NSEL Scam: Mumbai Court Slams IO For 'Pick & Choose', Says Selective Investigation Betrays Faith In Economic Offences Wing

Special Judge A.S. Sayyad under the Maharashtra Protection of Interest of Depositors (in Financial Establishments) Act, 1999 (MPID Act) questioned the police for selective investigation and not filing charge sheet against several persons who prima facie are involved in the scam.

“The present matter pertains to economic offence of huge magnitude of Rs 5,600 Crores and several gullible investors like applicant Mr. Arvind Bahl are still awaiting the justice. However, such selected investigation and final report raises serious question about the impartial investigation of EOW, betrays the faith of victims. In view of the facts and circumstances as discussed above, the responsible persons for the wrongdoings should not be allowed to escape the process of law”, the court held.

The court issued process against Nirmal Jain (Director of IICL), India Infoline Finance Ltd (Promoter of IICL), Preeti Gupta and Rupkishore Bhutada, (Directors of ARCL), Anand Rathi Financial Services Ltd (Promoter of ARCL), Shiney Geoge (Director and promoter of GCL), and Manish Gupta (Director of GCL).

The court was dealing with separate applications from an investor as well as NSEL seeking identical reliefs of charging the aforementioned persons under section 3 (fraudulent default by financial establishment) of MPID Act, sections 409, 465, 467, 468, 471, 474, 477­A, and 120­B of IPC, and sections 21(a), 21(b), 21(c) and 21(g) of the Forward Contracts (Regulation) Act, 1952.

The investor, one Arvind Bahl claimed that during 2012-2013, he invested Rs. 22,24,604/- through his broker IICL, which was a Trading cum Clearing Member of NSEL. He alleged that the broker mis-represented that NSEL is an extremely safe and risk-free investment and would fetch guaranteed returns of about 15 percent to 18 percent per annum. After the default at the NSEL platform in 2013, another investor Pankaj Saraf filed a complaint leading to a 9-year investigation by the Economic Offences Wing.

The EOW filed has 11 charge sheets in the case. In the 11th charge sheet dated December 27, 2018, the EOW arrayed IICL, ARCL, and GCL as accused in the case. Bahl claimed that the charge sheet is based on pick and choose policy and does not array several directors, promoters, brokers etc. despite their involvement in the offence.

The court noted that some of the documents presented by Bahl to support this application are not part of the charge sheets filed by the prosecution. The court said that though the documents seem to be very important to the case, the investigating officer (IO) has not collected them during the investigation without any explanation.

The court noted that the IO in the remand note prima facie noted several findings against the brokers, but none of them are explained in the charge sheets. The court said that the IO appears to have applied the method of pick and choose while arraying the accused.

“For example, what happened to suspect trades of Madhu Jain who happens to wife of accused Nirmal Jain, no conclusion on financing of India Infoline Finance Ltd., No explanation on source of total funding of Rs.1600Cr. done by Geojit Credit, explanation of Anand Rathi with NK Protein etc. The court is unable to understand IO’s silence on issues which were raised in remand note that remained unanswered in chargesheet”, the court said.

The court noted as per the panchnama, the IO seized minutes books of ARCL. However, the minutes book which would have clarified who all were in control of Anand Rathi is not on record, the court said. The court also questioned why the IO did not seize books of any other accused broker companies.

The court said that the IO kept the names of the main promoter and director of the broker companies out of the charge sheet despite the statutory mandate of section 3 of the MPID without providing cogent reasons. However, similarly placed persons have been arrayed as accused, the court said.

The court said that the witness statements prima facie indicate that the brokers misrepresented about high returns and induced the investors to trade on NSEL platform.

From the 11th charge sheet, the court said that prima facie, the broker is the first point of contact in the entire scheme, and he is the one who induced the investors. Further, the charge sheet categorically states that IICL, ARCL, and GCL are financial establishments under the MPID Act.

The court said that prima facie all ingredients of deposit as per sections 2(c) of the MPID Act are fulfilled as the brokers accepted money from investors/depositors on promise of assured and guaranteed returns.

Therefore section 3 of the MPID Act has to be applied on the promoters, directors, managers etc. who are responsible for the management of the three broker companies, the court held.

The court said that the accused persons were in charge and control of the business of the broker companies. Cognizance has to be taken against them and their personal wrongdoing on behalf of the companies, the court held.

Process has already been issued against 63 accused including IICL, ARCL, GCL and one director each. Similarly placed accused in the present application who are directors of respective brokers are liable to face trial along with their colleague directors, the court held.

Case no. – Misc. Application No. 339 of 2023 In MPID Special Case No.1 Of 2014

Case Title – Arvind Kumar Bahl v. State of Maharashtra