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NSEL Scam: ED Files Prosecution Complaint against 19 Brokers, Directors
Moneylife Digital Team 06 February 2025
Economy & Nation
The directorate of enforcement (ED) has filed a prosecution complaint (PC) against 19 broking entities and their directors for allegedly conspiring with officials of the National Spot Exchange Ltd (NSEL) to mislead investors into trading on its platform. The complaint was filed on 28 January 2025 before the special court (PMLA) in Mumbai under the Prevention of Money Laundering Act (PMLA), 2002. The court has taken cognisance of the complaint on 3 February 2025.
 
ED's investigation stemmed from a first information report (FIR) registered under various Sections of the Indian Penal Code (IPC), 1860. Its findings revealed that after registering with NSEL, the brokers misrepresented the platform's credibility to their clients and encouraged them to engage in illegal pair trade contracts. These trades bypassed the mandatory collection of warehouse receipts or physical commodities, effectively facilitating fraudulent transactions.
 
According to ED, the brokers conspired with NSEL to attract investors by promising high returns, ultimately defrauding them through a deceptive scheme. The illicit brokerage earnings from these activities, amounting to Rs34.74 crore, were further laundered into business operations, disguising the proceeds of crime as legitimate funds. These earnings were subsequently attached under PMLA provisions, with the adjudicating authority (PMLA) from New Delhi, confirming the attachment, the agency says.
 
As part of the investigation under PMLA, 2002, ED has issued 32 provisional attachment orders, seizing properties worth about Rs3,288.76 crore. This latest prosecution complaint follows six previous complaints filed in the case, implicating a total of 94 accused persons.
 
ED says its investigation remains ongoing as authorities continue to unearth further details in the large-scale financial fraud.
 
In September 2009, NSEL allegedly introduced the concept of 'paired contracts', i.e., buying and selling the same commodity through two different contracts at two different prices on its platform wherein investors could buy a short-duration settlement contract and sell a long-duration settlement contract and vice versa at the same time. It entailed the occurrence of buy trades (trading plus two --T+2 / T+3) and sell trades (T+25 / T+36) on the same day at different prices on the platform of NSEL. The transactions were structured so that buyers of the short-duration contract always made profits.
 
According to market regulator Securities and Exchange Board of India (SEBI), the scheme of 'paired contracts' traded on NSEL ultimately has caused loss to the market to the extent of Rs5,500 crore, which casts serious aspersion on the conduct, integrity and reputation of the brokers who facilitated such 'paired contracts', and, therefore, its continuing role in the securities market cannot be viewed as good and congenial for the interest of the investors or of the securities market.
 
In 2007, the Union government had given an exemption to all forward contracts of one-day duration for the sale and purchase of commodities traded on NSEL from operations of the provisions of the Foreign Contribution Regulation Act (FCRA) subject to certain conditions including 'no short sale by the members of the exchange shall be allowed' and 'all outstanding positions of the trades at the end of the day shall result in delivery'. 
 
However, the Forward Market Commission (FMC) that had looked into NSEL's functioning found that the exchange had violated the no-short-sale clause and was allowing contracts that had settlement periods that extended beyond the set limit.
 
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