Letter to CBDT

1. Ref. No.: NSEL/CEO/17-18/0064
April 29, 2017
Shri. Sushi! Chandra, IRS
Chairman
Central Board of Direct Taxes
Ministry of Finance
Department of Revenue,
North Block,
New Delhi - 110001
TM
National Spot
Exchange gy
-4/7n
1n
4‘..-
Electronic Spot Market
Sub: Payment settlement crisis on NSEL trading platform
1. All the Benami Black Money (approx. Rs. 4000 - 4500 crores) should go to the
"Pradhan Mantri Garib Kalyan Yojana"
2. Black money & Benami Act Violations by 13,000 front entities on NSEL platform
3. The Hon'ble Bombay High Court in its order dated 22 August 2014 has called
them as "bogus trader".
Dear Sir,
In the context to the subject, at the outset we have to humbly state that the number
"13000 investors" is being repeatedly used only to gain sympathy by claiming
themselves as poor, gullible, illiterate individuals. Infact, they have traded derivatives
contracts & suffered due to the payment crisis at NSEL, which was created, fueled and
not solved while solvable by the Forward Markets Commission.
We would also like to humbly submit as below-
i. The genuineness of the so called "13,000 investors" has not been established
yet by any agency
ii. There are clear traces that majority of these "13000" are front entities
iii. Benami black money through NBFC and Shell (Khoka) companies of brokers has
been routed/channeled into the NSEL trading platform
Page 1 of 5
National Spot Exchange Limited
6th floor, Chintamani Plaza, Chakala, Andheri Kurla Road, Andheri (East), Mumbai-400099.
Tel: +91-22-4905 9000, 6761 9900 I Fax: +91-22-6761 9931 I info@nationalspotexchange.com I www.nationalspotexchange.com
CIN No.: U51100MH2005PLC153384

2. Letter: NSEL to Central Board of Direct Taxes
Ref.No.: NSEL/CEO/17-18/0064 dated 29.04.2017
TM
National Spot
li Exchange IY
Electronic Spot Market
The table below gives a comparison of the Corporates (companies & partnership
firms) and Individuals, who have outstanding exposure on the NSEL platform.
All amounts in crores
Categories of Traders
with Outstanding
Companies
Partnership
Count
&
firms
--
Individuals
Amount
Total
Count Amount
T-
Amount Count
Less than 2 Lakhs 5 0.06 603 9.28 608 9.35
Between 2 to 10 Lakhs 168 10.39 6282 336.68 6450 347.08
Between 10 Lakhs to 1
Crore
633 256.28 4263 1,183.38 4896 1,439.66
Above 1 Crore 421 2560.96 360 1,046.55 781 3,607.51
Total 1227 2827.70 11508 2,575.89 12735 5,403.59
% Representation to
Total
10% 52%
The above is as per the data submitted by brokers to NSEL
The table clearly establishes that handful of corporates hold majority of the exposure
and the exposure is concentrated in the hand of minuscule count of the clients, which
is summarized as below
• 781 derivatives trader with Outstanding above Rs 1 Crore each, represent Rs
3600 crores (67%) of the Total Outstanding.
• Out of these, 421 (54% of 781) are Corporates, with Outstanding above Rs 1
Crore each, represent Rs 2560 crores (71% of Rs 3600 crores)
• Overall 1,227 Corporates i.e. 10% of 13,000 represent Rs. 2827 i.e. 52% of the
Total Outstanding.
From the analysis of the table provided above, findings in the EOW Remand Note,
SEBI (market regulator) SCN to brokers, Income tax notices to the traders and
brokers in 2013 & 2016, observations of Hon'ble High Court appointed Committee
(HCC), numerous complaints of clients against their brokers, and limited in-house
analysis, we have assimilated and concluded as below:
Page 2 of 5

3. Letter: NSEL to Central Board of Direct Taxes
Ref.No.: NSEL/CEO/17-18/0064 dated 29.04.2017
TM
National Spot
11 Exchange gY
Electronic Spot Market
i. As per SEBI guidelines, definition of retail is less than Rs 2 lakh exposure and HNI
is more than Rs 10 lakhs exposure. We don't see the derivatives traders
("investors" as they are being called) to be poor, gullible, or illiterate individuals,
as 781 entities' have combined exposure of about Rs. 3,600 crores i.e. 67% of
total exposure, which on average is above Rs 8 Crores. These can't by classified as
poor by any measure.
ii. The trading clients have been lured by attractive schemes offered by their
brokers by a funding scheme to an extent of 80% — 90% from NBFCs to trade in
these derivatives contracts. Further, the funding was totally disproportionate to
the net worth and income level of these clients. Derivatives traders with an
income of just Rs 10 lakhs have been funded to an extent of Rs 10 crores. In fact,
the clients have lent their PAN and name for higher returns.
iii. The financier remained the ultimate beneficiary as they have used the name and
PAN of these derivatives traders. The source and color of money of these
financiers remains questionable.
iv. Last mile ultimate beneficiaries with questionable source and color of money are
just 50 — 100 NBFCs and shell (khoka) companies, which incidentally appear to
have received the money from Kolkata and Jodhpur through layering and color of
money is black.
v. None of the statutory filings done by these derivatives traders have confirmed
that they have invested in equity, debentures or fixed deposit of NSEL and hence
calling themselves as NSEL "investors" is with a malafide intention to
misrepresent facts. They are all derivatives traders, who have traded in forward
contracts of one day duration (commodity derivatives contracts) on a regulated
platform approved by the DCA/ FMC with full knowledge of the risk with open
eyes through their brokers.
vi. It has later come to notice that the father of the main complainant (Mr Pankaj
Saraf) had signed back door deal with one of the defaulter to settle his
outstanding, which proves a nexus with the defaulter. There could be many such
deals between such unscrupulous traders and the defaulters.
Page 3 of 5

4. Letter: NSEL to Central Board of Direct Taxes
Ref.No.: NSEL/CEO/17-18/0064 dated 29.04.2017
TM
National Spot
liExchange aY
...n 41.--
—•21!...09
7T4111n
16,—
Electronic Spot Market
vii. NSEL had prayed for priority payments to the needy and Sr. citizens in the HCC,
which has been vehemently opposed by the unscrupulous HNI traders who
represent the so-called investor groups, who generally wear the cloak of poor,
gullible, illiterate individuals. This clearly establishes their true identity, selfish
interest and hidden agenda.
viii. Probably under the pressure from these influential, affluent groups, some of the
derivatives traders who had filed complaints against their brokers for misusing
their KYC and unauthorized funding have subsequently withdrawn their
complaints and backed out from pursuing those cases.
ix. These highly motivated and vested interest groups have cursed and blamed
everyone including the Government officials, bureaucrats, judiciary, investigating
agencies etc. except for themselves and their greed.
A pictorial depiction of the possible transaction cycle is provided at "Annexure - 1", for
illustration purpose.
We believe, the present Government when it is seriously attempting to clean the
economy off black money, will not side with any black money dealer and operator.
It may please be noted that, the full money trail of Rs 5600 crores has been established
to 17 defaulter groups, of which 7 defaulter groups account for Rs 4000 crores (80%
plus of total amount) and their assets of Rs 6000 crores has been attached by the
EOW, Mumbai Police. List of defaulters is provided at "Annexure - 2".
All the agencies EOW, ED, CBI have confirmed no money trail or proceeds of crime to
NSEL or its parent company.
We are fully committed to pursue all legal means to recover the full money, out of
which all the genuine claimants should be paid their dues.
We request and recommend that after settling the dues to genuine claimants all the
Benami black money (estimated to be about Rs. 4000 - 4500 crores) should be
deposited in the Pradhan Mantri Garib Kalyan Yojana.
Page 4 of 5

5. Letter: NSEL to Central Board of Direct Taxes
Ref.No.: NSEL/CEO/17-18/0064 dated 29.04.2017
TM
National Spot
li Exchange it"
-..n 4i.-
-.....4.-
Electronic Spot Market
In the above background, we feel that the representatives of brokers and the 13000
front entities, who meet the Government officials regularly, are misleading the
Government with one sided view. Therefore in order to present the complete
narrative, we humbly submit, that as per the principles of natural justice, the
Government officials who met/meet the representatives of the brokers and the 13000
front entities should meet all the parties and not just one selectively. This would be in
the interest of a fair investigation and an independent judicial process.
Thanking you,
Yours sincerely,
For National Spot Exchange Limited
Prakash Chaturvedi
Chief Executive Officer
Encl: As above
Page 5 of 5