While the Swiss firm SGS, which audited the goods stored in National Spot Exchange Ltd (NSEL), found a huge shortfall in quantity, it is now emerging in the auction process that the quality was inferior.
The raw wool stock, if sold at the best prices at the auction, would fetch a paltry Rs 5.17 crore against the outstanding of Rs 730 crore. “The raw wool stored in the warehouses of ARK Ludhiana is raw wool from Rajasthan, which is quoting in the market at around Rs 29 a kg, whereas according to contract specifications of NSEL, it should be Australian wool of Rs 700 a kg,” said an official familiar with the auction process.
“NSEL had called for quotations and the best was at Rs 21, barely three per cent of the original value,” he added. An NSEL spokesperson said in an email response: “On the matter of wool, it is under investigation.”
The revelation of discrepancy in quality comes on the back of a progress report submitted by SGS, which had suggested a 75-80 per cent shortfall in quantity. NSEL had, in a stock position on July 26, said raw wool of 11,190 tonnes was available in the warehouses managed by Ludhiana-based ARK Imports. Open interest positions matching this stock had been built up on the exchange.
Business Standard had first reported about the improbability of such a huge raw wool stock, amounting to the country’s entire annual production, being stacked at one place on August 2. Business Standard had also found the warehouses remained locked with little activity for months together, subsequently.
In a more detailed stock position data given by NSEL on August 6, 2013, two godowns of ARK Imports in villages of Purba and Seerah were shown having raw wool stocks of 5,265 tonnes and 5,454 tonnes, respectively. NSEL valued this stock at Rs 377.53 crore and Rs 391.10 crore, respectively. Thus, the exchange valued the total wool stock of 10,719 tonnes at Rs 768.63 crore at an average price of Rs 717 per kg.
However, according to SGS audit, the Purba godown of ARK Imports had 1247.4 tonnes of raw wool, while the godown at Seerah village had slightly lesser quantity at 1216.8 tonnes. At the best bid of Rs 21 per kg, this stock would get Rs 5.17 crore.
In a confessional statement before one of the investigating committees, Jai Bahukhandi, NSEL’s now sacked head of warehouse operations, recalled the events during the start of the raw wool and wool top contracts in the exchange in early 2012. “When we started the contract of raw wool and wool top with ARK Imports, the goods offered to us at his mill premises warehouse. The stocks of raw wool and wool top (were) offered at two godowns within the mill premises initially. But, at the time of launch of contract only one godown was offered.” Bahukhandi added the stocks in this godown were stacked in a haphazard manner and that the client promised to give the second godown “as and when the volumes increased”.
The confession statement also talks about an income tax raid in ARK’s godowns in April-May, about two months before the exchange’s collapse. Following this, Bahukhandi said the exchange got the samples checked by a third party. “This showed that quality was not matching as per the contract specification. I again wrote to the client in June/July 2013 and informed him of inferior quality and directed him to replace the stock with quality as per the contract specifications.”
Bahukhandi added he also informed his superiors in the exchange, but “no action was taken on recovering the shortage of quality and quantity as per the provision of the by-laws of NSEL”.
