NSEL scandal – Before he was moved out, Finance Secy wrote: Revenue dept helping scam-accused Jignesh Shah

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It was almost a year ago, on October 21, 2014, that the Ministry of Company Affairs — under Jaitley — had proposed to forcibly amalgamate NSEL and FTIL after it defaulted on contract obligations worth Rs 5,600 crore in July 2013.

Mehrishi’s note, dated August 26, 2015, referred to a Department of Revenue (DoR) note to the Department of Company Affairs (DCA) advising against the merger. That note, approved by then Revenue Secretary Shaktikant Das, argued that Enforcement Directorate (ED) was of the view that the merger would help Jignesh Shah, hence DCA should not press ahead with the merger. The note also mentioned that the matter was sub judice in Bombay High Court.

An official involved in the DoR note to DCA, said, “ED had advised this because merger may result in Jignesh Shah getting away.”

When contacted, the ED declined comment.

Mehrishi’s note shows that the “internal view” of DoR was not discussed in the coordination meeting. “It will be extremely embarrassing for the Government, specially the FM (Jaitley), as what he is doing as Minister of Company Affairs is sought to be negated by his own department in the Ministry of Finance,” Mehrishi wrote.

“Mr Jignesh Shah has been knocking the doors of various courts stopping/delaying this amalgamation. FM (Jaitley) is aware that the entire might of the Government has been put behind ensuring that Shri Jignesh Shah does not get any relief on this account from the courts — so much so that Government has even deputed Solicitor General once to fight the case,” Mehrishi wrote.

The Department of Revenue note could cause “serious damage” to the Government’s case, warned Mehrishi.
For, there can be “little doubt,” he said, that Shah would procure a copy of it under the RTI Act and “will get a fillip to his case for not merging the entities on the ground that even the Ministry of Finance is opposing it.” Even the CBI could make it a part of its ongoing investigation, Mehrishi wrote.

On August 31, Das replaced Mehrishi as Secretary, Department of Economic Affairs (DEA).

Neither Mehrishi, Das, Rajan Katoch, then ED Director, or Jaitley were available for comment. Calls were made and text messages were sent to all but no response was received.

The CBI and Enforcement Directorate are investigating the alleged siphoning of funds that led to the scam.
In July 2013, NSEL defaulted on the payment of Rs 5,600 crore to investors. Financial Technologies India Ltd (FTIL), promoted by Shah, owns 99 per cent stake in NSEL but Shah and his associates claim they were unaware of the goings-on at NSEL.

In September 2013, the CBI began its investigation. It brought in the Prevention of Corruption Act, too, for alleged loss of Rs 220 crore and Rs 120 crore respectively to the government through PSUs Metals and Mineral Trading Corporation and Project and Equipment Company. It also investigated alleged oversight and lapses of officials in market regulator Securities and Exchange Board of India (SEBI) and the Forward Markets Commission, the chief regulator of commodity futures. Late last month, SEBI and FMC merged.

In December 2013, the Forward Marketing Commission (FMC) ruled that FTIL ceased to be “Fit and Proper”, an order that has been challenged by Shah in Bombay High Court.

In May 2014, Mumbai Police’s Economic Offences Wing arrested Shah for alleged swindling of funds. In September 2014, FMC recommended that NSEL and FTIL should be merged invoking Section 396 of Companies Act, a provision rarely invoked.

In October 2014, the Ministry of Corporate Affairs issued an order for forcibly amalgamating NSEL and FTIL, a matter sub judice in Bombay High Court.