Mumbai, November 19, 2015 – Mesineni Sampath Rao, proprietor of MSR Foods Processing and an accused in the multi-crore National Spot Exchange Ltd (NSEL) scam, has been granted bail by the Designated Court under the Maharashtra Protection of Interest of Depositors (MPID) Act. Judge D.P. Surana (Court Room No. 36) allowed Rao’s bail application, citing his efforts towards repayment, the principle of parity with other released co-accused, and the absence of sufficient grounds for continued incarceration.
Rao was arrested on October 18, 2015, in connection with C.R. No. 89 of 2013, registered with the Economic Offences Wing (EOW). He faces charges under Sections 409 (Criminal breach of trust), 465 (Punishment for forgery), 467 (Forgery of valuable security), 468 (Forgery for purpose of cheating), 471 (Using as genuine a forged document), 474 (Having possession of document knowing it to be forged and intending to use it as genuine), 477(A) (Falsification of accounts), 120B (Criminal conspiracy) of the Indian Penal Code, and Section 3 of the Maharashtra Protection of Interest of Depositors (In Financial Establishments) Act, 1999.
The Multi-Crore NSEL Scam
The prosecution’s case revolves around the alleged fraudulent activities of NSEL. NSEL provided an electronic platform for buyers and sellers to enter into pair contracts (T+2 and T+25, signifying pay-in and pay-out dates). The platform was designed to facilitate trading in various commodities where buyers and sellers were geographically distant and unknown to each other. Sellers were required to deposit goods at NSEL-accredited warehouses, where quality and quantity were supposedly checked, and electronic warehouse receipts were generated. Purchasers would then deposit margin money and receive a copy of the electronic warehouse receipt.
However, it is alleged that NSEL deviated from its stated business model. In collusion with 25 borrowers and brokers, NSEL officials purportedly generated false and bogus warehouse receipts without any actual physical stock of commodities. This led to approximately 13,000 investors being induced for higher returns and subsequently defrauded to the tune of Rs. 3,500 Crores. The financial transactions were allegedly undertaken under the guise of legitimate sale and purchase, but were a part of a larger conspiracy to default investors.
Allegations Against the Applicant
Mesineni Sampath Rao, as the proprietor of MSR Foods Processing, a Warangal-based firm engaged in trading paddy rice, became an NSEL member in March 2012 and began trading in April 2012. When NSEL trading was halted in July 2013, MSR Foods Processing should have had a stock of 8,993 MT of paddy in NSEL designated warehouses; however, no such stock was found upon inspection. The firm’s liability was stated to be Rs. 9.05 Crores, which remained unsettled.
The prosecution further alleged that Rao failed to attend the EOW office despite multiple call letters and had been absconding from the investigation agency, leading to non-verification of his books of accounts.
Defense Arguments and Repayment Efforts
Advocate Kotian, representing Rao, argued that his client had been sufficiently interrogated and was ready to cooperate with the investigation. He claimed that all relevant documents had been provided to the Investigating Officer (I.O.) and that nothing further was left for interrogation. Kotian pointed out that most of the offenses against Rao carried a maximum punishment of up to 7 years imprisonment.
A significant part of the defense argument rested on the principle of parity, stating that all other member borrowers of NSEL who had been arrested were already granted bail, and their alleged outstanding amounts were “much more” than Rao’s.
Furthermore, Advocate Kotian demonstrated Rao’s bonafide intent towards repayment. He informed the court that Rao’s friend, K. Ravindra Reddy (who was present in court and identified by Adv. Kotian), had voluntarily surrendered two properties for attachment under the MPID Act against Rao’s alleged liability. Mr. Reddy also filed an affidavit (Exh. 4) and provided property valuations. Advocate Kotian also stated on behalf of his client that if these properties sold for less than Rs. 1,63,35,000/-, Rao would deposit the remaining difference within 30 days. Additionally, Rao undertook to deposit a cash amount of Rs. 5 lakhs within a week. The court accepted these undertakings and the properties’ title deeds.
Prosecution’s Opposition
SPP Adv. Avhad, along with the I.O. and Adv. Sandip Karnik (for the intervener/informant), strongly opposed the bail. They asserted a prima facie case against Rao, highlighting a link between NSEL officials and Rao, suggesting a conspiratorial nature of the crime. They alleged that Rao had siphoned off Rs. 9.05 Crores received from NSEL and had been absconding for the last two years, thus obstructing the verification of his firm’s accounts. They argued that Rao was an influential person likely to tamper with evidence and, being a resident of Warangal, Telangana, would abscond if released on bail. They requested that bail be denied at least until the charge-sheet was filed.
Court’s Reasoning
Judge Surana meticulously reviewed the rival contentions and police papers. The court acknowledged that Rao did not dispute being the proprietor of MSR Foods Processing or his NSEL membership and extensive trading. While the alleged liability was Rs. 9.05 Crores, the applicant disputed this, admitting to only Rs. 5.5 Crores, and claimed to have already paid Rs. 1.24 Crores.
Crucially, the court gave significant weight to the voluntary surrender of two properties by Rao’s friend, K. Ravindra Reddy, and the undertakings given by Rao himself regarding additional payments. The court viewed these actions as a “bonafide attempt on the part of applicant towards the repayment of his liability.”
Addressing the principle of parity, the judge stated, “So also, the co-accused in the crime, already released on bail, has much much less alleged liability than the applicant. As such, I am of the view that the applicant accused is entitle to be released on bail on the law of parity too.”
The court found the prosecution’s grounds for continued custody unsatisfactory, observing, “It is not satisfactory shown as to really for what purpose the applicant’s custody is necessary for the further investigation.” The judge opined that merely because Rao had not come up with a proposal to repay the entire alleged due amount (which he disputes) was not a reason to keep him incarcerated.
The court also dismissed the I.O.’s allegations of tampering or absconding as “general in nature,” noting that no such allegations were made against the co-accused who were already out on bail. The applicant’s address was also not disputed.
Given that most of the investigation relies on documentary evidence already in the I.O.’s possession, the court concluded that stringent conditions could be imposed to facilitate further investigation.
Bail Conditions
The court allowed Criminal Bail Application No. 63/2015, ordering Mesineni Sampath Rao’s release on bail in EOW Crime No. 89/2013, subject to the following strict conditions:
- Personal Recognizance (PR) Bond: Rao must execute a PR bond of Rs. Five Lakhs with one or more sureties to make up the like amount.
- Reporting to Police: He shall mark his presence at the concerned police station with the investigating officer on 10 alternate Wednesdays between 10 AM to 1 PM, and as and when called by the I.O.
- Travel Restriction: He shall not leave India without the permission of this court.
- No Tampering: He shall not directly or indirectly make any inducement, threat, or promise to any person acquainted with the facts of the case to dissuade them from disclosing facts to any police officer or court.
- Property Alienation Restriction: He shall not alienate or dispose of, in any manner, any of his immovable properties without the permission of the court.
This significant ruling in the ongoing NSEL scam case highlights the judiciary’s consideration of active efforts towards restitution and the principle of parity when deciding bail applications, even in cases of substantial alleged financial fraud.