Former NMCE chief guilty of fraud: FMC

The Forward Markets Commission (FMC) also asked the NMCE to initiate process to recover Rs 36 crore and any other illegal payment from him.

In its 96-page order,FMC said that based on the detailed probe initiated by it,”the charges framed against Kailash Gupta,the then Managing Director and Executive Vice Chairman and presently the vice chairman of NMCE is established”.

The regulator found that Gupta breached his fiduciary responsibility to the exchange and “systematically defrauded it,misused and misappropriated its property and committed series of crimes under various laws…for benefiting himself,his family and his family owned/controlled firms”.

Gupta was heading Ahmedabad-based NMCE as Managing Director and CEO since its inception in 2003 till May 2010.

Thereafter,he served as Executive Vice Chairman till February 26,2011 and is currently Vice Chairman of the country’s fourth largest commodity exchange. The charges relate to the time when Gupta held the positions of MD and Executive Vice Chairman.

This is probably the first case of an alleged fraud in a commodity exchange in India by its own founder and promoter. A couple of years ago,founder driven scam came to light in IT firm Satyam Computers.

In the order dated July 23,FMC pointed out that Gupta has violated laws such as Forward Contract Regulation Act (FCRA),Indian Penal Code and Foreign Exchange Management Act (FEMA).

Besides Gupta,the regulator said his family-run entities that have been benefited are Arrow Total Solution Pvt Ltd (ATSPL),Arrow Total Solutions LLC (ATSLLC),Neptune Overseas Ltd (NOL) and Kushal Enterprises.

FMC held that “they (Gupta and associate firms) are all severally and jointly liable not only to return the embezzled,misappropriated and misused funds of the NMCE but also liable to be prosecuted for the offences committed”.

In the light of these findings,FMC ordered NMCE to file criminal cases against Gupta and take legal action to recover wrongful and illegal payment totalling to over Rs 36 crore made to firms controlled by him and his close relatives.

The order said :”The NMCE is directed to initiate legal proceedings to recover from Kailash Gupta an amount of Rs 20.93 lakh misappropriated by him by registering 3 cars purchased out of the Exchange funds in his own name instead of in the name of NMCE”.

FMC declared Kailash Gupta “as a person not fit and proper to hold any position in the management and the board of any exchange recognised or registered by the Government of India,FMC or any other financial market regulator”.

The regulator ordered that no company controlled by him either directly or indirectly,including the NOL should hold shares in any association/exchange in excess of 2 per cent of the total issued capital.

NOL,of which Gupta is the Managing Director and Chairman,is the anchor promoter of NMCE.

“The NOL shall bring down its holding in the NMCE to 2 per cent or less within a period of three months,” it added.

FMC said that NMCE should take required action to cancel the irregular allotment of 29.32 lakh shares to NOL.

This is one of the major orders passed by B.C Khatua,who completed his extended tenure of one year as the FMC chairman on July 31,2011.