 "NSEL exhausted settlement fund to cover pay-in shortages by members")
After examining the affairs of the exchange since June 30, the auditor said the SGF was depleted, as it was used to meet pay-in shortages of paired contracts. “We observed pay-in shortages on a daily basis, with regard to the settlement-related payment obligations from various members. All these shortages were substantially in relation to paired contracts,” auditor Grant Thornton said in a supplementary report last week.
The report pointed out how several members had shortages running into crores. At Rs 207.84 crore, NK Proteins, NSEL’s Gujarat-based borrower, accounted for one of the steepest shortfalls. PD Agroprocessors, Lotus Refineries, Topworth Steel and Power and ARK Imports were among those with high shortages. Delhi-based Mohan India didn’t have any shortfall on July 30, the report said.
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“The exchange made the pay-out obligations against the pay-in shortage of paired contracts out of the available SGF cash balances. This resulted in depletion of the SGF cash balances,” it added.
After the SGF was exhausted, the exchange started using its own resources to pay claims. After a period, this, too, was exhausted. “On July 26, 2013, all the cash in the SGF was utilised and to facilitate further settlements, the exchange started funding shortages from its own resources. On July 30, 2013, the exchange exhausted all its own resources, too, resulting in a payment crisis,” Grant Thornton said.
The report followed FMC seeking additional clarifications to the forensic report submitted by Grant Thornton in September.
In the early days of the Rs 5600-crore payment crisis at the exchange, NSEL’s SGF became a matter of much curiosity and speculation, as then NSEL chief Anjani Sinha had given three different figures for this fund. At a meeting with FMC on August 1, Sinha said NSEL had an SGF of about Rs 850 crore. In his written reply to a mail by FMC, he said the SGF was Rs 738.55 crore. At a meeting with investors and borrowers on August 4, he said the SGF was only Rs 62 crore.
All three figures are incorrect, if one goes by the latest forensic audit report.
The report said while the designated SGF, under Section 12.1 of NSEL by-laws, had four fixed deposits, amounting to Rs 88.27 lakh. “To clarify, the small balance by the exchange in the form of fixed deposits, approximately Rs 88 lakh, was ostensibly also called the ‘settlement guarantee fund’. However, in actual practice, the terminology of settlement guarantee fund refers to client monies received and maintained by the exchange,” the report said.
An NSEL spokesperson said the report was confidential and couldn’t be commented upon.