The need to make Jignesh Shah accountable for the NSEL crisis

Reasons why Jignesh Shah cannot get away by blaming his managers

Jignesh Shah, promoter of the Financial Technologies group that promoted National Spot Exchange, seems to have taken a cue from the Prime Minister. Like Manmohan Singh, Jignesh Shah has also claimed innocence of the fraud happening under him. Claiming that he is a victim of the crisis, Jignesh Shah is either rash or he has been lucky to build such a big empire.

But people close to him and those who have seen him grow from his earlier days know that he is a hands-on person. He knows what is happening in every aspect of his business, a trait of a successful entrepreneur.

 

 

Jignesh Shah's claims that he was a victim of the crisis which unfolded right under his nose is tough to digest. Assuming for a moment that what he says is true, then he is not fit to run his company. Anjani Sinha, MD and CEO of NSEL while taking blame for the entire crisis said that defaults were taking place for over two years.

Any broker worth his salt knows that the key to success in the business is controlling risk. Every broker, even a sub-broker, before leaving his office every evening takes a look at the risk-management sheet and makes a note of money outstanding which needs to be followed up the next day. The risk multiplies when you are an exchange.
 

An exchange earns much lesser than what a broker does on each transaction but is exposed to the same risk as the broker. If a client defaults, the broker has to make good of the short comings. But if a broker defaults, the entire risk is on the exchange and they have to pay back the money to the clients on the other side of the transaction. Jignesh Shah’s NSEL has failed to pay its clients. Its an irony that a company that prides itself on providing one of the finest front-office dealing software could not get its back-office right.

In the two years that Sinha says that defaults have been happening, how was it that the distinguished board missed it. Most of the board members, including those independent directors who were the first line of defence for shareholders, have quit after failing to do their job. The outstanding which ultimately led to defaults are clearly highlighted in the balance sheet as a current liability. This figure would bloat as the outstanding keeps on increasing. A mark-to-market profit and loss of the outstanding position should have clearly alerted the board members, provided they would have cared to look at it.
 

There are many more cases of wrongdoings and fraud that have been reported. A fraud to the tune of Rs 5,500 crore for a company with a consolidated balance sheet size of Rs 3330 crore is difficult to hide, if not impossible.
 

Jignesh Shah and his team is either not telling the truth or are incompetent to manage a company if they could not locate such a big fraud. In either case they do not deserve to be managing the company. Promoters like Vikram Akula have lost control of their companies for much smaller sins, it’s for the shareholders to decide if they still want the same set for people to manage their show.