As per an Indian Express report, Congress President Rahul Gandhi and his sister Priyanka Vadra Gandhi rented their 4.69-acre farmhouse in the national capital to Financial Technologies (India) Ltd, when the then Congress government was investigating National Spot Exchange Ltd (NSEL), a company promoted by FTIL, for alleged market irregularities. FTIL was promoted by well-known commodity trader Jignesh Shah.
The rent agreement between FTIL and Congress leaders from the current generation of the Nehru-Gandhi dynasty was reportedly signed on the 1st of February, 2013, 10 months after a show cause notice was served to NSEL for alleged norm violations. FTIL had signed an 11-month lease agreement to rent Indira Gandhi Farm House in Mehrauli at a monthly rent of Rs 6.7 lakh. FTIL also paid an interest-free deposit of Rs 40.20 lakh vide two separate cheques of Rs 20.10 lakh each respectively to Rahul and Priyanka Gandhi, as per the report.
The Congress party has claimed that it was a routine business transaction and that the party took decisive action against FTIL and those associated with it.
The NSEL scam broke out into the public domain in July 2013. The NSEL was India’s first electronic spot exchange that was established with the purpose of serving as a single market for both manufactured and agricultural products across the country. The spot exchange first started operating in 2008 and subsequently, was granted a license by six states under the Agricultural Produce Market Committees (APMC) Act. Later in 2011, the Forward Markets Commission (FMC) was made the designated entity to regulate spot exchanges.
In April 2012, the FMC in a letter to the Department of Corporate Affairs (DCA) alleged that the NSEL had breached certain conditions and called upon the former to take necessary action against the latter. On the 27th of April, 2012, a show cause notice was issued o the NSEL by the DCA. The NSEL gave clarifications on the matter twice. But despite the clarification, the DCA wasn’t convinced and in 2013, it directed the spot exchange to halt launching of fresh and further contract till further instruction. The NSEL suspended the trading of all contracts on the 31st of July in the same year.
Eventually, 24 trading entities defaulted on their payment to the spot exchange, which amounted to around Rs.5,600 crores. The exchange reportedly did not have goods in its warehouses to back trades. Action against all parties involved began in 2016 after the Modi government came to power. As per reports, the Indian Bullion Markets Association (IBMA), a trading arm of NSEL itself, had the highest exposure at Rs.1,159 crore; Anand Rathi had an exposure of Rs.629 crore; India Infoline Commodities of Rs.326 crore; Geojit Comtrade of Rs.313.25 crore; Systematix Commodities of Rs.277 crore; Motilal Oswal Commodities of Rs.263 crore and Phillip Commodities of Rs.140 crore.
An audit report commissioned by the Securities and Exchange Board of India (Sebi) reported that 5 brokers could have laundered money through the NSEL. It was also reported that the audit report showed a clear nexus between NSEL, brokers and the defaulters. The entities involved were using the NSEL to legitimize funds earned through fraudulent means, the audit report claimed. The investigation also brought to light the brokers’ role in the scam, an issue previously highlighted by a committee appointed by the Bombay High Court.
In 2017, the Sebi issued a final show cause notice to five brokerage firms in the NSEL scam. The five firms were Anand Rathi Commodities, India Infoline Commodities (IIFL), Geofin Comtrade, Motilal Oswal Commodities, and Phillip Commodities. The brokers were accused of not meeting the “fit and proper” criteria and selling NSEL contracts by assuring too high returns without ensuring delivery. The brokers were also accused to have illegally modifying client codes to conduct multiple deals.
On the 1st of August, 2017, the Economic Offences Wing (EOW) of the Mumbai Police began dual forensic audits into the NSEL scam. Three chargesheets were filed in connection to the scam with the possibility of more as the investigation proceeded. On the same day, the NSEL proposed a plan to recover the money owed by defaulters through a joint effort by regulatory authorities, the exchange and the brokers involved.
In his reply to a question on the NSEL in February 2017, Arjun Ram Meghwal, Minister of State for Finance, stated in the Parliament that efforts were being made to repay the investors who had their money scammed. He stated, “EOW has reported that they have attached assets worth Rs. 8,583.05 crores approximately under the provisions of the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act). Rs. 527.19 crores have been distributed to the investors. 608 investors having invested less than Rs. 2 lakhs have been fully paid and 50% of the invested amount has been distributed to those investors who had invested between Rs. 2 and Rs. 10 lakhs.”
Meghwal stated further, “Investigations were initiated by the Income Tax Department in cases of members/brokers of NSEL and investors with substantial amounts with a view to verifying the source of investment and whether the profits arising out of such investments had been disclosed to the Income-tax authorities as per law. The results of the investigation were disseminated to the jurisdictional Assessing Officers for appropriate action. Further, information on 12735 and 9589 traders/brokers, suspected to have claimed bogus bad debts / violated provisions of section 44AB of the Income-tax Act, 1961 respectively were received from NSEL in June 2016. This information was disseminated to field authorities for appropriate action. Disclosure of information regarding specific taxpayers is prohibited except as provided under section 138 of the Income-tax Act, 1961.”
Furthermore, Meghwal replied that the Enforcement Directorate was also investigating the matter under the provisions of Prevention of Money Laundering Act, 2002 (PMLA). 21 Provisional Attachment Orders to the tune of approximately Rs. 1925 crores were issued as well.