Sebi declares erstwhile NMCE founder Kailash Gupta not 'fit and proper person'

Sebi has declared Kailash Gupta, who was the managing director of erstwhile National Multi Commodity Exchange (NMCE), as not a ''fit and proper person'' to hold any position in the management and board of any commodities exchange after finding him guilty of diverting and misappropriating funds of the bourse.

As of now, NMCE has been merged with Indian Commodities Exchange Ltd (ICEX).

Apart from Gupta, Neptune Overseas Ltd (NOL), anchor promoter of NMCE, has been declared not ''fit and proper person'', according to a Sebi order on Wednesday.

Gupta, the founder of NMCE, was also MD and chairman of Neptune Overseas at a relevant point in time.

In addition, the regulator said Gupta and Neptune Overseas, will not hold more than a 2 percent stake directly or indirectly in any commodities exchange. Also, they have been asked to bring down their holding in ICEX or any other commodities exchange to 2 percent or less within three months. Also, Sebi said that several directions issued by the erstwhile regulator FMC to NMCE shall be construed to be the directions being issued in the instant proceedings as well to the commodities bourse.

Accordingly, NMCE (now merged with ICEX), has been directed to act upon those directions and take all the possible steps in compliance with the said directions.

NMCE had been directed to take appropriate legal action against Gupta and Arrow Total Solution Pvt Ltd (ATSPL) to recover the wrongful and illegal payment.

Among others, NMCE was directed to immediately file criminal cases against Gupta for embezzlement of NMCE funds, unauthorized and illegal payments worth Rs 28.8 crore to ATSPL for non-existent software development and software services, misappropriation of NMCE assets, frauds, fabrication of records, and false agreements and tampering with records.

The NMCE was directed to place before the board of directors the evidence regarding the irregularities in the allotment of shares of NMCE to NOL. In its 189-page order, Sebi found that Gupta and Neptune Overseas are guilty of abusing their executive and controlling position in the affairs of management of NMCE.

They committed various fraudulent acts and have caused illegal monetary benefits to the firms and companies controlled by or connected with them or their close relatives at the expense of NMCE, Sebi said.

The regulator said that the misconduct by the notices resulted in siphoning off & misappropriation of funds of NMCE towards different illicit purposes, such as fictitious software development by ATSPL, market making, share allotment to NOL without consideration, illegal payment to Kushal Enterprises, payments to a large number of consultants in a fraudulent manner and misuse funds for personal cars and other privileges, etc.

The regulator noted that two companies -- Arrow Total Solution LLC (ATSLLC) and Arrow Total Solutions Private Ltd (ATSPL) -- were engaged as the software vendor of the NMCE by Gupta without following the due process.

These two firms were controlled by the family members of Gupta.

It was found that ATSPL did not possess even an email id, website, Service Tax number, or any other past or current customer to showcase its work except for NMCE.

Moreover, Sebi noted that backdated agreements were created under a pre-planned manner to hoodwink the authorities and audit committee to justify the funds already paid to ATSPL, whereas such funds were used for other purposes including the activity of market-making in the commodity derivatives market. Market making was not a permitted activity during the relevant point of time. Gupta has caused allotment of shares of NMCE to NOL with the fraudulent transfer of the commodities exchange's funds through a running account and also via ATSPL.

In the process of running a nation-wide recognized commodities futures exchange, the employees of NMCE were coerced to do illegal things like signing backdated agreements and releasing payments on the directions of Gupta without any legitimate purpose, else they would have lost their employment, it added.

He misused his position as MD of NMCE, had utilized the funds of NMCE towards various personal expenses of his family members. He had deliberately and apparently in a pre-mediated manner had engaged in siphoning off large amounts of money from NMCE to ATSPL under the garb of software development.

''The rights over the properties and infrastructure of NMCE were exercised by the notices (NOL and Gupta) and their family members in a manner that rendered NMCE look like a family-owned company and not a professionally run or board governed company,'' Sebi noted. The genesis of the present proceeding lies in a complaint received in November 2010 by the erstwhile Forwards Market Commission (FMC) (now merged with Sebi), about abuse of position and commission of various irregularities in the affairs of NMCE allegedly committed by NOL, through certain employees of NMCE.

Apart from the complaint, the report of the auditors appointed by FMC to conduct the Audit of NMCE for the years 2006-07 and 2007-08 had also pointed out certain misconduct and irregularities in managing the affairs of NMCE.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)