the

TargeT
The decimation of JIGNESH SHAH S global empire.
How he broke the market monopoly and the price he paid.

SE BY
TH

SHANTANU GUHA RAY

L RD
HE EWO
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Dear friends,
It has been a highly satisfying journey for me as my sensational
investigative book, The Target, which was released amidst a lot of
excitement on January 9, 2017, became hugely successful with sales
around 50,000 copies. It also became the No 1 bestseller on Amazon,
and that, too, in the Business & Economy category.
The Target is a very serious investigation into a complex market
crisis that involves vested interests like a powerful Minister of the
then UPA government, bureaucrats and big brokers from the Malabar
Hill Club.
I had dug deep into this story for close to two years since I wanted
young India to realise how this unholy nexus had destroyed the spirit
of entrepreneurship and innovation symbolised by tech-evangelist
Jignesh Shah’s world class Exchange empire and his flagship 63
moons technologies limited, earlier known as Financial Technologies
(India) Ltd, a genuine Made in India story.
I have been deeply moved by Shah’s story.
Being an author with a purpose, I normally take things to their logical
end, and in this case, too, I will do it. I strongly feel that if India has to
realise its dream of Make in India, the spirit of entrepreneurship and
innovation must be freed from the clutches of the enemies of growth
and fair competition and allowed to flourish so that India does not
lose so heavily at the cost of greedy politicians.
As a journalist, I feel Shah has lived his life to celebrate the spirit
of innovation and democratization of markets. In the same noble
spirit, I am passing on my book to you all, so that everybody has a
free access to it, read it, and pass it on further to his or her near and
dear ones. If this free book realises this vision even partially, I feel,
The Target, would have achieved its purpose.
I have herewith attached the PDF version of The Target which can
also be downloaded from www.thetarget-book.com
Thank you,

Shantanu Guha Ray

nights of long knives
If things had gone Jignesh Shah’s way, he would
have been the Czar of Exchanges, a sterling exponent
of Prime Minister Narendra Modi’s ‘Make in India’
programme.
Shah pioneered creation of 10 new-generation regulated
multi asset (equity, commodity, currency, bond &
electricity) financial markets just in 10 years across
India, Singapore, Dubai, & Africa. No innovator has
been credited with such accomplishments across the
world. All the markets were No. 1 in India and No.
2 in the world. He was riding a crest from which very
few could have toppled him by way of talent and
performance.
But he had taken on institutional forces like the
National Stock Exchange (NSE) and invisible forces
that backed NSE including its political godfather,
corporates with vested interest, rich & powerful
brokers and FII fronts – known as the famed Malabar
Hill Club – by sheer performance to democratize the
market prosperity to masses. First, the Spot Exchange
crisis was created and then it was used by this very
Club that ganged up with influential politicians and
bureaucrats in Lutyen’s Delhi to get Shah arrested in
May 2014 on charges that have not yet been proved
in Court. Rather, the entire money trail has been
established to the 24 defaulting brokers against
whom there has been literally no serious action at all
as has been done against FTIL and Shah!
In May 2016, it was revealed that brokerages
responsible for NSEL payment crisis would come
under the scrutiny of market regulator SEBI. A
Bombay High Court appointed committee even
found brokerages guilty of submitting false PAN card
details of clients and trading without their consent.
In this book, seasoned journalist Shantanu Guha
Ray meticulously probes the motives of those who
shunted Shah out of Exchange businesses and what
it means for the politico-business climate of India.
BY SHANTANU GUHA RAY
FOREWORD BY SUHEL SETH
First published in India in 2016 by:
Shantanu Guha Ray

Copyright © Shantanu Guha Ray 2016

Shantanu Guha Ray asserts the moral right to be identified as the author of
this work.

ISBN: 978-1-68418-179-7

Printed and bound at Saurabh Printers, Okhla, New Delhi

Print and eBook distribution: AuthorsUpFront

All rights reserved. No part of this publication may be reproduced, stored in

a retrieval system, or transmitted, in any form or by any means, without the
prior written permission of the AUTHOR, or as expressly permitted by law,
or under terms agreed with the appropriate reprographic rights organisations.
Enquiries concerning reproduction outside the scope of the above should be
sent to the AUTHOR.
 Contents

Foreword 1
Preface – A Brutal War of Markets 5
1. Freedom’s Wait/Crush to kill Morale 21
2. Iceberg Talk: Devious Plotters of Hastinapur 32
3. Politics of India’s exchanges 57
4. The Enemy Within: The conspiracy deepens 78
5. A fistful of lies 96
6. KPK, Abhishek and their Ardh Satya 122
7. Kill NSEL: Stop Shah at any Cost 130
8. One V/s the World 147
9. Who plundered My Indraprastha? 153
10. The Final Assault 171
11. One part Galt, two parts Shah 194
12. The Emperor strikes back: ED and CBI 214

Conclusion 225
Glossary 231
 Foreword

I have gone through Shantanu’s book. And I felt Jignesh Shah so

closely resembles John Galt, the protagonist in Atlas Shrugged,
Ayn Rand’s hugely popular novel of the mid-fiftie . Galt, an
innovator, quits a motor company, saying he will fight the system
that punishes a man for using his mind, rewards complacency
and failure and penalises innovation and success! Like Galt, Shah
shook the most powerful unholy nexus of politicians, bureaucrats,
crony capitalists and brokers to democratize the markets.
The sinister plot to annihilate Shah is part of a long-drawn
strategy of powerful politicians, bureaucrats, rivals and some
of the most influential industrialists who have huge interest in
market operations.
As in the epic Mahabharata wherein the Kauravas ganged up to
kill Abhimanyu by sheer deceit, Shah, too, was cornered by this
powerful nexus to topple his empire.
The NSEL payment crisis was engineered by the FMC, the then
regulator of commodities markets, since it suddenly recommended
its abrupt closure in July 2013. The crisis was easily solvable but
it was not solved and deliberately kept alive to target Shah and his
FTIL Group.
After the crisis, different investigative agencies like the EOW-
Mumbai and the Enforcement Directorate established the entire
money trail of Rs 5,600 crore to the 24 defaulting brokers of NSEL.
No money trail was established to NSEL, FTIL or its promoters
as observed by the Hon. Bombay High Court in Shah’s bail order

1
after studying the charge-sheet and the Special Leave Petition
challenging the same was dismissed by the Hon. Supreme Court.
However, all concentrated actions were directed only at Shah
and the FTIL Group subsequently to eliminate them out of
Exchange space.
In order to hide and protect their own sins, the brokers used
the entire crisis to tear away Shah’s lifetime of work and dream.
The quantum of black money that was infused by the brokers
at NSEL through bogus KYCs, forgery and mis-selling of products
could actually be unveiled if investigated well and the broker-side
frauds for money-laundering would be exposed. It can unearth
the biggest modus operandi of conversion of cash to bank by
intermediaries. Exchange transactions were bank to bank. These
are the same brokers who have misused the Securities Transaction
Tax (STT) based profit and loss. It is noteworthy that STT was
introduced and implemented by P Chidambaram.
On the defaulting broker side, it is an open and shut case as
investigations revealed that they have converted from bank to cash
and the entire money trail has been established to them as stated
in the Parliament.
The STT-based misuse has happened at the stock exchanges and
particularly on equity derivatives segment of the National Stock
Exchange (NSE). It resulted in the biggest ever revenue loss to
the exchequer by way of profit and loss bills. It is hard to believe
that this activity and manipulation of Participatory Notes (PNs),
FII money flo , Singapore Nifty trading, etc. happened without
Exchange blessings, planted regulatory chief and involvement of
higher-ups to the last dot.
The powerful lobby of brokers which includes the defaulters that
laundered this black money was up against Shah in connivance with
certain bureaucrats and the higher-ups in the Finance Ministry of
the then UPA-2 government.
The high-power committee appointed by the Hon. Bombay High
Court has found numerous instances of client code modifications

2
by the brokers. Also, recently, the SEBI, too, issued show-cause
notices to top fi e brokerages in this regard.
Shah and his flagship FTIL Group set up 10 world class Exchanges
across a variety of asset classes such as commodities, equity,
currency, bond and electricity in just 10 years right from Africa,
Middle-East to South-East Asia. All these successful Exchanges are
No. 1 in India and No. 2 in the world.
MCX, the fi st listed Exchange to put India among top global
Commexes, has become the second largest commodity Exchange
in the world having created 1 million jobs in the country besides
contributing 1% to India’s GDP in less than a decade.
Shah’s companies were original IP-based innovations that did
not involve any subsidy from the government or the banks for
land, labour or taxes. For Shah, “excellence” was the only currency.
The financial market infrastructure and the ecosystem created
by Shah not only converted his “Made in India” ventures into global
multinational corporations (MNC) but had they been allowed to
continue and develop exponentially, India would have become the
‘Manhattan of the East’ as per his dreams.
The destruction of Shah by the political class and its favourite
bureaucrats would prove fatal for the 108 new-generation
entrepreneurs seeking to develop IP institutions and realize the
Prime Minister’s dream of Make in India.
These fi st-generation entrepreneurs alone would make India
compete effectively in the global market and rise to numero
uno position. By killing Shah’s ventures a wrong precedent has
been set that could drive away young entrepreneurs and foreign
investors also.
As a result of all these motivated actions, FTIL, a real ‘Made in
India’ story, was killed much before Make in India came into the
picture. It’s not only FTIL and its founder, Jignesh Shah, a fi st-
generation entrepreneur, but what has been killed is the spirit of
innovation and entrepreneurship.
It is a heinous crime in the new war-free world of economic

3
prosperity achieved through excellence to kill competition in
entry-barrier regulated industries that will result in depriving
India’s 100 million youth from access to capital through modern
new generation financial markets. This is as good as depriving
electricity to manufacturing units in an industrial economy and
data to enterprise in digital economy. Any such act of deprivation
is nothing but an act of sedition.
It takes a lifetime to create one successful exchange but Shah
created the country’s financial market infrastructure and tech-IP
ecosystem that included 18 IP technology institutes/organisations
within a short span of just 18 years.
The growing exchanges and the financial infrastructure that
was envisioned and delivered by him were national assets and as
such, certainly, there will always be a vacuum felt.
Shah was ahead of his times.
The country will have to pay an unmatched price for actions of
the then UPA-2 government to annihilate Shah, something that is
unknowingly being carried forward even today.
In this book, Shantanu has very effectively narrated the entire
saga of how India’s indigenous growth story was killed due to some
vested interests in corporate and bureaucratic circles much before
Make in India was ushered in.
The book is a great read for all those who want to understand
what went wrong with a success story called FTIL and the immense
value of IP-based institutions of global scale and how they were
crookedly demolished.

Suhel Seth is a social commentator, who has co-authored the book ‘Mantras
for Success: India’s Greatest CEOs Tell You How to Win.’ As a columnist, Seth
frequently writes for The Financial Times (London), The Hindustan Times and
The Indian Express. A passionate orator, Seth is a regular speaker at industry
meets and a visiting faculty at various Indian Institutes of Management.

4
 Preface

A Brutal War of Markets

On April 12, 2016, Ravish Kumar, arguably one of the finest

television journalists in India, walked into the offices of the Indian
Express to meet three editors who had worked on the Panama
Files investigation report, which took the world by storm.
In his inimitable style, Kumar asked, ‘So what do these
investigations mean for you, the reporters and the Indians who
feature in this list?’
‘We are just peeling the onion, helping you find the result. Unless
the onion is peeled, no one gets to see the true picture,’ quipped
Ritu Sarin. She was the daily’s top investigating reporter who had
been in the forefront of the report her newspaper had scooped
with a few global dailies and the Consortium of Investigative
Journalists, a US think tank.
The reports highlighted illegal cash stashed away by some of
the world’s richest in Western tax havens. The list, interestingly,
had a sprinkling of Indians, although their numbers were fairly
low in the rank.
Around the time the Panama files rattled the world, investigative
journalism was blitzed by sceptics calling reporters the world’s
biggest troublemakers in a news report filed by Press Trust of India
(PTI), India’s largest wire agency. This made many sit up and take
notice.

5
 It talked of how investigators probing the Rs 5,600 crore
payment fiasco at the National Spot Exchange Ltd. (NSEL), part
of the Jignesh Shah-promoted Financial Technologies India Ltd.
(FTIL), gathered fresh evidence suggesting routing of black money
by brokers through their sister concerns and associates, who had
all traded on the platform of the spot exchange.
To many in Mumbai and some in Delhi, it was like unravelling
various aspects of the case that had made headlines way back in
2013 at the NSEL and is currently being scrutinized by multiple
regulators and agencies, including the Securities and Exchange
Board of India (SEBI) and a high-level committee constituted by
the Hon. Bombay High Court.
The Bharatiya Janata Party (BJP) leader Subramaniam Swamy,
well known for his meticulous inquiry into some of India’s biggest
financial scandals, tweeted instantly. He was, in all probability,
encouraging the mandarins in Delhi’s power corridors to take a
fresh look at the payment crisis and seek the truth.
I had met up with Swamy at his residence, where he told
me scandals, whether financial or otherwise, need punctilious
investigation. ‘Otherwise, the truth rarely surfaces,’ said Swamy,
for whom the 1872 short story by Leo Tolstoy, God Sees the Truth
but Waits, was Bible.
The story – surprisingly – revolves around a Russian merchant
thrown into prison for twenty-six years for a murder he did not
commit. In gaol, he meets the person who had perpetrated the
homicide, but pardons him. The murderer confesses to his crime
to the jail authorities; however, the merchant dies even before his
release orders are secured.
‘Very few in India will tell you that they have deliberately
committed a crime; most wilfully suppress the truth. The onus is
on you to find out,’ said Swamy, broadly hinting that he himself
would be querying what he called ‘the untruths’ of the NSEL
payment crisis.
Swamy made no direct comments about the NSEL crisis. He

6
merely put a wire story as an attachment1 on his twitter account
that has 2.63 million followers.
What the news wire report said was indeed interesting.
‘A high-level committee constituted by the Hon. Bombay High
Court, in an interim order, has favoured investigation into source
of funds of the brokers and various investors, many of whom are
suspected to have been sister concerns or associates of the same
brokers.
Sources said the committee and other regulatory agencies have
found major discrepancies in the data and details submitted by
various investors as against the information provided by the NSEL.
These discrepancies include submission of wrong PANs (permanent
account numbers), raising doubt about source of funds.’
A senior regulatory official said the NSEL case is very unique
because brokers themselves appear to be the real investors,
whom Hon. Justice Mr. Abhay Thipsay had actually called “bogus
traders”2. There are also complaints against some brokers that they
created fake ledger accounts in the name of their clients without
their knowledge, sources said.
‘It has also been alleged that the funds of sister concerns of
brokers, which could have been derived from illegal sources, were
used to trade on the NSEL platform with an intent to legitimize
the said funds, which amounts to money-laundering’3, the senior
regulatory official told the wire agency.’
In Delhi, the news wire report about the role of brokers
brought back memories of those nightmarish days when multiple
ministries and market regulators acted in great haste and took the
most severely punitive and irretrievable action against NSEL and
its holding company FTIL, and initiated a forced merger of the

1 http://timesofindia.indiatime .com/business/india-business/NSEL-scam-Whiff-of-
black-money/articleshow/51771618.cms
2 Order of Hon’ble Justice Mr. Abhay Thipsay dated August 22, 2014 in the Criminal
Bail Application No.1263 of 2014, Hon. Bombay High Court
3 https://medium.com/@ftilservices/brokers-under-the-scanner-in-nsel-scam-
6c25851e67e0#.omk6pbbex

7
two, besides forcing the promoters of FTIL to divest their stakes
and sell other globally acclaimed exchanges run by the group,
without even completing investigation or adjudication.
The wire agency report hit the newspapers almost two-and-a-
half years later, but by then the entire empire of Jignesh Shah, the
promoter of FTIL, which owned significant stakes in NSEL, had
come crashing down.
He was, figu atively, hounded out of business by a host of hasty
decisions taken by the previous UPA-2 government, headed by Dr.
Manmohan Singh, an economist with avid interests in the country’s
financial sector, including its stock and commodities markets. Why
was then Shah, who had actually built strong, active and healthy
commodity markets in the country, targeted, when no similar
decisions were taken against those involved in 2G and coal scam?
Shah took upon the stock exchange monopoly of the National
Stock Exchange (NSE) in India, the origination point of Participatory
Notes and black money, thereby challenging the most powerful
nexus of politicians, bureaucrats, crony corporate captains and
dubious brokers. In short, he was hitting at the very base of
India’s biggest market of white-collar criminals and black money
generation point.
But why Singh remained silent throughout the NSEL crisis is
an issue definitely worth pondering. Nonetheless, it’s important
to understand the psyche of the Indian markets fi st, and the way
hidden wars are fought by those who want to sustain their iron-
grip on the markets for life.
Most distressing is the way they control the markets, even at
the cost of destroying some of the finest, genuine examples of
Make in India, a tagline invented by none other than the country’s
current Prime Minister, Narendra Modi.
The Indian markets are replete with such examples of high-
handedness.
The fi st such crisis happened less than a decade after India
gained Independence, in the country’s cotton market, a burgeoning

8
sector that ensured cotton supplies across the country. The sector
was rapaciously monitored from the powerful corridors of Delhi.
In 1955, the president of East India Cotton Association (EICA),
Sir Purshottamdas Thakurdas, considered the strong man of the
Indian cotton trade, had objected to the direct intervention of the
Forward Markets Commission (FMC), in the cotton futures market,
giving rise to considerable litigation in the courts.
Thakurdas felt that, ‘the interference of the FMC in the cotton
trade, subsequent dislocation in the normal working of hedge
trading and the resultant fall in cotton prices were bound to
adversely affect the farmers, and the belief entertained by the
public that the prices of cotton are deliberately kept at low levels
in the ultimate interest of the mills will be strengthened.’
But nothing worked. On December 31, 1955, the central
government amended several bye-laws of EICA, and empowered
the Board of the Association and FMC to fix margins and limits on
trading in cotton futures. Subsequently, under persistent pressure
from the FMC, on January 6, 1956, the Board of the Association
prohibited trading in February 1956 and May 1956 deliveries of
cotton futures at prices exceeding Rs. 700 per candy, when February
1956 deliveries had already reached as high a level as Rs. 747 in
the fourth week of December 1955. Subsequently, the bye-laws of
EICA were further amended to empower the FMC to close out the
outstanding contracts in cotton futures. In exercise of these powers,
FMC closed out the hedge contracts for both February 1956 and May
1956 deliveries outstanding at the close of business on January 24
1956 at Rs. 700 and Rs. 686.50 per candy respectively, triggering a
disappointing chapter in the history of FMC.
The orders to close out the outstanding contracts to the FMC
came from the country’s fi st commerce and industry minister,
T T Krishnamachari4, who wanted the FMC to regulate futures

4 See Madhoo Pavaskar’s Saga of the Cotton Exchange, Second Edition, Cotton
Association of India, 2014, p 91.

9
trading in cotton with an iron hand. The then FMC Chairman,
W.R. Natu, a seasoned economist had no other option, but to listen
to his master, Krishnamachari, whose firm, T T Krishnamachari
& Co. Ltd. itself was involved, among others in cotton trading. Mr.
Krishnamachari was then the Minister for Commerce and Industry.
Apart from his involvement in closing out cotton futures contracts
in 1956, he was involved in the Mundhra Scandal of 1957, when he
was the Finance Minister, and had to resign after being implicated
by the Justice Chagla Commission.
Surprisingly, even then, the country’s Finance Minister had
a huge interest in the trading positions of the markets and was
considered a very active player who had influenced the market
regulator to virtually crush Sir P T who had nurtured and developed
the great cotton markets of India for more than three decades
and virtually made it reach its pinnacle of glory, turning cotton
as white gold for traders. But his great achievement came to a
naught when he, too, was crushed by the then FM and the market
regulator.
For the powerful ministers, the idea – even during the fifties –
was to get a grip on the economy through the markets that were
shaping up as the crux of the nation. After all, the mandarins of
power in Delhi were clear in their thoughts that control of markets
equalled a solid grip on the economy. The grip also translates into
economically beneficial decisions for one constituency against
another that is comparatively economically weaker. Sensitivity of
the timing of the decisions is also very crucial since these have
financial ramifications for various entities including the nation
itself.
Now, almost fifty-se en years after the FMC-triggered crisis
that engulfed the cotton futures trade in India, another Indian
minister, P. Chidambaram, the Finance Minister in the second
United Progressive Alliance (UPA) government, is in the thick of
a similar situation that launched a veritable crisis in the Indian
commodities market, destroying in the process some of the

10
finest exchanges created by a visionary to operate in India and
abroad. The act of the Finance Minister, Chidambaram, and his
‘quick to respond bureaucrats’, Dr. K P Krishnan (KPK), his then
Additional Secretary in the Ministry of Finance (MoF), and Mr.
Ramesh Abhishek, the then Chairman of the Forward Markets
Commission (FMC), sounded almost like the one pushed into
the cotton futures market by the country’s fi st Commerce and
Industry Minister. Throughout this book, it has been made amply
clear that by taking a series of decisions that went diametrically
opposite to the issue of NSEL crisis, the then Finance Minister and
a handful of bureaucrats messed up the whole show. If current
newspaper reports are an indication, then it will be amply clear
that the SEBI, in which the FMC was merged in September 2015,
is now taking those very same corrective measures to recover the
Rs 5,600 crore lost in the NSEL crisis. Hence, the reference to
Chidambaram and his men, who were then at the helm of affairs,
is certainly not out of place, and it is certainly not an allusion. In
my opinion, SEBI should also investigate that how much of this
Rs. 5600 crore is black money routed by few but very powerful
brokers, for because of these few the whole industry is getting
bad name.
The million-dollar question now is simple: Can the clock be
turned back? If the answer is a big NO, then the corollary to the
fi st step is another question: Will those who perpetuated the crisis
ever be punished?
Wasn’t it the push of K P Krishnan that forced the Ministry of
Corporate Affairs (MCA) to order the unwarranted and unlawful
amalgamation of the National Spot Exchange Limited (NSEL), a
model exchange that provided a transparent electronic trading
platform for spot trades to farmers and other physical market
functionaries across the country, with its parent, the well-
established, leading software technology company, the Financial
Technologies (India) Limited (FTIL)?
These days, even a single page document can trigger

11
unprecedented controversy especially if television channels can lay
their hands on it. The role of Chidambaram in the NSEL crisis is in
shades of grey because nobody has actually caught the bull by the
horn. But during my research, what I found extremely intriguing
was that why in 2007, and on what grounds, did Chidambaram
sign the note that was prepared by his most trusted bureaucrats
K P Krishnan, the then Joint Secretary, MoF, directing the NSE
to increase its stake in the National Commodity and Derivatives
Exchange Limited (NCDEX), by purchasing the share holdings of the
National Bank for Agriculture and Rural Development (NABARD)
and the Life Insurance Corporation of India (LIC) in NCDEX in
order to give tough competition to Multi Commodity Exchange of
India Limited (MCX)? By doing so, was he not actually favouring
one private exchange, NSE, against another, MCX, which is also
a private exchange? (See the internal office note of KPK in this
book).
What was K P Krishnan’s motive behind this push? Why was
he taking so much interest to force two public sector enterprises
to sell their shares in favour of one private company – the NSE?
This clearly indicated – to my mind – that there was a well-
designed mala fide intention to kill competition! My fears were
not unfounded.
After all, a government paper, penned by top investigators, has
said on record that NSE has killed all regional stock exchanges and
hindered the growth of even the Bombay Stock Exchange (BSE).
Even the Director General of Investigation in the Competition
Commission of India (CCI) had said that NSE has killed all regional
stock exchanges and even BSE. NSE was even found guilty by CCI
for “abusing its dominant position in the currency derivatives
market by cross subsidizing this segment of business from other
segments where it enjoyed virtual monopoly.” The CCI has also
charged NSE with camouflaging its intentions by not maintaining
separate accounts of the currency derivative segments and creating
a façade of the ‘nascency’ of market for not charging any fees

12
on account of transaction in the currency derivative segment.
The CCI thereupon imposed a penalty of Rs. 55.5 crore on NSE5.
Subsequently, the Competition Appellate Tribunal (COMPACT), a
quasi-judicial authority, also upheld the order passed against the
NSE by CCI6. Anti-competition legislation in developed countries
considers monopoly pricing and abusing a dominant position by
the monopoly firm as an offence, entitling the aggrieved firm to
claim through a civil suit even punitive compensatory damages.
No wonder, the erstwhile MCX-SX has reportedly now claimed Rs
800 crore damages from NSE.
I did further research and found out that Chidambaram had
even said that NSEL was trading illegally from day one! Isn’t
this bizarre, when Ministry of Consumer Affairs (MoCA) had
permitted it to organise trades in one day forward contracts,
granting it exemption from Section 27 of Forward Contracts
Regulation Act (FCRA)? In fact, contrary to what Chidambaram
had said, the Economic Survey of 2010-117 observed, “Spot
exchanges electronically connect large numbers of buyers and
sellers geographically located at distant places to converge on
a single platform to overcome problems of time, distance, and
information flow and also provide guarantee for each trade
market linkage among farmers, processors, exporters and users
with a view to reducing the cost of intermediation and enhancing
price-realisation by farmers. They also provide the most efficien
spot price inputs to futures exchanges. On the agricultural side,
the exchanges will enable farmers to trade seamlessly on the
platform by providing real-time access to price information
and a simplified delivery process, thereby ensuring the best
possible price. On the buy side, all users of the commodities
in the commodity value chain would have simultaneous access
to the exchanges and be able to procure at the best possible

5 Business Standard, New Delhi/Mumbai, June 25, 2011.

6 DNA, August 6, 2014.
7 Economic Survey 2010-11, Chapter 8, Agriculture and Food Management, page 215.

13
price. Therefore the efficiency levels attained as a result of such
seamless spot transactions would result in major benefits or both
producers and consumers.”
Other than its proposal for a forced merger between NSEL
and FTIL, the MCA went a step further and petitioned to the
Company Law Board (CLB) for a change in the management of
FTIL, which was curious given that it had already been brought to
their notice that the proposal for the merger and of a change in
the management of FTIL were debatable under Indian law.
In fact, at the insistence and initiative of the Finance
Ministry, K P Krishnan and Ramesh Abhishek had earlier
wrongfully and unlawfully declared FTIL as ‘not fit and proper’
to hold any shares in any commodity derivatives exchange in
the country, which was followed by similar orders to FTIL
by other regulatory bodies controlling financial and energy
derivatives across the globe. It seems as if these diverse actions
and orders were part of a bigger conspiracy to initiate various
actions to ensure the exit of FTIL from the derivatives markets
of all hues, and, above all, to put an end to a leading software
company, FTIL, and finish off its founder-chairman, Jignesh
Shah, who had painstakingly built a grand global financial and
commodity market ecosystem.
The question is if the default on NSEL was triggered by the
FMC chairman’s influence on the government about their alleged
violations. The arbitrary stoppage of NSEL was not backed by any
legal opinion. (If the FMC chairman had gone after the defaulters
who decamped with the money and allowed NSEL to operate as
it had happened previously in several such payment crises in the
stock market of the country, the present NSEL payment crisis could
have been easily averted. The decision was shocking, especially
after the investigators traced the entire money trail to the last
paisa to the 24 defaulters. Even Income Tax raids on August, 22,
2013 clearly established the money trail with the defaulters, who
were in the wrong-doing).

14
 The strong and vicious muscle power of the then Finance
Ministry officials rattled many in the Indian markets where the
prevailing sentiments weighed heavily in favour of Shah, who was
actually in the clear because no money trail was traced to him but
still penalised. Hence, the decision taken by the Ministry appeared
vindictive so that neither FTIL nor Shah could ever venture into
any kind of enterprise to promote the growth and development of
the economy for providing employment to the skilled manpower
of the country or to provide the much-needed training in software
and manufacturing skills to take India to new heights as PM
Narendra Modi now desires.
I have often argued that the NSEL crisis should be viewed in the
light of some of the other disasters hitting the stock markets where
the quick intervention of the government helped resolve the crisis,
and no one even remotely thought of dismantling institutions that
too not one but several of them across the continents.
Let’s consider the case of the Unit Trust of India (UTI), a
hundred per cent government entity that had various equity-
linked and assured returns schemes. The assured returns schemes
included schemes for children like Children’s Growth scheme and
forty-fi e other schemes wherein UTI assured a certain return to
the unit holders.
Now, these schemes had invested in equity as well as in debt.
In 2001-2002, UTI failed and incurred huge market losses to
the tune of Rs 6,000 crores. The crisis was not confined to UTI’s
flagship, US-64 scheme; along with it, the crisis engulfed many
financial institutions like IDBI, IFCI, LIC and GIC. The UTI had
faltered once before in 1992; therefore this was the second time
the government bailed it out by injecting Rs 3,300 crores.
The then chairman of UTI, P.S. Subramanyam, was arrested
along with some brokers for defrauding UTI. Although UTI was a
cent per cent government entity, the government did not honour
its commitment of assured returns to its small unit holders. For
the record, UTI had a large number of small true investors mostly

15
comprising the Indian middle class, unlike the so-called NSEL
investors, who were really fraudulent traders entering into forward
contracts of one day duration.
So what did the government do? The government split UTI
into two separate entities, namely the Specified Undertaking of
UTI (SUUTI) and UTI Mutual Fund for dealing in its units, both
regulated by the Securities and Exchange Board of India (SEBI).
SUUTI was established to recover the losses over a span of 10
years.
Strangely enough, UTI made no efforts to recover the lost cash.8
And what did the government do in the case of NSEL? It was
clear from day one that commodities were traded only on the NSEL
trading platform, and that there was no direct liability of either
NSEL or its holding company, FTIL. The investigations confirmed
without a doubt that seven hundred and eighty-one large traders
traded through thirty brokers. Justice Thipsay of the Hon. Bombay
High Court had rightfully termed the traders as ‘bogus’9; still, the
FMC insisted that they were ‘genuine.’
Can you argue against the government?
Consider this one. Despite all matters being sub-judice, and a
Hon. Bombay High Court panel having appointed for the recovery
of the default amount, the government hastily proposed the merger
of NSEL with FTIL on the recommendations of FMC.
Subsequently, it even merged the FMC with SEBI, making the
latter the regulatory body.
Why? Was it done to bury the skeletons of the FMC?
The recent history, too, is replete with such instances, when
the truth was rarely allowed to surface. In the 2005-06, NSDL (the
National Securities Depository Limited) scandal was not allowed to
unfold fully on the Indian scene.
Actually, the NSDL controversy started with the appointment

8 http://www.capitalmarket.com/CMEdit/SFArtDis.asp?SFSNO=56&SFESNO=6
9 Order of Hon’ble Justice Thipsay dated August 22, 2014 in the Criminal Bail
Application No.1263 of 2014, Hon. Bombay High Court

16
of C.B. Bhave as the chairperson of the SEBI at a time when SEBI
was investigating the actions of the NSDL10.
Bhave, interestingly, had been the Managing Director and CEO
of NSDL prior to his appointment as SEBI chairman. Clearly, there
was an obvious conflict of interest.
In order to avoid this conflict, it was decided that the
investigation be carried out by an independent committee. In
December 2008, a committee consisting of the then SEBI board
members, G. Mohan Gopal and V. Leeladhar passed three orders,
and found that the NSDL had failed in its duty of supervising,
investigating and monitoring data and had directed it to conduct
an independent inquiry to establish individual responsibility.
This independent committee declared that the SEBI had failed to
regulate the irregularities of IPOs (Initial Public Offerings), and
that the NSDL was at fault for the alleged irregularities related to
the IPO scam during 2003-06.
In 2010, under the chairmanship of Bhave, the SEBI board had
set aside the special committee Order (which was actually a quasi–
judicial order that could have been set aside only by the Securities
Appellate Tribunal (SAT) or the High Court), and cleared NSDL of
mismanagement charges on the IPO scam. Clearly, Bhave, who
had excused himself from the investigations, carried out by the
independent committee, rejected the report.11
I remembered the recent altercation between the former
Home Secretary, G K Pillai and Chidambaram when the former
had ‘challenged’ Chidambaram about modifying an affidavit in the
controversial Ishrat Jahan case. The issue was widely reported
across television channels and newspapers12.
In a sensational disclosure, Pillai said Chidambaram not only

10 http://www.lawgratis.com/2016/01/19/ipo-scam-with-special-referance-to-nsdl-v-sebi-
case
11 http://www.sebi.gov.in/cmorder/NSDL-IPO.pdf
12 GK Pillai dares P Chidambaram: ‘Deny you dictated Ishrat draft’, The Asian Age, Mar
04, 2016 – Namrata Biji Ahuja, http://www.asianage.com/india/gk-pillai-dares-pc-
deny-you-dictated-ishrat-draft-345

17
modified the affidavit, but also ‘browbeat’ the then Home Ministry
and Intelligence Bureau officials who tried to stand by the fi st
affidavit filed by the Union Ministry of Home Affairs (MHA) before
‘suo motu’ omitting the reference of a Lashkar-e-Taiba link to the
Ishrat case.
‘Junior office s of Intelligence Bureau (IB) and MHA were trying
to tell him (Chidambaram) the fi st draft was all right. But he
browbeat them and overruled office s when they tried to explain
it. He then dictated the entire second draft in his own offic , and
gave it to the office s to fil . It was then, for the fi st time, that the
second draft was put up to me,’ Pillai said.
Furthermore, he went on to say that the ‘revised draft’ had
been prepared by the home minister without consulting him, an
ignominious deviation from the norm.
The final judgment is not yet out in the Chidambaram-Pillai
spat. However, if something like this actually happens where a
Union Minister’s diktat holds sway and logic and due processes
are overruled, where is the guarantee that whatever the people are
made to believe is the truth?
For me, the NSEL payment crisis was one of the toughest
investigations that took almost six months; I met over fifty people
in Delhi and Mumbai. Very few spoke on record; their words
carefully obfuscated in legal jargon. I did not mind. The report
was meant to be a cover for India Legal, the country’s top law
magazine. Its editor, the affable Inderjit Badhwar, was very keen to
get under the skin of the story that the media had hitherto covered
with extreme bias.
Two top newspapers filled their newsprints with negativity about
NSEL, FTIL, Shah and his men only because their promoters were
impacted by the crisis. One newspaper’s controlling company lost
some big monies in the NSEL payment crisis. They played the
ball as per their selfish needs, relentlessly attacking NSEL, and
in turn, FTIL. Most distressing was the way the dubious brokers

18
raised a kitty of Rs 50 crores and hired advocacy firms in Mumbai
to push these falsified versions, and shove them down the throats
of gullible reporters.
So intent were these brokers in their stratagems that their
case seemed extremely contrived and it became patently obvious
that it was entirely fabricated. Sucheta Dalal, one of India’s finest
financial journalists, called their bluff. She wrote in her column
about how actors with painted faces travelled in BMWs and Mercs
and then walked a mile with placards to shout slogans in front
of the offices of FTIL to make breaking news for the country’s
television channels.
Some did, but their efforts, unfortunately, sank without trace.
The rest drifted with the tide happily. After all, for them it was just
one more news report, right? Since when did the commodities and
equity exchanges make eight-column headlines in India?
One question still haunts me. Was the cold-blooded and
systematic destruction of some of the finest Indian institutions
carried out only to promote one company, namely, the National
Stock Exchange (NSE), and its interests in the market? I think the
answer lies in the affirmati e.
The true story of the NSEL is unfolding almost three years after
the damage has been done. It’s the wheel of destiny and, as such,
cannot be reversed.

19
 Chapter 1

Freedom’s Wait/Crush
to kill Morale

On a hot May afternoon in Mumbai, India’s divided city, the

incident happened exactly the way I took notes and wrote it in
my reporter’s notebook. Integral to this one was a prolonged
conversation, not one, but a few in quick successions.
The conversations are an example how devious minds have
always worked in India, messed up growth and dreams, and always
killed great passion and great market push.
Such conversations are rarely made public, unless some
intrepid reporter works overtime, and unless some sudden Right
to Information (RTI) note – in some ways India’s answer to poor
man’s investigative journalism – pushes out secret notes from
rickety almirahs in government office .
I was, somehow, lucky to know. It was an authenticated source
from Delhi; I did not need RTI papers or sting tapes.
It went like this.
“Sir what do we do, we have nothing against him, nothing
on him? He is cooperating well with the cops (read Economic
Offences Wing (EOW) of the Mumbai Police). They called him
seven times, he visited them 21 times. He is even helping them
with his IT team to open up the case so that the money trail can

21
be traced. The cops are happy with his cooperation. They are not
keen to pull him in, arrest him,” said a top official of the Ministry
of Finance. By then, the Arvind Mayaram Committee had, in
fact, put in every investigating agency against Shah in less than a
month, “but truth being on his side, he is facing bravely.”
“A new government is coming, if he continues to remain a free
man, he sure will open a Pandora’s Box and seal our fate. We could
be in trouble,” the official sounded worried.
“So what do we do?” he asked in the same breath.
There was a deathly silence, probably the person on the other
end was plotting.
And then the person answered.
“Get the cops to arrest him somehow and put him in custody.
The lock-up will break his spine. Once he is destroyed mentally, a
defamed man like him will have no takers ever again. If the cops
don’t relent, I will get the CBI to go after them,” the person declared.
Who was this person? A top minister, a seasoned bureaucrat?
The subject of this devious conversation, a fairly clear hint of
what transpired between the two, was offered in a cloaked manner
the following day in the country’s largest business broadsheet,
The Economic Times, was none other than Shah, then the non-
executive director of National Spot Exchange Limited (NSEL) that
was in the thick of a Rs 5000 crore plus payment crisis.
It was May 7, 2014, India had just wound up the fi st phase of
the general elections in Andhra Pradesh, Bihar, Himachal Pradesh,
Jammu and Kashmir, Uttar Pradesh, Uttarakhand and West Bengal.
But in Mumbai, a man-made storm was being shaped to create
stock market’s biggest tornado, its biggest destruction.
The evening of May 7, 2014, was going to be devastating for
Shah. Shreekant Javalgekar, former CEO of MCX and a non-
executive director of NSEL was initially summoned by the EOW
at 3 pm for questioning. He told Shah that he was not keeping
well. So, Shah told him that he will accompany him to the EOW
offic , and together they would meet Mr. Rajvardhan Sinha. As Mr.

22
Rajvardhan Sinha was not there, both of them left the EOW office
at 4 pm.
But this case – unwarranted observers had already got involved
– was like a cooker with multiple pressure points. Unexpectedly,
Shah and Javalgekar were called again. “Why”, both asked? “Just
come, it’s an order, something urgent has come up”, replied the
cops.
The Sun had not set on the Arabian Sea across the Marine
Drive when the two walked into the EOW office at the Police
Headquarters in Mumbai’s ever-busy Crawford Market area at 6
pm calmly, without any fear. Surprisingly, they were told that they
have been arrested.
“And what is the charge?” asked Shah.
“Total non-cooperation during the interrogation,” a junior officer
replied.
“We were here three hours ago, what went wrong that you are
taking us in?” Shah asked again. Shah was interrogated by the EOW
several times between September 2013 and May 7, 2013, and no
incriminating evidence was ever found against him. Actually Shah
was summoned 7 times, and he went on his own to the EOW
Office 21 times, a fact corroborated by the cops.
Even records of how many times the two had come for
interrogation were shared with the cops. The list of interrogation
calls and list of interrogation appearances against such calls were
all kept inside a file placed on the table.
Yet the cops looked the other way.
Shah simply could not believe that he was being pushed into
a lock-up.
A police officer walked in to offer water. The glasses remained
untouched on the table.
Both Shah and Javalgekar sat motionless on rickety chairs
inside the EOW offic . They were told that EOW head Rajvardhan
Sinha would be meeting them in sometime.
Sinha walked in after an hour, very curtly informing the two

23
about the decision and how it was important for the EOW to seek
custody of the two so that their presence would not hamper the
probe into the payment crisis.
“We have orders to arrest both of you; this order has come right
from the top.” “What is top, and who is the person sitting at the
top?” Javalgekar asked Shah. No answers were forthcoming.
As expected, a junior officer had informed the news channels
about the decision to arrest the two, breaking news filled the air.
Pesky reporters and their whirring cameras jammed the corridors
of EOW.
The alleged creator of the payment crisis, so claimed the EOW,
was finally nailed. That it was a blatant lie was proved much later,
but for the moment of the night, one of India’s biggest creators
of wealth and honour, was heading for custody in a waiting Black
Maria. For television channels, this was great visuals. Pain and
shame often make great copy.
The two had been in and out of the EOW precincts for almost
three months; in fact, precisely two months and a half, helping
the cops in every possible way, answering whatever was asked
in their efforts to track down a whopping Rs 5600 crore that
went missing in the NSEL payment crisis. What’s significant is
that even after 90 days in custody, cops did not find anything
substantial against Shah.
In the eyes of the burly cops, however, Javalgekar and Shah
were the main men behind the Rs 5600 crore payment problem
that had rattled NSEL. In the eyes of the NSEL, MCX and FTIL
employees, and all those who cared to ponder and listen, the two
had no charges of financial irregularities against them.
Worse, they were not even directly involved in the day to day
running of NSEL. During the police custody, the grilling continued
day in, day out.
Shah appeared calm; his face did not reflect the tumult of his
mind.
“But we have been cooperating with them every day; we have

24
set up a special office with computers to track the trading patterns
of the brokers who caused the crisis. They have – on paper –
appreciated our efforts. The EOW has even said this was for the
fi st time some genuine effort was being made to track and trace
money lost in dubious deals. So where is the non-cooperation?”
Both said to each other.
Shah was grappling with a host of issues in his mind. He was
getting around to the point that someone really wanted him to be
out of the business, destroy his empire. “Someone wants to silence
us, at any cost, wants to taint us so that we lose both face and
faith,” Shah told Javalgekar.
To waiting reporters outside the EOW office , cops lined up
mikes on a table to address a press conference. For them, it was a
big day, Shah and Javalgekar had been arrested. Channels played
breaking news claiming the duo, who were questioned for several
hours before being arrested, were evasive during questioning and
not cooperating with the cops.
I was told that the EOW team was acting directly on orders
from someone powerful in the Indian Capital. My worries were
confirmed when The Economic Times of May 9, 2014 wrote
something very serious, very devastating: “While Jignesh was
waiting in the EOW office (on his being summoned second time
on May 7, 2014), a senior officer of the Mumbai police was having
a meeting in a suburb with a Finance Ministry official who had
landed up. When the EOW officer returned a little after 5 pm,
Jignesh was told that he was being taken in.”
ET further said: “Jignesh had ruffled many a feathers and made
powerful enemies, including a senior bureaucrat. In the past six
months, these men worked overtime to make sure Jignesh faced
arrest.”
The daily added, “Sinha’s damaging statement (Anjani Sinha’s
revised statement dated October 21, 2013 retracting the earlier
confession statement made by him in September 2013), follow-
up investigations by the EOW, the appointment of Rakesh Maria

25
as commissioner of the Mumbai police in February, some of the
invisible forces and a few powerful enemies in New Delhi–who
pushed for action before a new government took over in a few
weeks–went against Jignesh.”
The same newspaper further stated: “The factors that
precipitated the arrest were the changing political equations in
Maharashtra (where a large number of investors are based) and
the urgency to prove a point before the state Assembly elections
later this year.”
EOW officials did not open up but after much coaxing relented
to tell me that the VIP who had air-dashed to Mumbai that evening
to meet EOW boss Rajvardhan Sinha was one of the lieutenants of
KPK, a top official in the Department of Economic Affairs (DEA)
in the Ministry of Finance.
Why was he in Mumbai, and why did he meet (Rajvardhan)
Sinha? Was he carrying any message from someone powerful in
the UPA-2 Cabinet? No answers were forthcoming.
But the Rubik’s cube was – finally – falling into place. It was
clear why Shah and Javalgekar were called at 6 pm and placed
under arrest. For me, things were still revolving in a host of
probability theories; I was inclined to believe The ET news report
that hinted at a hidden agenda that transpired between 3 pm and
5 pm in the Mumbai EOW.
Why was Shah then suddenly summoned on May 7, 2014,
when all opinion polls had predicted a clear majority in the 2014
Lok Sabha elections for the Bharatiya Janata Party (BJP) and its
allies? Probably the idea was to taint Shah and his senior colleague
beyond doubt, break their morale for once, forever. Else, the EOW
had no other reason to explain it’s tearing hurry after 11 months.
Once the arrest announcement was made, life, in one shot, had
changed for two of the finest players of the Indian commodities
markets in India, Jignesh Shah and Shreekant Javalgekar.
At the end of the press meet, as if to balance charges levelled
against Shah and Javalgekar, Sinha also said EOW was probing the

26
alleged complicity of several brokers indulging in malpractices.
“Certain brokerage houses had been charging 0.2 per cent in
warehouse charges, whereas no warehouse receipts were given
to the investigators. We also found that the accounts of several
investors were used without their information and consent for
purchases of the trading amounts. These transactions were then
truncated”, Sinha wrapped up the day. But his closing remarks
were largely ignored by the media, which had already got its
breaking headlines for the day. The channels went into a tizzy.
What Rajvardhan Sinha did not tell the media was that he
himself had written in the police records about “the exemplary
cooperation” shown by the duo, and how Shah even had set up a
server/terminal at the EOW office to explain the NSEL operations
and trading practices to the police and the investigating agencies,
as they were not aware of the modus operandi. Rajvardhan Sinha
had to flow with the tide, the currents of which were –presumably
– directed by someone from somewhere.
Inside the EOW building, Shah and Javalgekar stood motionless;
their lawyers had already told their individual drivers the dreadful
lines: that today, Saab will not return home. The drivers, dutifully,
went back to their respective homes to narrate the tales of arrest.
“We have to help the cops recover the lost amount, and then
clean ourselves of the charges levelled. This is a double body blow,”
Shah told Javalgekar, comparing the incident to the unfair attack
by Bheem, the second of the Pandava brothers, on Duryodhana
in the epic Mahabharata. Shah, who loved watching mythological
film , had found Mahabharata a very intriguing epic as compared
to the Ramayana. During meetings with his colleagues in FTIL,
he would routinely lace his statements with incidents from the
epic and argue how those – put in the current context – were still
extremely relevant.
It seemed sure to both that “someone was plotting a big, dirty
game”. But they had no time to think who that person was. By
then, the Sun had set on the Arabian Sea, sprinkling the swirling

27
waters with its deep sepia cover. Shah and Javalgekar knew their
nightmare had just begun.
For them, the entry into a lock-up was a devastating blow for
successful businessmen who navigated the ranks of high society
with pride and honour, creating positions of wealth for the nation.
But both Shah and Javalgekar – many thoughts criss-crossing their
minds – knew they were victims of machinations that were totally
beyond their control.
Shah thought of his life, his association with billionaires and
top business and political leaders across the world, and hundreds
of families, which benefitted from his companies. He wondered
whether it was all over. He was unable to reconcile to the fact that
the government had found him and directors of NSEL “not fit and
proper” to run any bourse. He knew he was the best, having created
companies which were the finest examples of Make in India.
He had put Indian companies on the world map, etched new
routes for Indians to charter a new life of business. His companies
were revered all over the world.
“Who wants to kill us?” Shah asked Javalgekar, who calmed
down Shah by holding his hand. Javalgekar, obviously, did not
have an answer. They both hugged and got ready for their night,
and the nightmare.
Shah remembered how some cops repeatedly pushed top staff
members of NSEL to give a statement against him and how they
had resisted such unreasonable demands. Some had even told Shah
that they were aware that the cops were working under pressure
to get Shah at any cost. He had told his seniors very clearly: “If
you feel you cannot take the undue pressure, give that statement
against me; do not worry about me. Ultimately, truth will prevail.”
His colleagues understood what Shah was saying; they admired
him even more thereafter.
A little over a week later, came more disturbing news. A
Sessions Court remanded Shah and Javalgekar to judicial custody.
Meanwhile, Shah heard the news that hired killers of the dreaded

28
Ravi Pujari gang were in Arthur Road prison to eliminate him. Shah
had heard it before, also, and had therefore requested the judge
–through his lawyer –not to be sent to the Arthur Road jail where
Pujari’s gang was very strong and routinely harassed inmates. The
judge agreed, and instructed the police to send them to a jail near
Kalyan in Thane district.
The two – present in the court – heard the pronouncement and
waited for their biggest tensions in life. At the EOW offic , the van
for the jail was made ready for the prison. For two of India’s finest
experts of the commodities markets, this was a face palm moment.
Shah and Javalgekar knew they were headed for judicial custody.
Once in custody in Adharwadi near Kalyan, the two were made to
complete formalities and then sent to their cell.
Both Shah and Javalgekar were wide awake till 2 am, probably
3 am. There were no fans, no loud talking, by the cops. But there
was one problem. There were no visitors from home, no relatives,
no colleagues from offic , and no dailies to read to know what was
happening in the world outside the jail’s towering walls.
Shah was disturbed on the fi st day. He asked Javalgekar: “What
have we done to deserve this?” Javalgekar had no answer.
Freedom was just a seven letter word.
Shah and Javalgekar got their privacy, but their routine was
horrible.
Shah absorbed the situation, routinely talking to inmates
who shared their tales. Thanks to intervention of Shah, who by
submitting written letters to the authorities concerned, a whole
group of neglected inmates were given improved care and
treatment, and got some juveniles freed, with the help of Tata
NGO Prayas. He was also helping on Sundays the Navi Mumbai
Church preachers by translating their English speeches into Hindi
for the jail inmates. But despite these interventions and help, the
two were constantly reminded that “you are in jail at the total
control of others”. As a result, the two never crossed what was
described by the jailor as the proverbial Lakshman Rekha.

29
 Eventually, after two months in jail, Javalgekar was released
on bail. After 108 days, Shah was also granted bail by the Hon.
Bombay High Court on August 22, 201413, ordering him to appear
before the EOW of Mumbai Police twice a week, on every Monday
and Thursday, for interrogation. Interestingly, the total days spent
in custody were 108, the number revered highly by pious Hindus
who believe 108 signifies coming off a full cycle, at times the
beginning of a new life cycle.
The order came late. By then Shah had retired for the night
to his cell. The jailor was in no hurry. He followed rules, and
the following day, Shah walked out of the prison. Shah insisted
on visiting the FTIL office to boost the morale of the staff of the
company, before heading home. He walked up the stairs and was
welcomed by many at the gate; some had tears in their eyes.
Javalgekar stood next in silence.
In a brief interaction with the staff of FTIL not lasting more
than fi e minutes, Shah made two crucial points about his work,
and what seemed like an uncertain future: “Have faith, we will rise
from these ashes.” And then, Shah left.
While Shah was in jail, the salary of the FTIL staff for any
month was not delayed by a single day, nor was the sweet dish in
lunch and the regular football match screening given a miss.
At home, Javalgekar – still a disturbed person – consumed some
fruit juice, only to vomit instantly. He crashed on his bed, refused
food for the night. Time and again, his family members wanted to
push him into a brief conversation. Actually they wanted to know
how long the ordeal would continue.
Shah, however, became strong-willed, and started working
immediately from the next day after his release from the jail.
In September 2015, a visitor found him at his prayer room in
the top floor of the grey glass-panelled FTIL building.

13 Order of Hon’ble Justice Thipsay dated August 22, 2014 in the Criminal Bail
Application No.1263 of 2014, Hon. Bombay High Court.

30
 It seemed to the visitor Shah was talking to himself. He
walked close; saw Shah sitting cross-legged before a large statue
of Lord Ganesha, the elephant God —widely worshipped across
Maharashtra—that guaranteed both wealth and wisdom. “Life in
prison, for all I did?” Shah asked.
And then, seconds later, he walked out of the temple office
where he officiated as Chairman Emeritus with the visitor. He did
not want to tell him what he had told the God. Shah did not know
that the visitor had already overhead his whisper.
After his jail term – the visitor was told – Shah had learnt not to
give up hope, even if he stood alone against all odds. Shah called
it total transformation, life’s biggest Agni Pariksha. “It helps you to
emerge unscathed, only if you are in the clean,” he told the visitor.
Shah knew he was in the right. In one of the meetings with his
colleagues and friends, he showed them the judgment of Justice
Thipsay who, while releasing Shah on bail, stated that no money
trail was found out of the alleged NSEL crisis to FTIL or Shah.
“The cops knew I was in the clean, so why did they act against
me?” Shah asked.
So, was the move to arrest Shah a quick ploy to taint a visionary
forever in life? Probably yes, Shah had to be dethroned, overthrown
to help rivals grow in business. That, in some ways, sums up the
NSEL payment crisis and the subsequent decisions of the UPA-2
government in Delhi.
For India’s commodities market, this was perhaps the saddest
growth-to-death story, the most troublesome chapter.

31
 Chapter 2

Iceberg Talk: Devious

Plotters of Hastinapur

In the heat and dust of the debate over whether the water for
spraying fairways should be saved for the parched regions of
drought-hit Maharashtra, an editor in Delhi raised a very pertinent
point: ‘I hope this is not an iceberg argument,’ he said, implying
that what was visible was a mere fraction of what wasn’t.
Friends of the editor, surrounding him with steaming cups
of cappuccino, asked him to elaborate. Sundeep Misra, who had
authored a book on Mumbai’s ace hockey player, Dhanraj Pillai, and
edited the Indian edition of Sports Illustrated, made a very pungent
remark: ‘There are over twenty-fi e golf courses in Maharashtra
which routinely consume over fifty times the quantity of water
that is currently being debated on television channels. Have they
been asked to stop watering the links?’
He had a very legitimate point.
Misra continued, “Remember one point: whenever one channel
triggers an exposé, due to their herd mentality, the rest too follow
blindly. As a result, everyone misses the real plot, the real story.’
The Maharashtra drought and its subsequent link to the world’s
richest cricket league – many call it the Indian Paani League –
was an interesting anecdote, probably because the protagonist

32
of the plot unravelled by this book, Jignesh Shah, grew in fame
in Mumbai, his home for many years, and created world-class
institutions that were ideal examples of Make in India. However,
right from the time he embarked on his own to create his empire;
Shah faced umpteen challenges from his rivals, some of them
backed by powerful ministers in Delhi. It was almost like the
sinister plots hatched by the devious kings of Hastinapur in India’s
greatest epic, the Mahabharata, that culminated in the eighteen-
day war of the Titans at the Kurukshetra.
In Shah’s case, the war was virtually one-sided, and he was
victimised wrongfully by the Three Musketeers, who designed his
downfall. Journalists failed to raise even the basic questions that
they were taught to do in their formative years: Who? When? How?
Friedrich Hayek, the pre-eminent economist of the second half
of the twentieth century who had trail-blazed in political theory,
psychology and economics, had an interesting take about meteoric
trendsetters who fizzled out because of the pettiness of power-
wielders. According to Hayek, “Those who remain creative against
the riptide of societal pressures and constraints imposed by the
government, need to be thanked not once, but twice over for
they set up world-class companies and facilities in spite of those
regulations, thereby laying foundations for the growth for which
all of us claim credit today; by breaking free of those restrictions
that sought to impound them, they compiled a convincing case
for scrapping those regulations and built a strong argument for
reforms.”
What the legendary economist meant was that such plots,
restrictions and conditions should not have existed because they
held the country back. After all, it is common knowledge that big
growth and capacities instituted in the Indian subcontinent have
always been viewed with a tinge of negativity, both by the party
that ruled the nation and the parties that didn’t.
Shah was a victim; it was clearly evident that the people who
orchestrated his downfall did not want him to remain successful.

33
 His ascendancy had begun long before the start of the
millennium. Shah had already made his mark as a brilliant
entrepreneur, who grew up to become an engineer in a Gujarati
family. Shah couldn’t care less that his aspirations were the blight
for many in Mumbai and their powerful political friends in Delhi.
He wanted to shape some of the finest growth engines that would
trigger mass employment, companies that would take India to new
heights of economic growth.
Shah’s life, curiously enough, was almost like that of the
patriarch, the legendary Dhirubhai Ambani, who had shaped his
dreams in faraway Aden, a port town. Shah, who had a humble
background, was a voracious reader and the autobiographies of
industrialists and innovators were a huge source of inspiration
to him. Even before he crossed class V, his ambitions had begun
taking root. Incidentally, it’s a surprising coincidence that the way
Dhirubhai Ambani was harassed by the then Finance Minister, V P
Singh, and his two bureaucrats, Bhurelal and Vinod Pandey, Shah
too became a victim of decisions pushed by P. Chidambaram, K P
Krishnan, and Ramesh Abhishek.
In 2003, Mukesh D. Ambani, the elder son of Dhirubhai Ambani,
who was also seen by many as defying obstacles to create structures
of growth, placed a symbolic buy order for a gold futures contract,
formally marking the beginning of trading at the Multi Commodity
Exchange (MCX), one of the country’s fi st electronic platforms for
trading commodities such as metals and oil.
Shah had started the MCX earlier in the same year, 2003 – the
year considered lucky by millions in India because it saw the
fortunes of the country’s cricket team soaring under the leadership
of a feisty Saurav Ganguly. Unlike other businessmen who routinely
visited Delhi with agendas to meet lobbyists and ministers, Shah
charted a new course.
With an impeccable corporate image that made him the
cynosure of many in the stock markets of India’s financial capital,
Shah, with his like-minded friends and colleagues who swore by

34
entrepreneurship and tech-innovation, started creating growth and
wealth machines. He created MCX with his fifteen hours a day
schedule; in his opinion, the hyperactivity in India’s commodity
markets justified the time he spent on the project.
In 2006, Shah sat down for lunch in his office with a Gujarati
meal and told Mumbai’s venerated business journalist couple,
Sucheta Dalal and Debasis Basu, ‘I was very clear that I would do
engineering, after which I would go to the US, complete my MS,
work there and later start my own business.’ As a matter of fact,
the Financial Times, London, had quoted him in the mid-nineties
as saying that he wanted to be ‘a billionaire at U-40 years of age
from India, doing business in India’14.
Those acquainted with Shah from childhood knew him as a
doer even before reaching his teens. In the stories of his childhood
narrated to colleagues at FT Tower, Shah would recollect how he
had made up his mind about what to do in life when he was barely
eight. He wanted to study and start his own business in USA.
Instead of travelling to the US for the popular choice of the
time, a course in mechanical and electrical engineering, he opted
for electronics and telecommunications, and joined the Bombay
Stock Exchange (BSE) on a technology assignment, BOLT (Bombay
Online Trading System), an ambitious Rs 100 crore (Rs 1 billion)
project to automate the exchange. The project was transferred
midway to CMC, which is an end-to-end information technology
solutions and services provider; but by then, Shah and Dewang
Neralla, his eventual partner and executive director at FTIL, had
completed stints at the Hong Kong and Tokyo Stock Exchanges
and NASDAQ, learning about technological wonders in the stock
markets across the world.
What pained the duo was the fact that India was not yet
ready for it; almost like the vociferous protests that stymied the

14 http://www.ft.com/cms/s/0/a79ce93e-9b98-11db-aa70-0000779e2340.
html#axzz4Ay4uuOTx

35
computerisation of Indian banks, the Indian stock markets were
not keen to modernize, or trade on sleek, imported terminals.
Technological marvels were tantamount to cuss words in Indian
markets.
As a result, the technology vision, which Shah had for BSE could
not be realised. Shah and Neralla decided to move to a place where
their pride and joy could be utilized effectively. There were other
options, including a super-duper offer from the Merrill Lynch New
York Foreign Exchange trading platform. However, Shah was not
keen to push pencils for others.
In 1995, Shah, the dreamer, and Neralla, the builder, created
a financial technology product company that would not merely
restrict itself to trading systems for equity, but create products to
penetrate all high transaction density markets, be it commodity,
equity, currency or bonds.
In a country where technology was tantamount to a skilled
manpower supply story, Shah and Neralla turned the matrix
upside down, creating products (IP) that were a means to an end,
not an end in themselves. The basic idea was to set sights on the
transaction markets. Shah was gung-ho, and raised Rs 5,00,000.
And the two worked fifteen to eighteen hours a day. Eventually,
FTIL grew into a 5,000 plus strong workforce from just fi e work
terminals and covered eighty per cent of the domestic base,
powering practically every major Indian Internet site for trading
in equity and commodity markets. Shah and Neralla were lucky to
ride India’s big Internet boom.
Shah hired the best and paid salaries that outmatched all others.
He was able to retain all the talent he had hired and nurtured. Shah
is a dreamer, visionary, and great mentor, who gathered the best
talents and allows them absolute freedom. Though an engineer, he
couldn’t do coding. But being a visionary, he selected appropriate
specialists and knowledgeable experts to run his different ventures.
Shah achieved what he desired. Within a little over a decade,
he created one of India’s truly innovative companies, Financial

36
Technologies India Limited (FTIL), whose proprietary technology
remains the fulcrum for four out of every fi e financial trades in
India.
Shah worked overtime with Exchanges, patiently waiting outside
the offices of pettifogging official , who opposed him. He almost
single-handedly fought battles against competitors, regulators
and rivals, often in the courts. There were times when Shah
almost threw in the towel, wondering why the Indian business
environment was plagued with politicians openly abusing their
powers and bureaucrats deaf to genuine arguments. But seconds
later, he again bounced back into the ring to shape his dreams.
Trading volumes in commodity futures surpassed capital
market futures in August 2010 for the fi st time in the history of
domestic derivatives, and average daily trading volumes crossed
the Rs 100,000 crore (Rs 1,000 billion) mark. MCX remained in
the thick of it.
The way he shaped MCX is remarkable.
When Shah’s FTIL, which promoted the MCX, applied for a
commodity exchange license in 2002, he was up against biggies
like the Bombay Oilseeds and Oils Exchange, subsequently
renamed as Bombay Commodity Exchange (BCE). Many across
India, especially in Delhi, were taken aback because Shah was
neither a trader nor a banker. Delhi’s power corridors dismissed
him summarily, wondering what a technology company could
possibly offer.
Nevertheless, Shah got the in-principle approval and surprised
everyone by going live in a record nine months on November 10,
2003. His supporters were over the moon; it was the visionary’s
fi st show of might.
In 2005, when Shah made his next big move, it was clear to
the markets that he was not content with just one success story.
He wanted to venture into the currency markets and applied to
the Foreign Exchange Dealers Association of India (FEDAI) for an
approval to establish the forex trading platform, IBS-Forex, which

37
was initially a private limited company, but was incorporated in
2005 as a subsidiary of FTIL. Just about that time, in 2002, after a
thirty-three-year long hiatus, the government decided to recognise
national commodity exchanges under the Forward Contracts
(Regulation) Act, 1952 (FCRA). Shah then set eyes on a new
generation tech-centric commodity exchange. It was his cherished
dream. Shah knew what he was getting into, commodities, which
was at the heart of India’s prosperity for centuries. Shah wanted to
make India the finest commodity trading hub between Tokyo and
New York. He knew India’s importance on the ancient Silk Route.
Shah had instant help at hand. The State Bank of India (SBI)
took a strategic equity partnership with an eighteen per cent
equity stake along with seven subsidiary banks, opening the doors
to other financial institutions like HDFC Bank and National Bank
for Agriculture and Rural Development (NABARD) to move in.
Shah was on the right track as the Indians demonstrated their
appetite for global commodities.
Consider the numbers. Once upon a time, MCX was the numero
uno exchange in the world in gold derivatives, second largest in
silver, the third largest in crude to trade Rs 1,000 crore (Rs 10
billion) of crude contracts a day, totalling daily volumes of Rs
50,000 crore (Rs 500 billion) in all metals and energy contracts.
He was aware that in a market of 140 agri-commodities and 1,400
industrial commodities, there would always be space for one more
exchange. Shah was able to create ten lakh jobs, both in tier-2
and tier-3 cities of India, as ascertained and covered in a detailed
report prepared by Tata Institute of Social Science (TISS) after 12
months of detailed research.
The list of fi sts was high on his priorities. There was a strategic
collaboration with the London Baltic Exchange (LBE) to launch
freight futures contracts, followed by the deal with the Chicago
Climate Exchange to offer the fi st environmental products to
be traded in the subcontinent. Then, there was trading at the
Dubai Gold and Commodities Exchange (DGCX) through a joint

38
venture, by which MCX became the fi st commodities exchange
that co-owned an international exchange. This was followed by
MCX setting up the fi st national spot exchange for commodities—
the National Spot Exchange Limited (NSEL), with links to several
APMC (Agricultural Produce Market Committee) markets in the
country electronically for spot trading in commodities. Shah was
helping the farmer, doubling their incomes and improving the
quality of their lives.
In fact, when MCX floated its initial public offer (IPO) to provide
exit to its shareholders (see Annexure to this chapter), the issue
was oversubscribed a record 54 times – making it only the third
commodities exchange in the world to do so. In other words, while
MCX wanted to seek only $135 million for its expansion, the offer
it got through the IPO was to the tune of almost $ 7 billion!!
What’s amazing is that Shah fought for eight years to issue an
IPO for MCX, and get its shares listed on Bombay Stock Exchange
(BSE) and National Stock Exchange (NSE). NSE has been fighting
since eight years to ensure that its shares are not listed.
Shah, a man whose personal life revolved around Bollywood
film , would routinely rattle off popular dialogues of blockbusters,
even during meetings with the top directors of his companies or
those who did business with his conglomerate.
Shah was always at ease; he had by then, already emerged as
India’s global visionary for the new millennium; a person bullish
on work and reticent on personal life, a curious mix of genuine
prudence and Gatsby-esque aspiration. He was a man who was
creating billion-dollar stories, with widespread social impact
and a real balance sheet, making a worthy contribution to the
exchequer.
As per the Forbes rankings in 2008, Shah – for, it was when
Shah had reached his peak – was the world’s 1,014th richest
person with a net worth of $1.1 billion. In 2009, MCX overtook
the London Metal Exchange (LME) to become the sixth most
active commodities bourse in the world, and saw more than $1

39
trillion in trades. This was not all. Shah, using the state-of-the-art
technology solutions set up over a dozen other exchanges across
the globe stretching from Botswana in South-Central Africa to
Singapore in South-East Asia15.
If it had happened in 2014, Shah could have easily claimed
the mantle of the fi st Indian to have achieved what the Indian
PM, Narendra Modi, called Make in India. In Mumbai, home to
Shah and his works, many loved to tag him along with Jeffrey
Sprecher of the Intercontinental Exchange – both had the same
initials. Sprecher was the conqueror of the West, while Shah was
ruling the East with Indian tri-colour. However, as a result of the
state conspiracy, Shah lost his rule, causing loss to India as well.
But with the state conspiracy against him, Shah’s efforts slowed
down. But as competitors had been jealous of Shah’s growth story;
slowly but steadily, Shah was maligned and painted black by them;
even incarcerated with petty thieves, smugglers and murderers.
The plotters in Delhi and Mumbai, who worked hand in glove with
each other, wanted to project a vilified and deglamourised version
of Shah to the world at large. Very few know what prompted the
backroom drama to ensure this belly flop. How many in India
know who engineered the systematic decimation of some of India’s
finest exchanges, and pushed a visionary out of a canvas he had
beautifully painted and nurtured?
To many of those who cared to read the full script, Shah’s
story was similar to that of the proverbial Abhimanyu, the son of
Arjuna, who entered the Chakravyuha, a deathly arena surrounded
by warriors adopting fair means or foul (mostly foul) in the war.
Abhimanyu’s death was blamed on the conspirators because the
warrior prince could not figu e his way out of the hellhole and was
up against seasoned warriors flouting all norms of war to ensure
his death.
It was one of those times. India mutely witnessed the systematic

15 http://www.caravanmagazine.in/reportage/shah

40
dismantling of the empire Shah created in a little over a decade.
The seeds of malice against FTIL go back to 2007, when FTIL’s
success story was transcending geography as it took electronic
exchanges to uncharted markets like the Middle East, Africa
and Singapore, where its bourses had created strong financia
institutions, and the figu es traded on these bourses helped Indian
footprints gain honour across the world. The Indian exchange
space was jostling for elbow room in the international competitive
arena, far from the demure turf it had witnessed in the nineties.
FTIL’s popularity that spoke volumes through its revenues
had become a bane for those in India competing against FTIL
and its various bourses incubated and nurtured within India as
well as abroad. By 2007, MCX was handling ninety per cent of
trades across electronic commodity derivatives exchanges in
India. When fair competition became difficult, competitors tried
to influence powerful people within the government and the
regulatory authorities. The Forward Markets Commission (FMC)
that regulated commodities exchanges was under the purview of
the Ministry of Consumer Affairs, Food and Public Distribution.
Instead of approaching the Ministry of Agriculture with their
concerns about competition, the Finance Ministry, surprisingly,
initiated a move beyond its realm of operations. It would seem that
the idea behind this move was to push the interests of National
Commodity and Derivatives Exchange (NCDEX) that had, among
its shareholders, the National Stock Exchange (NSE), whose top
brass, it was rumoured, had the backing of a powerful ministry
which had been wary of the growth of MCX, a rival exchange
promoted by Shah.
One such bureaucrat pushing the NCDEX agenda with undue
interest was K P Krishnan (KPK to his friends), a joint secretary
in the Finance Ministry between 2005 and 2010.
On December 19, 2007, K P Krishnan (KPK), the then Joint
Secretary, Capital Markets, Department of Economic Affairs,
Ministry of Finance, prepared an office note for the then Finance

41
Minister, Mr. P. Chidambaram. The scanned copy of the note has
been reproduced below in extenso16 of this book.
As may be seen, in the note, K P Krishnan had stated, “NCDEX
(National Commodity & Derivatives Exchange) was sponsored
by four initial institutional promoters to set up a commodity
derivative exchange. The institutions were NSE (National Stock
Exchange), ICICI (Industrial Credit and Investment Corporation
of India), LIC (Life Insurance Corporation of India), and NABARD.
Subsequently, the shareholding was broad-based to bring in other
shareholders including PNB (Punjab National Bank), Canara Bank,
CRISIL, IFFCO (Indian Farmers Fertilizer Cooperative Limited,)
etc. Recently, ICICI sold down its shareholding, which enabled
some foreign shareholders to come into NCDEX. These include
Intercontinental Exchange (ICE) and Goldman Sachs.”
“NCDEX started with contracts in both agro commodities and
metals, but gained a commanding lead in agro commodities over
other exchanges. In the last fifteen months, however, NCDEX
performance has suffered significantly. The decline has been quite
sharp in the last few months and all indications suggest that the
situation is set to worsen. To illustrate, the overall market share for
all NCDEX contracts has dropped from over 50% (two years ago)
to 13% in the latest month. The view of many key shareholders
and directors is that the only way to revive NCDEX is to ensure
that NSE takes an active role in the management of NCDEX and
brings about a synergy between the business marketing and other
areas of the two exchanges. ‘A key prerequisite for this is for NSE
to become the single largest shareholder in NCDEX’. Currently,
NSE’s shareholding in NCDEX stands at 15%, the same as LIC and
NABARD. This can happen smoothly if LIC and NABARD sell 5-6%
each of their equity stakes in NCDEX to NSE.” (Words highlighted

16 This note was received from Mr. A. K. Sinha, Under Secretary and CPIO CM Division,
Department of Economic Affairs, Capital Market Division, Secondary Markets
Section, Ministry of Finance, Government of India, vide his letter no. F. No. 13/03/
SM/2008-Vol-II, dated June 9, 2010, in response to RTI application dated May 18, 2010.

42
were marked as “X’ by K P Krishnan in his original black and white
noting.)
K P Krishnan then continued to add in his noting, “While the
immediate need for this arises from the desire to revive NCDEX,
which must be done as early as possible so as to provide credible
competition to MCX (Multi Commodity Exchange of India), a
medium term goal of bringing conversion (sic) between the
financial securities and commodities derivative markets will also
get a significant push with this initiative. If market institutions
converge, regulatory convergence will become far easier.” (The
word sic in parenthesis added, as “conversion” is an erroneous
word, and should have been ‘convergence’.)
K P Krishnan had further stated in the file noting, “I have
discussed (“X” above, i.e. the portion highlighted) with Secretary
(FS), who is comfortable with the proposal. After Secretary (FS/
FM) have seen and approved, Secretary (FS) will speak to LIC &
NABARD regarding “X” above, and request them to carry these out
at the earliest. NCDEX/NSE will take necessary approvals of their
regulators as required.” 17
It is quite evident that the office note of K P Krishnan was
signed by Chidambaram.

17 This note was received from Mr. A. K. Sinha, Under Secretary and CPIO CM Division,
Department of Economic Affairs, Capital Market Division, Secondary Markets
Section, Ministry of Finance, Government of India, vide his letter no. F. No. 13/03/
SM/2008-Vol-II, dated June 9, 2010, in response to RTI application dated May 18, 2010.

43
It is surprising to note that P. Chidambaram was not the Minister of Consumer Affairs,
nor was Dr K. P. Krishnan the Secretary of Consumer Affairs. Not only was that, MCX and
NCDEX not under the jurisdiction of the Finance Ministry. Despite this fact, the above
direction was issued by Dr K. P. Krishnan and was signed by P. Chidambaram. What is their
motive behind favouring National Stock Exchange?

Please see the entire letter reproduced on the next page.

44
 Confidential

Ministry of Finance
Department of Economic Affairs
---------

1. “NCDEX was sponsored by four initial institutional promoters to set up

a commodity derivative exchange. The institutions were NSE, ICICI,
LIC and NABARD. Subsequently, the shareholding was broad based to
bring in other shareholders including PNB, Canara Bank, CRISIL, IFFCO,
etc. Recently, ICICI sold down its shareholding which enabled some
foreign shareholders to come into NCDEX. These include Intercontinental
Exchange (ICE) and Goldman Sachs.
2. NCDEX started with contracts in both agro commodities and metals, but
gained a commanding lead in agro commodities over other exchanges.
In the last fifteen months. However, NCDRX performance has suffered
significantly. The decline has been quite sharp in the last few months and
all indications suggest that the situation is set to worsen. To illustrate,
the overall market share for all NCDEX contracts has dropped from over
50% (two years ago) to 13% in the latest month. The view of many key
shareholders and directors is that the only way to revive NCDEX is to
ensure that NSE takes an active role in the management of NCDEX and
brings about a synergy between the business marketing and other areas of
two exchanges. A key prerequisite for this is for NSE to become the single
largest shareholder NCDEX. Currently, NSE’s shareholding is NCDEX
stands at 15%, the same as LIC and NABARD. This can happen smoothly
if LIC and NABARD 5%-6% of their equity stake in NCDEX to NSE.
3. While the immediate for this arises from the desire to revive NCDEX which
must be done as early as possible so as to provide credible competition to
MCX, a medium term goal of bringing convergence between the financial
securities and commodities derivative markets will also get a significant
push with this initiative. If market institutions coverage, regulatory
convergence will become far easier.
4. I have discussed this (“X” above) with Secretary (FS) who is comfortable
with the proposal. After Secretary (FS)/ FS/ FM have seen and approved,
Secretary (FS) will speak to LIC and NABARD regarding “X” above
and request them to carry this out at the earliest. NCDEX/ NSE will take
necessary approvals of their regulators as required.”

Dr. K. P. Krishnan
Joint Secretary (CM)
19.12.2007

45
It is important to note that at the time the said note was prepared
by K P Krishnan, neither MCX nor NCDEX – both of them being
commodities exchanges – fell within the regulatory purview of his
department/ministry (i.e. Ministry of Finance). Both of them were
during the relevant time, regulated by the Ministry of Consumer
Affairs, Government of India.
Thus, it is rather surprising why K P Krishnan acted beyond his
jurisdiction and prepared the above note clearly favouring NSE, a
private sector corporate.
It was only in 2011 that K P Krishnan’s confidential internal
office note of December 7, 2007 came to light. The MCX lodged a
complaint vide its letter dated July 10, 2012 to the then secretary
of the Department of Consumer Affairs (DCA) and also sent
the note to the Central Vigilance Commissioner (CVC). In its
complaint, MCX questioned the neutrality of the MoF and the
propriety of K P Krishnan’s conduct, and recommended that the
CVC take appropriate disciplinary action in the matter. As a result
of the subsequent vigilance enquiry against K P Krishnan, he was
transferred to his parent cadre in Karnataka for almost a year. As
Karnataka was ruled by the Congress party that led the then ruling
UPA government at the centre, K P Krishnan was mostly stationed
in Delhi as a representative of the Karnataka government, probably
because of his proximity to Chidambaram.
Be that as it may, K P Krishnan’s note to the Finance Minister
was plain sacrilegious. Under any government law, a bureaucrat
could not have plumped for the interests of one bourse over the
rest. The cat, thanks to an RTI application, was out of the bag,
but what was even stranger was that there was no stopping for K
P Krishnan. He continued pushing his agenda, tacitly supporting
moves to push NSE over the rest.
The letter exposed how the Finance Ministry became the
strategist and key enabler for NSE. ‘It showed the ministry was not
neutral and that it would do anything to ensure NSE retained its
monopoly. Killing competition was no crime if FTIL and Jignesh

46
Shah can be annihilated,’ said a top Finance Ministry official. The
official, who spoke on condition of anonymity, said the note was
the fi st step towards ‘destroying Shah and his empire.’
The NSE, the anchor investor of the NCDEX, had been on a high,
aiming to become the face of stock trading in India. Its slugfest
with the Bombay Stock Exchange (BSE) had been documented in
various newspapers and project reports at management schools. An
impression had already gained ground in both Delhi and Mumbai
that whatever the NSE did was a benchmark and more importantly,
whoever disagreed was banished from the stock market environs.
There was the stamp of the NSE not only upon everything in
the stock exchange market in India but also at SEBI, the market
regulator, and the Finance Ministry. The unwritten law was clear,
as far as the exchange business was concerned: whatever the NSE
decided and executed, the country would follow suit. Strangely,
there was nothing on paper; it was all through the word of mouth
– a strong medium in India.
Market analysts agreed that at times it was difficult to
differentiate between the regulator and the regulated entity, i.e.,
the SEBI and the NSE. The latter, although a private body, was
hidden behind a deliberately created smokescreen that made it
look like it was a government agency. The NSE margins were
over sixty per cent – something that only monopolies enjoyed.
Therefore, the NSE, in simple terms, was a monopoly. Oddly
enough, while it had been brought in to break the monopoly of
the BSE, it ended up becoming an even bigger monopoly. BSE
suffered the NSE time and again, as did twenty regional stock
exchanges, also.
Therefore, given the climate, it was anathema to think that
someone could beat the NSE in the exchange market. Shah was
contemplating the unthinkable, and the NSE was getting the
jitters. The writing on the wall was clear – it was only matter of
time before Shah would enter the stock market to challenge the
NSE’s numero uno status. Actually, Shah was not only challenging

47
the NSE, he was defying the vested interests behind the NSE, and
the mandarins in Delhi’s power corridors backing the NSE.
Shah was not worried about competition.
He had fought many corporate and legal battles to realise his
dream of starting commodity, electricity, equity and currency
exchanges, not to mention even international exchanges. He was
also aware that many were baying for his blood, both in Delhi and
Mumbai’s corporate circles. Nevertheless, he continued his work
because he was able to outwit and out-think his rivals when it came
to business. However, what he did not see coming was backstabbing
by his own trusted lieutenant, resulting in a methodical dismantling
of the empire he had built over a decade with surgical precision by
those who were waiting behind the curtain.
Interestingly, the political conspiracy against the FTIL group
goes further back to October 2004 when the then Finance Minister
made an effort to bring the commodity markets regulator under
his purview, which at that point of time was under the Ministry
of Consumer Affairs, Food and Public Distribution. Bringing in a
common regulator for the commodity and financial markets goes
against the global trend, and therefore it appears that such a move
was with the intention to further dent the FTIL group’s stature
and standing. Worse, an income tax raid in 2007 was intentionally
ordered against the group, although never in the history, was
an exchange raided, and that too, without informing either the
regulator or the ministry concerned. The raid did not uncover any
violation against the fabricated report that Rs.300 crore of stacked
cash is with Shah, but the news rattled the FTIL believers initially.
The moves did not stop there.
The Finance Ministry started pushing in a series of policy
measures (many in Mumbai argued it was to protect the monopoly
of the NSE), starting with a cap of fi e per cent on any one owner
of any stock exchange. Even persons acting in concert and related
parties were to be clubbed within the fi e per cent bracket. Only
banks were allowed extra ownership.

48
 By then, the SEBI and the RBI had opened up the currency
derivatives trading in India and stock exchanges were allowed to
seek a licence for trading in this asset class. Expectedly, MCX
Stock Exchange (MCX-SX), promoted by FTIL and MCX jointly
– applied for a stock exchange licence. However, it was granted
permission only for the currency derivatives segment. Sadly, the
crucial stock-trading segment was withheld. MCX-SX application
for a licence to operate in the equity market and other capital
market segments was also dealt with only after the matter was
taken to the courts.
The NSE didn’t abide by the rules and resorted to predatory
pricing. MCX-SX challenged it and won a case in the Competition
Commission of India (CCI) that slapped penal damages on the
NSE. It was a defeat not only for the NSE, but also for SEBI and
the mandarins in the Finance Ministry. Not to be outdone, SEBI
continued to deny MCX-SX permission to trade in the equity stocks
for three years without offering a valid reason. Finally, only after
the intervention of the Hon. Bombay High Court and then the
Supreme Court, did SEBI reluctantly grant the permission to MCX-
SX to trade in equity stock18.
It was an interesting series of events that led to the court order.
When the MCX Stock Exchange (MCX-SX) sought permission to
offer trading in new segments such as equities, equity derivatives
and interest rate derivatives, SEBI thwarted it and the matter went
to court. In March 2012, the Hon. Bombay High Court set aside
the SEBI order against the MCX Stock Exchange (MCX-SX), on
the grounds that SEBI’s interpretation of many of the securities
regulations referred to in the order was fla ed. The order also
highlighted the fact that the government’s rules on stock exchange
ownership are open to wide interpretation.
Under section 18A (of the Securities Contract Regulation Act),
contracts in derivatives are lawful only if they are traded on a

18 http://compat.nic.in/upload/PDFs/augustorders-2013/22_08_2013.pdf

49
recognized stock exchange and are settled on its clearing house.
The SEBI had argued in the High Court that MCX-SX’s promoters’
buyback arrangements with other shareholders were effectively
‘option’ contracts and therefore, were illegal under section 18A.
However, the court ruled against this argument, saying that it
wasn’t part of either the SEBI’s show-cause notice to MCX-SX
or in the order by its whole-time member. The court order also
meant that existing rules on ownership of exchanges were both
inadequate and ambiguous. There was an attempt to correct this
when the SEBI set up a committee headed by former RBI governor,
Bimal Jalan, to review the ownership and governance of market
infrastructure institutions. However, this report was also full of
contentious recommendations. For instance, the Jalan Committee
pushed ownership restrictions on exchanges and a cap on profit ,
besides disallowing listing.
No one knew for a fact whether Jalan had a pre-decided
mindset, but there are strong suspicions that he probably did. It
was clear that constraints like these would leave very little scope
for new exchanges to emerge and provide meaningful competition
to existing players. The committee’s concerns about the regulatory
role of an exchange could have also been met by abstracting
out the governance role to either the SEBI or to a non-profit
organisation. The committee, however, rejected this model, saying
it was premature to think of it for the Indian markets.
Now, if the SEBI had submitted a new, clear policy on the
ownership of exchanges, dealing with similar applications would
have been far easier. It wouldn’t have had to worry about convincing
stakeholders and the courts that it wasn’t being biased if the rules
weren’t open to such a wide interpretation.
The rules which MCX-SX was supposed to comply with were
originally drawn up to facilitate the demutualisation process of
broker-owned exchanges like the BSE. Clearly, applying these
rules to an exchange already demutualised would have serious
limitations.

50
 And then, one evening, when an NSEL payment problem hit the
markets in July 2013, a golden opportunity opened up for Shah’s
rivals to annihilate FTIL and finish Shah once and for all. For the
record, the NSEL had come into being at the insistence of the then
Prime Minister, Dr Manmohan Singh, who wanted uniform pricing
for agricultural commodities in the spot markets across India.
Curiously enough, in similar crises situations earlier, the problem
was resolved with immediate help from financial institutions.
For example, in the case of the NSE or BSE whenever any crisis
emerged, the authorities responded by extending temporary relief
measures to stem the crisis; however, the whole approach when it
came to the NSEL was to embark upon a wide range of punitive
measures. More importantly, in the past, never, in any exchange
related issues, were the parent company’s board or promoters
punished or its management supplanted. Hence, the million-dollar
question that surfaced was simple: Was the move solely meant to
stifle Shah and ensure his company’s eventual demise?
Nevertheless, the disciplinary action of the CVC against K P
Krishnan only added fuel to the fi e reinforcing the fact that the
vendetta against FTIL and its group companies was being executed
from the topmost echelons of the Finance Ministry.
Unfortunately, although the real target was to destroy FTIL
and stop the prodigious Shah, the Finance Ministry had little
power to curb either. Therefore, the big bosses of the ministry
turned their attention to the FTIL-promoted MCX. It was evident
that Shah’s success was mainly due to the phenomenal growth
of MCX ever since the latter commenced trading in commodity
derivatives contracts in 2003. After all, MCX held the lion’s share
of over 80 per cent of all the commodity derivatives markets in
the country. The Finance Ministry unleashed the bugbear of a
Commodity Transaction Tax (CTT) on the commodity derivatives
markets. In his Union Budget for 2008-09, Chidambaram clamped
a transaction tax of 0.17 per cent on the sale of a commodity
derivatives contract. Would it not be safe to assume that such an

51
unprecedented action betrayed a lack of understanding on the
part of the Finance Ministry that a commodity futures market
is essentially a hedging market? The high entry and exit loads
resulting from the levy of CTT would obviously deter hedgers
from entering the futures market.
However, the commodity derivatives exchanges made
representations to the Union Government, which were finally
referred by the then Prime Minister, Dr Manmohan Singh, to Dr C.
Rangarajan, the then chairman of the Prime Minister’s Economic
Advisory Council. The council recommended deferring of the levy
of CTT—a setback for Chidambaram and the Finance Ministry.
The move to impose the CTT was widely criticised in the media
which labelled the move as an impediment to the growth of the
country’s commodity markets which were slowly yet steadily
shaping up as ideal growth trajectories for the country’s millions.
Eventually, the government did not implement CTT, and in
the budget of 2009, as gazetted, the CTT provision was deleted.
Nonetheless, Chidambaram, in his budget speech of February
2013, proposed the CTT on non-agricultural commodity derivatives
contracts. Surprisingly, upon announcing the budget for 2013-14,
the same Finance Minister, who had abandoned the CTT in 2008,
after Dr C Rangarajan, the then chairman of the Prime Minister’s
Economic Advisory Council, clued him in about the difference
between the securities derivatives contracts and commodity
derivatives contracts in both their nature and functions, declared,
‘There is no distinction between derivative trading in the securities
market and derivative trading in the commodities market, only the
underlying asset is different.’
Mumbai, the centre of the country’s commodities markets, was
aghast at the move. It was rumoured that the move was to target
the MCX, which is an exchange that essentially trades in metals
and energy, and where FTIL owned the bulk of its shares, even
after the issue of an IPO that was oversubscribed and listed.
Incidentally, if, except for the underlying assets, derivatives in

52
commodities were in no way different from those in securities,
then why did the Finance Ministry exempt currency and farm
commodity futures from CTT?
It was obvious that somebody powerful was intent upon boosting
the fortunes of NCDEX, where agricultural derivative contracts
are mostly traded. No wonder that derivative trades in farm
commodities were exempted from the CTT. The exemption was not
so much aimed at boosting agriculture, as to support the NCDEX.
Nevertheless, the CTT on non-farm commodity derivatives led to
the reduction in the business volumes in commodity exchanges by
more than sixty per cent. As a consequence, the business in illegal
dabba market (bucket shops) increased by almost six hundred per
cent to the detriment of the national interest.
The fact that the rival groups of Shah envied him and his
businesses was further proved by the ODIN incident. ODIN, the
trading solution designed and developed by FTIL and widely used
by brokers including those trading on the NSE’s platform, was
unfairly watch-listed citing an obscure complaint of a customer
(which was quickly resolved at that time itself) as justifiabl
reason.
Nonetheless, ODIN was not a pushover. It was a trading solution
with a market share of over eighty per cent holding its own against
stiff competition from national and international companies such
as Tata Consultancy Services (TCS), Technikrone, Reuters and
the National Stock Exchange Information Technology (NSEIT)
department. Currently, over one million terminals across India
are powered by ODIN as per a survey conducted by Frost and
Sullivan, the leading US transformative development firm
As was to be expected, there were some who hated it. For
reasons unknown, the NSE started sending signals to its brokers and
member firms that requisite approvals would not be forthcoming
if they persisted in using ODIN. To further marginalise ODIN,
the NSE developed its own trading solution and offered it to its
brokers free of cost, in the process violating regulatory norms.

53
The sole objective of all these measures was to limit the scope
of using ODIN by broking firms and thereby checkmating Shah.
Thankfully, the Competition Appellate Tribunal observed that
this was ‘exclusionary conduct’ on the part of the NSE, thwarting
healthy competition and development of technology. Eventually,
the NSE backtracked from its stand and withdrew all its allegations
against FTIL that had led to the watch listing of ODIN.
As if this was not all, seeing the performance of the MCX-SX in
currency futures, the NSE began to lobby with the SEBI and the
government to delay issuing a licence for trading in Interest Rate
Futures. What is surprising is that thrice before, the NSE failed
to make any progress in the trading of Interest Rate Futures, and
the fourth time round the MCX-SX sought approval for the same
deal. The approval to MCX-SX for the equity segment and interest
rate futures was delayed on flimsy grounds, adversely affecting
its business. Eventually, the Hon. Bombay High Court set aside
the SEBI’s order and directed the market regulator to reconsider
MCX-SX’s case.
No, this was not all, more tensions were created by the market
for Shah and his companies.
When MCX-SX re-applied for licence to begin trading in the
equity market segment, new restrictions surfaced. While the
NSE and the BSE were given approvals freely, new norms were
introduced when MCX-SX sought similar approvals. In banking and
insurance circles, the promoters are given a certain time period
to divest their initial equity, whereas for MCX-SX a condition
was laid down at the outset that they could not hold more than
fi e per cent. For a new exchange, yet to start business, getting
investors for ninety-fi e per cent of the equity is nigh impossible.
Furthermore, although this disinvestment was required without
the exchange having permission to organize trades in equities,
futures and options (F&O), and other instruments, this condition
of disinvestment was made purely to obstruct the licensing of
MCX-SX for the equity market segment.

54
 Now consider the game plan to checkmate Shah.
When technology companies the world over are front runners
in setting up exchanges, the new norms in India restricted FTIL,
a company with leadership in exchange technology, to hold
not more than fi e per cent of the equity. Although banks are
least interested in setting up stock exchanges, they were given
permission to be strategic investors holding up to twenty-six per
cent of the equity and depriving FTIL, that had a track record
of excellence in exchange technology, the same benefit. Most
of the firms that applied for membership in MCX-SX were also
members of the NSE and the BSE, which meant that conducting
eligibility and due diligence exercises were relatively easy.
However, approval for the new members was unconscionably
delayed, undermining the business of the new exchange. MCX-SX
met with hindrances, roadblocks and obstructions at every turn
designed to keep the fledgling firm from focusing on business,
and made to run around in circles chasing after various approvals
and licences.
Shah told his men to keep calm and focus only on work.
Trouble re-surfaced from the NSE, which used its monopolistic
power to create hurdles for Shah’s companies by keeping it out
of all the committees, working groups and task forces of the
government on financial and capital markets. While smaller
exchanges were easily able to become members of the World
Federation of Exchanges, using its position on the panel of the
federation, the NSE thwarted MCX’s attempts to become a full
member, despite it being the second biggest in the world. Similarly,
MCX and MCX-SX were not allowed to become members of the
exchange federations such as the South Asia Oceanic Federation
of Exchanges (SAFE).
As MCX/MCX-SX held the chairmanship of the South Asian
Federation of Exchanges, rivals withdrew from the federation to
send a signal that they wouldn’t be participating in any collaborative
or cooperative endeavour, if MCX-SX or any of the FTIL group

55
exchanges were a part of it. Even global industry forums holding
conventions in India were discouraged from using FTIL’s exchanges
as possible sponsors or partners.
The billion-dollar question that emerged in the minds of some
rational thinkers in Mumbai market was just one: Who hated Shah
so much?

56
 Chapter 3

Politics of India’s exchanges

In Delhi, on the pleasant Thursday morning of April 14, 2016, as

parts of India celebrated the New Year as per the regional language
calendars, the Prime Minister, Narendra Modi, sowed the seeds
for a farming revolution, launching an online portal for trading
in agricultural produce. The Prime Minister wanted to improve
transparency in wholesale markets and help farmers’ goods fetch
better prices, saving them from the clutches of unscrupulous
middlemen.
The portal, said the Prime Minister, would trade products from
365 wholesale markets and hopefully reach the 585 mark by March
2018. He said the idea was to benefit the other stakeholders and
consumers. It was this statement that made people sit up and take
notice, some with a twinge of pain, though.
In faraway Mumbai, two important people watched the news
being beamed live from Delhi on news channels. One was Mukesh
Ambani, whose farm to fork program ushered in the year 2006
was, actually an effort to cut out the middlemen and benefit the
farmer and the consumer. But it fell flat on its face because of some
serious lobbying by vested interests, politicians and middlemen,
who wanted to subsist on their own terms and prevent anyone
with bigger dreams from entering the market. Ambani, tired of the

57
incessant nit-picking, eventually shelved his grandiose plans and
focused on other sectors like oil and telecom.
The other person was Jignesh Shah, currently Chairman
Emeritus of FTIL, whose two vibrant companies, MCX and NSEL,
were the finest platforms for trading in agricultural commodities
with an ultimate aim to benefit the farmer. Shah had worked on
the thoughts of the then Prime Minister, Dr Manmohan Singh, who
wanted a single market for both manufactured and agricultural
produce.
Subsequently, the Economic Survey19 of the Government of
India after the dawn of the Third Millennium also recommended
setting up a national-level, integrated market for agricultural
products, as did the planning commission, which was aware of the
benefits of the spot markets. This was followed by the Rangarajan
Committee, which too sought a national spot market.
Shah conceptualised the National Spot Exchange (NSEL) in
2004, setting it up a year later. Within a few years, as many as six
state governments issued licences under the model Agricultural
Produce Market Committees (APMC) Act to NSEL, because their
own APMCs mostly short-changed the poor farmers. NSEL turned
out to be a boon for such farmers because they could now sell
their produce at competitive rates and make better profit . NSEL
also led to transparent spot price discovery leading to the growth
of electronic spot markets.
NSEL also carried out various kinds of trades on behalf of the
government agencies, also. Some of these are listed below:
• Since 2008, NAFED appointed NSEL as its agency for
procurement of cotton from farmers in Andhra Pradesh. Not
only did NSEL procure cotton from farmers at minimum
support prices (MSP), but also got such procured cotton
ginned and pressed, and delivered pressed cotton bales
to NAFED. In this operation, NSEL issued direct account

19 Economic Survey 2002-03, para 8.66

58
 payee cheques to around 14 thousand farmers in Andhra
Pradesh, while the total value of trades was around Rs. 206
crore.
• During 2010-11, NSEL sold 1.48 lakh tonnes of wheat for
the Food Corporation of India (FCI) on electronic forward
auction model.
• NAFED also likewise sold through the NSEL electronic
auction model around 8.73 lakh cotton bales valued at Rs.
850 crore.
• NSEL also sold, on behalf of government agencies,
imported pulses through its transparent electronic auction
model, which benefited many small traders, and pulse
processors.
• NSEL sold pig iron for Nilanchal Ispat Nigam Limited
(NINL) though its electronic platform, enabling NINL to
reach out to a large number of buyers across the country.
• NSEL also carried out auction sessions for NAFED to
sell paddy, bajra and other food grains, enabling it to
realise higher price than what it used to receive under
the traditional tender method. Auction platform provides
for competitive bidding by large number of buyers across
the country, and thus helps sellers/farmers in receiving a
better price.
In a letter by the Gujarat State Agricultural Marketing Board
addressed to the Commissioner, Agricultural Marketing & Agri
Business, Chennai, had stated that NSEL had been granted license
for E-market by the Director, Agricultural Marketing & Rural
Finance, of the Gujarat State. NSEL had started its operations
in castor seeds at various locations in Gujarat. The Board then
observed that NSEL was offering a better price to the farmers, and
the price discovered was always higher than the mandi prices by
at least one and half per cent to two and half per cent. NSEL was
not charging any transaction fee, brokerage, quality certification
charges or delivery charges from the farmers. NSEL was collecting

59
the mandi cess from the buyers, and not from the farmers, on
regular basis, and depositing it to the Marketing Board Office on
monthly basis20.
In fact, NSEL had emerged as the single largest party amid the
varied market centred players in many APMCs, including that
of Gujarat, which collected the highest cess. Yet in August 2013,
Chidambaram told the nation that NSEL was trading illegally from
day one The idea was to integrate production centres with the
consumption centres, bridging the divide between the rural and
urban economies. Shah did not stop at that; he and his men created
the National Bulk Handling Corporation Ltd. (NBHC), and shaped
large warehousing capacities across the country, besides ensuring
that farmers and traders could obtain easy warehouse-based
loans through the banks that NBHC tied up with. The plan was
to generate a large amount of rural investment and employment
opportunities across India.
Both, Shah and Ambani wanted the farmers in India to call
the shots. Ironically, it was the same sentiment echoed by Prime
Minister, during the launch of the National Agriculture Market
portal (e-NAM), which set out to connect twelve states including
Gujarat, Telangana, Uttar Pradesh, Jharkhand, Madhya Pradesh,
Rajasthan, Haryana and Himachal Pradesh.
The government listed twenty-fi e commodities, including
wheat, maize, chickpea, white millet, pearl millet, potato and
cotton for trading in the National Agriculture Market or e-mandi.
While six mandis in Uttar Pradesh will get connected, the pilot
project in Telangana will involve fi e mandis.
Today, a farmer who approaches a licensee (trader) in a mandi
doesn’t know what the rate of his produce in another market is.
The e-platform is expected to provide him with an opportunity
to learn that, thereby eliminating the chances of being exploited.

20 Letter No. GMB/NSEL/234/2009 dated July 31, 2009 from Mr. K. J. Joshi, Managing
Director, Gujarat State Agricultural Marketing Board, Gandhinagar, to Mr. Atul Anand,
IAS, Commissioner, Agricultural Marketing & Agri Business, Chennai

60
 This is exactly what Shah had accomplished successfully way
back in 2005 with the launch of NSEL till it was brought down by
the machinations of a few powerful politicians and bureaucrats.
‘If Ambani’s project and the ones run by Shah were in their
true form, the farmers would have already been connected by
now and the PM’s job made much easier,’ remarked Bibek Debroy,
a seasoned economist associated with Niti Ayog, the new avatar
of the Planning Commission created by our new Prime Minister,
Narendra Modi, to me.
I met up with social scientist, Ashish Nandy, who also agreed
that devious politicians and their cohorts have routinely exploited
the Indian farmer. ‘That Modi has to talk about something these
two industrialists had thought of almost a decade ago shows that
good things, meant to benefit the poor, rarely move fast in India.’
‘Ambani was a victim of trader politics, Shah was a victim of
politicians’ conspiracies. And, in the process, India lost some great
growth engines,’ said Debroy, adding, ‘Both wanted to remove
India’s huge information asymmetry between sellers and buyers,
and enable farmers to benefit from price discovery.’
Debroy said the two industrialists actually wanted to liberate
farmers from dependence on commission agents, the traditional
link between them and consumers. ‘In some cases, commission
agents also double as financie s to farmers, who thus feel obligated
to sell their produce through the agent to whom they are indebted.
Both Shah and Ambani wanted to change the matrix; but they
were not allowed to do so.’
If that had happened, more than a decade ago, by now the
farmers would have had their choice; and, with online trading, the
farmer would have conducted the entire transaction even before
loading his produce on his tractor or cart.
‘Farm to fork would have helped both the traders and the
consumers; online trading would have opened up new windows
of transaction because traders can tap any number of sellers, if for
some reason they don’t get what they want from their traditional

61
sellers,’ said Nandy. Unfortunately, even today, in large tracts of
India, as soon as the farmer takes his produce to a mandi, he is
completely at the mercy of traders; if these traders decide to drop
the price for a particular commodity, the poor farmer is forced
to sell because he simply can’t afford the cost of transporting the
produce back to his farm.
When the prices plummet because of excess yield, there have
been times when we have all watched farmers in Madhya Pradesh
and Maharashtra throw away their season’s harvest of onions and
tomatoes on the highways.
Despite the efforts that were made more than a decade
ago, powerful politicians and their lobbyists had other plans.
Unfortunately, idealists like Shah could not sit in Delhi wheeling
and dealing with the establishment to meet their objectives. Shah,
thanks to a sustained vilification campaign by the babus, had been
reduced to lead a life bereft of the two things he cherished most in
his life: innovation and entrepreneurship. Although there was no
verdict against him, the babus had confiscated all the professional
and personal freedom that had created the world renowned
exchanges – Multi Commodities Exchange (MCX), Dubai Gold and
Commodity exchange (DGCX), Singapore Mercantile Exchange
(SMX), Global Board of Trade (GBOT), Bourse Africa (BA), Bahrain
Financial Exchange (BFX), MCX Stock Exchange (MCX-SX), Indian
Energy Exchange (IEX), and National Spot Exchange Limited (NSEL)
– besides various other technologically innovative institutions and
products that revolutionised the way the world conducted business.
Why does this happen in India?
Consider this.
On February 14, 2016, Prime Minister Modi inaugurated his
Make in India campaign with the logo of a lion – made entirely
of cogs – symbolising manufacturing, strength and national pride.
According to Indian folklore, the lion represents power, courage,
pride, confidence and of course, enlightenment. The nation took
note of it.

62
 However, India seemed to have overlooked a devastating decree
issued by the Ministry of Corporate Affairs (MCA21). Through a
bizarre order dated February 12, 2016, the ministry decided to
merge the dormant NSEL with Shah’s FTIL that had all along
not only streamlined the software for the Make in India project
to run Indian financial markets, but also pioneered the premier
commodity derivatives market, MCX, and ten other commodity
and financial derivatives exchanges in India, the Middle East,
South East Asia and Africa within a decade.
Two days later, Prime Minister Modi launched his Make in India
road show. He wanted Indian companies to lure foreigners to set
up bases in India, much like next-door China seeking Western
investment; but in his announcement, he did not mention the
previous pioneers who embarked on this initiative on their own
steam.
Clearly, it would be worthwhile noting the damage caused to
India and its economy by the MCA pushing its draconian order in
the NSEL-FTIL matter, besides other such inappropriate orders by
the establishment in the past.
It was abundantly clear that while issuing the order, the MCA
turned a blind eye to the worldwide recognition received by Shah
since the onset of the third millennium, and the awards that he
won from organisations like the World Economic Forum and global
leaders like Senator Hillary Clinton, on behalf of the Indo-US
Business Forum, as also former President, Dr A.P.J. Abdul Kalam,
for his innovations.
Even as a young, fi st-generation entrepreneur (barely in his
mid-thirties), Shah was honoured time and again by various Indian
and global bodies for having successfully created and managed
financial as well as physical markets of all hues across the world.
To defend their decree, the MCA merely recycled some absurd
arguments, which sounded more like the rant, offered in 2014 by

21 http://www.mca.gov.in/Ministry/pdf/Notice_NSEL_FTIL.pdf

63
Ramesh Abhishek, the then chairman of what was then known
as the Forward Markets Commission (FMC) before the Finance
Ministry took control of it from the ambit of MCA and sank it
into the Securities and Exchange Board of India (SEBI), the market
regulator. Now, even if someone attempted to ferret out the truth
about the Commission’s move from the dusty crypts of the defunct
establishment, it would be a herculean task. In any case, who
would care to delve into the archives of the FMC that has been
merged away and does not exist anymore?
The story does not end here, though.
In proposing the merger, the MCA took the weird call of
amalgamating two disparate, private sector companies with limited
liabilities. What was saddening, in the process, was that the MCA,
now under a new minister and a new government, made no effort
to get under the skin of the NSEL crisis, unwittingly succumbing
to what looked like a malicious conspiracy hatched by some very
powerful politicians with the help of KPK, the then Additional
Secretary, heading the Department of Economic Affairs (DEA) in
the Finance Ministry, and Abhishek, whose FMC took its cue from
the DEA.
So was there a conspiracy? Yes, there was, and the theory is
not hypothetical speculation but one with ample documentary
evidence.
The evidence of this conspiracy is found in a confidential
internal office note dated December 19, 2007 submitted by
K P Krishnan, who was the then joint secretary in the DEA to
Chidambaram, alluded to, and quoted verbatim in the previous
chapter. It is evident from this note that Chidambaram was biased
against MCX and, ipso facto, against FTIL, and most particularly,
Shah, as MCX was promoted by FTIL.
However, it would be wrong to think that the decision taken by
Chidambaram to push the fortunes of the NSE and companies, in
which it had invested, was a rare one. It would be equally wrong
to think his tacit support in merging the two private bodies was

64
an isolated incident against FTIL, and, above all, Shah. No, it
was not.
This scandalous conspiracy really began in early 2003 when, in
a communication, Chidambaram, the then Finance Minister in the
UPA-1 Cabinet, had conveyed to Sharad Pawar, the then Minister of
Agriculture, Food and Consumer Affairs, his idea of convergence
of the securities and commodity derivatives markets, players and
regulators. The events that followed were most definitely not
mere coincidence. It is interesting to note that in April 2002 MCX
was incorporated and by the end of the year, the exchange was
recognised by the central government for ably organising trading
in commodity derivatives. MCX went live in November 2003 in
gold futures.
However, Chidambaram had other plans. He asked Pawar for his
inputs on his thoughts on convergence. In May 2003, Pawar, who
headed the agriculture ministry at the time, got the Department
of Consumer Affairs (DCA) to set up an inter-ministerial task force
on the convergence of the securities and commodity derivatives
markets under the chairmanship of the then DCA Secretary,
Wajahat Habibullah.
The task force listed several possible gains from the proposed
convergence22. It argued that the convergence would provide, inter
alia, opportunities to speed up the development of commodities
markets and make them available to farmers and accelerate the
growth rate of the agricultural sector ‘if the institutions of the
securities markets, which are available off the shelf, are used’.
Unfortunately, this argument was more in the nature of an
untested hypothesis, with little theoretical basis or even a priori
logic, than a scientifically derived conclusion based on either
rational or empirical analysis.
The task force assumed that the inter-marriage of the two types
of markets would ‘open new avenues of business opportunities

22 See: http://www.sebi.gov.in/cms/sebi_data/commodities/Report11.pdf

65
to the securities market participants’ thereby deepening and
broadening the commodity derivatives markets, especially since
the stock exchanges are fully automated, they provide anonymous
order-matching facilities through their network of over 5,000
branches as well as Internet trading.
The merger, it was also argued, would benefit from economies
of scale, because the infrastructure of the stock exchanges ‘can
be used to obtain trading in commodity derivatives at a small
incremental cost’. Moreover, ‘a single, simple set of rules and
procedures for a broad range of derivative products’ in both the
security and commodity derivatives markets can reduce the
overheads and transaction costs associated with trading, thereby
improving the impetus to the growth and liquidity of their markets.
While all this is clearly documented, it may appear that the
hidden agenda behind this entire exercise was to stop Shah and
the FTIL from organizing an independent national commodity
derivatives exchange and ensure that the NSE spearheaded trading
instead.
However, the task force, while listing the benefits of convergence,
offered its misgivings, too. It clearly perceived that, unlike the
securities market ‘where the impact of the price volatility is on the
willing participants in the market (read investors in securities), the
sharp rise or fall in price in commodities is borne by the entire
economy, i.e., largely by innocent bystanders’. In other words, ‘the
most important policy goal and policy concern (of the commodity
exchanges), is to safeguard the interests of the producers – the
farmers in particular – consumers as well as manufacturers and
other functionaries in the supply chain.’ On the other hand, the
focus of stock exchanges is on providing liquidity to securities for
enabling companies, government and other organizations to raise
finances through stock and bond issues.
In fact, the task force realised that, ‘the possibilities of
convergence are limited insofar as commodity futures trading
require highly specialized knowledge, distinctly different from

66
that required for securities trading.’ Unlike the securities market,
the factors that affect commodity prices are more complex and
commodity specifi . As against the commodity futures, the stock
exchanges are more influenced by the technical and general
macroeconomic than fundamental factors relating to specific
stocks and securities.
Although the task force submitted a draft report to the DCA for
comments from all the stakeholders in the commodity derivatives
markets and exchanges, it failed to finali e its report because of
the strong opposition from the commodity market functionaries.
Meanwhile, several national commodity exchanges, including
MCX, NCDEX, to name a few, bourgeoned.
In 2005, Chidambaram called a meeting of the representatives
of all commodity exchanges and speculators at Pawar’s residence
in Delhi to re-discuss the convergence of the securities and
commodity derivatives markets, players and regulators.
According to my source, who was present in the meeting, all
the commodity derivatives exchanges, except NCDEX, strongly
opposed the convergence with the securities exchanges and their
regulator. All their viewpoints (read anger) were duly included
in the minutes of the meeting. It was flagged up to the finance
minister that commodities are a different ballgame altogether from
trading in securities.
To add insult to injury, two research papers entitled
‘Commodity Exchanges are not Stock Exchanges’23 and ‘Death
Trap for Commodity Futures’24 were submitted to Chidambaram
in support of the logic that the convergence of securities and
commodities derivatives markets could prove fatal to the
development and survival of commodities derivatives markets,
and also undermine the growth of the economy at large, because
essentially commodities differed in both the physical and
conceptual sense from securities and bonds.

23 Madhoo Pavaskar, Economic and Political Weekly, November 27, 2004, pp.5082-85
24 Madhoo Pavaskar, Economic and Political Weekly, January 1, 2005, pp.14-19

67
 These two papers quelled all arguments advanced by the
officials of the then Finance Ministry, and as a consequence of
their irrefutable reasoning, Chidambaram was constrained to
abandon the notion of convergence.
However, Chidambaram returned this time with some spine-
chilling regulations.
On November 13, 2006, SEBI, the market regulator for securities
exchanges that functions directly under the MoF issued the MIMPS
(Manner of Increasing and Maintaining Public Shareholding in
recognised stock exchanges) regulations, requiring every stock
exchange to ensure that at least fifty-one per cent of its equity
share capital is held by the public. At the same time, the regulations
enjoined that no person shall, directly or indirectly, acquire or
hold more than fi e per cent in the paid-up equity capital of a
recognized stock exchange at any time after commencement of
the regulations.
The markets were appalled.
This was not all. The regulations further required that no
person shall, either individually or together with persons acting
in concert with him, acquire and/or hold more than one per
cent of the paid-up equity capital of a recognized stock exchange
after commencement of these regulations, unless he is a ‘fit and
proper’ person and has taken prior approval of the board for
doing so.
The person shall be deemed to be fit and proper if:
1. Such a person has a general reputation and record of fairness
and integrity, including but not limited to
a. financial integrity
b. good reputation and character, and
c. honesty
2. Such person has not incurred any of the following
disqualification
a. the person or any of his whole-time directors or managing
partners has been convicted by a court for any offence

68
 involving moral turpitude or any economic offence, or
any offence against the securities laws
b. an order for winding-up has been passed against the
person
c. the person or any of his whole-time directors or managing
partners has been declared insolvent and has not been
discharged
d. an order, restraining, prohibiting or debarring the person,
or any of his whole-time directors or managing partners
from dealing in securities in the capital market or from
accessing the capital market has been passed by the board
or any other regulatory authority and a period of three
years from the date of the expiry of the period specified
in the order has not elapsed
e. any other order against the person or any of his whole-
time directors or managing partners which has a bearing
on the capital market, has been passed by the board or
any other regulatory authority and a period of three years
from the date of the order has not elapsed
f. the person has been found to be of unsound mind by a
court of competent jurisdiction and the finding is in force,
and
g. the person is financially not sound.
These regulations, when prescribed, were intended to provide
for the corporatisation and demutualisation of only the old stock
exchanges and diversification of the ownership of those exchanges.
On December 23, 2008, these regulations were further amended
by SEBI to enable, among others, a stock exchange, a depository, a
clearing corporation, a banking company, an insurance company
and a public financial institution as defined under section 4A of
the Companies Act, 1956 to hold, either directly or indirectly,
either individually or together with persons acting in concert, up
to fifteen per cent of the paid-up equity share capital of a stock
exchange.

69
 The SEBI’s move to bring about this amendment was perceived
by some market pundits as an attempt to bolster the operations
of the NSE and regularise its then extant shareholdings, which
comprised nationalised banks and other financial institutions,
and also to bring in nationalised banks and other public-sector
financial institutions in the MCX Stock Exchange (MCX-SX) set up
in the same year—2008—by FTIL and MCX jointly, while perhaps
compelling the latter (MCX-SX) to reduce the shareholdings of its
promoters to ensure compliance with MIMPS regulations.
There was one more layer in this mess. K P Krishnan was a
member of the SEBI, nominated by the Finance Ministry, when
these regulations were being drawn up.
It’s fairly obvious, especially in the context of KPK’s internal
note dated December 29, 2007 to Chidambaram referred to earlier,
that the amendments to the regulations were designed to obstruct
the full operationalisation of MCX-SX, so that the NSE could have
a dominant position in the financial market arena.
The MIMPS regulations were hostile to the principles of
privatisation and competition, which were essentially the
hallmarks of capitalism, free trade and democracy. After the onset
of liberalisation from the early nineties, India needed to encourage
the private sector in all sections of the economy, including primary
and derivative markets. The establishment of the NSE through the
public sector banks in 1992 was in conflict with the very concept
of privatization and free competition.
In 1996-1997, when Chidambaram was the Finance Minister,
he fostered the further growth of NSE. He not only knocked the
bottom out of the well-established century-old Bombay Stock
Exchange (BSE), but also orchestrated the slow annihilation of
other private stock exchanges across the country, giving a go-by to
the hitherto cherished values of privatization and free competition.
As his confidant, KPK was only too happy to fulfill Chidambaram’s
objective of preventing FTIL and MCX from creating a private
sector stock exchange by setting up the MIMPS regulations.

70
 Nevertheless, MCX-SX happened, and was incorporated
on August 14, 2008 as a public limited company, though as a
subsidiary of MCX, with a paid-up capital of Rs 10 lakh, of which
fifty-one per cent was contributed by MCX and the balance forty-
nine per cent, by FTIL. The share capital of the company was
regularly reinforced to meet the growing needs of the exchange
with influ es from both MCX and FTIL, and also from nationalised
banks and other public sector financial institutions. Consequently,
as on March 31, 2009, the paid-up capital of the company stood at
Rs 135 crores. In the process, the shareholding proportions of the
two promoters, FTIL and MCX, were reduced to 38.01 per cent and
31.89 per cent respectively.
Meanwhile, MCX-SX was recognised by the SEBI as a stock
exchange under Section 4 of the Securities Contract (Regulation)
Act (SCRA), 1956, on September 15, 2008, subject to the conditions
that, ‘the exchange shall ensure full compliance with the relevant
provisions of Securities Contracts (Manner of Increasing and
Maintaining Public Shareholding in recognized stock exchanges)
regulations (MIMPS regulations), 2006, within a period of one year,
and that the exchange shall comply with other such conditions
as may be prescribed by the SEBI from time to time.’ Obviously,
when the SEBI mandated full compliance of MIMPS regulations for
MCX-SX within a period of one year of its recognition, it clearly
intended to create obstacles to MCX-SX before it could become
a full-fledged operational stock exchange offering trades in all
financial products.
Nevertheless, upon recognition of MCX-SX, it was accorded a
regulatory approval to operate an exchange platform for trades
in currency derivatives (CD segment) only. The initial approval
permitted only ‘currency futures’ in US$-INR of different tenures
up to a year. For the record, the CD segment is closely aligned to
the commodity derivatives segment. The risks in foreign exchange
rates are more integral to foreign trade in commodities than to
securities trade in stock exchanges. For, the investors in securities,

71
including those who trade in securities derivatives – equity
futures and options (F&O) segments – trade on the basis of their
perceptions about the prices of securities or security derivatives
in the future. The export-import decisions of commodity exporters
and importers, on the other hand, are based on a wide variety
of factors, including the present and prospective supply of, and
demand for, commodities and their products, the need to maintain
and develop relations with their overseas buyers and sellers, the
necessity to keep the competitors at bay as far as possible, etc. In
all fairness, therefore, the CD segment should form an integral
part of commodity exchanges like MCX, as is the case all over the
world.
The Finance Ministry mandarins, however, desired to keep MCX
away from any new derivatives segment, fearing that it would
outsmart the NSE in the derivatives market arena. Therefore,
shelving the logics of economic theories and pulling rank as the
Union Finance Minister, Chidambaram commandeered the RBI
(although the RBI normally functioned autonomously) and SEBI (K
P Krishnan as member of this exchange board proved fortunate),
to ensure that the currency derivatives (CD) and interest rate
derivatives (ID) segments remained within the fold of the stock
exchanges.
Against this backdrop, FTIL and MCX were left with no
alternative, but to float MCX-SX.
Nevertheless, after allowing trading in US$-INR, SEBI
subsequently granted MCX-SX approvals for trading in the three
other currency couplets, namely, British £-INR, European €-INR
and Japanese ¥-INR. MCX-SX was also provided the necessary
authorisation by the RBI under Section 10 of the Foreign Exchange
Management Act, 1999, to undertake trades in these currency
pairs until September 15, 2009. The recognition of the exchange
was further extended by SEBI to September 15, 2010, subject to
an additional condition: besides ensuring full compliance with
the MIMPS regulations, the ‘Exchange will permit trade only

72
in securities in which trading was permitted hitherto and shall
not be eligible for introduction of any new class of contracts in
securities, until such time as the compliance referred to above
is ensured.’
On April 7, 2010, MCX-SX applied to SEBI for permission to
operate in the equity/cash (equity) and equity derivatives (futures
and options – F&O) segments. MCX-SX also communicated its
willingness to SEBI to list and operate trades in the two more
segments, namely, small and medium enterprises (SME) and
mutual funds (MF) after listing such enterprises and funds, besides
seeking permission to introduce Interest Rate Futures.
SEBI issued a notice to MCX-SX claiming that it would not be
in the public interest or in the interest of trade to endorse its
application for the following reasons, among others,
(a) 38.01 per cent and 33.89 per cent of its share capital is still
in the hands of FTIL and MCX respectively;
(b) MCX-SX’s manner of compliance with MIMPS regulations
through the scheme of capital reduction is unsatisfactory. It
has not led to the diversification of ownership and economic
interest (MCX and FTIL continue holding equity shares
and warrants, instead of reducing their shareholdings to 5
per cent of the total share capital of the exchange);
(c) in failing to bring to the notice of the High Court, while
getting its approval to the scheme of capital reduction,
that necessary regulatory approvals from SEBI had neither
been sought nor obtained, and in concealing the details
of the buy-back arrangements with respect to the MCX-SX
shares, MCX-SX, and its promoters, FTIL and MCX, have
shown lack of honesty. This lack of integrity, in turn,
leads to the conclusion that MCX-SX is prima facie ‘not
fit and proper’ to enter into other financial products and
segments;
(d) The two promoters of MCX-SX are under the same
management in terms of MIMPS regulations. Regulation

73
 2(i) of SEBI -SAST (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 , and section 370 (1B) of the
Companies Act, 1956, disallows persons acting in concert,
and therefore, MCX-SX despite being a recognised stock
exchange, is in violation of MIMPS regulations;
(e) regardless of whether the buy-back arrangements subsist,
following the approval of the scheme of capital reduction
agreed to by the shareholders of MCX-SX, it appears prima
facie that the MCX-SX and the promoters have entered
into forward contracts in contravention of the provisions
of the Securities Contracts (Regulation) Act (SCRA), 1956,
and hence, the disinvestment of shares in MCX-SX has
evidently not been done in accordance with the law.
Contrary to the reasons adduced by SEBI, actually, in order to
comply with the MIMPS regulations, MCX-SX had, with the
unanimous approval of its board and shareholders, implemented
a Scheme of Reduction cum Arrangement under Sections 100-
104 and 391-393 of the Companies Act, 1956, whereby the shares
held by shareholders in excess of the permissible limits were
cancelled and extinguished, and warrants were issued instead to
the shareholders. Consequently, the total shareholding of banks
increased to eighty-nine per cent, and that of FTIL and MCX was
reduced to fi e per cent each with the MCX-SX ESOP (Employee
Stock option Plan) Trust holding one per cent. The scheme was
sanctioned by the Hon. Bombay High Court by an order dated
March 12, 2010.
Pursuant to the scheme, a consideration of Re 1 per share
was payable on reduction by the company to the reducing
shareholders. This consideration was adjusted against the non-
refundable interest-free deposit receivable by the company
from the said shareholders, and was held by them in the form
of ‘warrants’. Each warrant-holder could exercise his option to
subscribe to the fully paid-up equity shares of the company at
the face value of Re 1 each, subject to the MIMPS regulations

74
and other conditions. The warrants did not carry any voting or
dividend rights. Under the scheme, MCX was allotted 63.41 crore
warrants and FTIL was allotted 56.24 crore warrants. Although
the promoters had no option to convert the warrants into shares
of MCX-SX, still, their boards passed resolutions in August 2010 to
ensure that they would not increase their shareholding beyond the
limit specified in the MIMPS regulations. These resolutions were
duly submitted to SEBI by both the promoters. Moreover, MCX
and FTIL, being two separate legal entities under the Companies
Act, it was improper on the part of SEBI to say that they were
acting in concert.
However, upon issuing the aforesaid notice to MCX-SX, and
after giving a hearing to it by one of SEBI’s members, Dr K.M.
Abraham, SEBI passed an order on September 23, 2010 rejecting
MCX-SX’s application of April 7, 2010 for several reasons25.
Many found these reasons absurd for although it was not a full-
fledged s ock exchange in that it was neither trading nor allowed to
trade like other stock exchanges in equities and their derivatives,
MCX-SX was already corporatised and demutualised at the time
of its recognition as a stock exchange. Hence, the MIMPS criteria
were strictly not applicable to MCX-SX. All other reasons, being
based on MIMPS regulations, offered by SEBI in rejecting the MCX-
SX’s application, fall foul of both law and fact.
Even then, one other reason offered by SEBI for vetoing the
MCX-SX’s application was the buy-back arrangements provided by
the promoters in selling shares to some of the financial institutions.
Thus, on March 31, 2009, MCX-SX offered 2.97 per cent of its shares
on a preferential basis to Punjab National Bank (PNB) together
with an exit option. The option stipulated that
(i) PNB would be entitled to a simple rate of return at sixteen
per cent per annum after completion of three years from
the date of investment on the total amount invested;

25 http://www.sebi.gov.in/cmorder/MCXExchange.pdf

75
 (ii) FTIL or its nominees would have a right to buy back shares
from PNB at any time after the expiry of a period of one
year from the date of investment; and
(iii) if PNB retained the shares in spite of the buy-back offer, it
would not be entitled to an assured rate of return, and FTIL
would have no liability to buy back the shares in future.
On July 18, 2009, FTIL, in turn, sold its Rs 7.18 crore shares
of MCX-SX to the public sector Industrial Finance Corporation
of India Limited (IFCI). Likewise, on August 20, 2009, MCX-SX
entered into a Share Purchase Agreement (SPA) with MCX and
Infrastructure Leasing and Financial Services Limited (IL&FS),
under which IL&FS agreed to purchase shares of MCX-SX worth
Rs 159.12 crores from MCX. On the same date, La-Fin Financial
Services Private Limited (La-Fin), a family concern of Shah,
having stake in FTIL addressed a letter to IL&FS, and offered an
exit option.
The need for these buy-back agreements arose because the
precise value of an MCX-SX share could not be ascertained at
that time. The buyers paid certain prices on the assumption that
MCX-SX would eventually be allowed by SEBI to launch trades
in equity, equity derivatives, MF and SME segments. Otherwise,
to bring about the capital reduction, as decreed by SEBI, MCX-SX
would have had to resort to distress sales. Hence, IFCI, PNB and
IL&FS stipulated the buy-back agreements, and MCX-SX and its
promoters were constrained to submit to these stipulations.
The MCX-SX and its promoters complied with MIMPS regulations
with regard to shareholding by individual shareholder, and reduced
their respective shareholdings to the levels prescribed. But KPK,
who was then a member of SEBI, apparently used his influence in
SEBI to reject the MCX-SX’s application, and thus ensured that SEBI
did not allow it to enter into the equity, equity derivatives, Mutual
Funds and SME segments.
The long and short of it is that as part of the conspiracy by

76
the high and mighty K P Krishnan looked not only privy to, but
probably partook in SEBI’s rejection of MCX-SX’s application.
Obviously, somebody very influential and powerful did not
want a new competitor to NSE.
This was nothing but dirty politics. After all, the old BSE was
virtually vanquished.

77
 Chapter 4

The Enemy Within:

The conspiracy deepens

After having failed miserably in their moves to rattle FTIL, and,

in turn, Shah, the mandarins in the corridors of power in Delhi
started planning their next moves.
This time, the conspiracy directed against Shah and FTIL was
more vengeful. Shah’s friends in Mumbai alerted him that Ramesh
Abhishek, once chairman of the FMC before it was merged with
SEBI, had rolled up his sleeves.
The idea was to reduce FTIL and NSEL to rubble and destroy
Shah in the process.
On July 12, 2013, the skullduggery began taking shape. The
Department of Consumer Affairs (DCA) in the Union Ministry
of Agriculture, the then parent ministry of the former Forward
Markets Commission (FMC), at the instance of its Chairman,
Ramesh Abhishek, abruptly directed NSEL to give an undertaking
that it would not launch any fresh forward contracts of one-day
duration on its trading platform, and arrange to settle all the
existing contracts in agricultural and plantation commodities and
their products on their respective due dates. The news froze NSEL.
On July 22, 2013, in response to a show-cause notice issued by
DCA to NSEL claiming NSEL had been “running contracts with

78
more than eleven days delivery period, thereby conducting non-
transferable specific delivery (NTSD) contracts purportedly not
exempted under the notification” that allowed NSEL to organise
trading in forward contracts of only one day duration, NSEL
replied that it was certain that there had been no violations
of provisions of the Forward Contracts (Regulation) Act, 1952
(FCRA) or the said notification. Nevertheless, as a bona fide and
compliant corporate, NSEL strived to maintain the smooth and
non-disruptive functioning of the market to protect the interests
of all the traders, reduced delivery, and payment and settlement
period of all contracts traded on the exchange to less than eleven
days (T+10 or less), wherever settlement schedule was extending
beyond eleven days.
With these unexpected developments caused by the government
authorities, panic ensued in the market, with most sellers hurriedly
emptying their godowns to meet their other commitments, and
defaulted on their NSEL forward contracts of one day duration
on their maturity, resulting in the otherwise avoidable payment
crisis at NSEL on July 31, 2013. It should be recognized that in
physical commodity markets, stocks are held by sellers always to
the minimum to optimize returns on their investments in stocks.
After all, aside from selling on NSEL, they would be selling physical
commodities for immediate delivery as well as for forward delivery
through other bilateral contracts outside the exchange platform.
Stocks are replenished from time to time, as deliveries are made
from their godowns. In fairness, commodity stockists and dealers
function like commercial banks. As the latter do not keep all their
deposits in cash, but only a fraction of these to satisfy the demand
for cash withdrawals by the depositors, so too the traders keep
merely the minimum optimum stocks, adequate enough to meet
the day-to-day delivery commitments, to minimize their storage
costs that include interest on their investment in stocks.
As sudden panicky demand for cash withdrawal by depositors
resulted in a run on banks, leading to their collapse, so too the

79
brusque reduction in delivery dates, and the order to settle all
outstanding contracts, without allowing parties to the contracts
to roll over their outstanding contracts to fresh new contracts,
bewildered both sellers and buyers, with the former mostly
defaulting on deliveries in the face of sudden rush for demand
for deliveries from the latter to settle their contracts. Evidently,
MoCA’s directive of July 12, 2013, and the subsequent steps taken
by NSEL to reduce the delivery dates on one day forward contracts
beyond 11 days to just 10 days peremptorily spooked the NSEL
market, leading to an otherwise preventable payment default.
Following the resulting payment crisis, all sorts of foul and untrue
stories were spread by the buyers, calling themselves inaptly as
“investors” on NSEL, who were defaulted by nervous sellers, as also
their own brokers, who had lured them to trade. When trades at
NSEL were going on quite smoothly, with scheduled banks, both in
the public and private sectors, acting as clearing banks for inward
and outward payments, since the inception of trading till the date
of MoCA directive, what really prompted MoCA to intrude into the
NSEL market, seems to be a mystery, indeed! Behind this mystery
was the murky politics of exchanges played by Chidambaram, KPK,
and now, Abhishek.
This was the signal for those waiting in the wings, watching
NSEL and FTIL with a baleful eye. They cried wolf, and a further
stampede spread across the trading platforms. Television channels
relayed the breaking news, catapulting the commotion into a
payment scam.
But what was the real story?
Evidently, DCA’s directive of July 12, 2013, and the subsequent
steps taken by NSEL, at the instance of the then FMC, to reduce the
delivery dates on one-day forward contracts beyond eleven days to
just ten days caught the NSEL players off guard, precipitating an
otherwise preventable payment lapse.
The bulk of the news reports covering this new scandal was of
buyers calling themselves (incorrectly) ‘investors’ on NSEL, who

80
were defaulted by their own brokers, who had lured them into
trade, and nervous sellers. When the payments crisis ensued, the
wild rumours and groundless gossip fed into the markets as part
of the daily news.
The real reason for the payments crisis at NSEL was the DCA’s
unwarranted incursion into the market. This is as clear as mud.
Evidently, no one had contemplated peeling this onion. It was
obvious that behind this mystery lurked the murky politics played
by the powerful in faraway Delhi.
To delve into this new twist in the strategy of the conspirators,
it is necessary to narrate a little background.
As the then Ministry of Consumer Affairs (MoCA) had enjoined
on NSEL that all outstanding forward contracts of one day duration
must end in delivery, NSEL allowed mainly two types of forward
contracts of one day duration, namely, t+2 and t+25, so that it
can monitor such contracts easily, and without any hassles. The
t+2 contract required delivery on the next day of the trade, while
the t+25 called for delivery and payment on the t+25th day. Both
were one day contracts, as they were valid for fulfillment on the
prescribed days only, and delivery could not be issued on one
day and payment on some other. In normal NTSD contracts, such
different days for delivery and payment are actually allowed. Had
the government not wanted to permit such t+25 day contract, it
would not have used the word, ‘forward’, and, instead, used the
word, “ready delivery”. The intention of the government was thus
quite clear when it exempted all forward contracts of one day
duration under the powers vested in it under Section 27 of the
erstwhile FCRA.
Where was then the violation of FCRA? In fact, such contract
was only a forward contract of one day duration. Incidentally, it
is pertinent to note that “The Gazette notifications issued by the
Government granting exemption under Section 27 to the three spot
exchanges provide for exemption from operation of the provisions
of the said Act (i.e. FCRA) and are silent on whether the exemption

81
is applicable to all or specific provisions of the Act.” The fact is
that MoCA then did not issue any clarification on this issue. By
implication, as also strictly by the letter of gazette notification
dated June 7, 2007, the exemption granted under Section 27 to
NSEL, was from operation of the provisions of FCRA. The word,
“provisions” in plural necessarily implies all the provisions of
FCRA. There cannot be any ambiguity on the definition of the
word “provisions”, especially when followed by the words “of
FCRA”. Why did the then FMC then write to the previous MoCA
on July 19, 2013, raising the issue of the notifications of exemption
under Section 27 of FCRA being “silent on whether the exemption
is applicable to all or specific provisions of the Act?” Raising such
an absurd issue (to be sure, “a non-issue” in reality) was simply a
ploy of the then FMC, and by implication, Ramesh Abhishek, to
somehow bring NSEL in trouble, as a part of a bigger conspiracy
planned faraway in Delhi by the Department of Economic Affairs
(DEA) in the MoF.
NSEL had even applied under Section 14A of the then FCRA for
registration under Section 14B of the Act to enable it to organise
trades in even NTSD contracts maturing beyond 11 days, but the
MoCA put the application on a backburner. Actually, in the File
No. 12/3/003-IT, the then Principal Advisor to the MoCA had noted
on August 21, 2012 that “the government has already proposed
to increase the period of 11 days as provided in section 2(1) of
FCRA to 30 days in the FCR Amendment Bill 2010, and also FMC
had already agreed to exempt the operation of the provisions of
FCRA to NTSD contracts in electricity”. Moreover, she (Principal
Advisor) had also mentioned in her noting on the same file that
“banks have been given exemptions for gold transactions under
Section 27 of FCRA, where delivery & payment can take place up
to 180 days.” She had then recommended that “We may, therefore,
permit delivery up to 30 days.” The Principal Advisor had also
then suggested that “FMC may also consider granting registration
to NSEL under Section 14B of FCRA, pending comprehensive

82
legislation to regulate spot exchanges being enacted.” It is
manifested that this suggestion of the then Principal Advisor was
made due to the extant legal position, under which even though
NTSD contracts were free from regulation under FCRA, to organize
trading in such contracts under the auspices of an organised body
like an exchange required registration under Section 14B of FCRA,
as Section 21 of FCRA not only prohibited owning or keeping a
place, or organising an association, for entering into, making or
performing any forward contracts in goods, but also provided for
penalising those who violated such prohibition, such violation
being made even a non-cognisable criminal offence under that
Act.
The note of the Principal Advisor was then endorsed by the
then Secretary of the ministry, and submitted to the then Minister
of State for Consumer Affairs, Prof. K V Thomas for approval.
He, however, deferred his decision, as the earlier Secretary had
meanwhile left the ministry, and he needed observation from the
new Secretary. Subsequently, in July 2013, after the then MoCA,
at the behest of the erstwhile FMC, shocked the NSEL market by
directing the Exchange not to launch fresh contracts, and settle
the then extant contracts in farm and plantation commodities and
their products on their maturity, the Finance Ministry stepped in
to replace MoCA as the parent ministry of FMC, and DEA of that
ministry came to control FMC. Then began the final conspiracy
of Chidambaram, aided and abated by his Additional Secretary, K
P Krishnan, heading DEA, with the subservient Ramesh Abhishek
coming very handy to implement his master’s diktats emanating
from MoF.
In hindsight, it now appears that quite a few traders, led astray
by their unscrupulous brokers, misused the NSEL contracts for
concurrent paired trading to earn the consequential arbitrage
gains, despite repeated warnings issued by the exchange to desist,
as this violates its rules. FMC, and more particularly, Abhishek,
expediently ignored these flag ant transgressions by these traders

83
for a long period. It was clear that Abhishek had a peculiar agenda
to look the other way when the crisis was being created by the
devious brokers and sellers. Had he then gone after the defaulting
traders, and the deceitful brokers, the missing amount could have
been easily recovered.
Meanwhile, the buyers, who profitee ed on these contracts,
viewed them as short-term arbitrage, and the sellers saw them as
short-term trading opportunities for their goods. Justice Thipsay of
the Hon. Bombay High Court called these traders ‘bogus traders’.26
The FMC, the designated regulatory agency, had also failed to
initiate any action against these bogus traders and left it to NSEL
to follow up with the defaulting brokers and erring sellers, which
it had been doing with diligence.
Earlier, whenever contracts were sold, the sellers would issue
offer letters to NSEL. Thereupon, warehouse receipts were generated
electronically on the NSEL computer system, and communicated
to the buyers through allocation reports. The commodities at the
warehouses had insurance covers totalling over Rs 4,000 crore. VAT
invoices were also exchanged for trades, although the commodities
remained in the constructive possession of the selling members.
As a consequence, although the initial trades were transacted
anonymously on the electronic trading platform, sellers and
buyers knew each other by their respective names, addresses and
warehouse locations, based on the VAT invoices and contracts
settlements in the delivery allocations. Therefore, the buyers
could always check the quantity and quality of commodities in
warehouses.
Eventually, it came to light that most of these pseudo ‘investors’,
and on their behalf, their brokers visited warehouses more than
50 times a year (i.e. almost once a week), but never took delivery.
They used their contracts to earn arbitrage gains, based on the

26 Order of Hon’ble Justice Thipsay dated August 22, 2014 in the Criminal Bail
Application No.1263 of 2014, Hon. Bombay High Court.

84
differences between the prices of t+2 at which they bought, and
those of t+25 at which they sold.
The abrupt closure of NSEL on July 12, 2013 foiled their plans.
Letters sourced through Right to Information Act (RTI)
categorically exposed the misuse of some of the NSEL contracts by
many buyers and sellers, instigated by the dodgy brokers. However,
Abhishek maintained a stoic silence, despite having full regulatory
powers right from 2008, which were further strengthened to full-
fledged army–like powers from August 6, 2013, but did not bother
to set the wheels in motion for an in-depth investigation into the
VAT invoices, removal of commodities by the sellers, the tax orders
and tax returns of these traders. A timely official inspection, both
extensively and intensively, would have exposed the truth behind
all this wheeling and dealing.
In the meanwhile, the payment crisis was being blown out
of proportion by the media as the biggest conspiracy of the
millennium.
Consider this one. The former DCA in the MoCA of the erstwhile
United Progressive Alliance (UPA-2) government vide its letter,
12/3/2003-IT (Vol. II), dated July 12, 2013, had directed Anjani
Sinha, the then Managing Director (MD) and chief executive officer
of NSEL, to give an undertaking to the effect that no further/
fresh contracts would be launched by the exchange until further
instructions from the concerned authority; and that all existing
contracts would be settled on their due dates.
Abhishek, in an interview to ET Now, a business channel,
confessed that the ministry had issued the directive based on
their feedback from FMC. In the aforesaid letter of the former
DCA, it had also been mentioned, ‘This issues with the approval of
“competent authority”.’ The ‘competent authority’ was obviously not
the erstwhile FMC because at the time it was merely an underling
of the MCA, and would have, at best, submitted a feedback report.
So, who (or what) was this ‘competent authority’? True, the letter
does not name/names, however, from the subsequent actions,

85
and with hindsight, it can reasonably be inferred that the said
competent authority must be the Department of Economic Affairs
(DEA) in the MoF of the UPA-2 government.
This inference can also be drawn from the fact that soon after
the crisis, FMC, which was until then functioning under DCA in
the MoCA, was transferred to the Department of Economic Affairs
(DEA) in the MoF of the UPA-2 government.
The irrefutable evidence of this conspiracy against MCX, and,
consequently, its parent company, FTIL and Shah, is found in
the confidential internal office note dated December 19, 2007,
submitted by KPK to Chidambaram, who had endorsed it.
Therefore, it comes to light that, as part of the machinations by
K P Krishnan (at the behest of Chidambaram), the then DCA
within the former MCA of the UPA-2 government directed NSEL,
on July 12, 2013, to give an undertaking that it would not launch
fresh contracts in commodities, and settle the existing contracts
promptly.
What’s surprising is that this directive to NSEL to give an
undertaking that it would not launch fresh contracts was given in
the form of a letter and not by an order. This injunction coerced
NSEL to reduce the forward contracts of one-day duration beyond
eleven days to ten days, which threw the market into chaos. As
a result of this, the stocks from the warehouses of the defaulters
disappeared culminating in payment default. All this could have
been prevented if only matters had been conducted in a better
and staggered way.
It needs to be mentioned here that although both the FMC
and DCA in MoCA were in the know of trades at NSEL since
their inception, quite amazingly, on June 7, 2011, R. Gopalan,
the then Secretary of the former DEA wrote vide his D.O. letter
No. 18/04/2011-FSDC (see Annexure I to this Chapter) to Rajiv
Agarwal, Secretary, DCA on the subject of regulation of spot
exchanges that facilitate delivery contracts in commodities. It is
very pertinent to note that Chidambaram was then the Finance

86
Minister. The scanned copy of Gopalan’s letter is annexed as
Annexure for ready reference. In the letter, Mr. Gopalan admits
that “SEBI is not claiming regulatory jurisdiction over spot delivery
contracts in commodities.” As it is, SEBI functions directly under
DEA. Yet, astonishingly, DEA then seemed to be much concerned
about the interest of alleged ‘investors’ trading at NSEL, and the
regulation of spot trades at NSEL. Gopalan also in the same letter
referred to another issue that pertains to the RBI, which is again
an independent and autonomous authority, and not under the
control of DEA. Still, Gopalan was then worried that, “The clearing
and settlement arrangements under spot exchanges are currently
not authorised or regulated under any regulatory authority. He
therefore suo motu advised Agarwal that “NSEL would need to
apply to the Reserve Bank of India.” In fact, it is quite unusual for
a Secretary in one ministry taking undue interest in the affairs and
activities of another ministry. Why was Gopalan then so overtly
interested in the affairs of NSEL, when SEBI, under his care, was
“not claiming regulatory jurisdiction over spot delivery contracts
in commodities”? The probable answer could be found in the
presence of Chidambaram as the Finance Minister at that time.
It’s shocking how document trails were created to achieve a
pre-mediated objective. From the birth itself, NSEL was trading
forward contracts of one day duration. The question of spot or
ready deliveries, hence, does not arise. Since exemption under
FCRA was granted, FCRA was relevant as well as supervisory. Post
issuing the letter, DCA wrote to DEA which, in turn, informed
FSDC that FMC is indeed the regulator and they requested RBI
to permit clearing regulation under the Payment and Settlement
Act like MCX, NCDEX, BSE and NSE. The letter of FMC clearly
establishes the same. But in addition to this, the DCA still came out
with a gazette and re-emphasised FMC was the designated agency.
The FMC’s role as a regulator is confirmed by Rajiv Agarwal’s
letter (See Annexure II to this chapter), which also puts a nail in
Chidambaram’s lies.

87
 The DCA confirmed that nobody but it had itself fi st exempted
the national spot exchanges, including NSEL, under Section 27 of
the erstwhile FCRA for trades in forward contracts of one day
duration from the provisions of FCRA, subject to several conditions
as laid down by it vide its own notification dated June 5, 2007
from the provisions of the said Act, and decided to nominate the
then existing FMC formally as a Designated Agency for providing
oversight over all the spot exchanges. If truth were to be frankly told,
when NSEL was a self-regulating organisation (SRO), functioning
under the nose of both the then FMC and DCA, it was functioning
by the book, as evident from the benefits that it conferred on
various agricultural commodity market functionaries, including
farmers and diverse state marketing agencies, as summarised
earlier. In fact, the problems started by the situation created by
FMC, under Ramesh Abhishek, after he joined in the conspiracy
with Chidambaram and KPK.
Well, to proceed with the conspiracy theory, as put forward
in this book, as stated earlier, the former DCA in MoCA of the
UPA-2 government vide its letter no. 12/3/2003-IT (Vol. II)
dated July 12, 2013 had directed Anjani Sinha, the then MD
and Chief Executive Officer of NSEL, to give an undertaking to
the fact that:
(i) No further/fresh contracts shall be launched by your
exchange until further instructions from concerned
authority; and
(ii) All the existing contracts will be settled on the due dates.
Surprisingly, it was on the same fateful day of July 12, 2013 that K
P Krishnan was summoned back to his ministry by Chidambaram.
This coincidence of dates – the DCA’s directive to NSEL and K P
Krishnan’s return to the Finance Ministry – could not be mere
coincidence. This move by Chidambaram was part of a much
bigger game plan of the conspirators. But more on the gameplan
follows in the subsequent chapters.

88
 Here, a word is called for on the observations of Justice Thipsay
in his order27 releasing Shah on bail on August 22, 2014. While
granting bail to Shah, Justice Thipsay categorically stated that the
EOW had not found “any money trail leading to him, NSEL or FTIL
and that the entire money lay with the 25 defaulters”, which again
after one year was independently confirmed by EOW to MCA,
when the former informed the latter that the “total amount due
and recoverable from 24 defaulters is Rs 5689.95 crore; injunctions
against assets of defaulters worth Rs 4400.10 crore have been
obtained; and decrees worth Rs 1233.02 crore have been obtained
against 5 defaulters.”
In paragraph 18 of the order, the Hon’ble Justice ruled: “Though
the case has been projected as a ‘scam of Rs. 5,600 crores’, it needs
to be kept in mind that these amounts have not been received by
NSEL. As already observed, it is difficult to accept that the brokers
and / or their clients for whom they were working were ‘deceived’
by the NSEL in as much as in all probability, the brokers and
the investors were well aware that they were not entering into
genuine sale and purchase contract…the ill-gotten amount has not
gone to the applicant or for that matter, to NSEL. In fact it is not
the case of anyone.”
In paragraph 20, the Court further remarked, “There is no
allegation that the applicant has acquired from the borrowers (the
Defaulters), any part of the ill-gotten money earned by them…It
is almost conceded that there has been no material to show any
direct connection or link between the defaulting borrowers and
the applicant.”
In paragraph 21, Justice Thipsay observed, “It is a fact that as
of today, there is no material to show any direct link between the
amounts dishonestly earned by the borrowers and the amounts
received by the applicant. Sufficient time has already been
given to the investigating agency and in spite of this, no link or

27 Ibid

89
connection between the proceeds of crime and the applicant, has
been revealed so far.”
It is absolutely clear from Justice Thipsay’s annotations that
the real culprits behind the NSEL crisis were defaulters, brokers
and investors. But even after almost two years, not much has been
done by the authorities to go after the true criminals, but have
been hounding Shah and select directors of the then NSEL, and
FTIL by resorting to successive wrongful actions taken by the
then FMC and the former DEA in the then MoF, at the behest of
the three conspirators, who were working hand in glove during
the UPA-2 regime. All this was done with the sole objective to
crush the visionary, Jignesh Shah, and FTIL to stop them from
developing new enterprises by creating new innovations to fulfill
PM Narendra Modi’s dream of Make in India.
Unfortunately, the present BJP government too has fallen into
the trap set up by the conspirators during the UPA-2 regime, instead
of unearthing the conspiracy, and bringing the three musketeers
to justice, and nipping in the bud their disastrous game plan.

90
Annexure I

91
Annexure II

92
93
Please see excerpts of the letter reproduced on next page.

94
Excerpts of Rajiv Agarwal’s reply dated August 8, 2011
to Gopalan reiterating that FMC is the designated
regulator for NSEL:

6. In terms of the condition at point iv) above, the Government has now
appointed the Forward Markets Commission as the Designated Agency to
ensure that the spot exchanges comply with the above conditions.
7. The National Spot Exchange has submitted a proposal to the Forward
Markets Commission for trading delivery-based Forward Contracts (Non-
Transferable Specific Delivery contracts). The proposal is under active
consideration of the FMC.
8. The electronic national-level spot exchanges would have to comply with
various conditions and be subject to the oversight and regulatory purview
of the Forward Markets Commission, which has been notified as the
“Designated Agency” by the Department of Consumer Affairs and is
statutorily empowered to regulate the associations/exchanges by it. Thus,
that spot exchanges would substantively be subject to the regulation of
the Forward Markets Commission. Though these Exchanges would also
be providing trading platform for intra-state trading, the Forward Markets
Commission shall take all necessary steps to ensure that the role of the Spot
Exchange in intra-state trading does not adversely impinge on the capacity
of the Exchange to organize intra-state trade and forward trading in an
orderly manner. The spot exchanges would have to obtain licenses from
the State under their respective APMC Acts, but in practice, the APMCs
would only be requiring the Spot Exchanges to collect APMC cess on their
behalf in respect of the trades executed on their trading platforms. Thus,
effectively only the Forward Markets Commission shall have to undertake
the regulation of the spot exchanges, which it will do.
9. As regards the clearing and settlement arrangements under spot exchanges,
it is suggested that the Spot Exchanges would be substantially be regulated
by the Forward Markets Commission, the RBI may consider writing to the
Government to exempt Spot Exchanges regulated by the Forward Markets
Commission from the purview of the Payment and Settlement Systems (PSS)
Act, 2007, on the same lines as the commodity futures exchanges regulated
by Forward Markets Commission and Stock Exchanges by the SEBI.
10. I shall be grateful, if you kindly place the para 2 to 9 above, before the
FSDC.

Shri R. Gopalan,
Secretary,
Ministry of Finance,
Department of Economic Affairs,
North Block,
New Delhi – 110011

95
 Chapter 5

A fistful of lies

Contentious board meetings are terrifying, even if the meeting is

conducted in an expansively spacious room, dotted with expensive
cutlery, bottled spring water and icy Fox candies. The stream of
thought running through everyone’s mind is more or less the
same: Has something gone wrong? What if there is no right plan
in place to satisfy the market regulator, the investors and the
customers? It feels as unpredictable as the situation faced by a
group of teenagers at the cabin in the woods – no one knows who
the Slasher is.
In the afternoon of July 30, 2013, the board members of the
NSEL soft-footed for a crucial meeting in the fifth floor board
room of the Exchange Square. This was the second meeting almost
back to back, following the earlier one held on July 21, 2013. The
directors wanted to clear the air of all the unspoken questions
emerging from the bizarre newspaper reports. Some hinted at
a sinister conspiracy behind the grave crisis that loomed large.
Those attending the meeting were seriously worried; their concern
stemming from newspaper reports that said NSEL needed strong
intervention by authorities in the Indian capital market (read the
DCA and MoF).
The NSEL board meeting was chaired by Shankarlal Guru, the
doyen of agriculture markets, who had received a national award

96
in 1995, and also served as a director of the Ahmedabad-based
National Multi Commodity Exchange before joining the NSEL
board. Also present were
1. Jignesh Shah, the vice chairman.
2. Shreekant Javalgekar, the NSEL director who had been the
MD and CEO of MCX, the fi st de-mutualised listed exchange
in India. An advisor to Lazard Birla Fund and Mayur Fund,
Javalgekar had more than thirty years of experience in
corporate financ , derivatives, and fund management and
investor relations.
3. Joseph Massey, a stock market professional who had earned
his marbles as the chairman of the SAFE and shaped the life
and times of MCX, before Shreekant Javalgekar took over,
and the DGCX.
4. B D Pawar, a former bureaucrat in the Maharashtra
government, who served as additional commissioner and
special registrar of the cooperative societies and director of
Maharashtra Agricultural Marketing Board.
5. R Devrajan, a financial practitioner who had served major
Indian conglomerates.
6. Anjani Sinha, the managing director and CEO of NSEL, who
was himself a seasoned tracker of derivatives and financial
markets.
Sinha took time to settle down as one of his assistants carried
in a boxful of file . One of the directors, probably Massey, asked
him what it contained. Sinha muttered in hushed tone, ‘Valuable
documents,’ and did not elaborate. As soon as he was seated, an
impatient Shah squarely asked him about the current status of
the company. Shah wanted to know whether the media reports
about the crash at NSEL were true. If that was so, he wanted to
know why that happened. If not, who was spreading these wild
rumours?
Sinha started talking.
A deathly silence fell on the room.

97
 Sinha presented his update on the clarification sought by the
Ministry of Consumer Affairs, Food and Public Distribution (MoCA).
The ministry had been told that, ‘NSEL has been functioning as a
nationwide electronic spot exchange, and the Indian government
has granted us exemption from the operation of (FCRA).’
The NSEL, said Sinha, had made several representations to the
FMC and Warehousing Development and Regulatory Authority
(WDRA) to formally recognise NSEL as an entity under their
regulation and grant appropriate registration and recognition
under law. NSEL had also made a specific application to the FMC
for registration under Section 14B of FCRA. However, no decision
was taken on any of NSEL’s requests; therefore the application for
registration was still pending.
Sinha then referred to the show cause notice dated April 27, 2012
of the ministry, which alleged that the data submitted by NSEL to
the FMC contained certain discrepancies. According to the notice,
NSEL was running contracts with more than eleven days delivery
period; therefore, conducting NTSD contracts was not permissible
under the notification because the NSEL lacked the mechanisms
to control the short sales and balances or ensure short sales do not
take place on its exchange. As a result of these, NSEL – as per the
ministry – had violated the terms of the notification issued by the
government on June 5, 2007.
Sinha informed the NSEL board members that the government
wanted to know why action should not be initiated against them
for failing to respond within fifteen days to their notification.
Because of this default, the exemption granted to NSEL was to be
withdrawn without any further communication.
Sinha said that in response to the notice he had written a letter
on August 11, 2012, explaining the legal position on NTSD contracts,
and why the NSEL contracts are not NTSD contracts, and do not
violate the FCRA. And then, Sinha also informed the Board that
on October 3, 2012, NSEL had issued a communication to all its
members to desist from using the contracts in a paired form to

98
seek possible arbitrage gains, as such use of contracts violates the
rules and bye-laws of the exchange, and had also posted details of
the communication on the exchange’s website.
Sinha further assured the board members that NSEL had replied
again to the show-cause notice on May 23, 2013, and had explained
that their trading activities and contracts were well within the legal
framework of the exemption granted and there were no short sales
taking place on the exchange platform.
Sinha said that after receiving the MoCA’s order dated July 12,
2012 directing NSEL not to launch fresh contracts in agricultural
and plantation commodities and their products, on July 22, 2013
he informed the government that NSEL had decided to settle all
trades taking place in one-day forward contracts (except those
with respect to demat deliveries). Sinha also said that NSEL had
decided to reduce the delivery, payment and settlement period
of all contracts traded on the exchange to less than eleven days
wherever the settlement schedule extended beyond eleven days.
NSEL also promised the government not to launch any contracts
in new commodities and or new places.
Shah was growing impatient by now. He asked Sinha why he
had gone in the meantime to Delhi, and whether any serious
issues were discussed with the FMC or ministry officials during his
visit. Shah also asked Sinha if there was something that the NSEL
board ought to do immediately. Sinha shook his head, saying, ‘No,
everything is under control.’
Soon, his speech became a monologue because nobody asked
any questions. The other board members did not want to interrupt
him because they felt that, like all seasoned speakers, Sinha may
be saving the best for last.
He informed the board that there were no violations by NSEL
and all Know Your Customer (KYC) and risk management norms
were followed by the company right from its inception.
When Sinha stopped speaking, the air was thick with silence.
The board members slowly began to raise questions in rotation.

99
The members seemed to sense that something was dreadfully
wrong. However, none of them, including Shah, who was incredibly
perceptive about the fluctuating markets, realised that this would
soon blow up in their face. NSEL would turn out to become the
biggest payment crisis.
Of all the questions asked, the ones by Shah were the most
pertinent. He asked Sinha whether NSEL had the necessary
emergency stocks ready; what additional security had NSEL
procured other than the commodities; and what the status of the
exchange’s deficit margins was. Shah wanted to make sure that
NSEL stayed secure.
Without batting an eyelid, Sinha produced the tabled statement
of stocks that were available in the warehouses and accredited
to the exchange. The members heaved a sigh of relief. Sinha
assured the board that he would distribute copies of the NSEL
stock statement to the panel.
Although this appeased some members, Javalgekar wanted
something more from Sinha. He asked Sinha to ensure that the
statement included the names of the commodities, location,
quantity, current rate and total value. Javalgekar felt it was
important that NSEL send the right signal to the markets, leaving
no scope for any distrust between NSEL and its members/clients.
Javalgekar spoke about one of India’s earlier stock market crises,
where the trading clients incurred huge losses because of a handful
of miscreants. Sinha nodded sagely.
The candies, mineral water bottles, writing pads and pencils
were replenished, and the meeting continued.
Sinha informed the board members that NSEL had entered into
agreements with the parties and had obtained post-dated cheques
for the full amount. He assured the Board that any deficits could
easily be recovered.
Somehow Shah didn’t seem convinced. When he raised his arm,
the room fell silent. Shah suggested they bring in an independent
assayer to check the quantity and quality of the stocks available

100
in the warehouses. Sinha agreed to arrange for this evaluation.
Massey then picked up on Sinha’s remarks about how everything
was fool-proof with their insurance. Massey felt it wouldn’t hurt to
double check on this, especially at this juncture, when everything
seemed to be coming apart at the seams.
Sinha agreed again.
Massey and Javalgekar asked Sinha if he was absolutely sure
about the total quantities of stocks in the warehouse; Sinha replied
in the affirmati e. Everyone played by the board room rules – one
should trust the chief executive implicitly.
Shah wanted their discussion to be noted in the minutes of the
meeting, and circulated among the directors and shared with the
FMC.
Hovering high on Shah’s mind was a worry – he did not want
NSEL to be impacted by a small lapse by the chief executive of the
company. He wanted transparency across the board.
Massey asked Sinha whether he had verified the financial status
of those in pay-in and adequacy of margin. The market abounded
with crooked traders who had no qualms about issuing dodgy
cheques for temporary respite. Sinha assured him that this also
had been carried out.
Everyone fell silent. For the time being at least everybody
seemed to have bought into Sinha’s theory that there was no real
crisis at NSEL. Even if there were a few rough areas, Sinha seemed
perfectly capable of smoothening them over. Essentially, the market
regulator had raised some concerns about certain operations of
NSEL, and those were being duly addressed. So where was the
problem?
But the crisis had already engulfed NSEL. On August 4, 2013,
the FMC summoned defaulters, brokers and the NSEL board of
directors for a special meeting in one of Mumbai’s fi e-star hotels.
The session that began in the afternoon, lasted late into the night.
The discussions were heated, to say the least.
FMC head, Ramesh Abhishek, who chaired the meeting, hit the

101
ground running with a loaded statement. He seemed convinced
that Sinha had done a good job dealing with the crisis. Strangely
enough, however, Abhishek didn’t seem interested in NSEL’s
attempts to counter what had already emerged as a Rs 5,000 crore
plus payment crisis, although Shah and the other NSEL directors
kept reiterating to Abhishek that the recovery process was in
progress, and the handful of brokers, who had caused this chaos,
should be made to agree to a viable payment schedule.
Abhishek then met both the defaulting sellers and the brokers
individually on one on one basis, who then promised him that
they would pay their full dues in instalments spread over a period
of the subsequent 20 weeks. Abhishek thereafter disclosed these
promises made to him by the defaulting sellers and brokers in the
open durbar of all those who were present at the meeting. After
Abhishek left, Shah and the NSEL board members, who had no
reason to mistrust Abhishek, sat down for a late, quiet dinner. It
was over dinner that Shah asked Sinha what the actual crisis was
and whether he was sure of what he was doing and saying. Sinha
stuck to his guns, merely repeating that he had everything under
control.
But by then, the cookie had started crumbling.
Shah and Massey decided to find out the real situation.
Shah laid bare some important facts about the NSEL that had
been completely overlooked. The contracts in dispute were a
paltry seventeen per cent of the total business of NSEL since
its inception. Except the specific contracts that were involved
in this imbroglio, the e-series contracts in metals were settled
smoothly and successfully. In view of the disclosure by Abhishek
of the promises made by the defaulters to him personally at the
meeting, Shah was convinced there was still hope.
When the exchange was abruptly shut down by the DCA, and
refused permission to issue further contracts, its operations closed
with a total of 46,000 clients with outstanding claims. The claims
of 33,000 clients of e-series contracts were settled successfully.

102
Seven thousand clients with exposure below Rs 10 lakh received
fifty per cent of the amounts of their claims. The claims of 6,000
clients were under the process of settlement. Of the Rs 5,690
crore of the total payment default, seven defaulters owned up to
eighty-fi e per cent, while six per cent of the clients (equivalent
to 781 clients) who traded through seventy-one brokers with
whom the exchange had privity of contract (the clients have
their own client-broker agreements with brokers under the rules,
regulations and bye-laws) accounted for sixty-nine per cent of
the claims.
Nevertheless, Shah was devastated, following the suspension of
trading at NSEL on July 12, 2013, followed by MoCA’s order of
July 31, 2013 to NSEL to settle all outstanding contracts through
delivery and payment of price on their maturity. For, Sinha was
now singing a totally different tune. He squarely put the ball back
into Shah’s court and blamed him for the entire fiasco. Sinha’s
failure to alert the team to the impending catastrophe was the
fi st phase of this disaster. If the board members had even had
an inkling of the debacle in store, it would have facilitated swift
damage control and perhaps the crash itself could have been
averted or at least minimised.
On July 31, 2013, trading was brought to a halt under the situation
that developed because of the orders from the government. The
payment default had assumed alarming proportions by then – to
the tune of over Rs 5,600 crore.
To make matters worse, Sinha, under repeated questioning by
the office s of the EOW of the Mumbai police and those from
the Enforcement Directorate (ED), changed his earlier track
and confession, and started answering in a manner convenient
to the questioning authorities / designed to save his own skin.
According to him, it was not he, but Shah who was responsible
for the crisis because it was Shah who prevented him from taking
the necessary steps to carry out effective damage control. Sinha
had paved the way for the cops to slap charges against the top

103
FTIL group officials and throw them behind the bars. Sinha was
now a different man. The charge-sheet filed by the EOW of the
Mumbai police contained all kinds of allegations purportedly
made by him against Shah.
In Sinha’s version of the meltdown, whatever happened in NSEL
happened at the behest of Shah. He made no acknowledgements
as to what he, in his capacity as the head/CEO of NSEL did to
check any alleged misconduct by any individual or entity related
to the NSEL platform. He conveniently forgot that he had assured
the board that he was in complete control of the situation; on
the contrary, he told the Enforcement Directorate (ED) and EOW
office s that he was not aware of the payment crisis, and even
refused to admit that he had told the board that payments were
secured through post-dated cheques, and that their warehouses
were overflowing with commodities28.
The EOW did not seem to take note of the fact that what
Sinha said in the meeting (as recorded in the minutes of the
board meeting) was diametrically opposite to what he had told his
investigators.
Was this part of a larger conspiracy? Was Sinha a mere tool in
the hands of powerful people to put Shah in this crisis? Probably,
yes.
Although Sinha waxed eloquent with the EOW, he had grown
very taciturn, virtually incommunicado, with his friends in NSEL.
In the full glare of the media, Sinha accused Shah of having
confiscated his passport, and those of his family members. However,
this was a false claim because the passports were subsequently
found to be in the possession of Sinha. What was also ironical was
that, never once during his heydays in offic , had Sinha raised
such concerns. So, why now?
It is small wonder that the officials of NSEL accused Sinha of

28 http://indianexpress.com/article/business/business-others/anjani-sinha-blames-
jignesh-shah-for-all-problems-at-nsel-2/

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trying to manipulate the investigations by alleging irregularities in
the bourse and issuing glaringly false statements to the media as the
floundering FTIL group grappled with its Rs 5,600 crore payment
crisis. ‘Statements given by the accused Anjani Sinha in media
interviews today against Jignesh Shah and other erstwhile board
members are motivated with a view to influence investigations
and judicial proceedings, which is critical at this juncture,’ NSEL
said in a statement.
My research discovered that Anjani Sinha had the art of
committing frauds in financial exchanges. As an article in Business
Standard of September 3, 2013 states, “With Sinha, the law has
always taken its own sweet time. In fact, if at all any action
transpires against him, it can be considered super quickly. In a
letter written in response to a profile of Sinha published by this
paper following the confession, Kolkata-based stock broker Ratan
Lal Agarwala writes during the tenure of Sinha as the chief general
manager and chief executive of Magadh Stock Exchange (MSE),
there were several irregularities in the dealings of physical shares.
Agarwala, who was dealing on behalf of institutions such as UTI
and State Bank of India, himself was a victim of bad deliveries,
and said that the total size of the scam was about Rs 200 crore,
two decades ago. He added, “Anjani Sinha, who was at the
helm of affairs of the exchange, had done absolutely nothing to
rectify/replace the bad delivery of shares against the security/
margin of the defaulting members of MSE. Neither did he file
any FIR or criminal proceedings against the defaulting members
for introducing stolen, forged and fake shares...All these had
resulted in payment crisis and eventual failure of the MSE.”
The SEBI superseded the board of the exchange. But it could
not recover anything to repay the victims. Sinha walked away to
take up managerial positions elsewhere. An email sent to Sinha
seeking details about his tenure in MSE and the subsequent legal
proceedings initiated by brokers against him and the exchange in
the Calcutta High Court remained unanswered.

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 Few days after Agarwal’s mail, a Mumbai-based market
participant called to say Sinha was involved in a similar physical
shares induced payment crisis in the Ahmedabad Stock Exchange,
where he was at the helm. A September 2002 Times of India
report quoted Sinha saying that an emergency meeting of the
bourse’s governing board was called to discuss a show cause
notice issued to him by SEBI for failure to curb certain illegal
transactions. After an inquiry, SEBI asked Sinha to resign from
the Ahmedabad Stock Exchange. The result was the same: money
is gone29.
Against his past criminal background, it is rather surprising that
only following the arrests of Jai Bahukhandi, former assistant vice-
president of warehousing at NSEL, and Amit Mukherjee, former
assistant vice-president of business development, Anjani Sinha
was arrested in October 2013. However, he managed to get bail
from the Hon. Bombay High Court in May 2014 for a surety of Rs
500,000.
In the meantime, NSEL painstakingly continued to verify facts,
making clarifications where needed. According to the NSEL records,
Anjani Sinha was the only whole-time director, while the other
directors, including Jignesh Shah, were non-executive directors.
It was puzzling that such an experienced and qualified person
as Anjani Sinha could prove to be so unreliable and even more
incomprehensible was the stance he had now adopted blaming his
employers for the entire fiasco.
The NSEL statements made their way into the media space,
refuting some of the claims Sinha made, but one thing (a very
worrisome factor) was becoming clear to the head honchos of NSEL:
Sinha’s statements to the ED and EOW had pushed investigations
into inertia. There were innumerable discrepancies in Sinha’s
statements, which made the investigation run around in circles or

29 http://www.business-standard.com/article/markets/anjani-sinha-the-art-of-shutting-
down-exchanges-113090200391_1.html

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on wild goose chases; small wonder that the inquiry into the Rs
5,600 crore payment crisis was heading nowhere.
In the course of all these conversations with Sinha, the chasm
between truth and fiction widened.
On August 26, 2013, the MoF set up an high-power panel of
secretaries headed by Arvind Mayaram, the then Secretary,
Department of Economic Affairs, MoF, to look into the alleged
violations by NSEL in the payment default of Rs 5,600 crore that
occurred in July 2013 and recommend measures to “ensure that
there is no systemic impact of the NSEL developments.”
On September 27, 2013, speaking in detail for the fi st time
since the crisis fla ed up in August, the then Finance Minister, P.
Chidambaram, while rejecting a comparison between the NSEL
crisis and the Satyam scam, said that in NSEL, “investors parked
money with open eyes.” “Many of them made money in initial
stages and some of them have lost money now,” he said30.
Chidambaram further said that “the Income Tax department is
looking into the financial details of investors in NSEL to find out
whether there is involvement of black money”.
“The government had in 2007 exempted NSEL from provisions
of the FCRA to operate one-day forward commodity contracts.
The exemption was given on some conditions, including
delivery of commodities within 11 days and a bar on short
selling by members of the exchange. Observing that the NSEL
got exemption under the FCRA even before it started business,
he said, “I have seen the exemption order. Now, whether it is
valid or not – that has to be examined.” It is surprising for
a lawyer like Chidambaram should say that exemption from
FCRA was given before it started business. In fact, to start one-
day forward commodity contracts, NSEL asked MoCA to exempt
it from FCRA. Obviously, it started business on getting such

30 http://archive.financial xpress.com/news/nsel-investors-weren-t-babes-in-the-woods-
fm-chidambaram/1174799/0

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exemption. Had it started before that, it would have violated the
provisions of FCRA.
This is not all. Chidambaram further said that “the investors
would definitely approach court as it is a matter between them and
the company. The government does not come into the picture at
all. It is a company. It is not a regulated entity, which got exemption
order even before it started business. Therefore, what legal rights
flow to the company and investors, court will adjudicate that.
What mutual rights and liabilities between the courts and investors
is there, only courts will adjudicate that.”31 If Chidambaram knew
this legal position, why did he and his then Additional Secretary
in the DEA, K P Krishnan, conspire, in association with Ramesh
Abhishek, the then Chairman of the FMC, to go after Shah and
other select directors, who were on the Board of NSEL at the time
of the crisis? Clearly, contrary to law, he had a different agenda.
Be that as it may, the Mayaram Committee comprised secretaries
of the Ministry of Corporate Affairs, the Department of Consumer
Affairs and the Department of Revenue, top representatives
from the Enforcement Directorate, the Directorate of Revenue
Intelligence, the Securities & Exchange Board of India, the Reserve
Bank of India, the Forward Markets Commission, the Serious Fraud
Investigation Office of the MCA, the Central Board of Direct Taxes
and the Financial Stability and Development Council (FSDC) that
is headed directly by the Union Finance Minister.
Interestingly enough, the constitution of this high-power panel
had other curious aspects. For instance, the Committee was set up
on August 26, 2013, the very same day NSEL went all out against
the real culprits of the crisis lodging FIRs with the EOW, Mumbai
against fi e major defaulters.
However, the strange manner in which the Committee dealt
with the crisis solely targeting NSEL, and completely ignoring the

31 http://profit.ndt .com/news/corporates/article-chidambaram-says-investors-knew-
nsel-was-unregulated-327724

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dubious role of brokers, defaulters, and the FMC itself, seemed to
suggest that it was set up by the high and mighty only to make
public a pre-meditated agenda to throw out the FTIL group from
the exchange businesses, using the NSEL crisis that was caused
due to the sudden closure of the NSEL platform by the then
government.
In fact, authoritative sources in the MoCA revealed to me
that the Committee virtually gave a roadmap on how different
investigative agencies should go all out against FTIL via NSEL!
I asked around in the MoF and was told that somehow NSEL was
a very serious issue followed by the former FM, P. Chidambaram.
Even in the meetings of the Financial Stability and Development
Council (FSDC), when Chidambaram was the Finance Minister in
the UPA-2 government, the issues such as growing non-performing
assets of various nationalised banks were never discussed, but the
discussions centred on only NSEL payment crisis. This was so that
despite the fact that RBI said in the Mayaram Committee Report
that NSEL was confined to only commodity trading, which posed
no systemic risk to the markets in general.
Normally high power committees like this one are given three
or more months to submit report, but the Mayaram Committee
was told to do so within two weeks! It submitted its report on
September 23, 2013 leaving a question mark as to how it could
so quickly study the voluminous documents given to it by the
FMC and other departments, as also undertake consultations from
top officials from the various apex agencies, gather data, etc. The
Committee, however, neither visited NSEL, nor called for any data
or documents from NSEL.
Its report was based on the reports of two sub-committees:
1. The one headed by the RBI deputy governor, K.V. Chakrabarty,
which scrutinized systemic implications.
2. The other sub-committee was led by the ED’s director Rajan
Katoch, which checked out the various alleged violations by
NSEL.

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But the Committee that was mandated to “examine violation, if any,
of any laws and regulations by NSEL/any associated companies/
any of the participants of NSEL” discarded a holistic approach,
and completely ignored the crucial role of brokers and defaulters
in creating and perpetrating the crisis. Instead, it recommended
a series of actions by various investigative agencies only against
NSEL, its directors and promoters. As a result, the Committee, too,
recommended only one thing: action against NSEL, its directors
and promoters! This was despite the fact that it admitted that the
NSEL crisis would not lead to any systemic impact. In other words,
the committee did not find that a fall-out of the default would
adversely affect the entire commodity market system or create a
systemic risk to markets in India.
For the long term, it did make certain recommendations to
strengthen the functioning of the FMC (which was subsequently
merged into SEBI in September 2015). However, closing the
regulatory gaps around spot exchanges was to be a long-term
solution.
What was intriguing was that the committee was completely
silent on the role of the FMC since August 5, 2011 when the DCA
appointed it as “the designated agency for regulating commodity
markets and for investor protection.” It had nothing to say on
how could FMC, on one hand, say that “it had a limited role” in
overseeing the functioning of NSEL and then go on to declare its
parent FTIL “not fit and proper” to run any exchanges.
The Committee was not surprised on the shocking goof-up of
FMC whose actions created the crisis that was otherwise solvable.
It did not wonder how could FMC write to the DCA on April 10,
2012 seeking action against NSEL saying it violated the exemptions
and then write on July 19, 2013, to say it was not sure of NSEL’s
culpability since the exemptions were “general and not specific in
nature.” It was on the basis of the April 10, 2012 letter that the
Department of Consumer Affairs issued NSEL a show cause notice
on April 27, 2012 and finally ordered it not to launch fresh contracts

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in agricultural and plantation commodities and products on July 12,
2013, leading eventually to the payment default.
The Committee did not utter a word on the brokers and defaulters
who created and perpetrated the crisis, or even recommend any
action to recover money from them. It referred to public interest
but did not recommend any measures towards recovering the
money from the 24 defaulters, who had admitted to the FMC in a
public durbar and even agreed to pay back in a phased manner. It
also completely ignored the findings of the IT department which
had conducted searches at the locations/warehouses of all the
defaulters on August 22, 2013. The Committee did not mention
the stock verification done by the IT department.
The Committee did not recommend any action against the
brokers for mis-selling NSEL products to their clients, name-
lending, PAN-lending, KYC-lending, forging the client signatures
for conducting trades, modifying their unique client codes, running
illegal forward contracts, money-laundering, forgery, etc.
The Committee referred the report to the Finance Minister-led
FSDC that is neither an investigating agency nor an entity with
any expertise to deal with financial crises. The FSDC though is
playing a crucial role in this whole exercise; it has been undertaking
regular periodic evaluation of the Committee’s recommendations
from all the investigative agencies and since the Committee did
not mention the brokers and defaulters at all, the only action that
is being taken by all the investigation agencies is only against
NSEL and FTIL!
In fact, the Mayaram Committee left behind a barrage of
questions that still remain unanswered. At whose behest was it
set up if the then Finance Minister himself felt the NSEL crisis was
a private dispute in the market? Why did the committee that was
set up to “examine violation, if any, of any laws and regulations by
NSEL/any associated companies/any of the participants of NSEL”
not point out the dubious role of FMC, brokers and defaulters in
the entire crisis? Why was such a high power committee given a

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mere 15 days to examine such a voluminous documentation on
such a sensitive matter making one wonder if its brief as well as
recommendations were a mere formality? Why did the committee
recommend a series of actions against NSEL despite coming to the
conclusion that the NSEL crisis would not lead to any “systemic
impact?” Why did the committee refer its report to the Finance
Minister-led FSDC that is neither an investigating agency nor an
entity with any expertise to deal with financial calamities? There
are no answers.
Instead, this is what happened next: Despite the RBI making
its stand clear to the Committee that the NSEL operations did
not constitute a “deposit scheme as per section 45-1 (bb) of the
RBI Act,” and as such “NSEL was under no obligation to repay
the buyers” the Committee’s recommendations saw NSEL being
booked for violations of the Maharashtra Protection of Interest of
Depositors Act (MPID) by the EOW, Mumbai, and a string of other
investigations by the ED, CBI, etc. NSEL had not taken any money
as ‘deposit’, but the traders had paid it to buy commodities and
even paid tax on that.
Incidentally, the fact of the matter is the Arvind Mayaram
Committee was appointed at the instance of the then Finance
Minister, P. Chidambaram. His hidden hand was evidently behind
the Committee’s report and finding , which were necessarily
preconceived, for, as stated repeatedly by me, the crisis at NSEL
was the result of a conspiracy, masterminded by Chidambaram,
and implemented by his Man Friday, KPK, and the subservient,
Ramesh Abhishek.
Unsurprisingly, speaking at the Indian Merchant’s Chamber
on June 16, 2016, the BJP’s Rajya Sabha MP, Dr. Subramanian
Swamy, attacked sharply the former FM of the UPA-2 government
P. Chidambaram, saying how he and his son Karti Chidambaram
were the masterminds behind the crisis at NSEL in July 2013,

112
which led to its parent, the FTIL to exit the exchange business.32
Following the Mayaram Committee report that implicated
the exchange and its promoters, the EOW, Mumbai swung into
action and conducted raids at 184 locations across sixteen states,
including Maharashtra, Uttar Pradesh, Punjab, Andhra Pradesh
and Gujarat, and sealed twenty-eight warehouses. After months of
gruelling investigations and fi e arrests, the Mumbai police filed a
9,000-page charge-sheet on August 4, 2014 against Shah and others,
though in the fi st charge-sheet filed on January 6, 2014, the EOW
of Mumbai police had not named Shah.
Shah, then the group chairman of FTIL, was actually in the
unblemished, and was falsely indicted because Sinha was backed
by some overzealous Delhi bureaucrats, whose only mission was
to malign one of India’s finest entrepreneurs, lock him up and
throw away the key.
The mission, thanks to disparaging statements by Sinha, and
the band of bureaucrats, was achieved days before India saw the
new Prime Minister, Narendra Modi, assuming offic .
Hundreds of NSEL traders floc ed to the EOW office ,
pleading for a speedy reconciliation of the crisis. The then Joint
Commissioner (Crime) and now Anti-terrorism Squad (ATS) chief,
Himanshu Roy, would send them back.
But the seeds of discontent had already been firmly planted
in the minds of the trading clients by Sinha and his backers.
Among these backers were powerful politicians who were goading
the government to merge NSEL with FTIL and resolve the crisis.
However, Shah and his men resisted this move using legal
arguments because they felt it was imperative that the handful
of crooked defaulters and brokers who siphoned off the money
needed to be brought to book and made to pay. This was the only
way to bring about a perfect closure to the mishap.

32 http://wap.business-standard.com/article/economy-policy/send-rajan-back-
to-chicago-if-you-want-to-see-india-s-economic-growth-at-10-subramanian-
swamy-116061601081_1.html

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 However, those who were accused of engineering this multi-
crore payment crisis teamed up with a few traders (who claimed
to be investors), the main complainants, against the defaulters and
NSEL and its directors to recover the so-called investors’ money
from them, and helped police in the investigation.
The ED did its job by arresting a few defaulters. It also attached
properties worth Rs 225 crore. The EOW registered an FIR against
Shah, members of his team and other promoters, directors and
defaulting brokers on charges of cheating, forgery and breach of
trust among others. They were booked under Indian Penal Code
(IPC) Sections 409, 465, 467, 468, 471, 474, 120(B) and 34. By
then, the CBI was also into the job and was conducting searches
at fifteen locations.
There were others who also pitched in to add trouble for Shah
and his men. Among them was Ketan Shah, a trader at NSEL, who
raised his voice against Shah and went to the extent of saying the
investigations were ‘compromised.’
In addition, a demand from Commodity Participants Association
of India (CPAI), along with Association of National Exchanges
Members of India (ANEMI) and BSE Brokers Forum, which
threatened to move the courts if FMC failed to offer guarantees on
repayment. Strangely, these organisations of what Justice Thipsay
termed as ‘bogus traders’ never thought of suing the defaulters
and brokers, who had folded their tents and silently stole away
into the night with their cash. And then, there was the mercurial
Kirit Somaiya-led Investors Grievances Forum (IGF), which went
one step further and filed a complaint with the EOW against
NSEL, accusing the bourse of cheating 17,000 small farmers and
‘investors’. However, for some strange reasons, the IGF did not
add brokers and defaulters, probably because like Somaiya, most
of them belonged to his Marwari fraternity, to the list of accused,
who really ripped off their clients by selling to them dubious
products on the NSEL.
A detailed analysis here would prove that what the brokers did

114
was grossly wrong. To the gullible traders, it appeared to be a fault
of the bourse (read NSEL). Traders were offered NSEL products
with promises of high fi ed returns by the brokerages. As a practice,
traders primarily use brokers to trade or make investments; hence,
it was the brokers’ duty to check and verify what they were selling
(which they failed to do in the case of NSEL). In a piece in her
Moneylife magazine, Sucheta Dalal argued as to how the brokers
could never absolve their responsibility and how it was completely
unethical of the brokers, traders and the regulator to blame NSEL
for anything and everything.33
The NSEL again shot back another note that said, ‘Giving or
taking delivery of commodities in demat (i.e. not in physical form,
but by a warehouse receipt of an exchange accredited warehouse)
mode should be directly sent to/from the accounts of the clients,
except delivery of commodities to a recognised entity under the
approved scheme of the exchange.’ Did the brokers follow this
rule? The clients should have asked; the regulator should have
asked; the EOW should have asked. Strangely, no one did.
With its back against the wall, the NSEL clarified through yet
another note, that there was a rule: ‘Member of the exchange
shall make the client aware of the precise nature of business
to be conducted, the risk associated with business in trading in
contracts permitted in the exchange for spot trading, including any
limitations on that liability and the capacity in which the member
of the exchange acts and the client’s liability thereon.’ Was this
done by the brokers? The most obvious answer is NO.
The NSEL circular, copies sent to the media, further stated,
‘The exchange member shall not furnish any false or misleading
information or advice with a view to inducing the client to do
business in a particular contract or contracts and which shall enable
the exchange member to profit thereby. Making presentations to
the clients, which gives the impression that NSEL contracts offer

33 http://www.moneylife.in/article/nsel-brokers-with-the-highest-exposures/34371.html

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a high fi ed return while the funds are secured against goods, is
clearly a violation of members’ responsibility in the eyes of the
trading clients.’
However, there weren’t many takers for NSEL’s point of view.
It was clear to the media that the brokers spearheading the
charge against NSEL did not exactly hold a shining track record of
treating their customers fairly in the stock market. From forging
power of attorney, frauds to unauthorised trading and illegal selling
of shares, they had routinely indulged in multiple misdemeanors.
Nevertheless, they always managed to stay away from the radar,
thanks to the regulators, who obliged them by looking the other
way.
Consider this one.
The minutes of one of the FMC meetings that was held to
discuss the NSEL crisis showed that there was rampant client code
modifications by NSEL brokers who, the FMC admitted, ‘may have
indulged in manipulation in order to evade taxes, which needs to
be probed.’
NSEL, justifiably, made allegations against fi e brokerage
firm , Anand Rathi Commodities, Geofin Comtrade, India Infoline
Commodities, Motilal Oswal Commodities and Philip Commodities
India.
The EOW, which was methodically investigating the brokers,
sent a formal request to the FMC for permission to look into the
details because under the provisions of the Indian Penal Code
(IPC) in this matter, the Commission’s intervention was required
as far as violation of code of conduct or licensing terms of the
brokers were concerned.
However, the FMC backed out.
In the country’s financial sector, no scam has ever happened
without the involvement of brokers. Similarly, in the NSEL crisis,
some of the leading brokerage houses of the country, through
their securities trading companies and related entities have
been instrumental in playing with the markets, and deliberately

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indulging in activities that have destabilised the markets leading
to an unprecedented payment crisis at NSEL.
They were the very brokers, who brought in trades worth
over Rs 4,000 crore to the NSEL platform by way of client code
modification, money-laundering, name-lending/PAN-lending/KYC-
lending, forgery, mis-selling of NSEL products and misrepresenting
facts to their clients. In order to shield their own crimes like these,
the brokers recommended the merger of NSEL with FTIL to the
then FMC.
In the matter of wrong-doing of brokers, if someone removes
one layer of onion, then one would find 781 High Net Worth (HNI)
trading clients and roughly 70 brokers. If the second layer of the
onion is removed, one would find merely 7 brokers, of whom one
would find the below mentioned 5 leading brokerage firm .
The FMC knew names of these fi e brokerage firms as Anand
Rathi Commodities Ltd, Geofin Comtrade Ltd, India Infoline
Commodities Ltd, Motilal Oswal Commodities Brokers Pvt Ltd and
Philip Commodities India Pvt Ltd.
The above mentioned fi e commodity broking companies are
mostly 100% subsidiaries of their securities trading companies that
have mis-sold, induced and misrepresented the NSEL contracts to
their clients, who were common clients as in both the securities
market (NSE & BSE) and commodities market (MCX, NCDEX,
NSEL).
Not only that, these firms also offered Wealth Management
Services (WMS) and Portfolio Management Services (PMS) to their
NSEL clients that was not allowed in the commodities markets by
the erstwhile FMC.
A large number of complaints have been filed by their own
clients, investigation agencies and the auditors against these firms
for serious financial crimes like mis-selling of products on the NSEL
platform, indulging in benami trading, PAN lending/ KYC lending/
manipulation/ client code modification and money-laundering.
Based on these complaints, it’s evident that the brokers were

117
rotating their black money through their Non-Banking Financial
Companies (NBFCs). Though the NBFCs are not allowed to
conduct forward trading or hold PMS, they did it. And without
taking the clients into confidenc , they infused their black money
into the market using them as a medium. The FMC knew these
wrong-doings of the fi e broking firm , and was fully equipped
with sweeping omnibus powers but it did nothing to act against
them like other prudent regulators such as the SEBI and RBI in
similar situations in their verticals.
The FMC did not feel it necessary to investigate these firms
and declare them, their directors and promoters, ‘Not Fit &
Proper,’ entities, although there was more than enough evidence
against them. For it, there was no question of recommending the
cancellation of their registration from all Exchanges and disallow
them to operate in any market. The brokers were the main culprits
in the NSEL crisis, but they continued to mobilise funds from the
markets, run their WMS and PMS, and were completely “Fit &
Proper” to continue their business as usual.
It is a known fact that market was ballooned by the brokers,
their finance outfit , and the borrowers to an unsustainable
position, eventually contriving a payment crisis. There have been
complaints to FMC by trading clients such as Ketan Shah, Navin
Goyal, Moti Dadlani, Achal Agarwal of benami transaction, proxy
financing, client code modification, name lending/PAN lending and
host of other irregularities. Brokers are also accused of mis-selling
NSEL products, despite the Exchange issuing circulars prohibiting
promising or guaranteeing returns on its products.
NBFCs cannot trade in commodities as per commodity trading
norms, while brokers financed their clients through their NBFCs.
All the 80:20 funding done by brokers was through black money
and not properly sourced. It may also be noted that of the total
default amount, 30 brokers accounted for around 80% of the
defaulted payment. Despite this fact that such huge concentration
of the total due amount with a few brokers, there was no action

118
on this issue by the former FMC to check its validity and veracity.
In case of FTIL, FMC was then hyperactive and took needless
actions within and outside its purview, while being strangely silent
on the brokers’ fraudulent actions. It failed to take any action
against brokers and did not even order a forensic audit of the
brokers and defaulters which would have helped EOW- Mumbai,
as the latter does not have any expertise in commodity market
trading practices and regulations.
While the then FMC had always tried to hide behind the façade
of not having enough power to take action against brokers in
the NSEL case, the fact is it had been registering and regulating
commodity brokers, and FMC had even suspended commodity
brokers in the past. FMC was also given wide-ranging powers under
section 11-B of FCRA since 2011. FMC was further empowered on
August 6, 2013 by the MoCA to take all necessary actions to ensure
recovery.
Instead of taking action against brokers for illegal practices
such as mis-selling NSEL products, client code modification, PAN
lending, name lending and client financing, the FMC took biased
and targeted actions only against NSEL and its parent FTIL.
When an exchange defaults, the residual loss is always borne
by the brokers and not the clients. Actually the clients bear ‘zero
loss’ after all recoveries because the balance is to be borne by
all the brokers in proportion. The FMC did not direct NSEL to
recover from the brokers and complete the settlement so that the
clients are off the dispute. On the contrary, in a separate note,
the FMC took a strange stand. It said that NSEL was never under
its hegemony. ‘In view of the exemption granted to NSEL under
Section 27 of the FCRA, NSEL was operating outside the regulatory
purview of FMC under its own rules and bylaws and there is no
code of conduct or licensing terms for members of spot exchanges
issued by the commission.’
In one fell swoop, the dubious brokers got off scot-free, as NSEL
plunged further into crisis.

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 On December 7, 2013, a day when the proposed merger of FMC
and SEBI row continued to rattle the Indian Parliament, the FMC,
as expected, came out with an order to decommission Shah’s work
of a lifetime, finding the FTIL and its officials ‘not fit and proper’
to run any bourse in the country.
The decision was devastating. Little heed was paid by the
regulator to the exchanges Shah had set up like jewels in the crown
of the nation. They served to shape and give form to the ultimate
utopian vision – Make in India – being heralded by the new Prime
Minister, Narendra Modi.
The FMC’s order was explicit in its words – it ordered Shah
and FTIL to sell their twenty-six per cent promoter holding in the
MCX as they were not allowed to hold more than two per cent in
the bourse. Shah and MCX were also declared unfit to run MCX-
SX. The FMC also deemed Shah, Joseph Massey, former MD of
MCX-SX, and Shreekant Javalgekar, former MD of MCX, ‘unfit to
hold any managerial positions in any exchange recognised by the
government of India and FMC.’
‘In view of the foregoing observations and the facts which
reveal misconduct, lack of integrity and unfair practices on the
part of FTIL in planning, directing and controlling the activities
of NSEL, we conclude that FTIL does not carry a good reputation
and character, record of fairness, integrity or honesty to continue
to be a shareholder of MCX,’ said the FMC.
With regard to the NSEL crisis, the FMC said, ‘It misinterpreted
the conditions stipulated in the exemption notification in collusion
with a handful of members, which ultimately culminated in a
massive fraud involving Rs 5,500 crore, which has the potential
effect of eroding trust and confidence in exchanges and financial
markets.’
Many disagreed in Mumbai, home to India’s financial markets.
But the damage had been done. Probably for the fi st time in the
history of Indian markets, a promoter, who had shaped some of

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the finest bourses to make a global impact, was summarily asked
to step down, and called untrustworthy.
The Chakravyuha was complete, Abhimanyu, destined to be a
valiant warrior better than both Karna and Arjuna, was choked to
death.
Somewhere, the role of Ramesh Abhishek was increasingly
coming under scrutiny. ‘Who was he, and what was his secret
game plan?’ many wondered.

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 Chapter 6

KPK, Abhishek and their Ardh Satya

Ramesh Abhishek needs no introduction in Mumbai or in Delhi.

For the markets, he was meant to be the person with multiple
ears. To the mandarins in Delhi’s corridors of power, he was
His Master’s Voice. For the layman that epithet was abbreviated
to HMV – a trademark of a large British record label for many
years. The term was coined way back in the 1890s as the title of a
painting of Nipper, the dog, listening to a wound up gramophone.
Eventually, the term got associated with those who preferred
working according to the wishes of their master or superior.
Abhishek was one such person. His mission was to repeatedly
badger FTIL (read Jignesh Shah) and its subsidiary, the NSEL.
Somehow, the job met with repeated failure because FTIL was
already on the path of glory and NSEL was shaping the commodity
spot markets like never before.
Eventually, however, he got his chance. On September 21, 2012,
Abhishek was appointed chairman of the FMC, thanks to the clout
of some of the most powerful ministers in the UPA-2 Cabinet. The
decision enabled the then Finance Ministry to target FTIL and
Shah.
The seeds of the conspiracy against NSEL took root with the
show-cause notice in April 2012.
The DCA that functioned under the MoCA, the then parent

122
ministry of the FMC, was encouraged by Abhishek to abruptly
issue a directive to NSEL to stop their trading activities.
As head of the FMC, Abhishek had his finger on the pulse of
the market. Yet, he watched over the market mayhem caused by
his injunction and did nothing.
Was his move deliberate? Yes, of course. Abhishek’s sole mission
was to watch NSEL crash out into oblivion.
When trades at NSEL were going on quite smoothly with the
scheduled banks clearing and settling contracts traded on it through
pay-ins and pay-outs, what induced the MCA to disrupt the market?
A sordid, political conspiracy was playing out in the backdrop
because Abhishek was acting on the orders of his Masters in the
corridors of the North Block, namely, the then Finance Minister, P.
Chidambaram, and the latter’s over-obedient Additional Secretary
in DEA in the MoF, KPK.
Abhishek’s biased actions, at the behest of both K P Krishnan
and Chidambaram, were intended to lampoon Shah and turn him
into a subject of ridicule, and to direct abuse and false accusations
by traders and diverse public sector organisations trading at NSEL,
as also by investigating and regulating agencies of the central
and state governments and by the world at large. Some of the
central ministries of the former UPA-2 government colluded with
Abhishek and joined the baying against FTIL, NSEL and Shah.
For Ramesh Abhishek, being his master’s voice and attacking the
innocent illegally was not new.
When he was the District Magistrate at Patna, he used to take
what many joked as HMV (His Master’s Voice) orders from the
then Chief Minister, Lalu Prasad Yadav. He declared curfew on
many occasions whenever required by his political mentors. Also,
during elections in Bihar, he put up security arrangements suitable
to the then CM. He had even organised election booths in such a
way that they can be handled conveniently by the CM’s political
goons. Also for the knowledge of the readers, Abhishek is not
a Bihari, but a Marwari. And it is a sheer coincidence that the

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top fi e brokers at NSEL, who routed huge funding in 20:80 and
10:90 schemes at the exchange, were also Marwaris. The money
deployed by these Marwari brokers had come from questionable
sources from Jodhpur. Narendra Parekh, who was the then member
of the FMC, also hails from Jodhpur. Interestingly, when Parekh
was Chief General Manager at SEBI, he was raided by the CBI.
There are stories and stories in BSE about Gujarati versus Marwari
brokers.
In Mumbai, as I carried out my research for the book, it was
only natural that I looked for a Bollywood angle to this conundrum.
Govind Nihalani, whose 1983 movie Ardh Satya created an
impact almost as striking as Kapil Dev’s Prudential World Cup
win, sat beside me sipping tea and watching the breaking news
on television. He laughed when I asked him about links between
Bollywood and corporate scandals. He simply said, ‘Kohinoor is
lost.’ His reference was to the recent British refusal to part with
India’s priceless diamond.
Nihalani wanted me to focus on the movie, whose protagonist,
Anant Welankar, was a cop, played by Om Puri. Amitabh Bachchan
had refused the role due to paucity of time. The story reflected
a social order determined to annihilate honesty and integrity.
Welankar’s efforts to impose law and order on the Mafioso mobsters
and nab terrorists came to nothing because of a corrupt system
in which even his higher-ups and friends blatantly colluded with
devious politicians.
I asked Nihalani if Welankar was Bollywood’s answer to Dirty
Harry. Nihalani replied in the negative. The basic theme of this
movie was to show how ‘corruption breeds right under your nose
and one can do nothing about it because someone flag antly
exploits the system for his own benefit. This effectively eradicates
even a germ of idealism, diligence and enthusiasm that some
bring to their career and profession. ‘That’s why I included that
oft-repeated dialogue: Police ki naukri, ek palrey mein napunksakta,
doosrey mein ardh satya (a cop’s job can be compared to a common

124
weighing scale, with impotence on one side, and half-truths on the
other).
Nihalani made his point brilliantly in the film
The NSEL payment crisis seemed to echo the movie’s theme.
Crisis was unfolding, building half-truths and plots to render NSEL
impotent.
Let’s recount some interesting incidents that took place behind
the scenes, while others were played out on centre stage.
The meeting of the FMC on August 4, 2013, held in the swanky
Trident Hotel at the Bandra Kurla Complex (Mumbai’s newest
business zone ranging from banking to diamonds) was dubbed by
a commodities broker as Ardh Satya. Everyone was aware of the
payment crisis and they also knew who precipitated it, and yet,
they all pretended ignorance.
A casually-dressed commodities broker stood in the foyer of
the Trident, watching, as scores of brokers, traders and clients
rushed in to take their seats on a fi st-come, fi st-seat conference
organised at the behest of the FMC’s top man, Abhishek.
The broker also took his seat. Present in the meeting was the
entire board of NSEL, including Shah.
Strictly speaking, Shah was in the clear, but seemed anxious.
Shah had repeatedly shared his fears and worries with the FTIL
board, which rallied around and swore to support him even if the
worst case scenario came to pass.
The huge conference hall was packed; television crews were
busily setting up their paraphernalia and simultaneously digging
around for scoops, inside stories and sound bites for their daily
dose of breaking news. The meeting was meant to resolve a crisis.
However, Shah’s intuition told him this would be where all hell
would break loose. He kept his calm and waited for the meeting
to start. He was surprised to see the brokers, many of whom were
responsible for the current catastrophe, brazenly upbeat, chatting
and laughing loudly, offering steaming cups of coffee to their
friends and talking intermittently on their handsets.

125
 Shah couldn’t help wondering whether these brokers had
some inside track which assured them that they would not be
incriminated during the proceedings at this meeting.
As the meeting started, the noise abated.
Interestingly, the brokers extolled NSEL as one of the finest
platforms for business, acknowledged their transgression and even
accepted a twenty-week pay-out programme.
Shah and the NSEL board members saw a glimmer of hope.
The brokers took turns to address the meeting, and explained
their position. Guidelines and datelines were announced for pay-
back plans, and things seemed to be tidily falling into place.
Abhishek declared that he was satisfied with these proceedings.
People heard him make a flippant comment to Anjani Sinha, ‘Yeh
Bihari Babu ne toh kaam theek kiya hai, inka koi dosh nahin hain
(this man from Bihar has done his work properly, he has done
nothing wrong).’
Even if there was a subtle message in Abhishek’s seemingly
offhand remark, Shah and his men were too busy understanding
and finalising the settlement calendar, where the pay-in brokers
(who turned out to be defaulters, also later) and the defaulting
sellers had agreed to pay their dues, while the brokers, who were
to receive their dues, had, in turn, agreed to receive the money.
Since trading at NSEL was stopped abruptly by a direction
from MoCA, the pay-in brokers and defaulters committed to
FMC Chairman that they would like to settle their dues, instead
of delivering commodities sold by them despite having adequate
stocks, as openly admitted by them in the public meeting.
Surprisingly, Abhishek had suppressed the minutes of this one
on one meeting from not only all those who participated in the
meeting, but also from the Court.
As a matter of fact, despite getting omnibus powers on August
6, 2013 to act against anyone it deemed fit, Abhishek, at the behest
of his masters in the DEA, chose to act only against the FTIL
group.

126
 After a few weeks, the brokers began fulfilling their repayment
plans. This news was hot lined to Abhishek and his men at the
FMC. Shah was happy with the way things were happening.
The fi st sparks of revolt (read allegations) started surfacing
soon enough. The brokers, in an abrupt volte-face, accused the
NSEL board of gross mismanagement. The business dailies were
full of the one-sided interviews with disgruntled NSEL traders.
The FMC promptly changed its tune, and started fixing FTIL
rather than the defaulting brokers and defaulting sellers, who had
agreed to their obligations to pay in their dues.
Shah was devastated. He could only remember the commodities
broker’s words at the conference: Ardh Satya. Two words with
a strong, underlying message: one can only see the half-truth
because the lies, by someone who does not want you to flourish,
camouflage much of the reality.
The din grew louder.
The main targets for this witch-hunt were Shah, Joseph Massey,
MD and CEO of MCX-SX, who had earlier had brilliant stints in
Indian and global financial markets and Shreekant Javalgekar,
MD and CEO at MCX and one of the finest financial professionals
in India. Oddly, the FMC did not even utter the name of Anjani
Sinha, the MD and CEO of NSEL. This was rather like accusing
the chairman of a bank for loan defaults. Shah, the FMC was
repeatedly reminded, was the non-executive vice chairman of the
NSEL board and not responsible for its day-to-day operations.
No one listened, no one cared.
Furthermore, the top members of the central government did
not even know whether Anjani Sinha was a man or a woman. In
a confidential note sent to the Registrar of Companies (ROC), the
MCA said, ‘No action should be taken against Anjani Sinha as she
resigned in August 2013.’
The FMC’s callous attitude to the NSEL crisis distressed many.
Their persecution continued long after the crisis had unfolded and
many issues had been debated in the courts and media platforms

127
about the way things were handled and managed by the market
regulator.
Surprisingly, the newly sworn-in the National Democratic
Alliance (NDA) government at the centre ignored the whole
meltdown. They probably felt that the FMC, which represented
continuity and permanence, was the safer bet, compared to the
NSEL and Shah.
In early 2015, when FTIL officials and shareholders sought an
audience with Nirmala Sitharaman, who had become the Minister
of State for Corporate Affairs since May 26, 2014, to apprise her of
the FTIL payment crisis, the minister bluntly told them that she
was aware of the situation on the ground, and added, ‘But why are
you harassing that woman, Anjani Sinha, for no fault of hers? This
needs to stop immediately.’
The FTIL officials fell silent!
They realised the Commerce Minister had been deliberately
sequestered from the hard facts of the case, and therefore, merely
going by media reports and what she was fed by the bureaucrats
who were running the show. She did not understand that the
company under fi e was one of the finest institutions created by
a group of Indians who had followed the government’s vision to
create globally successful Indian companies. She had not been told
that devious bureaucrats of the previous UPA regime had ruthlessly
destroyed one of India’s finest assets – an asset that could easily
find space in the Prime Minister, Narendra Modi’s much talked
about Make in India programme. She was unaware of the genesis
of the crisis and that the target was not NSEL per se, but the man
behind its parent company, FTIL, Shah, whose footprints were
across the world, and that Anjani Sinha was not a woman.
Furthermore, she had not been brought up to speed about the
nitty-gritties of the whole fiasco, how it had been engineered, or
that the person who had masterminded the coup was the head of
the FMC and very much still around.
Whether this elaborate subterfuge to keep the minister in the

128
dark was with an intention to bury the skeletons of the FMC is
anyone’s guess.
It was an envelope of lies that the then FMC pushed across the
table in an attempt to turn it into a truth; sorry, half-truth. The
NSEL saga was truly the Indian market’s Ardh Satya moment.

129
 Chapter 7

Kill NSEL: Stop Shah at any Cost

On October 15, 2015, an interesting article appeared in the Indian

Express that showed the NSEL-FTIL crisis in a new light. The
daily had accessed a scathing note dated August 26, 2015, written
by the then Finance Secretary, Rajiv Mehrishi, four days before
he demitted offic , to the Union Finance Minister, Arun Jaitley,
saying, ‘Mr Jignesh Shah has been knocking on the doors of various
courts stopping/delaying this amalgamation. The Finance Minister
(Jaitley) is aware that the entire might of the government has been
behind ensuring that Shri Jignesh Shah does not get any relief on
this account from the courts – so much so that the government has
even deputed the Solicitor General once to fight the case.’34 To be
sure, the Finance Secretary had then gone to the extent of using
all the government’s full strength to influence even the judiciary,
which is one of the independent pillars of Indian democracy. It
does not really behove for a person of such a stature as the Union
Finance Secretary to trample the basic human rights and claims,
especially in a corruption-free Narendra Modi government, and go
after an individual and his well-established software company that
has been serving the financial and commodity derivatives markets,
and creating the most innovative ‘Made in India” technology

34 http://www.business-standard.com/article/opinion/how-not-to-let-jignesh-shah-get-
away-115101500847_1.html

130
products, to suppressed the truth, for fear of getting justice to Shah
and FTIL.
In fact, an editorial of Economic Times35 dated October, 28, 2014
plainly stated that the proposals of FMC to the MCA for the merger
of NSEL with FTIL, and the takeover of FTIL’s management, are
entirely unwarranted. The editorial is reproduced below in full. It
states, “The government owes the nation an explanation as to why
and on what grounds the FMC has been making these proposals
to breach FTIL’s limited liability when no wrongdoing or improper
pecuniary gain has as yet been established against its management
and when there are clearly identified defaulters who carried out
trades with non-existent underlying stocks and whose obligation
to pay is beyond dispute? And why have the ministries of law and
corporate affairs been indulging in these patently misconceived
demands by the FMC? Already, the EOW has identified and frozen
the assets of defaulters, and a panel set up by the Hon. Bombay
High Court is working to recover the money. The best course is
to liquidate the frozen assets, roughly worth the Rs 5,300 crore
outstanding and settle dues.
Satyam and NSEL are two entirely different cases. The
government superseded the Satyam board after the software
company’s erstwhile promoter had confessed to fraud, and brought
in a new promoter within four months. FTIL’s promoters deny any
wrongdoing. Nor has a monetary trail been established between
the money owed to some NSEL traders and FTIL. So, a forced
takeover of FTIL would be a huge fraud on FTIL’s shareholders.
This is obvious. The real question is, why is the FMC bent on
finishing off FTIL, and why is the government playing along?”

35 http://blogs.economictimes.indiatimes.com/et-editorials/whos-targeting-ftil-
breaching-all-norms. This piece also appeared as an editorial opinion in the print
edition of The Economic Times.

131
132
This is not all. As a matter of fact, the Law Ministry had said “no”
to the MCA’s proposal of changing the management of FTIL. In
an article in Indian Express36 dated June, 16, 2014, it has been
said, “The Ministry of Law and Justice has rejected the MCA’s
proposal to invoke legal provisions to take control of FTIL for
‘deliberate bungling’ in NSEL that is under scanner for Rs 5,500
crore payment crisis. NSEL is a subsidiary of Jignesh Shah-
promoted FTIL. Terming that the legal provisions do not apply
in the case, the Law Ministry has limited the scope of action on
NSEL and FTIL. The MCA had, through a letter dated January
24, sought legal opinion from the Law Ministry to pursue action
against FTIL as it concluded that the firm purposely faulted on
conducting prudent and sound business of its subsidiaries — NSEL
and MCX. While MCA alleged “oppression and mismanagement”
by a “common” board of directors of parent and subsidiaries under
Sections 397 & 398 of the Companies Act and invoked Sections
401, 402 and 408 to approach the Company Law Board to take
over or dissolve FTIL, the Law Ministry has in its opinion dated
June 4, 2014, said that the said Sections are not applicable to FTIL.
Section 397 might not apply as NSEL which is (almost) wholly
owned subsidiary of FTIL and NSEL’s majority shareholders (i.e.
FTIL) have never acted in any manner which could be termed
as ‘oppressive’ against the minority shareholder of the company,”
said the deputy legal advisor in the Ministry of Law and Justice
in his opinion.
He further said, “Section 398 might also not be applicable as
fraud and acts and mismanagement were allegedly done by the
key officials and employees of NSEL and not FTIL, and different
statutory auditors have issued clearances to them.”
While Section 397 of the Act relates to application for relief
in cases of oppression, Section 398 is for relief in cases of
mismanagement.”

36 Amitav Ranjan , Sandeep Kumar Singh, Indian Express, New Delhi, June 16, 2014

133
 The Law Ministry’s clear opinion notwithstanding, Rajiv
Mehrishi’s advice to the Finance Minister Arun Jaitley only
underscores how powerful bureaucrats in successive governments
were not really interested in solving the NSEL payment crisis or in
initiating steps to recover the money. This was crucial in light of
the fact that the companies established by Shah had spawned huge
employment opportunities across the country—over ten lakh jobs
as confirmed by a study conducted by an independent agency, the
Tata Institute of Social Sciences (TISS).

Things, however, began going downhill for Shah with the formal
regulatory intrusion of the FMC – Abhishek joining hands with
KPK and Chidambaram, who was then the Finance Minister in the
UPA-2 government.

134
 Surprisingly on April 27, 2012, the DCA alleged that the market
data supplied by NSEL to the FMC disclosed two discrepancies.
Firstly, ‘The NSEL has not made it mandatory for the seller to
actually deposit goods in the warehouse before he takes a short
position through a member of the Exchange. The exchange has no
stock check facility to validate the member position. The exchange
allows trading on the exchange platform without verifying whether
the seller member has the stocks with him or not. In this way, the
exchange has violated the conditions stipulated that no short sale
for the members of the exchange shall be allowed.’
The second charge, ‘FMC has also found that out of the total
contracts, ft e contracts offered for trade by NSEL have
settlement period exceeding eleven days. NSEL has agreed that
all the contracts traded on the exchange platform for which
settlement period exceed eleven days are NTSD contracts. NSEL
has, however, claimed that the government has granted exemption
to the exchange in respect of these contracts and therefore,
trading in these contracts is not violation of the provisions of the
FCRA. The claim of NSEL, however, cannot be accepted as the
government has not granted any exemption to NSEL in respect
of NTSD contracts. Therefore, all contracts traded on NSEL with
settlement period exceeding eleven days are violation of the
provisions of the FCRA.’ Based on these two alleged discrepancies,
DCA directed NSEL “to explain as to why the action should not
be initiated against them for violation of the conditions of the
notification dated June 5, 2007 within fifteen days of the receipt
of this letter failing which the department would be compelled to
withdraw the exemption granted thereunder without any further
communication.’
NSEL replied instantaneously.
To the fi st point, it replied that it ‘does not allow short sale by
the members of the exchange.’ So long as a member had delivered
the goods, and got payment as per the sale price, it was indeed
immaterial whether he kept stocks in the exchange warehouse in

135
advance or brought stocks just before the delivery day. Such a
sale obviously could not be termed as a ‘short sale’ by any stretch
of logic or reasoning. It was only when a member had failed to
deliver on the date of the delivery that his sale position could be
termed as ‘short sale’.
True, in rare cases, a member might make a default in delivering.
In such events, the exchange would procure goods from the market,
and recover the difference between the original sale price and the
market price from the defaulting seller, as per its rules and bye-
laws. Such instances were few and far between, however. Thus,
during the four years ending March 31, 2012, the exchange handled
a total turnover of Rs 3.89 lakh crore, while the total value of goods
in default was merely Rs 4.47 crore, or 0.0011 per cent of the total
turnover. Evidently, there were virtually no short sales at NSEL.
As for the second point, NSEL said that all contracts traded
on exchange are forward contracts of one-day duration only. It
explained its case painstakingly. Take, for instance, castor oil t+25
contract of one day duration contract. As this contract is entered
into today for delivery on t+25th day, it is a forward contract.
It is also of one day duration, as the delivery and payment will
happen only on one day, i.e. t+25th day. In short, the contract is a
forward contract of one day duration, as permitted by the Central
government, exempting it under Section 27 of FCRA, since both
the delivery and payment are required to be made on t+25th day
only. Hence, it is not an NTSD contract. Similarly, the ft e
commodity contracts offered for trade by NSEL were not NTSD
contracts, as alleged by DCA in its show-cause notice.
As if the show cause notice was not enough, the FMC fi ed yet
another salvo. On October 29, 2012, it complained to NSEL that one
of its members had been ‘offering assured fi ed returns similar to
an investment proposal’, and reiterated that ‘It is understood that
many “investors” have invested in such products, an aggregate size
of such an investment currently could be hundreds of crores of
rupees.’

136
 On examining the stock position details as provided by NSEL
for its accredited warehouses, the FMC also claimed that, ‘in most
commodities, stock position was the same in both the fortnightly
statements between August 31, and September 30, 2012’, and asked,
‘if commodities were physically delivered, why was the same stock
position shown in successive months?’
NSEL, through a letter dated November 17, 2012, stated that it
had never guaranteed any return on investment nor did it have any
control over the prices beyond a certain filte . In fact, whenever it
came to the notice of the exchange that some members were trying
to induce clients with an assured income through the systematic
buying and selling of commodities, the exchange advised the
members to desist from such activities.
NSEL made it clear that it did not provide for trading of any
structured products of financing in nature, nor did it encourage its
members to trade in any such product. In fact, vide its circulars,
NSEL had time and again informed its members that soliciting
business at the exchange by releasing advertisements was
prohibited, and that disciplinary action would be initiated against
offenders.
Members were also advised from time to time not to market
any contract traded on the exchange with any assurance of fi ed
returns, either in the short-term or in the long-term. It is pertinent
to note that these circulars were issued by NSEL even before the
FMC flagged up the alleged complaint from one of the NSEL
members.
The NSEL also informed the FMC that most traders who buy
and sell one-day forward contracts were entering into genuine
business transactions for issuing and receiving goods in the form of
warehouse receipts. It was, however, up to the buyers who received
warehouse receipts, to collect their goods from the warehouses or
leave them there for re-sale in the future. A comparison of stock
positions between August 31 and September 30, 2012, mentioned
in the FMC’s letter, therefore made little sense. In fact, over this

137
period, NSEL had found that the stocks stayed static in only
some warehouses, but in many others the stocks had fluctuated.
Evidently, FMC’s assertion that, ‘in most commodities, stock
position was the same in both the fortnightly statements between
August 31 and September 30, 2012,’ was incorrect.
It was obvious that the FMC was merely nit-picking for its own
hidden reasons, as revealed later. Had it separately compared the
stock positions at different warehouses, it would have surely found
variations in stocks.
The FMC’s argument that ‘prices at this spot exchange are lower
than the actual spot prices prevailing in the physical markets, thus
indicating that the prices at the spot exchange are not the real
prices for the underlying commodity’ was also wholly untrue. The
FMC’s comparison of commodity prices at NSEL with those of
futures contracts and spot prices polled by the futures exchange
made little sense, for if spot prices polled by futures exchange are
compared with the mandi auction price for the same commodities,
huge disparities will naturally appear.
For the record, mandi prices invariably vary from location to
location, because these hinge on several factors – supply, demand,
quality, payment terms and other physical market parameters at
the mandis concerned. Ramesh Abhishek of the FMC was either
ignorant of the working and pricing in wholesale markets or
mandis dealing in physical commodity trades, or had conveniently
ignored this reality.
NSEL pointed out to FMC that ‘Spot price polled by the futures
exchange is the mandi cess paid traders’ price, while the traded
price in farmers’ contract on NSEL platform is mandi cess unpaid
farmers’ price. If the bases of both the contracts (one at the
futures exchange, and the other, the farmers’ contract at NSEL) are
different, comparing such prices will lead to distorted conclusions.’
Worse, the state marketing boards had repeatedly asserted that
farmers got a higher price through the NSEL platform.
So why was the FMC complaining, and at whose behest?

138
 Although NSEL was developed as a spot market and allowed
to operate forward contracts of one-day durations for buying and
selling commodities, it needs to be recognised that, except in retail
grocery stores, malls and bazaars, it is well-nigh impossible to
make the delivery and payment for trades in physical markets on
the same day. This is why ready delivery contracts, as defined in
the FCRA, permit delivery of goods and making the corresponding
payment within eleven days of the dates of such contracts, and
were kept outside the purview of regulation under that Act, and
also the current SCRA, following the merger of the FMC with the
SEBI.
As it is, most of the commodity business in wholesale markets
across the length and breadth of the country over long distances
is carried on through the NTSD forward contracts. This is because
most crops are bought and sold in advance even before their arrivals
in the mandis, they are required to be harvested, stored, and
processed, before transportation from the production point to either
the terminal markets for retail sales for domestic consumption, or
port towns for exports. On April 1, 2003, the central government
exempted all NTSD forward contracts from the ambit of regulation
under the FCRA. In other words, being bilateral contracts, they
could be traded freely between the two parties.
The reality is that as the then MCA had decreed that all NSEL’s
outstanding forward contracts of one-day duration must end in
delivery, NSEL allowed mainly two types of forward contracts of
one-day duration: t+2 and t+25. This method allowed the exchange
to monitor such contracts without any hassles. The t+2 contract
required delivery on the next day of the trade, while the t+25
called for delivery and payment on the t+25th day. Both were one-
day contracts as they were valid for fulfillment on the prescribed
days only for both the delivery and payment. To put it differently,
delivery for any of these contracts could not be made on one day
and payment on another. In normal NTSD contracts, different
days for delivery and payment are allowed. If the government

139
did not want to permit t+25 contracts, it would have replaced
the word ‘forward’ with the words ‘ready delivery contracts of one
day duration’. But it allowed NSEL and similar other exchanges
to organise trades in ‘forward contracts of one day duration’ The
government’s motive was therefore quite clear when it exempted
all forward contracts of one-day duration under the powers vested
in it under Section 27 of FCRA.
Where was then the violation of FCRA? It is pertinent to note
that, ‘The Gazette notifications issued by the government granting
exemption under Section 27 to the three spot exchanges provide
for exemption from operation of the provisions of the said Act.
(i.e., the notification was silent on whether the exemption was
applicable to all or specific provisions of the Act.’ The MCA did
not issue any clarification on this issue. By implication, as also
strictly by the letter of Gazette notification dated June 5, 2007,
the exemption granted under Section 27 to NSEL, was from the
operation of all the provisions of the FCRA. There cannot be any
ambiguity on the definition of the word ‘provisions’, which was
clearly in ‘plural’, and was followed by the words ‘of the FCRA’. Why
then did the FMC write to the MoCA on July 19, 2013 requesting
clarity on the ‘all’ or ‘specific’ provisions? Where was the need
to seek clarity after 10 years and three months on issuing the
notification on April 7, 2003? Little wonder, MCA did not clarify.37
The FMC knew all along that contracts beyond 11 days were
not in violation of the exemptions given to NSEL and the other
spot exchanges under Section 27 of the FCRA. In fact, NSEL’s rival
exchange, the NCDEX promoted by the NSE was running contracts
up to even 75-day duration. The Bank of Nova Scotia, which was
also given similar exemption, was running 180 days contracts in gold
trading. But they were not questioned. Only NSEL was questioned.
That establishes the evil conspiracy behind all the acts of Ramesh
Abhishek, who was following the orders of the North Block.

37 http://www.sebi.gov.in/sebiweb/commodities/

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 In fact, NCDEX, it was later learnt, did not even reply to the
show cause notice sent to it by the FMC. Still, no action was taken
against it. On the other hand, unlike at NSEL which was directed
on July 12, 2013 to close the running contracts on their maturity,
and not to launch any fresh contracts, NCDEX was allowed a
gradual closure over the next year and half. Had similar long-
term arrangements been provided to NSEL, the payments crisis
would not have occurred. Evidently, therefore, the crisis was
engineered by the three plotters to drive away Jignesh Shah from
his commodity and financial exchange realm, and to bar him from
undertaking any new enterprises through developing innovative
technologies.
When in July 2013 the DEA of the MoF replaced DCA of
MoCA to control the FMC, another nail was fi ed in NSEL’s coffin.
Interestingly in Delhi, some of the bureaucrats were aware of the
handiwork of the troika, but preferred to remain silent because of
obvious reasons.
This one was narrated to me by a bureaucrat friend in Delhi,
the person spoke on condition of total anonymity. Soon after the
NSEL mess happened, a few civil servants – two from the MoF and
one from the DCA – sat down together to ruminate and ponder
over the problem. They even got an analyst who was an expert
in markets, to specifically explain the minute details of the NSEL
payment crisis.
So what did the brokers do in the NSEL crisis, asked one
bureaucrat?
The expert crisply summed it up as the handiwork of dubious
brokers. They did a lot of things that were fundamentally illegal.
They created a structured product involving a contract for
simultaneous buying and selling of commodities on the NSEL
platform, thereby ignoring NSEL’s dictum to inform the clients
of the risks involved in such simultaneous buying and selling of
commodities. Worse, there was aggressive marketing and mis-
selling apparently promising assured returns in violation of NSEL’s

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circulars. There were various instances of funding clients that
should not have been done. Yet, for such dubious deals, to avoid
income-tax, business income was illegally offset with questionable
losses and expenses incurred on dubious deals. Brokers even used
the bills of losses made by their clients for offsetting their business
income. Such behaviour of the brokers speaks volumes about
their character. As it is, the expenses incurred by brokers and
their clients towards the payment of STT on their stock market
transactions were allowed by Chidambaram to offset against other
business income/losses of these brokers, in lieu of their liabilities
on account of long term capital gains.
In recent times, a report in Economic Times38 stated that EOW
had found that brokers or directors of the broking firms had fi st
brought commodities on the NSEL platform in their own account
and then sold it to their clients to earn extra commission. Such
modified trades of brokers amounted to around 25% of their
transaction value. Brokerages that financed clients earned 10-
12% as interest and 3-4 basis points commission on trades where
there was a 3-4% risk-free spread for investors. Brokers had also
collected transaction and warehousing charges for stocks that did
not exist. Not only did brokners give false assurances, and induce
their clients to trade in illegal structured products, but also traded
without appropriate authority from clients by misusing the unique
client codes, and modifying them without authority. They also
funded their clients from illegal sources drawn out of their sister
firm , acting as NBFCs unlawfully. In view of such illicit trades by
brokers, the state exchequer probably lost over Rs. 1.5 lakh crore.
Active clearing and forwarding (C&F) agents for the trading
clients visited warehouses numerous times, and yet not one of
them raised an alarm. There were several instances of orders
executed without client consent (approximately 300,000 client
code modifications). The tragedy of it all was that the brokers

38 The Economic Times, January 9, 2014.

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made sure that none of these irregularities reached the notice of
the NSEL board.
The expert made another interesting observation. In the NSEL
payment crisis, the contracts were between the brokers and the
trading clients, and nowhere was NSEL in the picture. ‘Hence,
the moot point here is whether the contract has to be honoured
by the brokers or the exchange (read NSEL). It was very wrong
on the part of the Finance Ministry and the MoCA to hold NSEL
accountable,’ the expert concluded.
What happened on paper was radically different from the
ground reality. Instead of brokers, with their inglorious records
of wheeling and dealing, the duped trading clients (who were
bogus traders really) were now demanding money from, and
action against, NSEL. However, it was not the bourse that was to
be blamed, but brokers who fraudulently sold the NSEL products
by twisting them to the trading clients (the self-styled ‘investors’).
In reality, they, both brokers and the so-called investors, along
with the defaulters should have been the targets for legal action by
their clients. But all their ills were swept under the carpet, while
the regulator, FMC, lent a blind eye to their malpractices. The
ministry too remained a mute spectator.
The expert admitted he wasn’t sure why the FMC stayed silent.
‘They probably had their orders from some higher authority,
perhaps a powerful minister, who was targeting the NSEL.’ No
names were forthcoming.
Several brokers and their associations had petitioned the
government to take action against NSEL and ensure that they (the
brokers) got their money back. This was very strange because
one didn’t have to dig very deep to find that it was the brokers
who had lured gullible trading clients with offers of risk-free gains
from NSEL, and therefore it was they who needed to reimburse
the traders. The trading clients ought to have sued these crooked
brokers for having given them NSEL contract notes for the trades
on their behalf. Probably, they did not act against brokers because,

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though lured by the brokers, even they had violated the law by
buying fi ed income products, instead buying commodities for
taking deliveries of goods.
Clearly, the saga that unfolded in the national media – mainly
the pink business newspapers and breaking headlines on news
channels – was pure fiction.
The Commodity Participants Association of India along with
the Association of National Exchanges Members of India and
the BSE Brokers Forum threatened to move the court if the
commodity markets regulator, the FMC, refused them guarantee
of repayment. ‘For some strange reason, the brokers went scot-
free,’ the expert told the bureaucrats.
The NSEL officials tried hard to explain to the mandarins of the
Finance Ministry that the main culprit was the regulator itself, the
FMC; but nobody was prepared to listen to them.
The real cause of the crisis – now clear to one and all – was the
abrupt action of the market regulator, the FMC, either on its own
or through its recommendations to the DCA, to disallow instantly
fresh contracts in agricultural and plantation commodities, and
close the extant ones through delivery and payment of price,
without considering the consequences on the market and its
players.
As a rule, people in the bureaucracy are notorious for their skill
at procrastination. They dilly-dally and dither, baulking at having to
take any kind of action. Therefore, a drastic decision like shutting
down an establishment without pondering or pontificating is truly
unheard of.
As it is, since the beginning of its operations in 2007, NSEL
set up an extremely efficient legal and compliance department
and recruited about 800 members, which included large brokers
listed on both the NSE and the BSE. NSEL, on its own, had offered
trading in as many as forty-three commodities, of which thirty-four
were agricultural, and plantation commodities, and their products.
It had approximately 46,000 trading terminals, while delivery

144
locations were spread across the country with as many as 147
centres.
On April 27, 2012, the DCA sent a terse show-cause notice to
NSEL on certain aspects of its operations. Top officials of NSEL
were appalled; however, they rallied and responded to the notice.
Two replies were sent, one on May 23, 2012, and the other, on
August 11, 2012.
The DCA did not bother to even respond. The days turned
into weeks, the weeks into months and the months into almost a
year. NSEL and FTIL optimistically concluded that the DCA was
satisfied with their response and that the matter was all settled.
And then the unimaginable happened.
On July 12, 2013, the DCA issued the fateful letter directing
NSEL to stop issuing fresh contracts. Almost instantaneously,
copies of the letter were leaked to the media. As news channels
picked up the story on their breaking news sections, NSEL and
FTIL officials were flabbe gasted; they went into a huddle in day-
long meetings to understand what could have possibly happened
in Delhi to have triggered this calamity. A document of this kind
ought to have been confidential between the two institutions and
should not have been allowed to leak to the media unless some
people in Delhi was determined to torpedo NSEL.
NSEL officials responded to the DCA on July 12 and July
22, 2013 explaining that an abrupt stoppage of contracts would
severely impinge the market functioning which could stall their
payments.
On August 4, 2013, top officials of the FMC held a meeting with
the defaulters about their stock positions and payment obligations,
and received positive confirmation from them on the material and
money involved. Two days later, the DCA authorised the FMC to
take such measures as deemed fit against ‘any person, intermediary
or warehouse connected with NSEL’.
More tea and cookies were ordered; the crowds at Gymkhana
had started thinning and the sun slowly sank into Raisina Hill in

145
Delhi. But the discussions were getting more and more interesting,
and the bureaucrats sat listening in rapt attention.
‘It was one of India’s biggest covert operations to destroy
the credibility of one bourse, and more importantly, its creator.
Obviously, the beneficiary of such a momentous decision could
only be a rival in India or abroad. There were verbal orders from
very powerful people in Delhi; their words were meant to be
executed,’ said the expert.
Shah and his men were spending sleepless nights. Several
attempts were made to reach out to the top echelons of the FMC
and the DCA, all in vain. In a remote corner in Delhi, a sinister
plot was being hatched. The end result would be catastrophic for
the markets. Yet, they did not budge.
‘The plotters allowed events to run their remorseless and
disastrous course and did nothing to stop it,’ the expert said.
As the brokers and defaulters were entirely excluded from
the investigations and follow up, payments were stalled as
was expected. From August 19, 2013, NSEL buckled under the
unwarranted onslaught. It is a fact that the FMC and DCA could
have easily pulled the plug from their Machiavellian machinations
and taken action against the seven main defaulters who accounted
for eighty-fi e per cent of the non-payments. This course would
have led to a more positive outcome and an early resolution of
the crisis. However, the FMC couldn’t focus on the bigger picture;
it was so intent on bringing down the edifice of Jignesh Shah and
his FTIL. Without waiting for the outcome of the investigations or
the judicial process, it began imposing severe penalties, pushing
for punishments and declaring the firm ‘not fit and proper’.
Meanwhile at the FT Tower, Shah and his confidants grew restive
at the insidious spread of the growing misinformation unleashed
by the powers-that-be in both Delhi and Mumbai. Who were the
ultimate benefactors of the payment crisis, they wondered. The
story is not over yet.

146
 Chapter 8

One V/s the World

One cold winter day in Delhi in 2003, the venue of the World
Economic Forum’s India Chapter was bustling with activity.
Jignesh Shah had visited the Indian capital to attend as one of
the panellists of one of the world’s biggest economics show. The
diminutive Shah had already made the headlines in the pink dailies
because Mukesh Ambani (head of the Reliance Industries) had
placed an order for a gold futures contract that formally marked
the start of trading at the Multi-commodity Exchange (MCX), one
of the country’s fi st electronic platforms for trading in derivatives
contracts for commodities such as metals and oil. At this juncture,
Shah, then 36, with big dreams in his eyes, was still very low-
profile and self-effacing. Some tabloids had compared him to the
legendary Dhirubhai Ambani.
Shah wanted inclusive growth, a term politicians and the
leaders of India Inc. often use these days. Shah told me that he
found it strange that there were many billion-dollar companies in
the stock market, but it did not impact the masses. After all, if you
don’t involve 100 million people, the growth has no meaning in a
billion-plus nation.
Probably to trigger that growth, he launched ATOM (Any
Transaction on Mobile) technology for some of the leading banks
in India way back in 2004-05. So, how would ATOM work? The

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technology was aimed at hassle-free, secured shopping with a
mobile handset (that loads all debit and credit cards) and becomes
the new point of sales. It is almost like a virtual credit or debit
card loaded on your mobile phone which you have to produce or
show to the merchant establishment (shop or a restaurant) after
writing the payment details. The merchant, in turn, scans the
encrypted mobile details (in the same way that they swipe cards
in a machine) and the whole transaction is carried out in a couple
of seconds. Shah said his plan was to create markets in every asset
class and attack the inefficiencies in the system. And he knew the
handset was the best way to connect the masses.
The Indian banking guru K.V. Kamath, whom I had met in 2008,
referred to Shah and his Financial Technologies as the creators
of the next generation in financial markets, who empower the
masses to benefit from globalisation using technology and price
transparency. Kamath, the high priest of Indian financ , should
know what he is talking about. Shah’s saga is striking because
he has enabled thousands of people, and society itself, to create
enormous wealth. The common thread running through all his
ventures is that they provide easily accessible platforms on which
the common man can engage in price discovery of products and
then, if they so desire, trade in them. Shah’s systems enable and
empower users by demonstrably reducing inefficiencies in the
system.
Shah arranged for a meeting in the luxurious boardroom in
FT towers with his colleagues to discuss some important plans.
Everyone tip-toed into the room where Shah was already placing
sheaves of papers on the table in front of every chair.
There was pin drop silence in the room as Shah began to speak.
He said it was imperative for FTIL to expand abroad because ‘India
stands already conquered’. He unveiled, much to the astonishment
of his directors, a grandiose plan to set up more than a dozen other
exchanges in a string extending from Singapore to Botswana.
Everyone clapped and cheered; tea and traditional Gujarati

148
snacks were served. Shah listened to the directors as they gave
him their thoughts on the proposal.
The work started. Over the years, FTIL built world-class
institutions in not only India, but also in South East Asia, the
Middle East, and Africa. Shaped with painstaking attention to detail
by the promoter company, FTIL, to ensure quality and best-in-
class infrastructure, the companies attracted industry traders from
across the world and rose in valuation.
Shah knew he could succeed. By all accounts, FTIL was a
subject of envy for the competition.
Shah happily continued chasing his dreams, saying, ‘I know
what I am doing.’ He was clear about the vision that, sooner or
later, India was bound to follow.
Unfortunately, not many appreciated Shah and FTIL’s moves
to create these ‘golden assets’ across the world. This didn’t worry
Shah. He was happy to see his labour bearing fruit. Shah called his
directors for another round of meetings to explain how the FTIL
group of companies and its assets were always attracting global
investments and charting a path of great growth. His critics fell
silent.
But following the well-contrived crisis at NSEL by the ministry
of finance and FMC, Shah remained sad and silent as he faced
a barrage of charges from the EOW of the Mumbai Police and a
number of cases in the courts of Mumbai. He asked a confidant,
‘Why are the government authorities destroying my institutions?’
The confidant showed Shah a note he had prepared for the FTIL
directors and staff.
It read like this:
“While the Asia’s second largest commodity exchange MCX was
acquired by Kotak Mahindra Bank on September 25, 2014 for a
consideration of Rs 495 crore, the Singapore Mercantile Exchange
(SMX) was acquired by the world’s leading Exchange group, New
York Stock Exchange (NYSE) Group for $150 million on November
18, 2013. The stature of acquirers, and the valuations arrived at

149
despite the crisis situation faced by the parent, hints at the world
class institutions Shah had set up over the years, and the value
these institutions commanded”.
“The NBHC, the warehousing and collateral management
company, was acquired by one of India’s oldest, leading private
equity, IVF (India Value Fund) on March 14, 2014, for a valuation
of Rs 241.74 crore. Likewise, a group of high-value buyers acquired
a 25.64 per cent equity stake in IEX for a consideration of Rs
576.84 crores on November 5, 2014. This power exchange, which
boasts over eighty per cent market share, was picked up by a
group of buyers which included TVS Shriram Growth Fund, Dalmia
Cement, Bharat Power Ventures Limited and TVS Capital Funds
Limited, among others. On November 17, 2014, Bourse Africa
Limited (BAL), Mauritius, the wholly-owned subsidiary of FTIL,
was acquired by Continental Africa Holdings Limited (CAHL),
Mauritius, for $40.5 million.”
Clearly, the note evidences that even in the wake of forced exits
from the exchange businesses, FTIL’s legacy and reputation stayed
steadfast through the value its stake sale realised. Shah understood
it, but remained helpless.
His march was rudely halted in July 2013 when the government
froze trading at NSEL for allegedly violating the conditions of its
charter. Shah was anguished. For over four and a half years, the
NSEL had operated between government agencies, and was dutifully
regulated by multiple bodies. Now, a cascade of regulatory actions
forced him out of every business he built. Not only was he being
checkmated and his fortunes destroyed, but some ruthless persons
in the MoF in the previous UPA-2 government killed some of the
finest examples of Make in India, out of sheer jealousy and malice
for Shah’s private sector enterprises competing intensely with NSE
and NCDEX, the exchanges most favoured by P Chidambaram and
his man Friday, KP Krishnan, in New Delhi’s powerful corridors,
to roguishly prove that Shah was not an honest person, which he
is, but an offender, and not a creator.

150
 Ever since he walked into college, Shah had seen himself in
league with two kinds of people – the innovator and the visionary.
He had pored over the autobiographies of JRD Tata and Sony, the
co-founder of Akio Morita. He also revered a 19th century cotton
and bullion trader, Premchand Roychand, who was among the
founding members of the Bombay Stock Exchange, where Shah
had worked when he was fresh out of college. That Roychand had
sunk into a financial quagmire because of an unregulated market
was of little significance to Shah; what was important was the fact
that Roychand developed a huge commodities market and had
ambitions to expand abroad.
Shah was trying to take the legacy forward. He had once told
the Financial Times, ‘I eat, breathe and sleep markets; markets are
a passion, markets are an obsession, markets are a hobby.’ By now,
Shah was known as a visionary, who dreamt big and then set about
to meticulously turn it into reality. He worked with precision and
had zero tolerance for failures.
He told his family members that despite attempts to malign
him, the businesses he built were rock solid institutions. He
knew that although his international businesses were not within
the realm of his control, and notwithstanding the Rs 5,600 crore
payment crisis at NSEL, he, personally, did not owe a single
rupee to anyone.
FTIL’s meteoric success was an ideal example of India’s attempts
over the past quarter of a century to create a robust market
economy fuelled by a private enterprise. Shah was at the vanguard
of that transformation, although he is now languishing under
the pall of judicial scrutiny. Unfortunately, the weak regulatory
framework that oversees trading at the NSEL still exists, and the
government bodies meant to independently regulate the country’s
financial markets remain mired in bureaucratic and economic
mismanagement.
In February 2016, the Prime Minister Modi visited Mumbai to
talk about the Make in India programme. Surprisingly, around the

151
same time, against Shah’s efforts to Make in India, a government
order pushed for the dreaded merger between NSEL and FTIL.
Shah sat quietly in his ninth floor office at the FT Tower
with a few confidant , discussing possible repercussions of the
government’s unwarranted order. He had told his media managers
to emphasise that it was courting disaster for the markets, if the
real offenders in this case weren’t brought to book.

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 Chapter 9

Who plundered My Indraprastha?

One of the most interesting things about Hindu temples is that

many worship in their precincts, without knowing much about
their significanc . Almost all of them have their roots in interesting
mythologies. The genial M V Anantha Padmanabhachariar had
once talked about how the Naimisaranya temple in the northern
reaches of Uttar Pradesh got its name. Nemi in Sanskrit means
a circle. It is said that when celestial beings asked Brahma
where they should do penance, Brahma flung his ring down and
told them that they should do penance in the place where the
ring fell. It fell in the place we now know as Naimisaranya. It
acquired its name from Brahma’s ring. Another legend says that
after Lord Narayana used his discus (Sudarsana) to slay demons,
he told Sudarsana to clean himself up in the place now called
Naimisaranya. Because the discus bathed there, it came to be
called Naimisaranya.
Similarly, not many in India know the significance of Mumbai’s
Kala (black) Hanuman temple near the ever-crowded Chowpatty
beach. Not many legends are heard about the colour of the
presiding deity, except the prevailing one that says Hanuman
could not prevent portions of his body from being burnt after his
tail was set on fi e by the demon king, Ravana. There were also
historians who claimed that the temple in Mumbai was not the

153
only one of its kind because there is a Black Hanuman temple in
Rajasthan as well.
However, the one in Mumbai has another interesting tale
surrounding it. According to legend, the idol turned black due
to the malefic influence of Shani (Saturn). The temple, besides
being frequented by all and sundry (as happens in India), it gets
a specific lot: people who feel they have been sold down the river
and slandered. Many of these belong to the uppermost echelons
of the society.
One day, as Jignesh Shah stood quietly in front of his favourite
deity, a friend, who had accompanied him, timed him on his watch
and found Shah praying for precisely fifty-nine seconds in front of
Kala Hanuman, who many in India consider to be the one to ward
off misfortune. Shah did not go through the rituals of tying strings
of red thread around what was considered a magical tree near
the temple (a custom amid young lasses, who prayed for getting
perfect husbands) or applying mustard oil to the feet of the deity
as prescribed by the priest of temple.
Back in the car, Shah told his friend that his message that day
for Kala Hanuman, a god who Shah considered unvanquishable,
was the most painful, distressing and heart-breaking.
‘And what was that?’ asked the colleague.
Stone-faced Shah, his mind in total turmoil, replied in halting
words: ‘I told God that I will not return for prayers. He has
today taken away my attachment, my devotion, my bhakti, my
technology for markets, minus that, what will I do here? I will
never return.’
The year 2013 brought only trials and tribulations for FTIL.
NSEL faced its worst nightmare of a payment crisis, and Shah and
his partners, who had meticulously shaped FTIL and its empire
of exchanges, were stripped off their responsibilities by the
government and forced to sell their stakes in the companies they
had built and nurtured.
The government’s catastrophic decision was prompted

154
by numerous things, among them a report submitted by
Pricewaterhouse Coopers India Pvt. Ltd. (PwC), which – strangely
– admitted in a disclaimer that they had not met or interviewed
members of FTIL before finalizing their report; their statement
could, at best, be a reference point, certainly not to be used for any
legalities or crucial, course-changing decisions. Yet, the market
regulator, the FMC, at the behest of its masters in the DEA in
the MoF, went ahead with its remorseless onslaught on FTIL. In
fact, it is on records that PwC is not an auditing firm, but a mere
management consulting organisation, which prepares reports as
per the needs of their clients. And its partner, Darshan Patel, who
signed the report, was not even a practicing Chartered Accountant.
This is totally in contrast to the way FMC projected it as a forensic
auditor.
With ownership changing hands, Shah’s companies – once
considered the Crown Jewels of India for acquiring positions of
eminence in the countries where they operated – were eased out
of FTIL control. Shah, who remembered having created them at
a time when Indian private sector companies were eyed with
suspicion and rarely allowed to flourish in financial or banking
circles across the world, was deeply hurt.
Shah was understandably preoccupied. His thoughts and
emotions yo-yoed a bit between practicality and melancholy. His
rational side was sifting through the events of the past, and looking
for ways and means to resolve the issue as quickly as possible, and
with as little damage to the establishment as could be managed.
On the other side, his sentimental nature plunged him into the
depths of despair.
The pragmatic Shah could see that the trumped up charges
against NSEL could easily be cleared up. The money trail, down
to the last paisa, led directly to twenty-four defaulters. Their assets
worth approximately Rs 6,000 crore had already been attached by
the EOW, Mumbai. Furthermore, the Hon. Bombay High Court
had appointed a high-powered committee to act as a receiver and

155
commissioner for auctioning these assets and realising the money
to reimburse the traders, who lost money at NSEL. .
Shah’s friend, a trained chartered accountant, with over three
decades of experience explained the scenario from the perspective
of an accountant. Shah had a forty-fi e per cent stake in FTIL,
the value of which had, unfortunately, plummeted from Rs 850
per share in May 2013 to Rs 87 per share in June 2016 due to the
counter-party trade default at NSEL.
Shah had nearly ninety per cent erosion of personal wealth,
in addition to the freezing of bank accounts, financial assets and
homes by the investigating authorities. Shah, who used to be
in the headlines and covers of both national and international
publications and news channels, was now being caricatured and
maligned on investor forums, despite repeated assertions by the
courts and investigating agencies that, ‘none of the NSEL default
money had gone to Shah.’ But this relentless fusillade took the focus
away from the real culprits (i.e., the defaulters and brokers) and
the recovery of default money from them. That was the precise
ploy followed by the culprits, calling it initially as an accident,
thereafter converting it into a crisis, and by not allowing it to be
solved, began naming it as a scam, in contrast to the actual truth,
while running simultaneously a media trial by funding it, and
finally prompting the government to take illegal actions one after
another against FTIL, which will break the morale of FTIL, so that
it can be taken over. So, there are no concrete facts and evidence
of crime, for these can be destroyed easily.
Shah, in his response, spoke of the probe by the CBI into alleged
irregularities in MCX’s IPO, oversubscribed by twenty-four times
in the retail, forty-nine times in the Qualified Institutional Buyers
(QIB) segment, and awarded by Finance Asia as the Best Midcap
Equity Deal in the entire Asia Pacific region for the year 2012. The
CBI attack came despite the fact that the IPO was cleared by the
FMC and the SEBI. Even Credit Rating Information Services of India
Limited CRISIL had assigned the highest rating of 5/5 to the IPO.

156
 ‘Someone wanted me out, wanted me dead,’ said Shah to his
friend. ‘The investigating agencies have a look out notice against
me, I cannot travel abroad. But similar lookout notices against
brokers, who had defaulted, were revoked within 24 hours of their
having been issued. My personal properties, liquid and non-liquid
assets are attached, not of the brokers,’ Shah told his friend.
Shah suddenly remembered the huge charge-sheet that was filed
by the Mumbai police. He asked his friend, ‘Do you remember the
points they chalked up against me?’
The fi st accusation was that Shah, as the promoter, director
and vice chairman of NSEL, was responsible for the overall
management and daily affairs of NSEL. This was far from the
truth. Shah was a Non-executive Director of NSEL, and was not a
promoter. The actual promoter of NSEL was MCX. By the definition
of the markets and management rules, Shah, being a non-executive
director, could not be in the daily charge of NSEL. In fact, Shah
was a non-executive director in eleven other companies as well,
and as an Non-executive Director, he was legally entitled to rely on
the professional management team of the individual companies,
headed by their respective managing directors (MDs) and chief
executive office s (CEOs), people of experience and expertise.
By the rules of the government and the management policies of
any company, the role of a Non-executive Director on a board is
very different from being in an executive role in-charge of overall
management. Of approximately 300 plus staff of NSEL before 2013,
many of them haven’t even seen Shah, except in a photo. ‘The
cops didn’t find any evidence that you were running the overall
management and affairs of NSEL, not even a single paper signed
by you relates to management policies,’ the friend said. Shah fell
silent as he remembered the breach of trust committed by the MD,
Anjani Sinha.
There were other issues in the charge-sheet that flashed in
their minds as Shah and his friend drove through the congested
streets of Mumbai. The cops accused Shah of making assurances

157
and presentations in various forums about NSEL’s business model,
luring participants to trade substantially on its platform.
What was the reality?
Shah never met any brokers, or defaulters, or for that matter,
any trading clients, before the crisis broke out in July 2013, as
confirmed by all 24 defaulters as well as by NIF (NSEL Investors
Forum) itself in a public letter. On the contrary, since February
2012, NSEL management and compliance teams, on their own,
had regularly sent out circulars to the brokers, prohibiting them
from advertising that NSEL’s contracts offered or guaranteed any
assured returns.
The list of charges was long, but full of holes. Shah’s friend
remembered another groundless charge listed by the cops. NSEL
was blamed for deviating from its own business model. The
contracts paired by brokers for profit-making business, named in
business parlance by brokers in their own businesses, “arbitrage
operations”, were blamed on NSEL.
But did the cops care to understand the ground realities?
The fact of the matter remains, NSEL launched two sets of
contracts ranging from two days to twenty-fi e days based on the
physical commodity market practices. It never launched ‘paired
contracts’ as alleged. The pairing of a short duration sell contract
(t+2) with a longer duration re-purchase contract (t+25) was
done by the brokers/market participants in order to enter into
‘commodity sale’ transactions.
It is because of the ‘commodity sale’ transactions entered by
the brokers on behalf of their clients that the buyers in the t+2
contracts did not take delivery of the commodity, despite being
entitled to do so, because they had simultaneously contractually
agreed to sell the same quantity and quality of commodity back to
the same seller in a t+25 contract.
In any case, there is no law that forbids commodity repurchase
contracts. Even the show-cause notice issued in April 2012 said
nothing about this. The government’s notification in July 2013

158
made no mention of this either. Conversely, the July 2013 FMC
letter to the government had said that the exemption given to
NSEL and other spot exchanges is a general exemption from all
the provisions of FCRA and not a specific exemption.
‘In a transparent market like this where leading brokers and
trading clients participate, how would it be possible to launch
an illegal product that would escape the notice of the regulator?’
asked Shah.
He remembered how the charge-sheet blamed the board for
completely ignoring repeated defaults by a number of members
and how NSEL, instead of debarring such defaulters from trading,
gave them margin exemptions and facilitated loans to them by
extending corporate guarantees. The fact was that no such alleged
default was ever reported to the Board of NSEL!
Again, wasn’t this an operational issue? The power to debar
defaulters was vested in the MD and CEO as the relevant
authorities. Since the MD had not recommended any suspension
or termination of defaulters, apparently no action was taken by the
board. ‘Were there documents to prove that I, as a Non-executive
Director gave instructions that defaulters should be encouraged?
So why blame me?’ Shah asked.
His friend remembered the charge of NSEL not putting in place
a risk management system.
This again, documents showed, was nothing but a lie. For
the records, NSEL had independent departments for business
development, warehousing, clearing and settlement, etc.,
headed by professionals reporting directly to Anjani Sinha. No
Non-executive Director of any exchange in the world gets into
these issues when the policies and procedures are specified and
the day-to-day management is left to the MD and other senior
official .
NSEL had detailed KYC norms for the introduction of new
members. The reality was that some of the employees deliberately
violated those systems for personal monetary kickbacks received

159
by them from the 24 defaulting sellers as discovered by the EOW
in its charge-sheet of January 6, 2014.
On October 3, 2012, NSEL informed the market, i.e., the brokers
and trading clients that the exchange had duly replied to the
show-cause notices. In light of the exemption granted to NSEL in
June 2007 from the FCRA there was nothing wrong per se in the
business model of NSEL. The brokers and trading clients, all high
net worth people with complete knowledge about the products,
continued to trade even after the show-cause notice.
‘So why should the authorities assume I had some hidden
agenda?’ asked Shah.
Also, the chain of events gives credibility to the belief of Shah
and the board that everything was fine with NSEL; after receiving
the response to the show-cause notice in April 2012, the FMC
took no action, and the market continued to trade even after the
notice was made public on October 3, 2012. At the same time,
the FMC was continuously receiving reports from NSEL, and
interacting with Anjani Sinha, MD. Neither the FMC nor any other
government body red-flagged any issues with the board as they
did in August 2013. What’s more, the brokers and trading clients
visited the godowns and found their stocks intact. So, no alarms
were raised on that front, too. Even the public sector entities and
the Comptroller and Auditor General (CAG) had confirmed this
officially.
As their car approached the imposing FTIL building, Shah
remembered some of the other charges against him; conspicuous
among them was an accusation for not reacting to the crisis engulfing
the company. Shah was, no doubt, the NED on the Board, but
could have acted only if there were any warning signals brought to
his notice. The management, the employees, the statutory auditors
of NSEL, the brokers and their auditors (who had inspected the
warehouses almost fifty times) or the trading clients, any one of
them could have blown the whistle, if commodity stocks were
impaired. Furthermore, when the public sector undertakings (PSUs)

160
such as the Minerals and Metals Trading Corporation (MMTC) and
PEC Limited, a government of India international trading company,
traded in NSEL’s contracts, the CAG conducted test audits of the
warehouses and the stocks therein – no discrepancies were found.
Additionally, since November 2011, every fifteen days, a detailed
data-sheet was sent to the FMC detailing the name, location and
stock position of each of the warehouses. No questions were ever
raised by the FMC. In view of so many checks and filte s, and not
one red flag ever raised, there was no reason for the NSEL board or
the Non-executive Directors on it to doubt the availability of stocks.
Even insurance companies had given policies worth Rs.4000 crore
against the stocks.
When news reports started surfacing about missing stocks in July
2013, Anjani Sinha, the then MD and CEO of NSEL, gave specific
assurance to the board on July 30, 2013 that more than adequate
stocks were present, sufficient to cover all the outstanding claims
of the buyers/trading clients. He made an identical statement to
the FMC and the media in the fi st week of August 2013. Nobody
had reason to doubt him. All defaulters also then confirmed that
adequate stocks were available with them. On August 4, 2013 at
Hotel Trident in Bandra Kurla Complex in a one to one meeting
with FMC, defaulters had confirmed in public that they had enough
stocks to deliver against their forward contracts.
Before his visit to the Hanuman temple, Shah and his senior
colleagues had a series of meetings. ‘We are out – and very publicly
out,’ he told the group that sat speechless. To those in the room,
‘This was Shah’s Waterloo!’
Among the crowd was the genial figu e of Venkat Chary, a
seasoned bureaucrat associated with the development of commodity
markets in India. Chary, who was chairman of FMC in the 1980s,
was the fi st chairman of MCX. He was summarily dismissed from
his position at MCX, following another of the FMC’s high-handed
illegal decisions. He remained stoic in the face of this ignominy.
All in the room concurred that the FMC, probably acting at the

161
behest of someone very powerful in the Indian capital, was forcing
the FTIL group to bite the dust.
The focus in the room, which had momentarily shifted to Chary,
reverted back to Shah. Shah had told a colleague in London about
the gold mined in Africa and sold at exorbitant prices in India
because the costing was done by a relatively smaller organisation,
the London Bullion Market Association (LBMA). This discrepancy
was only because electronic exchanges were not in vogue in many
parts of the world, especially India, to support the globe’s top
commodities consumers. ‘Do you want to spend the rest of your
life trading on LBMA prices or do you want to chart a new life,
a new role and new world for a country like India?’ asked Shah.
Shah wanted to create an electronic Silk Route from Africa to
the far eastern nations of the world. He sought a paradigm shift
in the way commodities were traded across the globe. The history
books said that India and China once contributed to almost fifty
per cent of the world trade, and such was the case even as recently
as four centuries ago. He wanted to resuscitate the glory.
Shah was offering his men a chance to change the world. He
assembled the best domain team to create the product design and
created the MCX, and followed it up with the rest of the exchanges
in India and abroad. In conservative India, it was tantamount to
hoisting the Jim Roger. But this was Shah’s unique style.
Although Shah was a demanding boss, he was also gentle and
polite. He drove people hard to achieve his ultimate dream: Make
in India. His staff trusted him, believed in his dreams and followed
his instructions to the letter.
The DGCX was established during 2004-05. The rulers of Dubai
were at fi st apprehensive of the move; but eventually started
admiring and trusting Shah as they sat down for their initial
talks. Shah wanted the markets to be surprised by his move, and,
therefore, did not announce the fi st round of meetings that took
place between him and the Dubai authorities in 2004.
Sheikh Mohammad of Dubai, who personally participated in

162
the meetings with Shah, finally agreed to a 50:50 share pattern
agreement with Shah, and the Dubai Exchange was inaugurated in
2005, following a year of hectic negotiations. This was a landmark;
the Dubai rulers had routinely rejected ideas that came from India
for exchanges. At the launch in November 2005, the Prime Minister
of Dubai, a man of very few words, looked at Shah and remarked
into the public address system, ‘You came, you promised and you
delivered.’
Branded as the fi st and leading commodities exchange in
the Middle East and regulated by the Emirates Securities and
Commodities Authority, DGCX had seen an over eighty per cent
jump in traded lots, signaling the arrival of a powerful exchange
in the Middle East.
In less than a decade, DGCX had positioned itself as a global
financial hub, adjudged ‘Exchange of the Year 2013’, trading in
bullion, currency and metals in Dubai (historically an important
centre for trading in gold and other commodities).
This was a historical milestone for India, but in Delhi no
reactions were forthcoming from the government, even the
bureaucrats did not talk about the ground-breaking move. On the
contrary, the government sent out feelers through the Mumbai-
based Reserve Bank of India (RBI), wanting to know what was
happening in Dubai, and whether or not Shah and his men were
flouting the rules.
That was strange, if not absurd. A country that awards instant
stardom to an Indian, who becomes the CEO of a global company,
had no words of appreciation for an innovator and entrepreneur,
who had achieved global recognition for excellence in building
world-class financial institutions and services through lucid, well-
regulated and well-audited processes.
Nevertheless, the rest of the world hailed him as a great. The
next frontier was the Bahrain Financial Exchange Limited (BFX)
(whose daily turnover was in the range of $175 million). Shah was
a popular figu e in the Kingdom of Bahrain, where Prince Khalifa

163
Bin Salman Al Khalifa honoured him as the chairman of BFX, and
BFX Clearing and Depository Corporation (BCDC). This was touted
as the fi st exchange platform in West Asia, and promoted as the
fi st exchange for trading products in the Islamic capital markets
and other Sukuk products. It was the fi st multi-asset exchange in
the Middle-East and North Africa (MENA) region, with a diverse
portfolio of products, rated as the most sophisticated financial
market in the Gulf Cooperation Council (GCC) countries, with
a total cumulative trading turnover over $50 billion and total
cumulative trading volumes of over four million contracts in
February 2013.
The SMX followed soon thereafter as a gateway to the Southeast
Asian markets. The exchange was set up amidst much fanfare and
for the fi st time, an Indian company was offered a license to
operate an exchange in Singapore, an island nation famous for its
stringent business rules.
Then, the GBOT was inaugurated in October 2010 by none other
than Navinchandra Ramgoolam, Prime Minister of Mauritius, for
trading of Contracts for Difference (CFDs) on commodities and
currencies. Pushed by Shah, this was the fi st exchange in Africa,
in collaboration with Nairobi Securities Exchange (NSE) and Ghana
Stock Exchange (GSE), and second in the world to introduce
exchange traded CFDs.
The results speak for themselves.
The MCX was the fi st ever modern national commodity
exchange to be established in post-reform India and enjoyed the
distinction of India’s number one commodity exchange; this was
after almost forty years of not having structured commodity markets
in India. It instantly provided an additional stream of revenue to
its promoting company, FTIL. Shah remembered how at its peak,
MCX’s average daily volume touched more than Rs 1,00,000 crore,
which is still considered a record for any exchange in India. There
was also MCX-SX, which, within a year of its establishment, ranked
as the international numero uno in trading of currency futures. The

164
entry of MCX-SX heralded the use of currency hedging across a
large number of corporates and small and medium enterprises
(SMEs), and held the distinction of being the third national-level
stock exchange in India established after 1994.
The Indian Energy Exchange, created by Shah’s vision, rose
to be the highest ranking energy exchange in India, with an
estimated yearly contribution of Rs 1.4 lakh crore towards the
country’s gross domestic product (GDP) (on the assumption that
each unit of electricity generates about Rs 100 worth of GDP).
Among its shareholders were some of the top giants like PTC
Limited (formerly known as the Power Trading Corporation of
India Limited), Tatas, Reliance and Adani. It worked in tandem
with twenty-seven states and fi e union territories, trading 14.41
billion units of electricity with a compound annual growth rate
(CAGR) of forty-three per cent in average yearly traded volume.
The Economic Times, the country’s largest business daily, even
called it ‘the Second Industrial Revolution’ in India.
Surrounded by friends, Shah could not but remember some
of the pioneering work FTIL did to drive business, growth and
employment in India and abroad. A director talked about the
FTIL-promoted NBHC, which provided logistics support to the
commodities futures industry, and emerged as the predominant
agricultural commodity warehousing and collateral management
company in India, with a presence across nineteen states and 900
locations. The NBHC cumulatively managed commodities of over
twenty million tonnes valued at Rs 42,000 crore.
Then there was Bourse Africa in Botswana, which became the
epicentre of trade in Africa and went on to record the highest daily
turnover of $76 million in May 2013.
Shah was filled with foreboding that he would lose control of
these companies, his best examples of Make in India. A friend called
from Dubai, saying he was distressed to hear what was happening
with FTIL. Shah handed the phone to someone standing by him
and stepped out for a breath of fresh air. He was distressed to

165
think that someone was manipulating the media and that the
government machinery was remorselessly grinding his dreams
into a nightmarish pulp.
Shah told his men that his empire was being confiscated. In the
epic mythology, the Pandavas were banished to the jungles after
they were forcibly evicted from Indraprastha, a kingdom they had
built with a lot of love.
The directors of FTIL felt decapitated and numb with Shah being
forcibly ousted from the helm of FTIL, and its multiple companies
and shunted behind an iron curtain. They were grappling with,
trying to understand the hidden power play that had developed
slowly, yet steadily, and had finally erupted around them.
In a later conversation with friends at home, Shah said that
he felt that he was pinioned by his rivals and that his efforts of
creating a whole new generation of entrepreneurs reduced to dust.
Any other person in Shah’s place would have considered running
away from Mumbai because of the harassment, but Shah stood his
ground and cooperated fully with the investigating agencies.
Deep in Shah’s heart, the burden of success was already
replaced by the lightness of being a beginner again, and was back
to square one. But he was sure that he would somehow put his
difficulties behind him. He was confident that he was entering the
most creative periods of his life.
He still missed the companies he had created. The doors that
were once perennially open were slowly closing on him, as he
flounde ed in hard times. Shah did not wallow in self-pity; but he
felt sorry for the thousands who worked for FTIL in the jobs he
had created across India and abroad, as also 10 lakh jobs that were
created by his exchanges across the country. It was like leaving
employees, who depended on him, in the lurch with unpaid
mortgages and uncertain retirements. In the post FMC-induced
debacle, Shah knew that thousands would be scrambling for new
jobs in a difficult economy.
It would have been different if FTIL had been one of those

166
giant, sluggish companies, where some employees could go at
half-speed and hide in the layers of bureaucracy and red tape.
But this was not the case with FTIL; it was a symbol of growth,
success and unlimited hope. He had encouraged the managerial
staff to train their subordinates and to perform at a level above
par. The employees felt the pulsating energy all around when
they worked in FTIL and got those creative juices flowing. The
company bosses talked about respect and integrity. Everyone had
worked with the best in the market, the most brilliant. They felt
invincible.
‘No, you cannot crush a company this big, this strong. We did
everything in the commodities market, we are not pushovers,’ Shah
reminded himself. He knew he had always tried to do everything
right and by the book; he had made correct and solid decisions
with all the honesty and integrity he had in him. At home and in
the offic , Shah always believed in strong values.
Now, the company, FTIL, and the ones, Shah and his men had
created, were all gone. The politicians did not even blink and
corporate captains did not rally round to show any sympathy or
fellow-feeling for one amongst them that had been singled out for
a drastic downsize.
This absurd reaction stems from the fact that India simply
lacks the understanding and expertise to handle financial market
disruptions. The government simply lacks the understanding of
growing markets. It cannot comprehend that risks, defaults and
failures are the part of any market ecosystem. What we need are
regulatory safeguards and post-crisis corrective measures, with well-
led policy guidelines to firmly clamp down on market disruptions.
Instead, what we have is this: a lop-sided and judgmental approach,
letting things slow down, freeze over and finally dismantling
the edifice using legal actions. While all this is taking place, the
crippled target is left exposed and unprotected from the parallel
trial by the media.
The reason why this repeatedly happens in India, as

167
demonstrated by a string of crises in the equity or commodities
markets, is that:
History is filled with trailblazers who stumbled before finding
success. But Shah’s career followed a different arc: a meteoric rise,
a forced fall; and then the dogged and determined effort to stage
an amazing comeback. Alan Deutschman, author of Change or Die
and the Second Coming of Steve Jobs, once said about the creator
of Apple, ‘But he persists, he has this incredible tenacity. He holds
on and he comes back with triumph after triumph, driving this
company to new heights, creating the greatest corporate success
of our time. It’s a unique story.’ Shah had noted this comment in
his diary.
He was prepared for the worst and had already planned the
road ahead for what he felt would be India’s next, biggest wonder.
In the dark of the night, Shah, accompanied by a few confidant ,
silently went down to the lobby and went out to his car park. Shah
simply drove away into the darkness of night.
Those who had plotted his downfall, meanwhile, pushed him
to divest his stake in FTIL. Company after company slipped out
of Shah’s hands. And then one day, the former directors of FTIL
received a comprehensive note on pedigreed trading clients who
had greedily picked up stakes in the companies Shah designed,
created and nurtured.
It read like this:
Company Buyer Valued at
SMX ICE Singapore US$150 million
Holdings Pte. Ltd.
NBHC IVF Trustee Rs 229.65 crore
Company
MCX Sold in open market Rs 67.6 crore
on BSE/NSE
MCX Sold in open market Rs 153.6 crore
on BSE/NSE

168
 Company Buyer Valued at
MCX Sold in open market Rs 211.9 crore
on BSE/NSE
MCX Kotak Mahindra Bank Rs 459 crore
Limited
IEX Golden Oak Rs 72.89 crore
(Mauritius) Limited
IEX (1) M/s DCB Power Ventures Limited
(2) M/s Karan Rs 551.44 crore
Vyapar Limited
(3) M/s Agri Power and Engineering Solutions Pvt Ltd.
(4) Aditya Birla Capital Advisors Pvt Ltd.
(5) Siguler GUFF NJDM Investment Holdings Ltd.
(6) SG BRIC III Trading LLC
(7) Madison India Opportunities III

MCX-SX Dr. Rakesh Jhunjhunwala; Edelweiss Commodities Services

Limited; M/s. Trust Investment Advisors Private Limited; Ms Viral
A. Parikh; M/s Nemish S. Shah HUF; M/s Derive Investments; Mr
Kalpraj Dharamshi; Mr Dhanesh Sumatilal Shah; Mr Uday Shah;
Ms Madhuri Kela; Ms Renuka Shah; Ms Madhu Vadera Jayakumar;
M/s Aadi Financial Advisors LLP; Alchemy Equity Research and
Securities Pvt Ltd.; KIFS Securities Pvt Ltd. Rs 88.44 crore

Bourse Continental Africa US$40·5 million

Africa Holdings
Transactions under process
DGCX Sale under process
BFX Sale under process
Atom Sale under process

169
 Bourse Continental Africa US$40·5 million
Africa Holdings
NSEL Sale under process (Invited bids through
advertisement)
MCXSX-CCL Sale under process (Invited bids through
advertisement)

Only those who had meticulously followed the case agreed it was
the genuine death of the proud Make in India, a multinational
company – owner of 10 financial institutions in the world, the
brand value/pride value of which was infinite times its balance
sheet value; probably that was the main reason for the jealousy
and resentment by the many, who had even much larger hoarded
cash. That generated scoops and headlines for the media. For those
in the corridors of power, the die to destroy Shah had been cast.
Sitting alone in his research room at home, Shah remembered
a short story of Rabindranath Tagore, where the protagonist, a
greedy father who stocked his gold in an underground vault,
lowered his friend’s son into the chamber. And then, in a swift
move, the father pulled out the ladder. The old man probably
followed the scrolls of ancient Hindu scriptures, which said if you
bury a living man with gold, his spirit guards the yellow metal
forever.
Deed done, the old man walked away to his self-acquired
happiness, only to be saddled with a life threatening disease a
year later. One day, when death loomed large, he cried out to his
family members: ‘Who took my ladder (of life) away?’
In life’s cycle, whatever goes around, comes around, Shah
reminded himself. It was the message he had left for his destructors
at the altar of Kala Hanuman.

170
 Chapter 10

The Final Assault

In the parlance of Delhi, it is called ‘kaam tamam’, which means

mission accomplished (either for good or for bad). Rana Dasgupta,
one of India’s most illustrious writers, says some of India’s worst
scams happen in Delhi’s mean streets.
Some years ago, I met him at the Delhi airport, got him to
sign a copy of his much-acclaimed book, the Capital, and started
talking about his thoughts on Delhi with its powerful people,
billionaires, scheming bureaucrats, powerful ministers, and their
kitchen cabinets.
Dasgupta said Delhi is a segregated city, where one’s social
significance is assumed to be nil, unless there are tangible signs
to the contrary. ‘Everyone is on the rush through the streets; the
need for social uplift is authentically fie ce.’
He said he found the city harsh, impenetrable and wary, under
incessant assaults. It is a city with a penchant for armed guards
and guest lists. In this city, felt Dasgupta, power helps stave off
the terror of futility, and the more you have, the better. ‘Delhi
aristocracy is exuberantly consumerist. Delhiites admire social
rank, name-dropping and exclusive clubs, and they snub strangers
who turn up without a proper introduction,’ he wrote in the Granta
magazine some years ago. He made perfect sense of Delhi’s greed

171
and power, and what he called the ‘vertiginous altitude of Delhi’s
class system’.
Dasgupta felt that somewhere, all the plotting and scheming
happens on the roads that offer a unique exhibition of social
relations. ‘Every minister is worried; every bureaucrat is worried
that his room must be bugged by his rivals, detractors.’
And it all started on the eve of ‘liberalisation’ in 1991, when the
then Finance Minister Dr. Manmohan Singh is supposed to have
liberalised the economy for privatisation and opened it for foreign
financial flo s, bringing an end to four decades of centralized
planning, said Dasgupta.
He cited the example of the Sanjeev Nanda BMW case, and
how it melted away under the backstage influence of the wealthy
Nanda family.
‘Delhi life remains gruelling and deprived, the inconceivable
promise of the global market unfulfilled, and this feeling of
perpetual deficit lets in apprehensions of a vampiric ruling class,
sucking the plenitude away from everyone else,’ wrote Dasgupta.
There is nothing idealistic, nothing frugal in Delhi; it is a kind
of El Dorado, where fortunes pour in overnight, almost without
your asking.
Unquestionably, the plot against Jignesh Shah was also hatched
on the streets of Lutyen’s’ Delhi.
After shifting the FMC from the MoCA to the MoF, not only
did Ramesh Abhishek, abetted by KPK and the powerful Finance
Minister in the UPA-2 government, not only set the EOW of the
then Maharashtra government behind the NSEL’s board, but also
issued a devastating order.
On December 19, 2013, the FMC stated that keeping in view
its own ‘observations and the facts which reveal misconduct, lack
of integrity and unfair practices on the part of FTIL in planning,
directing and controlling the activities of its subsidiary company,
NSEL, we conclude that FTIL, as the anchor investor in the
MCX does not carry a good reputation and character, record of

172
fairness, integrity or honesty to continue to be a shareholder of
the aforesaid regulated exchange.
‘Therefore, in the public interest and in the interest of the
commodities derivatives market, which is regulated under FCRA,
1952, the Commission holds that FTIL is not a “fit and proper
person” to continue to be a shareholder for more than two per
cent of the paid-up equity capital of MCX, as prescribed under the
guidelines issued by the government of India for capital structure
of commodity exchanges post- fi e years of operation. It is further
ordered that neither FTIL, nor any company/entity controlled
by it, either directly or indirectly, shall hold any shares in any
association/exchange recognised by the government or registered
by the FMC in excess of the threshold limit of the total paid-up
equity capital of such association/exchange as prescribed under
the commodity exchange guidelines and post-fi e-year guidelines.’
The FMC was also of the view that, ‘the general reputation and
character, record of fairness, honesty and integrity of Jignesh Shah
personally has been substantially eroded in view of his role in the
affairs of NSEL as its Non-executive Director and also as the group
chairman of FTIL, the holding company of NSEL. Therefore, in the
public interest, the Commission holds that Shah, former Director
of MCX, is not a “fit and proper person” in terms of the directions
issued under the Board Composition Guidelines issued by the
Commission and as amended from time to time. Accordingly,
it is ordered that Shah is not a “fit and proper person” to hold
any position in the management and the board of any exchange
recognized or registered by the government of India/Forward
Markets Commission under FCRA, 1952. It is further ordered that
neither Shah individually, nor any company/entity controlled by
him, either directly or indirectly, shall hold any shares in any
association/exchange recognized by the government or registered
by the FMC in excess of the threshold limit of the total paid-up
equity capital of such association/exchange as prescribed under
the commodity exchange guidelines and post-fi e-year guidelines.’

173
 In short, the FMC had done what in Delhi is termed ‘kaam
tamam’ (mission accomplished).
Subsequently, SEBI too declared FTIL as ‘not fit and proper’ to
have any investment interest and deemed incapable of managing
securities markets, including the MCX-SX. The Central Electricity
Regulatory Authority (CERA) followed suit and pronounced FTIL
as ‘not fit and proper’ to have any interest, including financial
shareholding in its subsidiary, IEX. These orders of the FMC (now
merged with SEBI), SEBI and CERA thus called upon FTIL and Shah
to compulsorily divest their stakes in the respective subsidiaries
of FTIL, namely, MCX, MCX-SX and IEX. The devious plan was
dismantling some of the finest growth engines in India.
With Ramesh Abhishek at its helm, the show-cause notice served
on October 4, 2013 by the FMC had recorded its reason to believe
that FTIL, as the anchor shareholder in MCX, with a 99.99 per cent
stake in the NSEL, and the directors of NSEL – Shah, Massey and
Javalgekar – who were also serving on the board of MCX, were
jointly and severally responsible for the unlawful, irregular and
fraudulent activities and poor governance in NSEL. This caused
severe damage to their reputation and cast aspersions on their
honesty, integrity and credibility to operate in the commodities
derivatives markets in any capacity.
Abhishek also felt that their record of fair conduct was also
questionable. He directed FMC, of which he himself was the then
chairman, to issue an SCN to FTIL to explain why it should be
regarded as fit and proper to be a shareholder of MCX.
Abhishek was on a roll; he had mainly relied on the forensic
report of Grant Thornton to launch his onslaught against FTIL,
Jignesh Shah, and some of those who had served as directors of
NSEL. But Grant Thornton had generated its report based on the
feedback provided by Abhishek himself, for though appointed by
NSEL, their appointment was insisted by Abhishek. NSEL had no
choice. By the way, it may be noted that Grant Thornton is a same
firm that gave a valuation of Rs. 6000 crore to the Kingfisher Airlines.

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 The Grant Thornton report, however, admitted that their findings
were from the information made available to them (by Abhishek,
probably), and that they had not independently either verified or
validated their data. They further confessed that their work did not
constitute an audit under any accounting standards, and the scope
of their work was significantly different from that of a statutory
audit. Hence, according to Grant Thornton, their verdict would not
provide the same level of assurance as a statutory audit. Besides, not
only did the auditors acknowledge that their reports and comments
were confidential in nature, not intended for general circulation
or publication, they also disclaimed all responsibility or liability
for any costs, damages, losses, liabilities or expenses incurred by
anyone as a result of circulation, publication, reproduction or use
of their reports.
Furthermore, on November 12, 2013, FTIL appeared before the
FMC, and insisted on a cross-examination of Grant Thornton, based
on whose report the Commission had issued its show cause notice
to it. In support of the submission for need for a cross-examination,
the serious deficiencies in the report and the manner in which
Grant Thornton had conducted the ‘audit’ were highlighted.
The FMC, while deciding to grant an opportunity to cross-
examine Grant Thornton on November 25, 2013, directed FTIL to
furnish in advance a list of questions that it proposed to ask at the
cross-examination. FTIL then submitted that such a direction by
the FMC was contrary to law, and would defeat the very purpose
of cross-examination. FTIL also submitted to the FMC that, ‘Grant
Thornton should be ready, inter alia, to answer questions on the
capacity of its personnel to undertake such a process, questions
on the reliability of the report and its admissibility, etc., and also
sought information on the credentials of the authors of the report,
their curriculum vitae, etc.’
However, instead of acceding to FTIL’s proper and fair request
for cross-examination in an independent and impartial manner,
the FMC alleged by its letter dated November 22, 2013, that FTIL

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was making ‘a conscious attempt at getting vital issues bogged
down by unwarranted procedural and trivial technicalities’, and
added that the cross-examination was not even necessary as Grant
Thornton was not examined as a witness. This argument by the
FMC was not only implausible, but also illogical and irrational,
in as much as the show cause notice extensively relied on the
allegations against NSEL of the Grant Thornton report, as provided
by Abhishek, and had sought to pin the blame on FTIL, without
examining FTIL or its directors.
Owing to the unavailability of Grant Thornton for the cross-
examination on November 25, 2013, FMC rescheduled it for
December 3, 2013 to accommodate Grant Thornton. FTIL, however,
immediately sought an adjournment of cross-examination as their
legal counsel had to appear before the Securities Appellate Tribunal
on December 3, 2013 and they were not in a position to appoint a
new legal counsel at such short notice. To FTIL’s consternation its
request for adjournment was rejected outright by the FMC with the
flimsy excuse that the Parliament was then in session. The FMC’s
regulatory functions are, in fact, mandated to be performed during
the Parliamentary session. The FMC had in fact, passed the ‘not fi
and proper’ order on December 19, 2013, just two weeks after it had
unilaterally scheduled the date of cross-examination, precisely when
the Parliament was actually in session, which fact vividly exposes
the specious and untenable reasoning of the FMC in rejecting
FTIL’s fair request for adjournment of the cross-examination. That
evidently implies that the report of Grant Thornton had no legal
validity, and could not be lawfully relied upon to act against FTIL
or any of its directors. But it is too much to expect respect for the
law on the part of those engaged in a criminal conspiracy.
It is worth a mention here that in the world of financial markets,
the ‘not fit and proper’ verdict in effect wipes out a company from
the market and is as good as the death penalty in criminal law.
Considering this, while there are so many legal checks and balances
in cases related to dealing with an accused person, why was the

176
market regulator in such a tearing hurry to pronounce the death
penalty of ‘not fit and proper’ on a robust company like FTIL and
virtually force it to sell off all the world class exchanges it built in
India and abroad? The regulator pronounced this sentence even
as FTIL’s challenge to the ‘not fit and proper’ order was still sub-
judice in a court of law. This hurried and one-sided declaration
only goes to show that the regulator’s actions were governed by a
motivated agenda.
The FMC’s ‘not fit and proper’ orders were based on its guidelines
issued on February 29, 2008 for the Constitution of the Board of
Directors, Nomination of Independent Directors and appointment
of Chief Executives at the National Multi-Commodity Exchanges,
which it subsequently began to call ‘directions’. Such guidelines
were revised by the FMC from time to time, the last such revision
having been made on August 12, 2013, less than two months before
it issued the show cause notice.
Clause 1.5 and 4.2 of the final guidelines stipulate that the
persons to be appointed as directors on the board of directors and
persons to be appointed as managing director/chief executive of
the exchange should satisfy the criteria of “fit and proper” person.
Clause 4 of the guidelines also required that ‘investors in the
exchange must fulfill the criteria for a “fit and proper person” as
defined in Note 2 annexed to the said guidelines. In accordance
with Note 2, a person was deemed to be “fit and proper”, if:
(i) Such person had a general reputation and record of fairness
and integrity, including but not limited to:
(a) Financial integrity
(b) Good reputation and character and
(c) Honesty
(ii) Such person had not incurred any of the following dis-
qualifications:
(a) The person had been convicted by a court for any
offence involving moral turpitude or any economic
offence, or any offence against any laws

177
 (b) The person had been declared insolvent and had not
been discharged
(c) An order, restraining, prohibiting or debarring the
person, from dealing in commodities/securities or
from accessing the market had been passed by any
regulatory authority
(d) Any other order against the person which had a bearing
on the commodities market had been passed by any
regulatory authority
(e) The person had been found to be of unsound mind by
a court of competent jurisdiction and the finding was
in force
(f) The person was financially not sound; and
(g) The person was involved in any action of fraud or
dishonesty.’
But the million-dollar question remains: Did FTIL violate any of
these guidelines? No. Furthermore, what’s quite significant is that
the norms or guidelines for ‘fit and proper’ were fi st framed by the
FMC on February 29, 2008, i.e., soon after the Government of India
brought on the Statute Book the Forward Contracts (Regulation)
Amendment Ordinance, 2008, on January 31, 2008, which inserted
a new section 4B in the original FCRA empowering it to issue
directions to recognised commodity derivatives associations,
or their intermediaries. In fact, the ordinance had also entailed
members of recognised associations to register themselves with
the Commission and follow its rules, regulations, and guidelines
with respect to their memberships.
Unfortunately, however, to the utter disappointment of the
Commission, the bill to replace the ordinance by an Act never
materialised, as the Bill to that effect placed before the 42nd Lok
Sabha session lapsed on the dissolution of that Lok Sabha on
February 26, 2009. Thus, the ordinance also lapsed and, as a result,
the FMC’s guidelines for ‘fit and proper’ lost legal sanctity.
After the sudden suspension of trading at NSEL, and the transfer

178
of the FMC from the jurisdiction of DCA of MoCA to DEA in MoF,
the need to reinstate these norms began to be felt acutely by those
who initiated the conspiracy related to the politics of exchanges.
Hence, under the new dispensation of the DEA, Abhishek
reintroduced the earlier norms for ‘fit and proper’ on August 12,
2013, in order to be able to make swift use of these guidelines
to drive out FTIL and Jignesh Shah from the derivatives market
business. In the absence of amendments to the obsolete FCRA, the
FMC had actually no legal powers to put out afresh such norms for
either commodity derivatives exchanges or their members.
While the FMC’s orders declaring FTIL, Jignesh Shah, Shreekant
Javalgekar and Joseph Massey not ‘fit and proper’ seem to be
prima facie illegitimate as the entire matter on this issue is
currently sub-judice, my observation on the matter is in no way
meant to disrespect the Hon’ble court deliberating the subject in
its entirety, nor is it aimed at prejudicing the court in any way.
It is just a thought of an outside observer, with due respect to the
court hearing the matter.
After almost fi e months, on January 6, 2015, the auditors
submitted their report to the FMC. The report highlighted
several gross acts of mismanagement at the UCX in the form of
irregularities in a technology contract, bank account operations,
maintenance of books of accounts, violation of regulations, etc.
The FMC then directed the board to examine the findings in the
forensic audit report. After verification of the findings of the report
and obtaining legal opinion, the board issued a show cause notice
to the promoter shareholder and former chairman of UCX on April
15, 2015, and thereafter filed a criminal complaint on July 31,
2015.
Although the findings of the forensic audit report indicated that
the governance and management of UCX lacked transparency,
integrity, competence and compliance with law, as there were
irregularities in conducting board meetings, serving of agendas
and absence of evidence on the meetings of SGF, remuneration

179
and audit committees, which facts were in the knowledge of the
FMC nominated/approved directors, no action was taken against
these directors.
The FMC, on July 3, 2015, issued a note to the promoter
shareholder and former chairman, current MD and CEO of UCX,
and two promoter companies, asking for an explanation on their
‘fit and proper’ status. After hearing the replies of the four involved
entities, on December 19, 2013 the FMC declared all four as not
‘fit and proper persons’. Obviously the violations which fi st came
to the FMC’s notice more than a year ago, in July 2014, were
handled with kid gloves, at a slow pace and suddenly speeded up
on September 22, 2015 because of the impending merger of the
FMC with SEBI on September 28, 2015.
There are glaring differences in the handling of FTIL matter
in comparison with the UCX case. FTIL was a rush job carried
out in a furtive manner, without the proper protocol of giving due
hearing to FTIL through legitimate opportunity to cross-examine
Grant Thornton, and decided within less than six months. On the
other hand, a lot more leeway was given to the board of the UCX,
and the process was spread over a stretch of a year and a quarter.
There is much more than what meets the eye in the FMC’s
not ‘fit and proper’ verdict against FTIL, Shah, Javalgekar and
Massey. In its reply to the FMC’s show cause notice, FTIL had
legitimately argued that the facts/allegations in the show cause
notice related to NSEL (a distinct and separate legal entity), and
not against FTIL. In its order, the FMC had also then not disputed
that subsidiary and holding companies are separate legal entities.
Nevertheless, contrary to this recognised statutory position,
Abhishek concluded that NSEL, despite being a separate legal
entity, was not independent from the control of FTIL. This seems
more in the nature of just a conjecture than a conclusion drawn
on the basis of any substantive evidence. Nor had he adduced any
legal provision to support his conclusion, which is also otherwise
utterly unfounded in terms of both real facts and logic.

180
 Abhishek did not go by logic, but simply followed the orders
of his superiors. He could hear no voice, barring that of K P
Krishnan, because continuation as chairman of the then FMC, and
also his subsequent promotion, depended entirely on the goodwill
of KPK and his superiors. Such was the way of the former UPA-2
government, especially its Finance Ministry. Personal interest and
vendetta were more critical to both the then Finance Minister P
Chidambaram and his Man Friday K P Krishnan than either public
or national interest; they, along with their obsequious Abhishek
were sneakily issuing improper orders and directions in the garb
of public interest.
In defence of the FMC’s order against FTIL, Abhishek had
alleged mismanagement and poor governance of NSEL. Apropos, he
cleverly ignored the fact that the responsibility for the management
and governance of NSEL was strictly with its managing director
and senior executives, and not with FTIL, both in reality and in
law. Actually, the principle of demutualisation, which the FMC
had then strongly espoused and recognised, calls for separation of
management from ownership.
By the demutualisation logic, FTIL, as an independent company,
cannot be held liable for the management of its subsidiary, when
that subsidiary is also an independent and autonomous company
by itself. FTIL, as an investor in MCX, was fully meeting the norms
or criteria as specified by the FMC at that time in its guidelines for
an investor in a commodity exchange.
In which case, how could Abhishek hold FTIL responsible for
NSEL? Still, as stated earlier, the then FMC held FTIL responsible
for the alleged ‘unlawful, irregular and fraudulent activities as
well as poor governance in NSEL, and had therefore suffered
serious erosion in general reputation, honesty, and integrity as
also credibility to operate in the commodities derivatives markets
in any capacity.’
Abhishek then also felt that its record of ‘fair conduct was also
in serious doubt.’ In adducing such arguments of unlawfulness

181
and irresponsibility, Abhishek had purposefully ignored the fact
that a subsidiary company is independent of its parent company
in both fact and law, and, therefore, it would be improper to
declare the latter as ‘not fit and proper’ for the purported
misdeeds, even if any, of the former. By this perverted and absurd
logic, for any defaults or misdeeds in a public sector company,
in which the government had invested, the government itself
might have to be declared as ‘not fit and proper’. As it is, many
public sector companies are already incurring losses because of
poor management, while nationalized banks are saddled with
huge non-productive assets (NPAs) due to either negligence or
mismanagement. But neither their management nor the central
government has been declared ‘not fit and proper’. Why did
Abhishek, SEBI and CERC declare FTIL and Shah as ‘not fit and
proper’ to hold more than two per cent shares in MCX, MCX-SX,
and IEX?
When on this issue, it would be pertinent to refer to the report
of a working group set up by the DEA, which was headed by RBI
deputy governor, K.C. Chakrabarty, to examine the systemic impact
of the alleged NSEL crisis. It is understood that this working group
concluded that there were no systemic issues involved. Although
the report was kept confidential for reasons best known to the
DEA, the newspaper reports of September 21, 2013 gave a clear
idea of this finding of the Chakrabarty group. Despite this absolute
finding, Abhishek chose to declare on October 5, 2013 that FTIL,
Shah, Jagavlekar and Massey were not ‘fit and proper’.
The writing was clear on the wall.
Abhishek, obviously encouraged by his seniors, used coercive
and intimidating tactics to pressurize MCX to cease trades in
futures contracts for 2015 until it was divested of FTIL and Shah’s
shareholdings. Such curtailment prevented commodity derivative
traders at MCX from rolling over their maturing contracts in the
various commodities to contracts for the delivery months in 2016.
How could the FMC argue that it had passed the order of FTIL

182
being ‘not fit and proper’ in public interest, and in the interest of
the commodity derivatives market? No one questioned him.
Apart from the closure of commodity derivative trading, which
impacted diverse physical market intermediaries like commodity
wholesalers, stockists, processors, manufacturers, importers and
exporters, at MCX for the 2015 delivery months, even the public
interest was not served in so far as such a denial of access to trade
adversely affected the domestic and overseas trade in commodities
hedged or required to be hedged at the MCX.
In the various corridors of Delhi, many asked whose interest
Abhishek was serving, unless he meant that the interests of his
masters in the Finance Ministry of the then UPA-2 government, and
their evil designs against FTIL in general, and the fi st-generation
entrepreneur, Shah, in particular, constituted public interest.
No wonder, at the behest of DEA, to be precise, on the urging of
K P Krishnan and his powerful superior, Abhishek declared FTIL,
and some of the directors of NSEL, as ‘not fit and proper’. As is
apparent from the office note dated December 19, 2007, quoted
earlier in this book, of KPK of DEA of the old UPA-2 government was
bent on banning FTIL altogether from all financial and commodity
derivatives market businesses. KPK’s dream was fulfilled as FTIL
exited from the financial and commodity derivatives markets.
Unfortunately, for FTIL, exiting from its commodity, securities,
and energy exchanges was not easy. The norms prescribed by the
regulators, like Abhishek, at the insistence of KPK, specifically
provided that no person resident in India should at any time,
directly or indirectly, either individually or together with persons
acting in concert, acquire or hold more than fi e per cent, which
was earlier at twenty-six per cent for the anchor investor, of the
paid-up equity share capital of a recognised commodity exchange.
Only a commodity exchange, a stock exchange, a depository, a
banking company, an insurance company and a public financial
institution was allowed to acquire or hold, either directly or
indirectly, either individually or together with persons acting in

183
concert, up to fifteen per cent of the paid-up equity share capital
of a recognised commodity exchange. This obviously precluded
those who were keen to acquire a twenty-six per cent stake as
anchor investors from bidding, leaving just a few to make paltry
bids for FTIL’s shareholding in commodity and financial exchanges.
With little bargaining power in FTIL’s hands, now tied down by
the rigorous norms of the regulators, not only was the number of
bidders brought down, but the bid prices were also lowered.
FTIL was constrained to sell its stake at distress prices and
exited altogether from the commodity, security, and energy
market space. Its net losses in selling its stakes in Indian markets
amounted to several thousands of crores of rupees. This was the
ultimate goal of, the Finance Ministry, KPK, and Ramesh Abhishek,
in setting such stringent shareholding norms for persons desirous
of acquiring the shares of FTIL. It didn’t matter to them that by
doing so they were acting against the principles of fair play and
natural justice, and denying private players from becoming anchor
investors in financial and commodity exchanges. What a mockery
of democratic capitalism, even after abandoning the concept of the
socialistic pattern of society in 1991?
In exiting from MCX, MCX-SX and IEX, FTIL made a noble
sacrific , so that the interests of physical market players in
commodities, securities, and energy are not affected adversely to
the detriment of the national and larger public interest.
The story of Delhi’s dangerous roads was far from over.
Abhishek did not stop just at derailing FTIL, because on
August 18, 2014, he struck again by forwarding a proposal for the
merger/amalgamation of NSEL with FTIL under section 396 of the
Companies Act, 1956, to the MCA through the DEA.
Endorsing the proposal, KPK of the DEA forwarded it to the
MCA on October 21, 2014, just a day before he was transferred to
the Union Ministry of Rural Affairs (MRA). Keeping in mind the
fact that October 19 and October 20, 2014 were central government
holidays, being Saturday and Sunday respectively, it is quite

184
apparent that the proposal was highly prioritized by KPK by way
of vengeance against FTIL; Abhishek simply carried out the orders
without questioning his lord and master.
The way the proposal was submitted by Abhishek and forwarded
with unwarranted haste to MCA by KPK just before his transfer
from DEA in MoF to MRA, distinctly evidences the conspiracy
planned against FTIL in league with the other two. True, following
the defeat of the UPA-2 in the 2014 general elections to the Lok
Sabha, Chidambaram was no longer the Finance Minister at the
time. But KPK continued to be loyal to his former master, who
had favoured him throughout his career in the civil service, and
continued to target FTIL throughout.
Meanwhile, Abhishek had also forwarded the representations
received by him from various members/investor bodies requesting
the merger of NSEL with FTIL to the DEA vide the FMC’s letter
dated October 17, 2014, and reiterated his earlier recommendation
for the merger. Unfortunately, not realising the conspiracy
hatched by the DEA of the former UPA government behind the
misconceived merger proposal, and without verifying the bona
fides of the members of the alleged investor bodies, on October
21, 2014, the MCA of the current NDA government issued a draft
order to amalgamate NSEL and FTIL.
The FMC had informed MCA that in spite of its (the FMC’s)
active role in supervising the settlement of contracts, the process of
recovery of dues by NSEL from the defaulting members was very
slow. A draft order was issued by the MCA asking for expediting the
procedure and to make a substantial payment to the trading clients.
There were other reasons. Ramesh Abhishek also informed,
falsely, to the mandarins in power in Delhi that although NESL
had the responsibility to ensure that the outstanding dues of all
trading clients (around 13,000 in number) were settled, NSEL had
been able to pay only Rs 362.43 crore to its members as against
payment dues of approximately Rs 5689.95 crore, reflecting a very
dismal progress of recovery by NSEL.

185
 In fact, what Abhishek was citing—the interest of the so-called
13,000 clients, who traded on NSEL platform—was itself doubtful.
These were no ordinary, but high net worth individuals since 66%
of the entire outstanding amount was being claimed by just 6%
of these trading clients that is by a mere 781 persons. Even the
Hon. Bombay High Court in its order dated August 22, 2014 raised
doubts about their bona fide credentials saying it remains to be
established if “these trading clients were ‘genuine’ investors?”
Meanwhile, the market was rife with hoaxes and rumours that
the FMC told the DCA of the former MoCA of the UPA-2 government
that it had received feedback from the erstwhile Monitoring and
Auction Committee (MAC), which comprised even some fraudulent
brokers, who were even arrested subsequently, set up by the FMC
that with the loss of credibility, weak organisational structure,
depletion of manpower and lack of financial resources, NSEL had
become very weak. As NSEL is the wholly owned subsidiary of
FTIL, it was the primary responsibility of FTIL to fulfill NSEL’s
obligations.
Contrary to what Abhishek had informed MCA through the
erstwhile DEA, NSEL had consistently, and to the knowledge of
the then FMC, taken all the necessary steps towards recovery of
dues from the defaulters. Had Abhishek disclosed the correct facts
to the MCA of the current NDA government, it would not have
issued the order for the merger of NSEL with FTIL. As early as on
August 12, 2013, the FMC, meaning Abhishek, wrote a letter to the
DCA of the former MoCA, saying that the top defaulters had to pay
a substantial portion of the total dues of Rs 5,600 crore, and that
a default by them would impact the settlement process on NSEL’s
exchange platform.
The FMC had also stated in the same letter that there was a
possibility that these defaulters may have diverted the funds, and
have therefore violated the Prevention of Money Laundering Act
(PMLA). In fact, the defaulters were found to indulge in cheating,
forgery, theft, breach of trust, bank stock hypothecation, investing

186
the default amount in purchasing benami properties and making
the recovery process extremely complicated. But the FMC took no
action against them at all.
Most of these defaulters have reportedly invested the default
money in prime properties or elsewhere. For instance, although
the EOW of Mumbai Police had arrested a defaulter, Ramesh
Nagpal, Proprietor of Shree Radhey Trading Co, Saharanpur on
March 1, 2016 for his inability to pay up his dues of Rs 34 crore,
he had already purchased and gifted his son Sunny Nagpal, a four-
bedroom flat in Kharghar, Navi Mumbai’s prime property area.
Despite this fact, no action has been taken against similar other
defaulters. Neither have the defaulting companies been merged
nor have their bank accounts been sealed. Their managements
have not been changed either.
The FMC did not take any action at all against the defaulters,
despite the fact that the EOW of the Mumbai Police had established
a clear money trail to the 24 defaulters also stating that no money
trail was found to NSEL, FTIL or its non-executive directors.
Even the Hon. Bombay High Court has validated that not a
single paisa of the crisis money has gone to NSEL, FTIL or their
promoters. On August 22, 2014, the Hon. Bombay High Court
stated: “…these amounts have not been received by NSEL…the
money invested has gone to the borrowers, i.e. bogus sellers.”39
On August 4, 2013, in an open durbar convened by the FMC,
the defaulters admitted to holding up the default money and even
agreed to repay in a phased manner. But FMC made no efforts to
recover money from them and took no action against them.
Even the Bombay City Civil Court, vide its Order dated
November 27, 2013, observed that “that prima facie, it appears that
the persons responsible for the default are the defaulters…’’. But
the FMC took no action against them at all.

39 Order of Hon’ble Justice Thipsay dated August 22, 2014 in the Criminal Bail
Application No.1263 of 2014, Hon. Bombay High Court

187
 All this was within the knowledge of FMC and its chairman,
Ramesh Abhishek who even acknowledged that it was the liability
of the defaulters to make payments, and, therefore, it was in reality
his responsibility to chase the defaulters under the powers vested
in the then FMC, which was officially designated as a regulatory
agency for spot exchanges. The sad truth is that Abhishek, when he
was the chairman of the FMC, he did not take any regulatory and
enforcement action within his statutory powers, proving thereby
that he was neither a fit nor proper regulator for commodity
derivatives markets in the country. The actual reality is that NSEL
on its own initiative had been chasing the defaulters through filing
criminal and civil cases.
It was clear the FMC overstepped its jurisdiction, since it
became officially the regulator of NSEL, at that time by acting
against FTIL, Shah, Javalgekar, and Massey. FMC could have
easily solved the payment crisis as 24 brokers account for 68% of
the claims, 6% of the clients account for the 69% of the claims
and seven defaulters owe up to 85% of the defaulting dues. But
it did nothing to act against them. Any strong action by FMC /
DCA against even the seven defaulters who accounted for 85% of
the defaults could have led to a much more positive outcome and
early resolution of the crisis.
Unlike what did in the case of NSEL/FTIL—pending all
legal adjudication—the FMC did not recommend the merger or
supersession of any of the defaulting companies, nor did it press
for their bank accounts to be sealed.
On August 6, 2013, the DCA gave the FMC wide-ranging
omnibus powers to take such measures as deemed fit against “any
person, intermediary or warehouse connected with NSEL.’’ But the
FMC trained its guns only against NSEL/FTIL and their promoters,
allowing the defaulters to go scot-free.
What’s more shocking is that the MAC appointed by the FMC
comprised even such brokers as were later accused and arrested by
the EOW, Mumbai for mis-selling the NSEL contracts to their clients.

188
 In fact, putting these brokers on the MAC itself was an obvious
conflict of interest and NSEL had raised its objection to FMC about
this, but the FMC brushed them aside showing it clearly favoured
the brokers for reasons best known to it.
As late as July 22, 2014, in a MAC meeting where the FMC
representatives were present, it was minuted that the recovery
process had gained momentum since the time of the previous joint
meeting between the NSEL board and the FMC. What prompted
him to propose the merger/amalgamation of NSEL with FTIL to
the DEA in little less than a month, i.e., on August 18, 2014? The
obvious answer could be found in the presence of his lord and
master, KPK in DEA, whose wish was his command.
Though Abhishek had admitted in his letter of recommendation
that NSEL was a separate legal entity, he, however, impishly
concluded that it was not independent from the control of FTIL.
He had, however, adduced no provision in any law to support
his unlawful conclusion, which is actually unsound in terms of
both facts and logic, as substantiated, in an earlier chapter, by the
editorial and the article published in Economic Times and Indian
Express respectively.
In defence of his recommendation for the merger of NSEL with
FTIL, Abhishek also alleged mismanagement and poor governance
of NSEL, conveniently ignoring the fact that the responsibility for
the management and governance of NSEL before the crisis was
strictly with Anjani Sinha, who was then its MD and CEO, and
the only executive director on its board, until his services were
terminated upon closure of trading on that exchange. Abhishek and
his subordinates, even the officials of the DCA in MCA, the former
parent department of the FMC, were all along corresponding and
communicating with Anjani Sinha, and only with Sinha. Never did
they ever correspond or communicate with FTIL.
The main reason for the proposed merger, according to Abhishek,
was that NSEL did not have the resources, financial or personnel,
or the organisational capability to successfully recover the dues of

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the purported ‘investors’ from the defaulters, which were pending
for over a year, even though, he was well aware that FTIL had
the necessary wherewithal to support NSEL to facilitate speedy
recovery of the dues. On the basis of this insinuation, Abhishek
sententiously claimed that it would be in the public interest to
amalgamate NSEL with FTIL, and leverage the combined assets,
capital and reserves for efficien administration and satisfactory
settlement of rights and liabilities of stakeholders and creditors.
Abhishek had also put forward the demand of the so-called
members/investors for the merger of NSEL with FTIL. Although
these self-styled investors may perhaps deserve some sympathy
purely on humanitarian grounds for the losses they had incurred
on trading in NSEL, it needs to be clearly recognized that these
persons were not ‘investors’ by any stretch of imagination. They
were really ‘traders’ (as observed by the Hon’ble Justice, Abhay
Thipsay, quoted earlier40). As all trades, including commodity
trades, are never free from risks, the alleged traders/trading
clients were definitely taking risks in their trades on NSEL.
It was therefore quite strange on the FMC Chairman’s part to
support the representations received from the broker-members
and trader-cum-investor bodies requesting for a merger of NSEL
with FTIL, instead of acting against such defaulters, and brokers
(acting on behalf of traders, who called themselves deceitfully
as ‘investors’), in terms of civil and criminal law, when the FMC
was designated as a regulating authority for all spot exchanges,
including NSEL. It both, logically and lawfully, follows that the
MCA should now withdraw its order for the merger of NSEL
with FTIL in public interest, and save on the legal expenses that
the MCA would have to incur, as its merger order was already
challenged by FTIL in the Hon. Bombay High Court, which has
stayed the implementation of the order since then.
In fact, contrary to what Abhishek had informed the MCA

40 Ibid.

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through K P Krishnan, NSEL had consistently taken numerous
steps towards recovery of dues payable by the defaulters to the so-
called investors, who were in the words of Justice Thipsay actually
‘bogus traders’41. In fact, NSEL had even filed fi st information
reports (FRIs) against the defaulters for their fraudulent activities,
besides filing civil suits against them for recoveries. The police,
disappointingly, have not taken any action on the FIRs.
Besides, even FTIL gave a loan of Rs 179.26 crore to NSEL to
pay small traders. The small traders whose dues were up to Rs 2
lakh each were paid in full, while those whose dues were between
Rs 2 lakh and Rs 10 lakh were paid fifty per cent by NSEL in
August 2013 itself. To date, NSEL paid out Rs 577 crore in total
against payment dues. In all, the dues of 7000 clients in the traders’
contracts were thus either fully or partially settled. Abhishek’s
inference that FTIL’s loan of Rs 179.26 crore to NSEL automatically
places the onus of the payment crisis on the shoulders of FTIL is
both irresponsible and illogical. FTIL’s loan was a mere bona fide
act of good gesture, and was without prejudice. By this logic, when
the International Monetary Fund (IMF) gives a transitional loan to
a nation in default on its overseas payments on current account,
should one infer that the IMF is responsible in some way for the
payment crisis of that nation?
Further, on August 6, 2013, the MCA (under the direction of the
then FMC) had also issued a Gazette notification to stop trades in
existing e-series contracts in metals, and called for settlement of
all one-day forward contracts at NSEL. As some of the traders in
these e-series metal contracts moved the court in the matter, the
settlement was delayed. However, the contracts were eventually
settled in phases (different metals separately) between June and
August 2014, with the approval of the FMC, and in accordance
with the order of the Hon. Bombay High Court, to the benefit of
33,000 trading clients.

41 Ibid

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 Even as early as on March 7, 2014, in a reply filed by the EOW
of the State of Maharashtra in the MPID case No. 1 of 2014, it
had unequivocally stated that NSEL had not only ‘provided all
the requisite documents, data and knowledge and understanding
about the exchange’, but had also ‘set up a server at our office
and provided expert staff to help us for the recovery from the
borrowers’.
The fact of the matter is that the NSEL assisted the EOW of
the Maharashtra government in attaching assets valued at over Rs
5,000 crore of the defaulters. It also assisted the ED to attach assets
worth Rs 1,200 crore of the defaulters. This is not all. It has so far
obtained decrees with a total value of Rs 1,233 crore against some
the defaulters. It has also obtained injunctions against assets worth
Rs 3,052 crore so far.
Here, it needs to be emphasized that the then regulator, the
FMC, under Abhishek, all along failed to take any action against the
defaulters, and took no action whatsoever towards any recoveries
from the defaulters. Actually, only seven defaulters owe up to
eighty-fi e per cent of the alleged dues. However, Abhishek took
neither civil nor criminal action against these defaulters. It was
left to NSEL to act against them by obtaining court decrees and
injunctions. Defaulters apart, Abhishek purposely failed to take any
action against the broker-members of NSEL, who conned buyers to
‘invest’ in NSEL commodity contracts, when these contracts were
for buying of commodities for receiving deliveries from sellers,
who turned as defaulters on the abrupt closure of NSEL trades on
July 12, 2013.
This was somehow never conveyed to the MCA in Delhi.
Supressing facts was Abhishek’s strategy to convince the MCA
about the need for the merger of NSEL with FTIL. Small wonder,
Abhishek, it was clear to many in the Mumbai markets and also
in the power corridors of Delhi, falsely apprised the current MCA
that NSEL had a depleted manpower. The truth is that, unlike
in the past when the NSEL trading platform was active and was

192
handling a large trading volume, it needed large staff strength,
but since the closure of the spot market, NSEL no longer needed
as many people. Abhishek was therefore fully aware that NSEL
had all the time adequate human and financial resources for
recovering the dues from the defaulters, and NSEL had not in any
way compromised on this matter at any time. He conveniently
chose to ignore the facts, and deliberately presented a wrong
picture about NSEL to the MCA.
The MCA, unfortunately, fell gullible to the fabricated picture
presented before it. After the issue of a draft merger order, the
MCA invited comments on it from various stakeholders likely to
be affected one way or another, and eventually produced a formal
merger order on February 12, 2016, amalgamating NSEL with FTIL.
This was challenged by FTIL in the Hon. Bombay High Court for
its legal and constitutional validity and for misrepresenting facts.
The story is not yet over.

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 Chapter 11

One part Galt, two parts Shah

If you are in downtown Mumbai and drive up to the Fort office

complex, considered by many as home to India’s finance , you will
inevitably stroll past the metal statue of the raging big bull; ignore
the college kids posing for selfies and walk into the Bombay Stock
Exchange (BSE) to hear stories of the day’s trading, and of those
who once worked there and shaped the growth and rise of Indian
markets. Comparisons are made, criticisms fly thick through the
air, but you hear some of the most fascinating stories of brokers,
how they shone against the odds in India’s high pressure markets,
and carved a niche for themselves in the masses.
Interestingly, Jignesh Shah, who often loved a drive along
the length of Marine Drive, never missed these three historic
landmarks, the last named was where he started his career, did
some brilliant work, and eventually left to chart a trail blazing
career. Those who saw him from close, and worked with him for
long hours, called him the ‘Maverick’. And those who saw the way
he pushed his companies across India and the world, likened him
to John Galt, the fictional hero of Ayn Rand’s 1957 epic, Atlas
Shrugged.
At the offices of the brokers at the BSE, one, who will remain
unnamed here, even showed me his long-forgotten ‘Who is John
Galt?’ coffee mug bearing one of Galt’s favourite quotes, ‘I swear

194
by my life and my love of it that I will never live for the sake of
another man, nor ask another man to live for mine.’ The broker, a
witness of many battles at BSE and many ups and downs of some
of the biggest movers and shakers of the market, said that Shah
(Jigneshbhai, to him) worked in a manner that resembled Ayn
Rand’s philosophy that revolved around objectivism, rational self-
interest and laissez-faire capitalism. Hence, claimed the broker,
Shah was India’s answer to Galt because he epitomized all that is
glorious of capitalism in its purest form – innovation, self-reliance
and freedom from government interference. The comment sounded
ironic, probably because Shah was dethroned by the manipulations
of his rivals, who ranged from Mumbai’s famed corporate club to
scheming bureaucrats and ministers in the UPA-2 government in
the Indian Capital.
Galt loved his life; he held fast to his sense of values, even if
his world crumbled around him. As Rand brilliantly wrote, Galt
addressed the minds of millions, his voice filling the airways of
the country and of the world.
Shah was a great experimenter and did the same. When he left
BSE, he had an epic plan that would have taken his company to
great heights. Like Galt, Shah wanted to create a world that would
not be a product of sins, but the product and image of virtues.
Shah wanted lofty ideals brought into reality in its full and final
perfection.
‘Technology innovation is the key word in my life,’ Shah had
once told me in an interview.
In Atlas Shrugged, Galt was just a fictional character, who was
pressurized by his peers as he shaped a grandiose plan to resolve
(or rather address) the realities of 1957 that included Mao Zedong’s
claim that 8,00,000 class enemies were annihilated in China
between 1949 and 1954.
This was the real world, and Shah’s life was as defining as Galt’s
in Rand’s realm. Shah’s principles and power-packed views drove
his technology business and propelled the bourses he created in

195
India and the world. Poignantly, Shah’s life explored a situation
that occurs when the thinkers stage a walkout. Shah worked as
a thinker, a believer and a builder, who conceived of the strike,
initiated and sustained his revolution and carried it into the
dangers of the market and the economy, all the while working
towards a successful resolution.
According to his acquaintances, both friends and foes, Shah
always stayed low-profile and was mostly unknown despite his
ground-breaking achievements in the world of stock markets.
Yet, Shah – ever since he started working with a handful of his
confidant , dominated two-thirds of the horizon. Shah worked and
grew in a universe populated with giants, and gradually acquired
a great stature himself. And, quite interestingly and similarly, the
mystery shrouding NSEL’s payment crisis results from the markets
he had successfully nurtured. Shah’s eventual resignation as the
head of FTIL is driven by certain push from power mandarins
in the Indian capital, and their manoeuvring, leading to the
disappearance of one of India’s greatest economic thinkers. His
departure from the market arena remained – much like Galt – a
total mystery to the outside world.
Although that book was set in a time more than half a century
ago, Galt and his revolutionary philosophy sounds just as relevant
for today as it did for that era, and bears much similarity to Shah,
India’s young entrepreneur and innovator, who was popular across
the world as the Czar of exchanges. In conversations, the veterans
at BSE said it would not be an exaggeration to say that Shah paid
the price, much like Galt, for values he cherished and the freedom
of innovation he believed in wholeheartedly.
Both protagonists were original thinkers. In the novel, Galt leaves
home at the age of twelve, and after studying over the years does
a double major in physics and philosophy, and upon graduation,
joins a motor company. He preferred to take off on an entirely
different career path from the rest of his peers when he designs a
revolutionary new motor powered by ambient static electricity.

196
 Galt’s theory was simple but brilliant. Galt’s innovation meant
he could extract static electricity from the atmosphere and use it
as an almost limitless source of energy, a revolutionary step in the
history of car manufacturing. This eco-friendly model would have
a positive effect on the environment and improve the lifestyle of
his fellow countrymen.
Though Shah had taken revolutionary steps like Galt, unlike
Galt, Shah’s academic career and professional line were worlds
apart. An engineering graduate from Mumbai University, he
undertook specialized training in money, capital markets, futures
and options trading from the New York Institute of Finance before
returning to India, determined to join the BSE. He had a unique
vision: he wanted the BSE to undergo a radical change and bring
about inclusive and equitable growth through technology. Before
he thought, no one did that at BSE; it made Shah a trail blazer,
a thinker, an innovator, a shaper of ideas. Shah worked on the
designs and implementation of BSE’s online trading system, BOLT,
revolutionising the way stock trading is conducted nationally.
Both Shah and Galt had to fight against the system to make
it understand the benefits of modernization and the advantages
of growth. Rand wrote in her novel that Galt was struck with a
crisis when the company owner died and his heirs decide to run
the factory by the collectivist maxim: ‘From each according to his
ability, to each according to his need’. Under this system, people
would work according to their ability, but be paid according to
their needs.
This was not what Galt had envisaged, so he refuses to comply
and quits the company saying he will fight a system that punishes
a man for using his mind, rewards complacency and failure and
condemns innovation and success.
Eventually, Galt realises that the ‘peoples’ state of America’ is
a corrupt, collectivist, self-destructive and dysfunctional model
under the thumb of the government. Therefore, he chooses
to engineer a strike whereby all inventors refuse to offer their

197
designs to a country that does not care for innovation. Rand has
a theory about this reasoning by Galt. His reasoning was a simple
process to bring the oppressive rule of the entire collectivist world
to a standstill, even if only for a while, and illustrate the power
of innovation. That is the only way forward in the modern world.
Rand has brilliantly unfolded the saga of gullible tycoons and
jealous competitors who fail to understand Galt’s creative ideas
and lofty ideals.
Shah, too, was at odds with the inadequacies of a system that
did not allow freedom for innovation and instead placed hurdles
in the way of the enterprising few. In order to chart a new course
and show the world the path ahead, he quit BSE and set up FTIL
to provide technology solutions and domain expertise for digital
transactions and financial markets across all asset classes. Now
much like Galt and his innovative ideas, FTIL’s conceptualisation
led to a brilliant technological innovation in IP (Intellectual
Property) and helped propel trade on next-generation financial
markets, including equities, commodities, electricity, currencies
and bonds, among others.
And that the move by Shah was not a one-stop movement.
This became increasingly evident as he launched the MCX, India’s
premier national commodity derivatives exchange, and fostered it
to grow to become the second largest commodities exchange in
the world in a short span of ten years. MCX captured over eighty
per cent of the commodity futures market in India, with a daily
volume of trade now exceeding US$3 billion. At MCX, Shah put the
technology of ODIN, a financial market trading product that he
had conceptualized and created, and ODIN went on to capture the
second largest market share in Trading Terminal segment globally.
His IEX was India’s number one electricity exchange, and a leader
among world energy exchanges. Similar wonders were created by
Shah when his FTIL’s NBHC became India’s number one private
sector warehouse management company and an Asian leader.
SMX and DGCX, the international exchange ventures set up by

198
FTIL in Singapore and Dubai respectively, thanks to Shah and his
growth process, have become leading exchanges in Asia and the
Middle East.
In various public forums, Rand was very clear that the basic
premise of her writing was the presentation of an ideal man and
that goal was achieved when she conceived the character John
Galt. She claimed that Galt was a man of prodigious intellectual
gifts – a physicist capable of ushering in a unique revolution in
man’s understanding of energy. Furthermore, he was a philosopher,
who defined a rational view of existence, a legendary statesman, a
leader who had the capacity and the capability to lead a strike that
transfigu ed the world’s convoluted social systems. Rand blended
multiple characteristics to achieve the pre-eminence of Galt’s
intellectual stature.
Shah, in ways more than one, reflected some of the aforesaid
characteristics of Galt. One was his unique genius. The other was
the interesting trait that other men can easily replicate to achieve
greatness in their own lives, his unswerving rationality. And,
most importantly, Galt was depicted as someone who, above all,
was a man who perceived reality, the one who allowed nothing
to interfere with his cognitive ingenuity to appreciate the facts.
Galt, characterised by his ‘ruthlessly perceptive eyes’, somewhere
struck a chord with Shah who also had no qualms about calling a
spade a spade.
There are scenes in Rand’s book that somehow reflect those
occurring in the life of Shah. Consider this one, almost a stylised,
signature scene. In this one, Galt tells Dagny, a woman he had
loved and admired for many, many years, what he did and felt
upon learning that she was Hank Rearden’s mistress. And then,
he calmly went to observe Rearden, the wealthy tycoon, at an
industrialists’ conference. Rearden, the man with cash and fame,
had everything under the Sun Galt wanted and could have had
if he hadn’t chosen to strike. But that was not to be. After all,
Rearden had his mills with thousands of workers, he was proud of

199
his inventions, his bagful of wealth, his nationwide fame, and his
secret, lovely relationship with Dagny. For that very moment, for
that one moment, Rand made Galt undergo a tearing sense of loss,
ostensibly because he – the protagonist – could see what would have
been his, if he hadn’t abandoned his motor. But Galt, claimed Rand
in her epic, felt that loss for only a moment, because of a sudden
realisation that dawned on him, and helped him recognise the
full set of facts defining the situation. Thanks to his vision, rather
clarity of mind, Galt could see the burdens that Rearden carried
on his buckling shoulders, the impossible demands Rearden had to
fulfill, and the forces stifling and enslaving him. Galt saw Rearden
struggling in silent agony, striving to understand what Galt alone
had understood. He could see through Rearden for what the tycoon
was – a pathetic symbol of the strike, a great unrewarded hero
whom Galt had to eventually liberate and validate. The scene that
he describes to Dagny provides the key to understanding Galt’s
character.
In many ways, Shah also felt similar emotions when he was
forced to strip his powers and walked behind bars in a case that
had little merit. While in prison, Shah felt some intense emotion
and pain, and sufferings because he was experiencing a painful
loss for the fi st time. His empire was being snatched away from
him by those who had done nothing to achieve that glory, Shah
was experiencing loss in the prison room, and he shared his agony
with his cell mate.
Still, Shah stood firm and never allowed his emotions to
interfere with what he called his cognitive grasp of reality or with
his actions based on that cognition. He knew that he was on the
right track and started planning for what could be another glorious
chapter in the history of Indian business – his vision of 63 moons.
Shah knew his planning was right, and he – almost like Galt – was
able to deflect pain that resulted from seeing an empire being
silently grasped away by a handful from his hold. Both Galt and
Shah transformed capitalism with some striking similarities as both

200
swore by the power of innovation that is a glorious manifestation
of the human mind. This is not all; both epitomised all that is
glorious about capitalism in its purest form – innovation, self-
reliance and freedom from government interference. And both
fought the irrationality of collectivism and offered their own
philosophy and objectivity as an alternative.
It is interesting that both Galt and Shah celebrated the idea of
innovation and the changes it inspired in their respective ecologies.
Their individual philosophies offered widespread solutions to some
of the world’s highly complex and intertwined economic challenges
faced by mankind. Both strongly believed that the success of an
individual’s innovation was one of the best ways to create assets
that ultimately and automatically lead to the overall growth of the
society as a whole.
Both created top innovation models, yet Galt and Shah remained
rooted to the social and economic ethos as part of a society that
had some of the most complex issues fostered by an oppressive
bureaucratic functioning, a culture that promoted and embraced
mediocrity instead of equality for all.
Galt and Shah fought against the system and both paid a heavy
personal price – even suffered torture at the hands of the powerful
– for prioritising the interest of the collective mass. Neither
ever strayed from their chosen paths, and strongly opposed the
archaic ideas that revolved around some hackneyed beliefs that
deny individual freedom. No wonder then, Galt and Shah became
bywords for truly ‘free enterprise’, despite being pitted against
some highly hostile environment.
No wonder, Shah, being a dreamer and visionary, developed
FTIL, a grand technology company that inspired, nurtured and
developed 10 exchanges in 10 years. He also developed original
(IP) technologies for financial markets. He also pioneered 18
technological innovations and institutions of national pride in 18
years from 1995 – 2012. What is quite creditable is that it takes a life
to build a successful exchange; but Shah inspired and contributed

201
10 exchange institutes within ten years across Asia, Africa and
the Middle East, stretching from East of Suez to Singapore. What’s
more, his partnership stretched from faraway Tokyo to North
America. In short, he had already laid the foundation of his global
empire which, if not killed, would have become India’s “Made in
India” biggest MNC.
The 18 technological innovations and institutions created by
the FTIL Group, with Shah as the Group Chairman, are listed
below. These innovations and institutions were far ahead of time
by at least 10 years, if not decades.*

1. ODIN (India’s Most Successful Tech IP Product since

1998)

ODIN is the most innovative and successful megastar

technology product created for the fi st time in India by
Shah’s FTIL at far less cost than those incurred for similar
technologies developed by the US and European exchanges
abroad. What’s more, ODIN is implemented in both India
and abroad for the exchanges developed by the FT Group.
It transformed the trading technology from the open outcry
system to the fully automated screen based electronic
system, with instantaneous order matching that enabled
seamless trading on multiple markets through a single
V-Sat, with extra two-fi e program. It is a multi-segment
front-office trading, with dynamic risk management system,
which serves from the smallest retail broker to the most
sophisticated domestic and foreign institutional investors
(FII). In terms of cost and its outreach, it is indeed the
foremost in the world. ODIN technology has one million
licensees across 200 thousand terminals in India alone.
In comparison, just a few years back even Reuters and
Bloomberg had a worldwide reach of not more than 350

* Source: www.63moons.com (formerly, www.ftindia.com) and publicly available

information.

202
 thousand terminals, though these news networks have a
long history extending from 40 years (Bloomberg) to over
100 years (Reuters).

2. DOME (Tech IP – 2003)

DOME is an acronym for ‘Distributed Order Matching

Engine’ DOME covers all the stages in the Trading Life
Cycle. Trading activities in various exchange compatible
instruments are facilitated with order matching based
on principles capable enough to handle various asset
classes simultaneously. It is an ideal platform for the new
generation markets to provide for flawless performance,
and is scalable in accordance with the business needs.

3. Internet & Mobile Trading (Tech IP – 1998)

Internet and mobile trading system developed by FTIL

facilitates trading across exchanges in all product types,
and in all calendar months for derivative contracts through
internet and mobile smartphones.

4. MCX (Regulated Financial Institute – 2003)

Regulator – Forward Markets Commission (FMC)

Multi Commodity Exchange of India Ltd. (MCX), established

in 2003, is globally numero uno in gold and silver futures,
second largest in copper and natural gas futures, and third
largest in crude oil futures. MCX has still a market share
of over 85% amid all commodity exchanges in the country.
It offers trading in more than 30 futures contracts across
diverse commodity segments including bullion, ferrous and
non-ferrous metals, energy, and agricultural commodities
and their products.

5. NSEL (Regulated Financial Institute – 2005)

Regulator – Forward Markets Commission (FMC)

203
 National Spot Exchange Limited (NSEL) was India’s fi st
of its kind and an ideal delivery based spot commodity
electronic exchange aimed at eliminating middlemen.
NSEL, with its links to APMC markets across the country for
spot trading in farm commodities and their products, was
helping the farmer, doubling their incomes and improving
the quality of their lives. NSEL model, developed by the FT
Group in as early as 2006, is being replicated this year, i.e.
after precisely 10 years, by the present NDA government
with the launching of e-NAM – the e-trading platform for
National Agriculture Market, linking 21 APMC mandis to
begin with, on 14 April 2016. That vividly shows Shah’s
vision and how he was always ahead of the time.

6. MCX-SX (Regulated Financial Institute – 2008)

Regulator – Securities & Exchange Board of India (SEBI)

MCX Stock Exchange Ltd. (MCX-SX), though notified as a

“recognised stock exchange” on December 21, 2012, had
commenced for the fi st time in India on a private platform
operations in the Currency Derivatives (CD) Segment on
October 7, 2008, under the regulatory framework of SEBI
and RBI. On its recognition as a stock exchange, it began
to offer an electronic, transparent and hi-tech platform for
trading in securities futures and options, flagship index
‘SX40 and a free-float based index consisting of 40 large-cap
liquid stocks representing diverse sectors of the economy.

7. IEX (Regulated Financial Institute – 2008)

Regulator – Central Electricity Regulatory Commission
(CERC)

Indian Energy Exchange (IEX) was launched in June

2008 for trading in electricity. Again, it was India’s fi st
and premier private sector transparent and automated
power trading platform for physical delivery of electricity

204
 across 29 States, and fi e Union Territories, being linked
to the State and Union Territory grids. In February 2011
IEX launched the Renewable Energy Certificate (REC)
market that facilitated transactions in green attributes.
The Renewable Energy (RE) generator could opt to get
RECs against their electricity generation, and sell these
through the exchange. On the other hand, the obligated
entities-distribution companies, captive plants and open
access consumers-may opt to purchase RECs to fulfil their
Renewable Purchase Obligation (RPO). The REC Market
offered both solar and non-solar RECs.

8. SMX (Regulated Financial Institute – 2008)

Regulator – Monetary Authority of Singapore (MAS)

Singapore Mercantile Exchange (SMX) was licensed

to operate as an Approved Exchange by the Monetary
Authority of Singapore (MAS), and commenced trading on
August 31, 2010. It’s a trans-Asian multi-product commodity
and currency derivatives exchange. Singapore being an
international financial centre, Jignesh Shah’s concept in
developing SMX was to provide risk management facilities
in commodities and currencies across South Asia, and
South-East Asia.

9. DGCX (Regulated Financial Institute – 2005)

Regulator – Emirates Securities and Commodities Authority
(ESCA)

Dubai Gold and Commodity Exchange (DGCX) was

established in 2005, and was the Gulf region’s fi st
electronic commodity and currency derivatives exchange,
and the only one allowing participants to clear and settle
transactions across the region. It has members across the
globe, and offers futures and options contracts in precious
metals, energy, and currency segments. FlexTrade Systems,

205
 a global leader in broker-neutral multi-asset algorithmic
trading systems has become an approved Independent
Software Vendor (ISV) on the Exchange.

10. BFX (Regulated Financial Institute – 2009)

Regulator – Central Bank of Bahrain (CBB)

Bahrain Financial Exchange (BFX) is a pioneering multi-

asset international financial exchange in the Kingdom of
Bahrain, and is internationally accessible to trade cash
instruments, gold and silver derivatives, currency futures
and currency futures indices, beside other structured
products, and Sharia compliant financial instruments. It
won the ‘Most Innovative Forex Product Award 2012’ at
the 7th Jordan Forex Expo (JFEX) conducted in May 2012,
for the BFX-US dollar versus the Indian Rupee (USD-INR)
Index Futures.

11. GBOT (Regulated Financial Institute – 2008)

Regulator – Financial Services Commission (FSC)

Global Board of Trade (GBOT), regulated by Financial

Services Commission (FSC) of Mauritius, and launched on
October 15, 2010 at Mauritius was the fi st international
multi-asset class exchange that offered a basket of 186
commodity derivative products including metals, energy,
agri-soft, as well as currency derivatives.

12. Bourse Africa (Regulated Financial Institute – 2009)

Regulator – Financial Services Commission (FSC)

Bourse Africa (BA) was formerly GBOT. Unlike GBOT,

however, BA symbolises the larger focus of FTIL Group
towards Africa, and the opportunities offered by the African
Financial and Commodities Markets. Aside from trading
in commodities and currencies like the previous GBOT,
BA also offers trading in equities. The exchange, located

206
 at crossroads of Africa and Asia offers global investors the
benefit of the Mauritian time zone (GMT + 4) that aligns
with the market timings of Asia, Africa, Europe and United
States.

13. ATOM (2005)

Regulator – Reserve Bank of India (RBI)

ATOM Technologies is one of India’s leading Payment

Service providers offering payment collection facilities over
Internet, IVR, Mobile App and Point of Sale using credit,
debit, net banking, cash cards and IMPS. It has tied up with
4500+ merchants, 35+ banks and 3+ telecom companies.

14. NBHC (2005)

Regulator – Warehousing Development and Regulatory
Authority (WDRA)

The National Bulk Handling Corporation (NBHC) was

the fi st of its kind set up by FTIL in India to provide
integrated services of warehousing, bulk handling, collateral
management, testing and certification, commodity care
and pest management, procurement and allied services.
It is a national-level ISO 22000:2005 certified warehousing
company, and has pan-India presence across 900+ locations
in 19 states and 35+quality assurance laboratories. It
deals in as many as 160 commodities. It is associated with
large number of banks and financial institutions. Besides
warehousing, and assisting stockists in obtaining finance
against warehouse receipts, NBHC also procures food
grains under the Minimum Support Price (MSP) Program
of the Government of India, functioning on behalf of Food
Corporation of India (FCI).

15. TickerPlant (2005)

TickerPlant Ltd is a leading global content provider in the

207
 financial information and market data services industry,
integrating and disseminating ultra-low latency data feeds,
news and information to support investment decisions
of professionals and investors. The information services
coverage of TickerPlant includes real-time data on asset
classes such as equities, commodities, forex, money
markets and fi ed Income. It also disseminates information
through variety of delivery channels, including desktop-
based applications, browser-based applications and mobile
applications.

16. TAER (2007)

Takshashila Academia of Economic Research Ltd. (TAER)

was established in July 2007 for undertaking independent
economic, environmental, and social research for developing
not only suitable strategies for the growth of FTIL Group
of Companies, but also promoting the development of
the diverse sectors of the economy. It offered consulting
services to the public sector and international organisations.
TAER also brought out journals and publications, both
online and in print, to assist various stakeholders in
different economic sectors and policymakers in decision
making. For that purpose, TAER was accorded full freedom
to devise its own modus operandi and develop its own
unbiased and objective views, not swayed by any kind of
bias or allegiance to any ideology, political or economic.
It brought out a journal, Commodity Vision, the fi st one
in the country on commodity and financial markets, and
also published several books on commodity derivatives and
environmental economics. It even organised seminars, and
brought out seminar volumes comprising research papers,
presented at the seminars by academicians, researchers,
and other experts, to disseminate knowledge on the seminar
subjects.

208
 17. FTKMC (2007)

Financial Technologies Knowledge Management Company

Limited (FTKMC) was a leading provider of services in
the realm of financial sector knowledge. FTKMC was
organising courses on financial markets, their governance
and management, market development strategies,
resource mobilisation and risk management. FTKMC had
successfully conducted nationwide programmes providing
research, training and consultancy services in promotion of
market development in major segments such as commodity
and currency futures, in addition to extensive content
development in the financial markets. FTKMC had carried
out knowledge management projects in China, Maldives,
Ethiopia, and Pakistan to a name a few. Its ambition was
to develop the fi st out-and-out financial management
university in the country.

18. IBS Forex (2001)

Regulator: Foreign Exchange Dealers’ Association of India
(FEDAI) for RBI

IBS Forex was again the fi st indigenously developed forex

trading platform – FXDirect- for the inter-bank foreign
exchange market. It provided for deal matching in not only
spot forex trades, but also for deal matching in forward
swaps.
These innovation and institutions developed by Jignesh Shah,
(most, if not all, of them, being set up for the fi st time in the
country) had not only led to the growth of markets for their
products, and the ecosystems covering them, by at least –
minimum – 10 times the levels that existed before their launch,
and created, in the process, more than 10 lakh jobs. All these
ventures and technologies created by him were far ahead of
times, and, had they not been killed by the vengeance of the

209
UPA-2 government, could have emerged as true “Made in India”
MNCs. What’s more interesting is a peculiar fact that whatever
Shah created, emerged as numero uno in not only India, but
also the countries where they were developed. Enigmatically,
Shah had secured recognitions from regulatory authorities and
central banks of different countries across Africa, the Middle
East, and South-East Asia, for the innovations and institutions
that he developed in those countries, which have been named
specifically after those respective countries. Actually, Shah was
recognised as the King of Exchanges the world over, including
Japan and the West, the countries our Prime-Minister is wooing
for fulfilling his Make in India dream. Alas, in his own country,
the successive governments in India have not only been putting
fetters in Shah’s efforts at creating innovations and developing
ground-breaking institutions, but even disgracing him time and
again for no fault of his! In any other country, he would have
been honoured; but in his own country he is being hounded, at
the behest of the real criminals and conspirators, who wield their
money and muscle power to influence those sitting in the North
Block to hide their own crimes and sins.
More than 15 years back, when even the large software
technology companies were mostly indulging in mainly body
shopping, Shah was developing and launching the original and
quite innovative IP (Intellectual Property) technologies like ODIN,
Vat-sat, Dome, and ATOM, Internet and mobile trading, besides
setting up commodity, security, currency, and energy exchanges
in India and abroad. Even the entire structure of an environmental
exchange was on his sleeves, ready for launching to reduce
pollution and carbon intensity.
People are now talking of multi-asset exchanges, which Shah
had actually established, and was even envisioning establishing for
some asset classes as many as ten years back.
To tell the truth, Shah’s innovative technology organizations
and exchange institutions were in fact managed by independent

210
managing directors and CEOs, with distinctive boards of directors of
eminent personalities drawn from diverse business, industry, and
academic field . These boards include independent directors, too.
The total staff strength of these 18 diverse innovative organisations
and institutions varied from 50 to 5000, and had the potential of
creating millions of jobs for the skilled manpower in the country.
Against this magnificent backdrop of Shah’s achievements, the
brokers were – now – coming close to their monologue on Shah,
for them what made Shah – like Galt – unique was his method
of using his mind. Shah worked exactly like Galt, his unflinching
commitment to facts, even if they were grossly unpleasant,
painful, or frightening, helping him remain on chart of growth.
Rand’s protagonist functioned rationally, holding an undeviating
allegiance to the reality that his most honest judgment grasps.
Almost similarly, Shah’s life embodied a proactive eagerness to
seek truth in the face of some hostile moments and an inviolable
willingness to accept it, no matter its content. Shah was clear
in one thing. He recognized he and his men could only achieve
success and happiness by revering reality. As a result, he never
considered facing reality a duty or something that required tight-
lipped stoicism. Instead, like Galt, Shah celebrated reality; joyously
recognising that consistent adherence to reality was at the core of
self-interest. Shah – probably like Galt – knew from the core of
his heart that a willful departure from reality could be the essence
of self-destruction. Galt, thanks to Rand, remained a hero of Atlas
Shrugged, representing the best of modern civilization — its science,
medical research, technological progress, and its application of
intellect in service to human life. Many months, nay, almost half
a century later, Shah embodied the novel’s essential theme: Only
by means of the mind can human beings achieve prosperity on
earth. All eyes were now on his new dream, 63 moons!
The way Shah bounced back showed his tremendous strike
against self-immolation. Ever since the NSEL crisis had engulfed
him, Shah had rebelled against the creed of unrewarded duties.

211
Actually, he was on strike against the dogma that pursuit of
happiness was evil. He wanted to bounce back, wanted to tell the
world that he had not harmed anyone, and that he should not be
shackled by backroom politics.
Shah realised who his enemies were and like Galt, he was not
blind to their devious methods, but wanted his work to stand out
and be counted. He refused to live in a world without mind. Shah
could never compromise, for he felt he had committed no fault,
had always been a giver. For all his hard work, Shah realised those
in power were forcing him to listen to some crude words: We do
not need you.
But he still surfaced from his mind of ruins, he did not shift
the goalpost, fashioned his plans from the confines of a prison
and walked back into business through life’s biggest disaster. What
pained him was that no one, virtually no one, raised the question:
Is it Shah’s mistake, God? By what standard; what yardstick?
In her bestseller, Rand explained how Galt’s code was noble, but
there were others, who never wanted him to practise it. Galt worked
in an age of moral crisis. In many ways, it reflected the times of
Shah and his ambitions, and how he worked in a market driven
by deceitful powers. Rand pushed Galt to learn how anti-mind is
anti-life. But Rand also exhorted her protagonist to understand that
man’s mind is his basic tool of survival. Rand wrote, ‘His mind is
given to him, its content is not. To remain alive, he must act, and
before he can act he must know the nature and purpose of his
action. He cannot obtain his food without knowledge of food and
of the way to obtain it. He cannot dig a ditch, or build a cyclotron,
without knowledge of his aim and of the means to achieve it. To
remain alive, he must think.’
Galt did exactly that and so did Shah, who realised that the
functioning of the stomach, the lungs or the heart is automatic
but the functioning of the mind is not, it requires a code of values
for its actions. He was a firm believer that matter is indestructible,
changes forms, but cannot cease to exist because man has no

212
automatic code of survival. ‘Life is all about self-sustaining and-self-
generated action. It is the concept of life that makes the concept
of value possible. Man’s life is the standard of morality, but your
own life is its purpose,’ were his parting lines when we last met.
After living almost two years through unthinkable pain and
being hauled over the coals by all and sundry, Shah proved –
through his latest mentoring innovation in the form of a research
lab and 63 moons – his code of morality was perfectly in place,
thanks to his purpose of self-preservation. He was again, living the
life of a creator – by work and judgment of mind.

213
 Chapter 12*

The Emperor strikes back:

ED and CBI

A friend called from Mumbai, saying: “Jignesh Shah could be in

trouble again. What’s happening to the case?” I asked around and
gathered some details. Jignesh Shah, his face appearing peaceful
against the tumult of his mind, sat on a rickety chair in the offices
of the ED in Mumbai, he had – by now – finished over almost
two hours of questioning. He appeared in a simple dress, a neatly
ironed kurta pyjama. People called for probes by the all-powerful
ED are rarely dressed for the occasion.
Actually there are no dress codes for the ED office where a
palpable fear hangs in the air. Shah sat silently and calmly. Once
called the poster boy of whatever could be called as actual growth
in the Indian commodities and financial markets, Shah remained
calm.
He went to the ED office as he had not ducked a single
summons by any agency throughout these three years. Later, it
was discovered that Shah was the only one of the 30 accused who
had gone to the ED which had filed a charge-sheet in the Special
ED Court that confirmed that there was no money trail traced to

* While this book was going to print, these developments happened. Hence,
covered them in brief.

214
Shah. He went to the ED office many times and was told by the
ED officials that they were extremely happy the way he answered
their questions. And that they (ED) were aware that no cash trail
was traced to either Shah or any of his family members.
So why call me again, wondered Shah.
A few pesky reporters hovered around, trying to ask questions
to both ED officials and Shah. Both remained silent, Shah even
going to the extent of saying: “Sorry, I am not talking to you. And
what is the point? You will all color it up and then paste it in
your newspapers. You will not write my version, what I call the
true story.” The reporters did not respond, one even asked him if
there was an interesting angle to the current interrogation which
he could explore. Worldwide, journalists always look for triggers.
The ED officials initially ignored the reporters. The ED officials
– like Shah – were on a break after the afternoon interrogation.
Both appeared satisfied at the way the question-answer session
was progressing. But the reporters continued to prod Shah, much
to the discomfort to ED official . Shah still did not answer. He
knew there was no point. Tired of the reporters constant prodding,
the ED officials – now visibly irritated – then whisked Shah into an
adjacent room and told the reporters not to follow. Some reporters
argued, eventually they all fell in line.
And then, within an hour, the ED announced that Shah had
been arrested for not cooperating in the investigation in the Rs
5000 plus crore NSEL payment crisis.
Shah tried to explain his position that he had always been
cooperative. No you aren’t, we are not getting answers for a lot of
things, argued the ED official . Shah fell silent. Within minutes,
newspapers ran flash screens, television channels played breaking
news, Mumbai’s stock exchanges reacted with a few percentage dip
in the shares of FTIL.
This was the fi st blow, the second came when the EOW of
Mumbai Police issued notices to seize properties and bank accounts
of the beleaguered FTIL group, dealing a lethal blow. And the

215
final nail in the coffin came when a judge of a court specially
designated to handle money laundering cases remanded Shah – for
the second time – to the judicial custody. Shah’s lawyers argued
in vain that it was not important for the ED to take a person into
custody even after the charge-sheet was filed. Even if there was a
supplementary charge-sheet, do you need to arrest a person who
has served a judicial custody already, they argued.
The judge, who often got irritated because reporters and lawyers
filled the small courtroom to the brim, remained unconvinced
of the arguments. The ED lawyers continued their harangue:
This is a case of total non-cooperation and fresh evidence of
money-laundering. We need him for more interrogation. The ED,
functioning under, and at the behest of, the Finance Ministry,
which sought his custody, argued Shah was the “brain” behind
multi-layered transactions allegedly as a front to launder Rs 76
crore. The charge, it was worth noting, came after ED had itself
submitted in the court last year that no cash trail was traced to
Shah or any members of his family.
But what set the cat among the pigeons was the way Shah was
arrested. Called for interrogation, he was asked to stay back and
eventually informed he would be arrested. His arrest happened
on July 12, 2016, the second time in a span of two years, and the
following day, July 13, he was remanded to police custody till July
18. What was more surprising was the fact that charges presented
196 by the ED were already there in the fi st charge-sheet filed in
the court. So was there the need for another arrest, asked many
in Mumbai, home to Shah? Do you arrest someone again to file a
supplementary charge-sheet? No answers were forthcoming.
Worse, the investigating agencies had – by their own submission
– informed the court that Shah has been more than cooperative
during their probe and that no money trail was traced to Shah, as
was stated by Justice Thipsay while releasing Shah on bail nearly
two years back from his previous judicial custody. Still, this time
they blamed Shah for being totally non-cooperative.

216
 Reporters worked overtime on their handsets, almost like fastest
finge s fi st. They had to break the news of Shah being sent to
judicial custody for the second time.
Shah was not sent to the Arthur Road Jail because of the threat
he had received from the dreaded Arun Pujari gang. The judge
ordered Shah to be taken to another prison in Kalyan, where Shah
and his colleague, Javalgekar, spent a couple of months last year
before the fi st charge-sheet was filed in the contentious case.
Those who wanted Shah to be down and out rejoiced, those
who wanted him to survive were muted in silence, and those
who wanted him to grow again in new business streams were left
dumb-founded by the order. As darkness and clouds filled the skies
of India’s Maximum City, living room discussions over Shah were
eventually overtaken by discussions ranging from a wrestler’s failed
attempt to make it to the Rio Games because someone spiked his
food and juice glass with steroids to a bizarre murder in Kolkata.
The arrest was the perfect trigger for the anti-Shah gang to start
their twitter trolls, at times appearing like lynch mob. They were
encouraged by some politicians who – probably – felt if Shah was
taken in, all the cash would return like a reverse Pied Piper tune.
Strangely, the trolls did not talk about the defaulters, and the
fraudulent brokers, who lured the alleged investors or bogus traders
to enter into bogus trades on NSEL for illegal arbitrage gains.
But one thing was clear. The arrest and subsequent jail order
did not go down well among those who had known Shah. They
all were unanimous; Shah was being grievously wronged by those
with considerable power. The decision to arrest and send Shah to
jail even unnerved a section of the legal fraternity.
Senior advocate Satish Maneshinde said he was surprised at
Shah’s arrest for money-laundering because the case has been
going on for more than two years. “I am not comfortable the
manner in which ED has used the law for something which is
extremely, extremely widespread in India,” Maneshinde said in a
telephonic interview.

217
 Maneshinde found instant support from senior advocate and
MP, Majid Memon, who said Shah has been questioned on large
number of occasions during the past months. “ED must have done
all its exercise during those days and collected whatever papers or
documents it wanted from him.”
Memon said the “ED definitely knows its business” but if it is
focussed high on Shah, then it should also focus on 24 members
or defaulters or the brokers as well or the second rung of the
management that was at NSEL or FTIL. “I have not heard anything
about them.”
The ED, which had no answers why it went slow on the
defaulters and brokers, argued Shah’s custody was to have his
custodial interrogation and should not be seen as punishment or
humiliation.
“The arrest is purely to further a cause of investigation,” said an
ED source, without elaborating which “bit of further investigation”
the agency was seeking from Shah.
The arrest has had its impact in the Indian Capital where many
called it “politically motivated”. Rajya Sabha member and senior
advocate of Supreme Court, KTS Tulsi, said he was “sanguine” that
Shah’s arrest was unconstitutional because a FIR is already in place
and Shah had been arrested once, and was sent to judicial custody.
“The money trail has not been established, and the ED has
not submitted any fresh evidence, they cannot force an accused
to accept allegations,” said Tulsi. “The investigating agencies want
favourable judgments all time and becoming a bit desperate,” said
the veteran lawyer.
Still, the last word has not been said in the curious case of a
man once described as the brand for Indian financial markets and
now in police custody for allegedly abetting in money-laundering
though without any money trail traced to him in the NSEL payment
default.
So, the billion dollar question remains: Who gave the orders to
ED to arrest Shah? No answers are forthcoming from the ED. Till

218
that happens, Shah – in all probability – will have to be in custody
without any home-cooked food as per the court order. He will have
to sit with other prisoners, eat with other prisoners and sleep like
other prisoners.
He may have created the growth engine for the Indian economy
and some parts of the world economy but it does not matter for
anyone, at this very point, Shah has reminded himself. He has
also reminded himself that he and his companies may be out of
business but those inflicting this big loss and humiliation on him
are very much in business.
It reminded me of a movie Saza-E-Kala Paani that revolved
around a person framed without reason and banished for life to
the Cellular Jail in the Andaman and Nicobar islands.
In India, certain things happen a very peculiar way defying all
logic. Section 45 of the PMLA is very draconian to get bail. The onus
is on the accused person and not on the ED. But the adage “Truth
Prevails” held good. Shah got bail on the 27th day itself. The abstract
of the bail order is self-explanatory and is as follows.

219
 THE ORDER

“The Learned Counsel for the ED failed to satisfy me that this

arrest is for a separate crime...I do not find any force in the
contention that the ED wanted to file a supplementary complaint
against the applicant in respect of the investigation made against
him as Chairman of FTIL. The ED has come with specific
averments that the applicant is not arrested in special PMLA
case No. 04/2015 but in other Enforcement Case Information
Report. The ED has failed to satisfy the Court how the applicant’s
arrest is legal in different ECIR…There is no vicarious liability
unless statute specifically provides so…There is no question of
the applicant tampering with any evidence since all the evidence
is already collected by the EOW of Mumbai Police and the MPID
Court. There is no material before this Court also to show that
the applicant will attempt to influence the witnesses.”
Hon. Judge Mr P R Bhavake, Special PMLA Court, Mumbai,
while granting bail to Shah on August 6, 2016.

220
The targeting continued unabated. After 45 days of being released
by the PMLA Court, Jignesh Shah was once again taken in on
September 20, 2016, and this time it was the CBI, and that too,
for a six-year-old issue of renewal of recognition to Shah’s most
ambitious venture, the MCX-SX, in 2010 by SEBI.
For a 2010 case, the CBI had lodged the FIR only on August
25, 2014, i.e. three days after the Hon. Bombay High Court Order
granting bail to Jignesh Shah in the NSEL case. And for this
two-year-old FIR, the CBI conducted search operations at Shah’s
residence and the Mumbai headquarters of FTIL (now known as
63 moons technologies limited) on September 20, 2016 and took
Shah into custody on the same day.
This was the third time different investigative agencies had
taken in Shah, the promoter of FTIL Group, in a span of three
years ever since the payment crisis of Rs 5,600 crore hit the NSEL,
one of the subsidiaries of FTIL.
As news of the CBI action against Shah spread like wildfi e,
newsrooms across television channels and the country’s top
business newspapers came alive with heated debates on the single-
most important question of the day: Why has the CBI taken Shah
into custody over a frivolous charge? The issue of the alleged
suppression of facts by MCX-SX dated back to 2010 for which the
CBI had filed the FIR four years later in 2014 but chose to arrest
him two years later in 2016. Clearly, it was yet another attempt to
arm-twist Shah.
Shah’s legal counsel was fully armed. It was also understood
that while the case was clearly in their favour, the might of the
Government was against Shah. An advocate who works closely
with Shah said these repeated arrests and subsequent bails only
proved the point that he is being singularly targeted.
Recalling the arguments of the case, he said, “C B Bhave, the
then Chairman of SEBI and K M Abraham, the then Whole Time
Member were the actual decision makers at SEBI at the relevant
time for granting the license but the CBI gave them a clean chit

221
in its preliminary inquiry and did not even name them in the
FIR. This clearly shows that the CBI did not find any criminality
in SEBI’s decision related to the renewal of the recognition of
MCX-SX. Then, where is the question of booking Mr Shah for
allegedly influencing the same decision-making?”
It was also argued by Shah’s counsel before the Special Judge
CBI that Shah was not the one who filed or signed the application
for renewal of recognition of MCX-SX. The CBI had no evidence
whatsoever of Shah having ever met or spoken to any of the
accused SEBI officials in relation to renewal of recognition of
MCX-SX in 2010.
Shah’s lawyers also said that after registration of FIR by CBI on
August 25, 2014, Shah appeared before them for interrogation on
April 13, 2016. The CBI did not choose to arrest him at that time.
Shah was also in custody in PMLA matter from July 12, 2016 to
August 6, 2016.
Why did the CBI not seek his custody during that time if they
really wanted his custodial interrogation – as if the CBI was just
waiting for Shah to come out so that he could be haunted again.
Shah’s legal team emphasised that the main allegation in the
FIR was regarding alleged suppression of buy back arrangements
entered by promoters of MCX-SX from SEBI while obtaining
renewal of its recognition in 2010.
However, this allegation of suppression was factually incorrect,
they said, because they had documents to show that SEBI was
in full knowledge about these buy back arrangements well prior
to granting renewal to MCX-SX on August 30, 2010. Further, the
legality and validity of these buy back arrangements was upheld
by the Hon. Bombay High Court in March 2012 itself. This fact was
deliberately overlooked by CBI, Shah’s lawyers said.
Despite having a strong case, Shah knew that this new legal
battle would only mean one thing for him – he will be away from
his family and the battlefield where he has been fighting for truth.
But, for a man like Shah who created 10 exchanges, resilience and

222
persistence were part of his DNA. Shah let his legal team do its
job, knowing fully well that while he was suffering due to the high-
handed state action, the accused, including the public servants,
were not even touched. Ever since the steps were taken in 2013
to turn the tide against him, Shah knew that this pointless case
by CBI would face certain death in the court of law. And, after 29
days of custody, it just did. Shah was granted bail on October 19,
2016 by the Special Judge – CBI.
At the end of three years of this incessant targeting and public
humiliation, one thing clearly stood out: All the three agencies, be
it the EOW-Mumbai in May 2014, the ED in July 2016 and the CBI
in September 2016, had no case against him whatsoever.
So, when Shah walked free for the third time, the question that
had been haunting the country’s financial markets not to mention
every stakeholder of his FTIL Group resurfaced once again: Who is
it that has been excruciatingly conspiring to pin Shah down since
2013?
When Shah heard he was granted bail, his face did not reflect
the anguish against the injustice consistently being meted out
to him. He was going home with only one thought – he stands
vindicated. Yet again!
Although Shah has come out on bail every time he has been
taken into custody, the actions of the investigative agencies do
raise some significant questions. Is Shah a victim of character
assassination? Is there an attempt to vilify him before a case is
even established against him in any court of law of this country?
The way Shah was taken into custody, the raids at his residence
and FT Tower for a two-year-old case, seem to be leading up to one
thing – paint Shah’s image in black. The multiple arrests also end
up into a smear-campaign against Shah that immediately resumes
in the social media, too. With baseless allegations laced with
vitriolic comments and venom being spewed against Shah and the
FTIL Group, the trial by the social media begins in right earnest
with utter disregard to the country’s judiciary and rule of law.

223
 Shah’s multiple arrests have already cast a cloud of suspicion
around him, if that is what the arrests were meant for, putting
a question mark on his integrity as an entrepreneur besides
seriously undermining his contribution to the world of exchange
businesses.
The arrests have smoke-screened the fact that it was the FTIL
Group that paid a whopping Rs 2,000 crore in taxes over the past
ten years as it went on building as many exchanges across the
globe! The agencies seem to have already painted him in dark
while no court of law has held him guilty or even passed any
judgment on the culpability of NSEL or FTIL. It cannot be disputed
that the investigative agencies have traced the disputed amount to
the 24 defaulters.
When this truth is out in the open, it is strange that the ED,
EOW-Mumbai and CBI have taken concentrated actions against
Shah, leaving out the brokers and defaulters.
So, will Jignesh Shah be hounded and harassed repeatedly or
will there be serious steps to solve the NSEL payment crisis?
 Conclusion

Even as I was close to finishing this book, a series of developments

took place in quick succession in the last few months following
which I had to include one more chapter, the 12th one, at the last
moment. However, it is not reflected in this conclusion.
So I asked myself after completing my research, “So what
happens to Jignesh Shah?” One thing was increasingly becoming
clearer – Jignesh Shah was actually the target not the cause of the
crisis. I looked for answers.
One evening, in the summer of April 2016, I walked into the
Leopold Bar near Colaba to see Farhanz, its owner, who I had
originally run into during the tumultuous days of 26/11 Mumbai
attack by Pakistani terrorists.
A seasoned stock market veteran joined us at the bar and
narrated a very interesting incident.
On March 17, 2013, the world’s top filmma er, Steven Spielberg,
met up with a group of journalists in Mumbai. The celebrated
director talked about many things, including his observations on
the Indian film market, considered the world’s biggest.
Someone asked Spielberg how he handled the constant shifting
of characters of his hero, Harrison Ford, in the popular Indiana
Jones series. ‘What is a constant shift?’ asked Spielberg.
The reporter said: ‘Indiana seems to be down and out in

225
one moment, and in the very next moment, he is on top of his
adversaries.’
Spielberg smiled, saying, ‘I always remind myself that there is
an Indiana in each one of us. We hit the bottom, and then the only
way is to go up. ‘India’s a great plug-in place for me because it is
both spiritual and it is real. So the bad does not prevail over good
permanently; good eventually emerges victorious. You must have
the confidenc , courage,’ said Spielberg.
What Spielberg said was once narrated by the stock market
veteran to Jignesh Shah, who has always had a fondness for
Bollywood, which mostly imitates Hollywood. The broker added,
‘Even Shah, if asked, would not remember it because around
that time, he and his men were being pushed to the wall by
the government and regulator. He had sold his stake in all his
companies; he was hounded by the cops and officials of other
investigating agencies.’
When he was in jail, my friend told me that papers were made
available by the authorities, after a few days, and then only on a
written request from his lawyers.
Once he got the papers, Shah started making notes, he knew
he had to resurrect his empire like the mythical Phoenix that
regenerated from the ashes of its predecessor, and counter the
wave of opposition.
Some thought Shah was writing his memoirs, others thought he
was writing letters to his family.
Shah barely spoke and worked quietly. His kingdom would be
gone when he emerged from his isolation.
He wanted new blood to fuel his latest dream -young
entrepreneurs, developing products for the masses, with budgets
both big and small, to trigger a new revolution across India.
Shah spoke of Jupiter, the planet which has 63 moons. Being
aware of the power of lunar energy, and the significance of the
number sixty-three, he decided to name his new dream 63 moons
technologies limited. Shah, given all his pragmatism, was still

226
superstitious about the number nine, which he considered lucky.
The number 63 adds to nine. Furthermore, in a city, high on its
reverence for Ganesha, the elephant-headed god of wisdom, nine
is a sacred number.
He wanted 63 moons to be an umbrella company, overarching
several sub-companies.
Upon his release, Shah returned to FTIL towers, and immediately
convened a meeting with his colleagues. As soon as the meeting
was adjourned, Shah went home to meet his family. Out of home,
out of bounds for almost three months, Shah was emotionally
welcome by family members, their tears and happiness blending
into one grand union.
Shah plunged back into work the very next day and the following
three months were dedicated to planning and strategizing. While
the pressures from the bureaucrats of the FMC continued unabated,
Shah was wholly consumed with the need to haul FTIL out of its
current mire.
On November 20, 2014, Shah summoned the FTIL’s department
chiefs. No agenda was circulated before this meeting which lasted
for twenty-fi e short minutes; Shah explained his plans for the
following day, November 21, 2014, and what he expected his
colleagues to do.
The following morning, November 21, 2014, Shah, founder and
group CEO of FTIL, stepped down from the company’s board of
directors, and handed over the baton to the next generation. A
few more moves followed, even as Mumbai’s corporate world and
powerful mandarins in Delhi watched with bated breath.
After all, Shah’s FTIL was a true pride of India, having
successfully traversed tough terrains of Asia, Africa, the Middle
East and the Far East.
The spread was truly rich and varied, stretching from the heart
of Japan to the Far East of Suez. Shah knew that financial markets
were the pride of any nation.
His companies were valued in gold, offered hundred per cent

227
ownership—a rarity for any Indian company—because the world
had bought into his vision and dreams.
But what happened to the FTIL group was nothing less than the
Hiroshima disaster except that no one said after targeting the FTIL
group, “O God, what have I done!”
In one shot was lost the opportunity of 10 lakh jobs, a golden
opportunity for India to shape and showcase a truly a world-class
growth story.
This book is a serious look into the life and times of one of
India’s finest growth stories which was savagely massacred to
further the interest of a chosen few for reasons best known to
the powers that be. Probably, only a court-monitored investigation
by the CBI would reveal the real reasons behind the commodities
market’s biggest destruction.
For me, the biggest crime is to kill competition and create
entry barriers for the new generation entrepreneurs seeking to
develop new IPs and, in the process, depriving 100 million youths
from access to capital. It’s criminal, sacrilegious. It is almost
like depriving electricity to manufacturing units in an industrial
economy. I would call it an act of sedition.
But yet Shah was not done in. This move followed an earlier
announcement of Shah’s ‘FT 3.0’ vision, aimed to create India’s
equivalent of Amazon, Facebook, Google and Twitter, somewhat
like Baidu and Alibaba in China, all powered by Made in India
technology.
Shah was in no mood to make a speech. Weighing on his
mind were the reasons for the establishment of a new brand for
companies. ‘Jignesh Shah will no longer hold any executive or
managerial position,’ a terse press note from the company stated. It
further stated that Shah would now be titled ‘chairman – Emeritus
and Mentor’ to nurture and inspire entrepreneurship. He would
continue to hold forty-fi e per cent stake in FTIL.
Speculations were rampant.

228
 Many wondered what Shah would do now. After all, a promoter
stepping down was not frequent in India’s corporate world.
Shah congratulated the new MD and CEO, and the board of
directors, and said, ‘When we started FTIL, we had only one vision
– to make Indian technology, intellectual property and brand,
among the most respected in the world, that not only delivers
shareholder value, but also makes a social impact in terms of job
creation and benefit . Today, as we pass the baton to the new
generation of leaders at FTIL, that vision remains unchanged as
we move on to the next trajectory.’
Under FT 3.0 vision, as the company announced a fortnight
earlier, the plan was to transform FTIL into becoming the de facto
company ‘powered by’ technology partners of choice to create
and develop a system of at least 108 new digital giants from India
in ten key sectors – retail, education, healthcare, agriculture,
environment, infrastructure and space, among others – by the year
2025. He wanted to develop an ecosystem of 108 new e-commerce
giants, leveraging the Social Media Analytics and Cloud or SMAC
technology.
And then Shah talked about 63 moons. Actually even in
November 2014, Shah had developed the over-arching idea of
helping ambitious individuals to change their lives and transform
India’s digital sector. Operating on a scale ten times the magnitude
of any other organisation, Shah wanted to facilitate innovation ten
times more strongly. As was to be expected, he had all the support
from the new board of FTIL.
63 moons, Shah reminded everyone in the room, was named
after the orbital ecology of Jupiter and its moons, a company
to be known for its technological IP expertise in the financial,
commodity and electricity exchanges. There were other products
and patents up his sleeve. People say that Shah has thought of
108 digital patterns as an answer for each day of his custody of
108 days. While putting him in custody, Chidambaram, KPK and
Ramesh Abhishek wished his destruction, Shah’s answer to it was

229
construction of 108 tech patents (IP). He wanted to develop these
patents in 12 industrial verticals. By that he was once again aiming
at a true “Made in India”, as he did in financial market arena in
the past.
He talked about the JS Innovation Lab, which, as a division of
FTIL, will offer a fi st-of-its kind approach to develop Innovators
and Entrepreneurs to create IP centric companies in 12 target
industry segments, almost equal to what FTIL did in the financial
sector.
The initiative was meant to nurture and inspire young
entrepreneurs by mentoring to create cutting edge technology to
revolutionise established practices.
Everyone in the room realised that one of India’s most
innovative entrepreneurs had risen from the ashes. Shah was on a
new mission. In the earlier Avatar, he created 10 lakh jobs; in the
new mission, it seems his dream is to create 10 lakh entrepreneurs.
He gave his vision as an open book, which anyone can follow,
including the new avatar of FT 3.0.
In faraway Delhi, some of Shah’s detractors sat in muted silence.
Though overthrown, a new Shah was born.
I agreed.

230
 Glossary

APMC Agriculture Produce Market Committee

BSE Bombay Stock Exchange
BFX Bahrain Finance Exchange
BA Bourse Africa
BOLT Bombay Stock Exchange Online Trading
CTT Commodities Transaction Tax
CII Confederation of Indian Industry
CBI Central Bureau of Investigation
CCI Competition Commission of India
CLB Company Law Board
CBDT Central Board of Direct Taxes
CERC Central Electricity Regulatory Commission
CVC Central Vigilance Commissioner
DCA Department of Consumer Affairs
DEA Department of Economic Affairs
DGCX Dubai Gold & Commodities Exchange
ED Enforcement Directorate
EOW Economic Offences Wing
EICA East India Cotton Association

231
FTIL Financial Technologies (India) Ltd
FMC Forward Markets Commission
FCRA Forward Contracts Regulation Act
FSDC Financial Stability and Development Council
FII Foreign Institutional Investors
FDI Foreign Direct Investment
FSC Financial Services Commission
FS Finance Secretary
FM Finance Minister
GBOT Global Board of Trade
GIC General Insurance Corporation of India
IEX Indian Energy Exchange
IFCI Industrial Finance Corporation of India
IL&FS Infrastructure Leasing & Financial Services
IDBI Industrial Development Bank of India
IFCI Industrial Finance Corporation of India
IP Intellectual Property
IPO Initial Public Offering
LBMA London Bullion Market Association
MoCA Ministry of Consumer Affairs
MCA Ministry of Corporate Affairs
MoF Ministry of Finance
MCX Multi Commodity Exchange of India
MCX-SX MCX Stock Exchange of India
MPID Maharashtra Protection of Interest of Depositors
NSEL National Spot Exchange Limited
NSE National Stock Exchange
NCDEX National Commodity & Derivatives Exchange
NBHC National Bulk Handling Corporation
NBFC Non-Banking Financial Companies

232
NTSD Non-Transferable Specific Delivery
NSDL National Securities Depository Limited
NABARD National Bank for Agriculture and Rural Development
NAFED National Agricultural Cooperative Marketing
Federation of India
PMLA Prevention of Money Laundering Act
PNB Punjab National Bank
PN Participatory Notes
PTI Press Trust of India
RBI Reserve Bank of India
ROC Registrar of Companies
SAT Securities Appellate Tribunal
SCRA Securities Contract (Regulation) Act
SEBI Securities and Exchange Board of India
SMX Singapore Mercantile Exchange
STT Securities Transaction Tax
UPA United Progressive Alliance
UTI Unit Trust of India

233
Shantanu guha ray
is a Wharton-trained journalist with over
three decades of experience, specialising in
investigative, business and human interest
news features. He scooped the billion-
dollar coal scam in 2011, followed by the
airport scandal in Delhi the following
year. His investigations into the scandal
over cervical cancer human trials helped
him win the Laadli Award. His work on
water-related issues helped him earn the
Wash Award. A recipient of the Ramnath
Goenka Award for excellence in
journalism, he was also part of an award
winning team that probed dangers of
tobacco and asbestos across the world. He
lives in Delhi with his daughter, wife and
two dogs. This is his third book.
“Jignesh had ruffled many feathers and made powerful enemies, including a senior
bureaucrat. In the past six months, these men have worked overtime to make sure
Jignesh faced arrest...While Jignesh was waiting in the EOW (on May 7, 2014), a
senior officer of the Mumbai Police was having a meeting in a suburb with a
Finance Ministry official who had landed up unscheduled. When the EOW officer
returned a little after 5 p.m, Jignesh was told that he was being taken in.”
Sugata Ghosh in The Economic Times, May 9, 2014

“Though projected a ‘scam of Rs 5,600 crore’, the ill-gotten money has not gone to
the applicant (Shah), or for that matter, to NSEL. In fact, it is not the case of
anyone…It is almost conceded that there has been no material to show any direct
connection or link between the defaulting borrowers and the applicant.”
Hon. Justice Mr Abhay Thipsay of Bombay High Court while granting bail to Shah on August 22, 2014

“The Learned Counsel for the ED failed to satisfy me that this arrest is for a
separate crime...I do not find any force in the contention that the ED wanted to
file a supplementary complaint against the applicant in respect of the investigation
made against him as Chairman of FTIL. The ED has come with specific averments
that the applicant is not arrested in special PMLA case No. 04/2015 but in other
Enforcement Case Information Report. The ED has failed to satisfy the Court how
the applicant’s arrest is legal in different ECIR…There is no vicarious liability
unless statute specifically provides so…There is no question of the applicant
tampering with any evidence since all the evidence is already collected by the EOW
of Mumbai Police and the MPID Court. There is no material before this Court
also to show that the applicant will attempt to influence the witnesses.”
Hon. Judge Mr P R Bhavake, Special PMLA Court, Mumbai, while granting bail to Shah on August 6, 2016

We have a rule of law, and then there is a constitutional law that prevails over
everything else. And, it is not possible for the police to continue to arrest a person
on the same allegations, time and again, on the mere pretext that he is not co-
operating. If you discover some other piece of evidence, it does not entitle you to
register multiple FIRs in the case. And, when he was arrested in that case, he was
also granted bail in May 2014. Now, if he can be arrested again on the same facts,
either in the same FIR or in a different FIR, then that will be a complete abuse of
the process of law. And, you can't simply say that he is being arrested for not co-
operating. What do they mean by not co-operating? Not co-operating means he is
not willing to confess and that is a constitutional right of every citizen. You can't
arrest a person for not co-operating. Co-operating means that I must turn into a
witness against myself. So, therefore, I think this is gross misuse of power. As it is,
90% of arrests made in India are unnecessary. We unfortunately begin our
investigation with an arrest rather than the arrest being the culminating point of
the investigation.
KTS Tulsi, Senior Supreme Court Counsel on CNBC TV18, on Shah s multiple arrests by agencies, on