NSEL Investor Files MPID Application Against Brokerage Firms Motilal Oswal And Philip Capital

A distressed investor hit by the Rs 5,600 crore-NSEL scam has put in an application under Maharashtra Protection of Interest of Depositors Act (MPID Act) and filed a separate FIR against leading financial services firm Motilal Oswal Financial Services Ltd and Philips Capital.

In his application dated December 26, 2014, Ketan Shah, said “…That this Hon’ble Court may be pleased to send this complaint to EOW, Unit-V, Crime Branch, Mumbai for investigation under section 156 (3) of The Code of Criminal Procedure and direct them to investigate the role of the accused persons and their directors and other persons and their companies as per the provisions of MPID Act and further initiating proper action against the accused above name. ”

Shah has written that Philip Capital India’s services recommended him to invest in NSEL while promising good returns on his investments.
“Kunal Dave further stated that NSEL was transparent and regulated like BSE and NSE and is backed by government through NAFED. He assured me that this organization is run by a billionaire called Jignesh Shah of FTIL Group, who is very close to their (Philip Capital India) and Vineet Bhatnagar, the managing director of the financial brokerage firm. Dave made me talk to Bhatnagar to confirm that my investments with NSEL are absolutely safe…” stated Shah.

Shah also alleged that Kunal Dave of Philip Capital India had assured him that they had carried out their due-diligence regarding the existence of the commodities in the warehouses of NSEL. Apart from Philip Capital, Shah also claimed that in October 2012, Motilal Oswal’s brokerage firm had approached him for investing in NSEL.

“…Rakesh Parekh approached me around October 2012…and represented that the same was safe, secure, regulated and transparent and that Motilal Oswal Wealth Management Pvt Ltd would ensure that my investments were sound and safe… As I was not convinced, he made me talk to Motilal Oswal on phone who reiterated that their company had done good research on NSEL and they themselves had invested in NSEL products and told me that I should make investments in it… Motilal Oswal personally assured me that their commodity risk management team had done multiple checks on NSEL warehouses and the product had zero risk and he even compared it with bank fixed deposits products,” added Shah.

Ketan Shah in the application has also alleged that both Motilal Oswal and Parekh had asked him to sign the Power of Attorney (PoA) in their favour, which authorized them to take decisions as far as trading on NSEL was concerned. According to Shah, the PoA authorized the firm to take give and received delivery instructions for the commodities as well as handling warehouse receipts among others. “I say that under the pretext of protecting my interests, both the accused used the PoA and client registration form to further their conspiracy with NSEL, to my financial detriment as I have suffered a loss of Rs 16 crore only because I was lured by their false representations,” Shah charged at Oswal’s firm.

According to Shah, Motilal Oswal had also falsely promised and assured of the existence of the commodities in the warehouses and that trading was being regularly carried out on NSEL. He claimed that Dave of Philip Capital too had similarly assured him of the trading that was being done on the Exchange. “… Subsequently, I came to know that a company called IBMA (Indian Bullion Market Association) was assigned as the Clearing and Forwarding (C&F) agent by them (Philip Capital) without my consent,” he said in the application.

Shah also accused Dave of allegedly offering foreign trips to exotic locations if he continued investing in NSEL after reports of irregularities in the Exchange surfaced. “As late as on July 30, 2013 evening, Kunal Dave visited my office and asked for more funds to be invested in NSEL assuring me of total safety and asked me to cross a figure of Rs 10 crore to be eligible for a free foreign trip offer,” said Shah.

He further noted that in one of the invoices generated by Motilal Oswal’s firm, showed that he had merged Shah’s trading with other trading parties. “Furthermore, there were 18-19 borrowers on one side and 13,000 odd investors on other side. It was found that many of these were only fake and dummy exchange and a Ponzi Financing scheme. For instance, Motilal Oswal bought material from Astha Alloycorp and sold them to Astha Minmet and thus, they were merely funding Astha. These financing acts they knew by virtue of being C& F agents and being recipients of invoices on regular basis showing identity of shady borrowers, who were habitual defaulters in the market,” pointed out Shah.

This is the first-time that any court action has been initiated against the brokers involved in the NSEL scam.