixed Returns having the nature of "vyaj badla".
This shows that the paired contracts were marketed_ by the brokers as an
investment product with fixed returns,
Further investigation revealed, that Brokers had assured to refund the
money to their clients in case the buytrade in the forward leg ofthe contract
i.e. T+25, T+30, T+36 contract is not honored by the buyer. The SFIO team
therefore verified this claim made by some ofthe clients by asking a specific
question on this issue.
The analysis ofthe responses received from the clients is given below:
Q. No. 2.5 Whether your broker assured you to refund the money ifthe
buy trade is not done in your account
DescripUon 'Count %
a. No 2435 33.74
b. Re:ply not given/ inadequate· improper
1904
26.38
reply
C. Yes 2878 39.88
From the above, it can be seen that almost 40% ofthe clients confirmed that
their Broker as.sured them to refund the money if the buy trade is not done
in their account. Alarge number i.e. 26.38% respondents who answered this
question in a cryptic manner whereby in subtle tone the fact has been
admitted. How'ever, the team ignored this population considering that the
reply is improper.
This shows that the Brokers were so brazen in their approach that they
allured their clients by not only mis-selling the product but also promising
them refund of money. The promise was such that the clients were enticed
610

.Jl
ll
,_n
J
.·n',
<D
,J
D
,_n
..D
<D
J
,J
,_D
,J
~»
,J
J
D
,,J
;J
:J
c.J
<)
,J
,,J
,J
:,J
..J
J
.J
:,J
:,_J
716 SECRET
to NSEL comm,odity trading. The Brokers played a vital role in defrauding
their own clierits for their own benefit.
During the course ofinvestigation, the SFIO investigation team recorded the
·statements of some of the brokers on oath and examined their reply.
4.2.10.1 ANAND RATHI COMMODITIES LIMITED
During the course of investigation, it was noted that the Economic Offence
Wing (EoW), Mumbai Police had searched the premises of Anand Rathi
Commodities Limited and arrested Amit Rathi, Director of Anand Rathi
Commodities :Limited for various irregularities / violations in NSEL
Payment Crisis. The EoW Mumbai Police, has labeled the following charges
against Anand:Rathi Commodities Limited:
i) Anand Rathi gave false assurance to its clients with respect to
National Spot Exchange Limited (NSEL) with wrong and
misleading statements, leading to enticement for investment in
NSEL products;
ii) ARGL was by far the largest among all brokers in terms of Unique
Client Codes issued. Anand Rathi were engaged in market
capturing practices by large scale Unique Client Code (UCC)
modifications. NSEL turned a blind eye to such massive changes
in DCC.Anand Rathi modified the UCC in FY 2011-12,12-13 and in
13-14. Trades modified on the platform of NSEL by Anand Rathi
we~e worth Rs 3051.81 crore whereas trades modified in back
office were worth Rs 25.61 crore
iii) NSEL was aware oftrades done without uploading UCC by ARCL.
iv) ARCL was trading through conduit accounts without any mandate
from its clients
v) ARCL was one of the brokers undertakin·g short sales on NSEL.
This helped in jacking up volumes oftrades on NSEL platform. As
611

.j
,_]
,.n
..n
<D
,J
.JJ
.J
.J
.Jl
.J
,_D
·.)
,_o
' ]l
,J
·.J
,.J
,)
Jl
,JI
<J
.J
,J
..J
..J
..J
J
._)
.. J
J
I
,J
,.J
717 SECRET
the remuneration to FTIL from NSEL was Jinked to trade volume,
it h!',Jped FTIL in getting more remuneration from NSEL.
There were complaints made by the clients of Anand Rathi Commodities
Limited. The complaints were from corporate entities, which included
complaints from: -
(i) Borosil Glass Works Limited that ARCL misused their Unique
Client Code (UCC) without their authority.
Investigation by EOW revealed that Anand Rathi was using UCC of Borosil
Glass Works Limited without their authority and subsequently these trades
were palmed off to investors who were persuaded to invest and their UCC
were updated later, This was with the knowledge of NSEL.
(i.i) Encore Natural Polymers Private Limited
Anand Rathi entered into contracts for two different trading clients on the
basis of only one Unique Client Code. Encore Natural Polymers Private
Limited has filed a winding up petition against Anand Rathi Commodity
Limited for irregularities done in commodity trading on NSEL Exchange
platform.
The investigation team summoned Amit Rathi, Director of Anand Rathi
Commodities Limited. He appeared before the investigation team on B'h, 23,rl
February and 6th March 2017. The statement of Anand Rathi was recorded
on oath, as per the provisions ofsection 217 ofthe Companies Act, 2013. He,
interalia, stated that:-:
► In Anand Rathi Commodities Limited all trades of clients were paired
trades only.
► Singular transaction ofpurchase or sale ofcommodities was not possible
onNSEL.
► There was no loss possible on paired transactions on NSEL.
612

,n
J
;l
J
J
J
J
._Il
.D
J
J
,J-
.J
J
Jl
.b
J
,J
,J
,J
,,j
•..J
.)
,J
,J
•.J
,J
<.)
,.J
.. )
7/8 SECRET
► Besides NSEL, they were also trading on MCX and NCDEXwhere singular
transactions ofpurchase or sale are possible,
► Their broking house did not suspect anything wrong as all their clients
were tr~ding in paired contracts where loss was not possible.
,- He was aware that T+2 and T+25 conn·acts are paired for earning the
price difference between the two contracts and which was fixed on the
day oftrading itself. He was also aware that the yield was in the range of
13 to 14% per annum.
► He claimed that no fixed returns were assured to their client.s.
► He claimed that they have never financed any transactions directly or
indirectly on NSEL. On Feb 8th 2017, he was sure about it which in his
subsequent statements he stated that he is not sure on the financing of
the transactions,
► He accepted that client code was modified for NSEL trades.
► He accepted that their RM department would inform the clients in the
following manner
"13% return available in raw wool February"
► He accepted that the Clients used to roll over the trades.
► He accepted that the Clients were not interested in commodities per se
butwere interested only in the yield / interest/ returns.
► He also accepted that as arbitrage these transactions were financial in
nature.
► He accepted that ownership ofgoods never practicallytravelled to clients
due to early pay-in towards T+25 and therefore there was no need to
verify any stocks,
► Theirbrokinghouse had a common relationship management (RM) team
which would scout for prospective clients
► Their clients used to place money and confirm the commodities. The
dealing team would communicate possible / potential commodity and
opportunitywhich was further communicated to the clients,
613

.n
J
'--Il
,]
,.Il
J
J
J
J
J
J
.J
.J
.J
_p
.J
.D
•.J
.J
_o
..J
.J)
,J
.j)
,.J
,J
,J
~J
,J
( ' '
'•··-'
._I
:J
,.J
7Jt:J
SECRET
► The RM team used the presentation prepared by NSEL and shared itwith
their clients
► Initially, Clients demanded damages from them but later on they started
demanding money from NSEL
Statement ofAmit Rathi is annexed as Annexure Sl.
The above statement was verified vis-a-vis information provided by the ,
clients of Anand Rathi Commodities Limited (ARCL) in response to queries
raised by SFIO.
. i) A total of 525 clients registered with ARCL responded to SFIO
questionnaire. Out of these 525 clients, 61% i.e. 320 stated that
ARCL informed them about the opportunities on NSEL platform.
ii) On being asked "Whether your broker informed you about the
risk on NSEL", Out of 525 clients, 301 were either clearly stated
that their broker did not inform about the risk oftrading on NSEL
or they did not remember having been told about this.
iii) On being asked "Whether your broker assured you that trades will
give Fixed Returns or Vyaj Badia or the trades are Ready Forward
trades", majority of the clients answered in the affirmative,
meaning thereby ARCL sold the paired contracts as instrument for
fixed returns.
iv) On being asked, "Whether your broker assured ycu to refund the
money if the buy trade is not done in your account", again a
majority ofthe client answered in "Affirmative".
v) On being asked "Whether your broker asked you to sign on dotted
lines, without explaining any risk factors on NSEL trading, Out of
525 clients251 were either clear that their broker did not inform
about the risk of trading on NSEL or they did not remember
having been told about this.
From the above, it can be seen that Anand Rathi Commodities Limited knew
the following
614

:ff
(ll,
J
(ll,
:u
JI
,J
..ll
.a
J
J
J
··-D
.J
_D
J
J
J
J
.Jl
J
,J
,J
,J
,J
.J
~
.J
,J
4.2.10.2
7z,.o SECRET
i) Clients enrolled with them are not commodity traders
ii) Clients have been allured with fixed returns
iii) Clients have been assured that in no circumstances loss can occur
on these transactions
iv) Paired contracts were actively sold
v) No physical delivery of commodities was ever taken by their
clients
vi) The brokerage house indulged in UCC Modification
vii) The brokerage house used the NSEL presentation as soliciting
material before their clients, which was not in conformity with the
circulars issued by NSEL and available on NSEL website.
viii) The brokerage house knew that by doing fund based business
they are violating FMC guidelines also which clearly specifies that
the Broker must do only fee based business.
To conclude, the brokerage house was found acting in concert with NSEL in
misselling their fraudulent financial products. The brokerage house was
involved in unethical as well as illegal practices of misrepresentation,
making false assurances, alluring clients to trade to earn brokerage. In this
process, there were unlawful gains to the Anand Rathi Commodities Limited
while its clients suffered losses.
GEOFIN COMTRADE LTD. (FORMERLY KNOWN AS GEOJIT COMTRADE
LIMITED.)
During the course of investigation, it was noted that The Economic Offence
Wing (EoW), Mumbai Police had searched the premises of Geofin Comtrade
Ltd. (Geojit) and had also arrested C.P Krishnan, Director, Geofin Comtrade
Ltd. (Geojit) for various irregularities / violations in NSEL Payment Crisis.
The EoW Mumbai Police, has labeled following charges against Geofin
Comtrade Ltd. (Geojit): -
61.S

n
J.
,]
(1
J
""D
J.
J
J
'"D
,J
<.D
,,J
j
J
.J
Jl
.._p
..J
.J
,J
J)
,J
,J
,j
:.J
,J
,.J
;J
•..J
.J
~
'~)
;_)
7Z,/ SECRET
i) Geojit gave false assurance to its clients with respect to the
contracts traded on the National Spot Exchange Limited (NSEL)
with wrong and misleading statements, leading to enticement for
investment in NSEL products.
ii] Geojit has offered funding to their client's upto SSo/o to trade on
NSEL.
iii) Geojit were engaged in market capturing practices by large scale
Unique Client Code (UCC) modifications.
iv) Geojit was trading through conduit accounts without any
mandate from its clients.
v) Geojit, for wrongful gains committed several crimi.nal acts as set
out above and also criminal breach oftrust.
vi) Rampant illegal practice on part of the brokers of name lending,
PAN lending, KYC lending and of making forged loan documents
without knowledge of trading clients and trading with their
money on NSEL
vii) There were complaints made by the clients of Geofin Comtrade
Ltd. (Geojit). Some of the complaints are as under: -
a) Complaint of Achal Aga1wal against Geofin Comtrade Ltd.
(Geojit) stating that:-
viii) Geojit has mis-sold, misrepresented, induced and forged client's
signatures for "benami" transactions using the PAN and KYC
lending mechanism.
ix) Geojit Comm Trade Ltd (GCL) and its associate company Geojit
Credits Pvt. Ltd, (GCPL) which is a non-banking finance company
(NBFC) had fraudulently used the account of Achal Agarwal on
NSEL. He came to know through sources that his investment
amount in NSEL in his name is Rs. 5 Crore against the actual
amount invested by him of Rs. 97,50,000/-.
x) GCPL have fabricated various documents such as loan
agreements, promissory notes etc. forging his signatures. It is
clear that GCPL, a NBFC had directly given funds to GCL (broker)
616

(.0
,n'¼
.D
.J
, h,,JJ
J
_D
J
J
.J)
·J
J
:,J
•.D
.J
.j)
'· _p
.j)
' h..._y
:,J
·J
: ~'-
,J
,J
j
7'2,.2 SECRET
showing them as Joans in his name and then illegally invested
those funds on NSEL by unauthorizedly using his account. He was
shocked that the GCPL filed the suit for recovery on the basis of
these forged loan documents.
He as a trading client of NSEL is required to furnish information as directed
by the High Court Committee accordingly to the questionnaire published in
circulars. GCL have made various calls to him and threatened him to furnish
only such information and in such format as desired by GCL. For instance,
representative of GCL have been calling him from 9829324322 to his
number 9352512033 whereby they have threatened him to disclose the
trade worth of Rs. 5 Crore and not the actual amount of Rs. 97,50,000/-
being the actual amount invested by him on NSEL platform.
Grant Thornton in their forensic audit report have stated that: -
''.An external presentation was obtained which had been made by
a brokerage house (Geojit Comtrade Ltd.) for their clients
claiming a fixed return on investments made on the NSEL
exchange. Furthe1; this presentation declared that actual
de/ivery'ofstocks in such transactions would not be required",
The investigation team summoned C.P Krishnan, Director, Geofin Comtrade
Ltd. (Geojit). He appeared before the investigation team on 9th and 23rd
February 2017. The statement of C.P Krishnan was recorded on oath, as per
the provisions: of section 217 of the Companies Act, 2013. He, interalia,
stated that:-
► The majority oftheir clients are traders
► 30 - SO clients were provided funding through their NBFC to trade on
NSEL.
► None oftheir clients have received physical delivery ofcommodity. None
oftheir clients were interested in physical delivery,
► He knew the difference between functioning of MCX and NSEL in terms
ofcontract and delivery mechanism
61.7

!
<..I
•,..I
I
'·--
72,3 SECRET
► The clients would inform the brokerage house the particular yield they
wanted and then they would suggest contracts in which such yield was
possible and execute the trades
In the context t11at all th.e transactions through Geofin Comtrade Ltd. were
in paired contracts, he was asked to go through bye-Jaws ofNSEL / Circular
and tell whether nobody could place only buy or only sell transactions or
one has to have only paired transactions.
► To this query he responded that there was no such thing in the Bye-laws
or in any product circulars or authorized communication from NSEL that
only paired transactions will take place.
► He promised to provide KYC data / details of contracts / email dump /
details ofthe clients who were funded by them
► They referred their clients to Axis Bank for funding purposes.
► He did not make any comments on tri-partite contract for VAT
compliance on behalf oftheir clients.
Statement of C.P Krishnan is annexed as Annexure S2.
The team during investigation noted that Geofin Comtrade Ltd. (Geojit) had
provided a presentation before its clients for trading on NSEL platform. The
presentation was claimed to be prepared by NSEL. In this presentation, it is
noted that
i)
ii)
iii)
iv)
v)
It says ,opportunity for investors
Price for both maturity available on the screen
Exchange provide counter guarantee in respect of quality of good,
weight and counter party risks
A sample calculation to the investment made was also given
wherein annualized returns were shown at 14.2%
Through this presentation Geofin Comtrade Ltd. induced and
encouraged their clients to enter into paired contracts without
any delivery.
618

J
J
.J
J
.J
J
.J
.J
.J
J
J
-.J..
'.J
·..I
.J
,J
•J
'...
.J
J
·• :.1
.J
7'2-tr SECRET
vi) To increase the trading volumes and in turn to boost their
brokerage income and commission, the company was providing/
arranging for funds for their clients for trading on NSEL Exchange.
Investigation revealed that Geofin Comtrade Ltd. had placed
trades on NSEL platform which were not authorized by the client.
vii) Geofin Comtrade Ltd. (Geojit) aggressively marketed the paired
contracts. As a strategy a brochure for prospective clients with the
catch line ''Arbitrage investments in spot market" was circulated,
wherein features of paired contracts on NSEL were highlighted:
a) Investors can invest money and lock his returns
b) Price for both the maturity available on the screen
c) Investor can buy in near maturity contract and sell in far maturity
contract simultaneously.
d) This product is a simple investment/ finance model based on interest
rate differential.
e) The product delivers around consistent 12 -14% annualized returns:
posttax the client can expect around 9 -11% annualized.
f) The product is an alternative to the debt instrument, and the money
can be parked from fixed 25/30/36 working days and can be chosen
between cotton seed, castor oil, castor seed c,ifferent commodities.
The investigation team analyzed the responses ofclients of Geofin Comtrade
Ltd. who had responded to the above mentioned questionnaire: The analysis
showed that:
i) 188 clients who were registered with Geofin Comtrade Ltd.
(Geojit) responded. Out of this, 127 i.e. 67.55% stated that they
were informed about opportunities on NSEL platform by Geofin
Comtrade Ltd.
risk on NSEL", out of 188 clients, 157 were either clear that their
619

'i.J
' '', ,,,I
..,, I
! I
7215 SECRET
broke~ did not inform about the risk of trading on NSEL or they
did not remember having been told about this,
give Fixed Returns or "Vyaj Badia" or the trades are Ready
Forward trades", majority of the clients answered in the
affirmative.
iv) On being asked, "Whether your broker assured you to refund the
majority ofthe client answered in the affirmative.
From the above, it can be seen that the Commodity Brokerage House i.e.
Geofin Comtrade Ltd. (Geojit) indulged in the following: ·
i) Clients were assured fixed returns
ii) Clients were assured that in no circumstances loss can occur on
these transactions
iii) Only Paired contracts were sold
iv) No physical delivery of commodities was ever taken by their
clients
Geofin Comtrade. Ltd. had one NBFC by the name Geojit Credits Ltd. It had
provided funds through this NBFC to its Clients/ Traders to trade on NSEL
Exchange under a tripartite agreement. The NBFC i.e. Geojit Credits Ltd. has
confirmed this fact before Hon'ble Bombay High Court and has stated that it
has funded the 117 clients to the tune of Rs. 136.60 crore. The funding was
given directly to the broker and not to the clients. The brokerage house has
in turn used these funds for trading on NSEL Exchange in the name of clients.
Investigation revealed that these 117 clients have an outstanding of Rs. 154
crore as on 31.07.2013. This shows that brokerage house hau funded 86%
ofthe total trade value of its clients. The NBFC finally requested the Hon'ble
Court that, if any: money is to be repaid to the traders by NSEL / High Court
Committee then :it should be given to Geojit Credits Ltd. as far as clients of
620

I
<I.
' I
,J
.j
·.J
·• I
'--J
. I,,.
,.J
' I..,...,
7,UsECRET
Geofin Comtrad~ Ltd. The application filed by Geojit Credits is annexed as
Annexure - D-99A.
involved in unethical as well as illegal practices of inducement,
misrepresentation, making false assurances, alluring clients to earn
brokerage and commission income. In this process, there were unlawful
gains to Geofin Comtrade Ltd. while its clients suffered losses.
4.2.10.3 INDIA INFOLINE;COMMODITIES LTD.
India Infoline Commodities Ltd. (IICL) is a Member / Broker (Non-
Defaulting) registered with NSEL.
During the course of investigation, it was noted that The Economic Offence
Wing (EoW), Mumbai Police had searched the premises of !nfoline
Commodities Ltd. and had arrested Chintan Modi - Director, India Infoline
Commodities Ltd. (IICL) for various irregularities / violations in NSEL
Payment Crisis. The EoW Mumbai Police, has labeled following charges
against India Infoline Commodities Ltd. (IICL): -
i) IICL gave false assurance to its clients with respect to NSEL with
wrong and misleading statements, leading to enticement for
investment in NSEL products.
ii) IICL were engaged in market capturing practices by large scale
Unique Client Code (UCC) modifications.
iiil That there are large number of cases in which funding has been
provided by broking outfit by permitting debit balance to
continue in client's accounts for long duration exceeding
settlement cycle.
621

...,.j,;
,J
(j_
CJ
i1
1
Cl
:]
Cl
,.J
:·1'~..
. I
"'l
CJ
iv)
v)
,·i)
72,7 SECRET
JICL induced their clients towards availing finance through them
on paired contracts
Assuring clients offixed and high returns
That there is a suspicion of circular trading and price rigging
through accounts of relatives; like Madhu Jain, !CL Arbitrage
Account whose identity has been hidden.
There were complaints made by the clients of India Infoline Commodities
Ltd. (JICL). Som':' ofthe complaints are as under: -
a) Excerpts from the Complaint made by Vishvanidhi Dalmia,
New Delhi against JICL
"Unfortunately, my broker IICL mis-represented and mis-sold the
NSEL produt;ts to me and lured me by assuring good returns on
·investments. My broker also assured me that trading on the
commodities marketwas more secure as compared to the equity-
currency marketsince the return on investments were better and
safer than the equity or currency market. He also lured me by
stating that investment in NSEL are extremely safe "risk free"
·and it could fetch a good return of about 13-15% p.a.
''guaranteed return". My broker also claimed that they had
system of making frequent/ periodic visits to the warehouses
where the goods are supposed to be kept Due to their strong
represen~ations and persistent pleadings, I invested my hard
earned money resulting in a Joss ofabout Rs. 10.5 crore"....
..."JJCL even manipulated the client-broker agreement signed
with m~ by deliberately inserting clauses whereby the liability of
IICL was obliterated making the trades to be settled between two
constituents on principal-to-principal basis without any
jinanciaUnvolvement ofthe IICL"
During the course of investigation, SFIO team issued a questionnaire to IICL
dated 6th January 2017. In response to this letter, JICL confirmed that they
622

'-_j.;
u
]
J
J
J
J
.J
..J
.J
,J
(J
,J
. ·1_,
;J
CJ
72-8sECRET
had undertake11 73 client code modifications through their back office
system and 1246 online client code modifications on the Exchange platform.
The investigation team summoned Chintan Modi - Director, India Infoline
Commodities Ltd. He appeared before the investigation team on 7th March
and 18th July 2017. The statement of Chintan Modi was recorded on oath, as
per the provisions of section 217 of the Companies Act, 2013. He, interalia,
stated that:-
► In 2010, Anjani Sinha ofNSEL met Nirmal Jain and postthis meeting IICL
became member.
► IICL through their group company India Infoline Finance Ltd. had
financed their 70 clients to the tune of 231.34 crore for trading on NSEL
platform.
► NSEL did client awareness programs in which presentations were made
by NSEL to our clients. In the presentation NSEL had given details ofT+2,
T+3, T=25 and T+36 contracts.
► NSEL brochure on page 3 clearly mentions that the exchange provides
counterparty guarantee in terms ofquantity, quality and payment. Hence
participants get a safety net against credit risk and counterparty default.
► Riskfactors were given in IICL presentation and membership documents,
which the Clients duly signed.
► He acceptedthattheirbrokerage house is registered with VAT authorities
in few States; however, their clients were encouraged to get the VAT
compliance through IBMA.
► He accepted that there is no tri-partite agreement betweenthe brokerage
house, the clients and IBMA for VAT compliances.
► He denied IICL funding any clients.
► He accepted that they have notinvested any money in NSEL transactions.
Statement of Chintan Modi is annexed as Annexure S3
623

I
:t
(L
1.
·1
1
<t
J
zl
J
J.
j
•:1
J.
•J
SECRET
During the course ofinvestigation, the team collected brochure prepared by
IIFL to introduce commodity trading on NSEL to its client. The salient
features ofthe brochure are listed below: ··
i) The brochure begins with "Arbitrage Opportunities in Agro
Commodities on NSEL". and goes on to state "Agro Commodities
offering arbitrage opportunities"
ii) Example of annualized returns on castor seeds are given.
iii) Income from spot arbitrage would be part of other income.
The above statement was verified viz-a-viz information provided by the
clients ofIICL in.response to queries raised by SFIO.
i) 836 clients who were registered with IICL responded to the
questionnaire sent by the investigation. Out of this, 526 stated
that they were informed about opportunities on NSEL platform by
their broker. Thus 63.00% clients were informed by IICL
J risk on NSEL", out of 836 clients, 701 were either clear that their
· 1 broker did not inform about the risk of trading on NSEL or they·•• 1.
:J did not remember having been told about this.
•.J
iii) On being asked "Whetheryour broker assured you that trades will
give fixed returns or "Vyaj Badia: or the trades are Ready Forward
trades", majority ofthe clients answered, "Yes".
majority ofthe client answered in "Yes".
v) On being asked "Whether your broker asked you to sign on dotted
lines without explaining any risk factors on NSEL trading, out of
836 clients 528 were either clear that their broker did not inform
about the risk of trading on NSEL or they did not remember
having been told about this.
624·

u
,J
]
,.l
·730 SECRET
Investigation further revealed that IICL had banking facilities with DCB
Bank. IICL entered into a contract whereby DCB bank marketed to its
account holders to take membership of NSEL through IICL. For the
marketing services IICL was to share a certain amount 0f brokerage /
commission with DCB Bank. Investigation team inquired from DCB Bank
about this marketing arrangement with IICL. The DCB Bank vide
communication dated 30th October 2017 accepted these facts and submitted
the details ofbr~kerage earned by IICL from the clients who were referred
by DCB Bank under aforesaid agreement and who have traded on NSEL. The
details provided1
by DCB Bank are as. under:
Financial Total No of No of DCB Bank
Year Brokerage Transactions Unique ' Share
(Rs). Customers (Rs)
2011-12 39,350 32 3 19,675
2012 - 13 12,01,326 1363 107 6,00,663
2013 - 14 9,82,890 1564 204 4,91,445
Total ' 22,23,566 2959 11,11,783
Thus, DCB Bank was acting as an agent to induce its account holders to
register themsel_ves with IICL and trade on NSEL exchange. The DCB Bank
and IICL were working in tandem to induce clients and in the process the
brokerage/ commission earned by IICL from such clients was shared with
DCB Bank.
From the above, .it can be seen that the Commodity Brokerage House i.e. IICL
Limited indulged in the following: -
i) The brand name of IIFL was used by IICL to attract clients for
commodity trading.
ii) Clients enrolled with them were not commodity traders
iii) Clients were assured fixed returns
iv) Clients were assured that under no circumstances loss can occur
on these transactions
v) Paired contracts were actively sold
625

J
·.J
.J
,J
,_I
,_J
: I
,J
,J
,J
~.....,
·,
.,.)
l
'---'
CJ
(J
<J
:J
,.J•
'-·
731 SECRET
v'i) No physical delivery of commodities was ever taken by their
clients
vii) The brokerage house indulged in UCC Modification
viii) The officials from the brokerage house visited the designated
warehouse of NSEL at Sarda Agro Oils Limited, Kakinada, AP and
warehouse located at Mohan India Limited, Kher Kalam, Delhi.
ix) The brokerage house knew that by doing fund based business
they are violating FMC guidelines also which clearly specifies that
the Broker must do only fee based business.
x) The UCL appointed agents to scout for prospective clients for
trading on NSEL.
To conclude, the brokerage house (and the DCB Bank) were lound acting in
concert with NSEL in misselling their fraudulent financial products. The
brokerage house was involved in unethical as well as illegal practices of
inducement, mis~epresentation, making false assurances, alluring clients to
earn brokerage .and commission income. In this process, there were
unlawful gains t~ Geofin Comtrade Ltd. and the DCB Bank while its clients
suffered losses.
4.2.10.4 MOTILAL OSWAL COMMODITY BROKERS PVT. LTD.(MOCBPL)
Motilal Oswal Commodity Brokers Pvt. Ltd. is one of the Member / Broker
(Non-DefaultingJ:registered with NSEL.
There were complaints inade by the clients of Motilal Oswal Commodity
Brokers Pvt. Ltd. Some ofthe complaints are as under: -
Complaint of Ketan Anil Shah
i) Motilal Oswal Commodity Brokers Pvt. Ltd. gave false assurances
about :the Exchange and also gave wrong and misleading
626

. I
.J_
I
•.1_
'••~l•
:J
J
,J
u
J
u
,J
J
..J
.J
'
.._,~[
; I
~ ..,)
I
732- SECRET
statements, leading to enticement for investment in the
Exchange's product.
ii) MOCBPL represented that the investments in the commodity
market through NSEL were safe, secure, regulated and
transparent and MOCBPL would ensure that his investments were
sound and safe.
iii) MOCBPL represented that the trading on the NSEL Exchange was
a good: investment option which would give safe and secure pre
tax returns of 12% to 16% per annum;
iv) MOCBPL represented that investing in contracts traded on the
Exchange was completely safe arbitrage product/ opportunity;
v) MOCBPL changed the Unique Client Code (UCC) on a routine basis
and the purchase was effected in dummy codes / proprietor codes
without giving any information to the concerned client;
vi) MOCBPL took Power of Attorney (POA),
a) to give,effect to the trades conducted through NSEL,
b) including giving/ receiving delivery instructions for the
C0!"1modities,
c) discharging the financial obligations undertaken by Ketan
Shah,
d) to pledge the commodities,
e) handling the warehouse receipts
f) and any other acts necessary to give effect to trading with
NSEL
vii) MOCBPL after obtainingthe power ofattorney used the POA to his
finandai detrimental
viii) Rampant illegal practice on part of the brokers of name lending,
PAN J~nding, KYC lending and making forged Joan documents
without the knowledge of trading clients and trading with their
money on NSEL
ix) Ketan:Shah had given a statement before EOW, Mumbai Police. In
this statement, Ketan Shah has alleged that after trading was
627

·[
J
d
;J
.J
,]
' j
J
I
,.J
,.J
733 SECRET
susperided on NSEL, MOCBPL manipulated his ledger accounts ir,
an attempt to cheat and defraud him and also sent him a
fabric~ted ledger which was different form the original one. He
has also alleged that MOCBPL did that in a bid to avoid their
liability towards Ketan Shah and to place the entire burden of
repay~ent ofthe dues owed to Ketan Shah upon NSEL.
Ketan Shah was summoned by the investigation team on 1st and 5th March
2018. Statement of Ketan Shah was recorded on oath, as per provisions of
section 217 of the Companies Act, 2013. In his statement he explained the
modus operandt of Motilal Oswal Commodity Broker Pvt. Ltd. (MOCBPL)
and Phillip Commodities India Pvt. Limited related to enticing new clients
for trading in p:aired contracts on NSEL exchange. Ketan Shah in his
statement, interalia, stated that :-
► MOCBPL obtained power of attorney from Ketan Shah and the broker
was controlling all the aspects of NSEL Trade. The broker was taking
decisions abouttrades and even yield.
►. He was merely providing the finances.
► He started NSEL Investor Action Group because two of his brokers who
had assured him fixed and riskfree returns did not return his money. The
assurances made were false. There were no physical commodities.
► The brokers had told him that they have visited the designated
warehouses ofNSEL and goods were available.
► He was neither given physical commodities not title of physical
commodities.
► He felt cheated by his brokers and stated that the two brokers have
committed criminal breach oftrust
► He submitted various documents including brokers presentation,
deliveryallocation report, commontrades, statement ofAjayMenon, COO
of MOCBPL, the VAT invoices, etc. These are collectively annexed as
Annexure,S4.
628

,J
,.J
,J
731.r SECRET .
a) Complaint ofMoti Dadlani
There was another complaint made by Moti Dadlani against MOCBPL. The
complaint inter alia stated that :-
i) MOCBPL and its associate company Motilal Oswal Financial
Services Limited (MOFSL), which is a Non-Banking Finance
Company (NBFC) had fraudulently used his account on
NSEL.. Moti Dadlani came to know that apart from the actual
amount invested by him i.e. Rs. 50,00,000/- an additional amount
Rs. 1.82 crore was invested in his name by MOFSL, using forged
loan documents.
ii) .MOCBPL & its associated company MOFSL fabricated various
documents such as Joan agreements, promissory notes etc.
forging his signatures. It is clear that MOFSL, a NBFC had directly
given funds to MOCBPL (broker) showing them as Joans in his
name and then illegally invested those funds on NSEL by using his
account in an unauthorized manner.
Ajay Menon, Director, Motilal Oswal Commodity Brokers Pvt. Ltd, was
summoned by the investigation team on 24.01.2018, Ajay Menon did not
attend and submitted request for adjournment Anupam Shivraj Agal
Director, Motilal Oswal Commodity Brokers Pvt. Ltd was also summoned
and he appeared before the investigation team on 24th, 25th
' 29th, and 30th
January 2018 and his statement was recorded on oath, as per provisions of
section 217 of the Companies Act, 2013. In this statement, Anupam Shivraj
Agal interalia stated that:
► He accepted thatthey became Member ofNSEL on 30th August 2011 and
started trading from 6th October 2011.
► Before each trade delivery ofcommodities was given to NSEL.
► The brokerage house was the member ofMCX and NCDEX.
► The brokerage house has done proprietary trades.
629

'.]
11
'l
<L
l
J.,
,l,. :,-
1
, l
'..]
t]
CJ
(_j
(J
;_J
(I
73S' SECRET
► Client's signature was not taken on the dotted line without informing the
risks parameters.
► Majority ofthe clients were investors.
► He denied that clients were informed about Fixed Returns, Vyaj badla or
Assured Returns
► Client code modification was done by MOCBPL
► They have provided funding to clients through one of their group
company, namely, Motilal Oswal Financial Limited.
► MOCBPL has invested money in commoditytrades.
► MOCBPL, itself started acting as C&F agents for their clients from the
month ofJuly 2013.
Statement ofAnupam Shivraj Agal is annexed as Annexure SS.
The statement of Mr Agal is contradictory to the reply given by MOCBPL to
EOW in response to allegations made by Ketan Shah, a client of MOCBPL
wherein it is stated that: -
i) The concept of Paired Contracts was informed to the Traders by
MOCBPL.
ii) The Traders were interested in fixed returns in the range of 12 to
15%pa
"Investors themselves opted for same day paired contract to
avoid margin money that was compulsory in case of unilateral
sale transaction. Hence, they avoided delivery and offered early
pay in for the same goods they have purchased as per the NSEL
mechanism andget the creditfor the margin immediately"
The investigatidn team analyzed the responses given by the clients
registered with MOCBPL in response to the SFIO questionnaire.
i) 133 clients who were registered with MOCBPL responded, Out of
this, 65% i.e. 87 clients stated that they were informed about the
opportunities on NSEL platform by their broker.
630

:,L
J
(l
:1
l
:J,
1
J
:J.
J
.1
]
: I..,
.J
J
1
J.
J
•._L
.]
:]
u
Cl
J
0
u
,J.
; I
u
~J
: I
736 SECRET
risk on NSEL", out of 133 clients, 82 clients were clear that their
broker did not inform about the risk of trading on NSEL or they
did not remember having been told about this.
iii) On being asked "Whetheryour broker assured you that trades will
trades", majority ofthe clients answered in the "Affirmative".
majority of the client answered in the "Affirmative".
v) On being asked "Whether your broker asked you to sign on the
dotted line without explaining any risk factors on NSEL trading",
out of.133 clients 57 clients were clear that their broker did not
inform about the risk of trading on NSE.L or they did not
remember having been told about this.
gains to Motilal Oswal Commodity Brokers Pvt. Ltd while its clients suffered
losses.
Investigation also revealed that Motilal Oswal Commodity Brokers Pvt. Ltd
and their associate companies have written offthe amount claimed by them
from NSEL and adjusted such losses against the income for subsequent
years. Thus, the ·brokerage house not only colluded to cheat its clients but at
the same time reduced its tax liability.
631

.J
J
J
J
;,J
J
J
,j
J
J
.___.
I
,.I
'--J
7 3f7 SECRET
4.2.10.5 PHILLIP COMMODITIES INDIA PVT. LTD., (PCIPL)
Phillip Commodities India Pvt. Ltd., is one of the Member/ Broker (Non-
There were complaints made by the clients ofPhillip Commodities India Pvt.
Ltd. Some ofthe complaints are as under: -
Complaint of K".tan Anil Shah
The complaint :of Ketan Anil Shah was against both Motilal Oswal
Commodity Brokers Pvt. Ltd and Phillip Commodities India Pvt. Ltd. The
contents ofthe c?mplaint have already been discussed under the section of
Motilal Oswal Commodity Brokers Pvt. Ltd. For PC!Pl, his grievance were
similar. As mentioned above, Ketan Anil Shah was summoned by the
investigation team on 1st and 5th March 2018 and his statement was
recorded on oath as per provisions ofthe Companies Act, 2013. He explained
the modus operandi of PCIPL related to enticing new clients for trading in
paired contracts.on NSEL exchange. Ketan Shah in his statement, interalia,
stated that:
► He came to know about NSEL through his broker Phillip Commodities
India Pvt Ltd. who were his wealth managers and investment advisors.
Phillip Capital informed him that NSEL trading is a safe product for
commodity investment/ arbitrage.
► Commodity trades were conducted in the name of Phillip Commodities
India Pvt Ltd., however, _the email correspondence was from
PhillipCapital (India) Pvt. Ltd. (PCIPL, which is a subsidiary of
PhillipCapital India Pvt Ltd.)
► Phillip Capital (India) Pvt Ltd. gave a power point presentation of NSEL
and informed him that it can generate 12 to 16% return.
► Phillip Capital (India) Pvt Ltd. assured him thatthey had used a company
called "Amin Lab" to check quantity/ quality ofstock lying at NSEL.
632

·]
J
d
Cl
.J
J
J
.J.
I
d
738 SECRET
'
► He was neither given physical commodities not title of physical
commodities.
Statement ofKetah Shah is annexed as Annexure S4.
Vineet Bhatnagar, Director, Phillip Commodities India Pvt. Ltd. was
summoned by the investigation team. In response, the company requested
that statement of Rajendra Manohar Bhambhani another Director, who is
well versed vith the matter, be recorded. Accordingly, statement of
Rajendra Manohar Bhambhani was recorded on 24th, 25th and 29th
January
2018 on oath as per the provisions of section 217 of the Companies Act,
2017. In his statement, Rajendra Bhambhani, interalia, stated that: -
► PCIPL acqt;1ired the membership ofNSEL in September 2011.
► PCIPL did not market NSEL product to its clients.
► PCIPL did: proprietary trades in Traders Contract and did not take
delivery ofcommodities traded
► PCIPL did 1,10t have VAT registration and IBMA was their VAT agency.
► The delivery of commodities received against T+2 were given as early
pay-in in 't+25 contracts.
► Warehousing-charges were waived by NSEL in case early pay-in is done
bythe cliejlts,
► PCIPL had 500 clients who traded on NSEL and out of them 330 had
outstandi}1g as on 31st
July 2013.
► No Tri-pa1;tite agreementwas entered into between PCIPL, the IBMA and
the Clients.
► Several of:PCIPL's clients, namely, Ketan Shah, Khemisati Exims Pvt. Ltd,
Malvika Agarwal, Responsive Industries Ltd., Aayush Agarwal,
Vidhushree Agarwal, Nishita Agarwal have filed complaints against their
brokerage house.
► He accepted that their brokerage house has done client code
modificatibns.
Statement ofVineet Bhatnagar is annexed as Annexure S6.
633

..[.._.;
I •-.l•
,J
J
d
]
,J
(]
.J
,J
,J
u
CJ
C:l
d
:J
_]
'"J
, 'l"-
739 SECRET
The investigation team analyzed the responses given by the clients
registered with PCIPL in response to the SFIO questionnaire.
i) 189 clients who were registered with PCIPL responded. Out of
this, 42% i.e. 78 stated that they were informed about
opportunities on NSEL platform by their broker.
risk on NSEL", 86 clients were ·clear that their broker did not
inform about the risk of trading on NSEL or they did not
rememb_er having been told about this.
give Fixed Returns or "Vyaj Badia" or the trades are Ready
Forward trades", majority of the clients answered in the
Affirmat;ive
majority"ofthe client answered as "Yes".
v) On bein'g asked "Whether your broker asked you to sign on the
dotted line without explaining any risk factors on NSEL trading."
61 clients were clear that their broker did not inform about the
risk of trading on NSEL or they did not remember having been
told about this.
misrepresentati01;1, making false assurances, alluring clients to earn
gains to Phillip C~mmodities India Pvt. Ltd. while its clients suffered losses.
634

1
d
,J
Cl
]
J
J
u
·-...,,.
-1
,J
d
J
·.J
:'I~.
u
:J
J
.J
,._J
CJ
,J
( __]
,J
u
J
:J
I·-._)
CJ
: I
7/.tO SECRET
4.2.10.6 INDIA NIVESH COMMODITIES PVT. LTD. (INCPL)
India Nivesh Commodities Pvt. Ltd is one of the Member / Broker (Non-
Radheyshyam B<!jranglal Maheshwari, Director, India Nivesh Commodities
Pvt. Ltd. was summoned by the investigation team. He appeared before the
investigation team on 2nd and 3rd November 2017 and his statement was
recorded on oath, as per provisions of section 217 of the Companies Act,
2013. In his statement, Radheyshyam Bajrangial Maheshwari interalia
stated that:
► No delivery ofcommodities was ever taken bythe clients.
► Their clients were nottraders.
► The trade conducted was for fixed returns.
► The transactions were done on the same day.
► No tri-par:tite agreement exists between their brokerage house, their
client and .IBMA and still IBMA was acting as VAT and C&F Agent
From the statement of Radheyshyam Bajranglal Maheshwari and the
documents supplied by him, it is observed that
i) The Account Opening Form does not specify any risks pertaining
to NSEL trading.
ii) Both the brokerage house as well as the clients knew that they are
trading for fixed returns
iii) No physical delivery of commodities was ever taken,
iv) The brokerage house knew that client is not registered with VAT
department, still they allowed the client to trade in commodities
and without the client's permission allowed IBMA to act as C&F
Agent for VAT.
v) The brokerage house knew that the paired contracts are being
traded for fixed returns.
635

,__,
I
'-l
'.J
' .J
I
,J
'_j
7/f-1 SECRET
vi) The br:okerage house did not provide sufficient information to
their client about the risks involved in NSEL trading and gave a
docunient which was not at all connected with NSEL trading. The
risks informed to the clients were that of Future / Derivative
Trading. Thus, the brokerage house was informing its clients that
NSEL trading was similar to Future / Derivative trading which is
a clear cut case of mis-representation, misinformation and mis-
selling;the product.
gains to India Nivesh Commodities Pvt. Ltd. while its clients suffered losses.
4.2.10.7 INTEGRATED COMMODITY TRADES PVT. LIMITED (ICTPL)
Integrated Commodity Trades Pvt. Limited is one of the Member / Broker
(Non:Defaulting) registered with NSEL.
Investigation revealed that one of the client of Integrated Commodity
Trades Pvt. Limited, namely, Ashwin J Shah had lodged an FIR against
Integrated Commodity Trades Pvt. Limited. In the FIR, following points are
raised: -
i) lnteg~ated Commodity Trades Pvt. Limited assured that they had
conducted various checks on various warehouses ofNSEL and the
commodities did exist as per the exchange claims,
ii) All tr;i.des executed would be backed by goods of equal amount;
Existence ofa Settlement Guarantee Fund ("SGF") to reimburse us
in case of any default.
636

J.
.. 1'- ..,
,J
l
J
1
J
.L
.J
.I.
J
J
]
J
J
J.
J
]
J
.]
J
,J
,j
J
.J
'.l
7t,2.. SECRET
iii) Misrepresented that they would ensure that the commodities
were properly checked, stored, valued and would retain the
warehouse receipt as per the said Agreements and for further
trading on our behalf.
iv) The brokerage house repeatedly induced by informing that the
trades are absolutely legal and the clients must invest more
money.
v) The brokerage house committed a criminal breach oftrust.
vi) The brokerage house forged / fabricated documents to falsely
show that the goods were in-fact being transacted properly and
/or delivered
vii) In several cases, the brokerage house conducted the buy trade
first without the order of customer in some dummy name and
later on transferred that trade to the end customer.
viii) The bi;okerage house indulged in changing Unique Client Code on
a routine basis.
ix) The brokerage house intentionally modified the Member-Client
Agreetuents where they are safeguarded from any mishaps that
take place and making the investors liable if anything were to go
wrong.
Kuna! Khaneja, Director of Integrated Commodity Trades Pvt. Limited was
summoned by the investigation team. He appeared before the investigation
team on 7th June and 31st October 2017 and his statement was recorded on
oath, as per provisions of section 217 of the Companies Act, 2013. In his
statement, Kuna! Khaneja interalia, stated that:
► He informed his clients that the commodities delivered by the sellers /
depositors are keptatNSEL owned and controlled warehouses and NSEL
got license from the Govt and NSEL trades were approved by the Govt
Regulator.
637

,I'·
d.
,1.
,J
J
J
j
J,
J.
1
J
J
]
J
.J
J.
<1
Q
:J
,J
J
',.J
,]
J
CJ
7"13 SECRET
► NSEL Exchange provide counter party guarantee in terms of quantity,
quality and payment.
► The Exchange guarantees performance of all contracts executed on the
Exchange platform.
► Trading in:NSEL paired contracts gives fixed return of about 11 to 12%
per annum.
► His brokerage house provided delive1yallocation reportto its clientalong
with trade:confirmation over the phone/ email.
► NSEL informe,d thatVAT compliances will be undertaken by IBMA, which
is also a sister concern of NSEL.
► Though, his client used IBMA as a VAT Clearing and Forwarding Agent,
no tri-partite agreement contract was signed between the client, ·rnMA
and his brokerage house.
► His brokerage house did not sign any agreement with IBMA on behalf of
his clients:
► AmitMukherjee along with T. Ravi Shankar of NSEL gave presentation to
his clients on behalfofNSEL.
► His brokerage house was a member of MCX also and he was aware that
delivery mechanism on MCX was different from that of NSEL.
► For delivery of commodities, he simply trusted the name and
managem~nt behind NSEL.
► The Exchange officials used to send an excel sheet where the details of
'
both T+2 ;and T+25 trades were given along with return on the trade
around 11 to 12%.
► On being asked as to which Exchange "givesyou a calculation ofreturn on
your trades".
► To whicn he answered "No Exchange".
► He was further asked what made you believe on NSEL especially on
Commodities.
► He believed that the trades were backed by commodities on NSEL, which
were stored in NSEL accredited warehouses. This was also mentioned in
the DeliveryAllocation Report.
638

:i
(L
!1
:L,,
:1
,:L
J
1
·1
J
'-.J.
,]
~l
,·•1
,...
I',
7"'1 SECRET
► At this point, he was again asked even if ''it is backed by commodi/Jl, how
an Exchan{le can tel/you about returnso/11 to 12%"
► He answered "difference o/11 to 12% perannum was the difference in the
prices oJT+2 and T+25".
► He did not physically handover the warehousing receipt to his clients in
'
'
lieu ofpay-in ofcommodities made.
► The trades were for fixed return.
► In hindsightthese trades can be called financial transactions.
StatementofKunal Khaneja is annexed as Annexure S7.
To conclude, the:brokerage house was found acting in concert with NSEL in
'
misselling their'fraudulent financial products. The brokerage house was
'
gains to Integrated Commodity Trades Pvt. Limited while its clients suffered
losses.
4.2.10.8 JM FINANCIAL COMMTRADE LIMITED (JMFCL)
JM Financial Commtrade Limited is one of the Member / Broker (Non-
'
'
Directors of JM Financial Commtrade Limited were summoned by the
investigation team. In response Nirav M Gandhi, Head of Operations in JM
Financial Services Limited, holding company of JM Financial Commtrade
'
Limited appeared before the investigation team on 14th June and submitted
I
a certified copy of the Board Resolution authorizing him to testify before
'
SFIO. His statement was recorded on oath, as per provisions of section 217
ofthe Compani~s Act, 2013. In his statement, Nirav Gandhi stated that:
► JMFCL to:ok membership of NSEL in 2012 to meet the growing demand
'
amongstits client's base and avoid loss ofclientele owingto not providing
'
639

...I
7//6 SECRET
as option to invest (emphasis added) on NSEL. The membership was
taken at the demand of several High Networth Individual Clients (HNI)
who were:already members ofother commodity exchanges.
► Presentati.on was prepared on the basis of the information and features
'
ofthe product as made available in the presentation given by NSEL.
► The Clients did not authorize us to file the VAT returns. IBMA was filing
the VAT returns on behalf of the clients. IBMA was introduced to us by
' '
NSEL as the C&F agency to undertake the clearing of commodities and
VAT compliances.
► When ask~d whether JMFCL had authority to further authorize anybody
else for VAT returns in case ofclients
► JFCL did not obtain any authority from its clients to further authorize
anybody for VAT returns or for filing their VAT returns. Further, there
'
was no tripartite agreement between the client, IBMA and JMFCL
► He accep~ed that JMFCL did not have VAT registration number.
► Two oftheir clients have complained and sought paymentfrom JMFCL of
their outstanding dues from NSEL.
► JMFCL informed the clients about the indicative returns available in
various dontracts based on the then prevailing prices on the trading
terminal:
►- He deni~d informing any client about their brokerage house making
payment in case NSEL defaults. In the pre'sentation to the clients they
carried a.n extract of the Bye Laws of NSEL, which inter alia stated that
NSEL is alegal counter party guarant,x of all trades.
► He accepted thatJMFCL was doing proprietarytrades. Currently Rs 15.50
crore is ,outstanding and for that the company has filed a criminal
complaint againstNSEL and its Promoters. (Emphasis added)
'
Statement of Nirav Gandhi is annexed as Annexure SB.
The above statement was verified viz-a-viz information provided by the
clients of JM Financial Commtrade Limited in response to queries raised by
SFJO.
640

,,,
,J
,j
d
:]
,1
:,J
J
d
,J
:J
J
j
]
.,j
Cl
7'r' SECRET
i) 76 clients who were registered with JM Financial Commtrade
Limited responded. Out ofthis, 44 stated that they were informed
about opportunities on NSEL platform by their broker. Thus
58.00% clients were informed by JM Financial Commtrade
Limited
ii) On being asked "Whether your broker asked you to sign on dotted
line without explaining any risk factors on NSEL trading, out of 76
clients 38 clients were either clear that their broker did not
inform ,about the risk of trading on NSEL. or they did not
remember having been told about this.
iii) On being asked "Whether your broker informed you about the
risk on,NSEL", out of 76 clients, 55 were either clear that their
broker did not inform about the risk of trading on NSEL or they
did not remember having been told about this.
iv) On being asked "Whetheryour broker assured you thattrades will
'
trades"; majority ofthe clients answered "Yes".
v) On being asked, "Whether your broker assured you to refund the
majority ofthe client answered in "Yes".
From the above,; it can be seen that JM Financial Commtrade Limited
indulged in the following: -
i) Clients were allured with fixed returns
ii) No physical delivery of commodities was ever taken by their
clients •
misrepresentation, making false assurances; alluring clients to earn
641

l
J
CL
.J
(L
G.
iJ
Cl
:J
l
(J
~l
~.l
J
Cl
CJ
<l
I.I.
'-~!
;J
7'f 1 SECRET
gains to JM Financial Commtrade Limited while its clients suffered losses.
--------~--------------······· ··•·····
4-.2.10.9 NIRMAL BANG COMMODITIES LIMITED (NBCL)
Nirmal Bang Commodities Limited is one of the Member / Broker (Non-
Deepak Patel, Director ofNirmal Bang Commodities Limited was summoned
by the investigation team. He appeared before the investigation team on
25th Oct 2017 and his statement was recorded on oath, as per provisions of
section 217 ofthe Companies Act, 2013. In his statement, Deepak Patel, inter
alia, stated that: :
► NBCLhad been a member ofNSEL from September 2008. Their company
introduced 1000 - 1500 clients. 238 clients registered with their
brokerage:house have lost an amount ofapproximately Rs. 46 crore.
► The brokerage house is a member ofMCX also and verywell aware.ofrisk
parameters involved on such exchanges.
► Contract on NSEL is a forward contract and roll over is not possible.
► On being asked, ''Why is it so that on NSEL platform one party always
gains while the other party always loses",
► Exchange platform is for buyingand selling. Thereforethe question ofone
party always gaining and other party loosing does not arise.
► On being asked, "Whether any ofthe clienthave lost money",
► None of the clients have Jost money in the paired contracts, but money
has been stuckin exchange due to exchange default.
► None oftheir clienthave received physical delivery of commodities.
► He was not aware about whether their clients are traders or investors
► The transactions were arbitrage transactions where profits were Jocked
the moment buy/ sell transaction took place.
64-2

Findings on the brokers as per sfio 11

Findings on the brokers as per sfio 11

Recommended

Recommended

More Related Content

Similar to Findings on the brokers as per sfio 11

Similar to Findings on the brokers as per sfio 11 (20)

More from mrchavan143

More from mrchavan143 (20)

Recently uploaded

Recently uploaded (20)

Findings on the brokers as per sfio 11