Investors of the crisis-hit National Spot Exchange (NSEL), in their complaint to the Economic Offences Wing (EOW), have alleged that the bourse appointed a little-know audit firm, Mukesh P Shah & Co, as its statutory auditors since the proprietor of the firm was related to Jignesh Shah.

“Pursuant to SV Ghatalia and Associates (part of Ernst and Young) expressing their unwillingness to continue as the statutory auditors... NSEL appointed a not-so-known firm Mukesh P Shah & Company (whose key proprietor is the husband of Jignesh Shah’s mother’s sister) as the statutory auditors of NSEL,” stated the 31-page complaint filed with the EOW on Wednesday.

The complaint further alleges that the change in the audit firm “coincides” with the period when most of the defaults occurred. “It appears that approximately 70% of outstanding amount in respect of which the default has occurred arise from parties whose contracts were launched since April 2012,” it says.

Refuting the allegations, an NSEL spokesman said that Mukesh P Shah is not a “relative” within the meaning of the Companies Act, 1956. He is not a related party who is prohibited from acting as “statutory auditor”.

On Wednesday, nearly 60 investors of NSEL filed a complaint with the EOW, alleging fraud, criminal conspiracy, cheating and criminal misappropriation by Jignesh Shah along with the board members and senior executives of the exchange.

The investors have also named the 24 defaulters who owe the exchange a total of nearly R5,600 crore in their complaint that comes after more than 45 days have passed since the fraud emerged in public domain.

The complaint named Shah as the “brain, trust and alter ego of NSEL” who is “primarily responsible for the affairs and the fiasco at NSEL”.

The investors have alleged that Shah abused his position to create a false impression in the minds of investors regarding the legitimacy of the operations at NSEL.

The complaint further said that nearly 99% of the delivery business at NSEL was fraud, which has been evidenced by complete absence of underlying goods and issuance of fake warehouse receipts. Incidentally, NSEL has already filed a complaint with the EOW, alleging mismanagement on the part of its senior management staff.

The complaint also alleges cozy relationships between the defaulters, promoters and management.

Investors have also expressed their concerns that NSEL and Shah could destroy evidence and tamper the records of NSEL and so immediate steps must be taken to preserve the records. They also fear that Shah could try to escape from India. (Financial Express)