The Enforcement Directorate (ED) has issued show cause notices under Foreign Exchange Management Act (FEMA) to at least 5 firms and its directors for unauthorised hedging of foreign currencies to the tune of Rs 905 crore.
Hedging is a risk management strategy employed to offset losses in investments by taking an opposite position in a related asset.
The financial probe agency has issued FEMA notices to Santosh Promoters Private Limited, Pennar Trading Private Limited, Delight Suppliers Private Limited and their directors Aditya Sarda and Naveen Nayyar, Hadwyn Vanijya Private Limited (earlier known as Marigold Vanijya Private Limited) and its director Sachet Saraf, and Metropolitan Stock Exchange of India Limited and its then CEO and MD.
Metropolitan Stock Exchange of India Limited is the portal on which these unauthorised transactions took place, said the agency.
The probe agency had initiated its investigation under the provisions of FEMA on the basis of information from Ministry of Finance. "Investigation revealed that the said companies were involved in unauthorised speculative dealings of future currency derivative contracts without having any underlying contract or exposure in foreign currency," said the agency.
Santosh Promoters Private Limited, Pennar Trading Private Limited, and Delight Suppliers Private Limited, the companies of Aditya Sarda allegedly entered into unauthorised transactions of Rs 905 crore in just 3 days during the financial year 2011-12 for making speculative gains on fluctuations in foreign currency rates.
"Probe by the ED further revealed that the accused companies had no real foreign transactions or any kind of trade or business related to any export, import or any other activity requiring coverage or hedging through foreign currency futures, derivatives trading and the transactions were not backed by underlying exposure or foreign currency whatsoever," said an officer of ED.
The probe agency claims that the broker of Hadwyn Vanijya Private Limited carried out such illegal transactions of future currency derivative contracts without approvals from the Reserve Bank of India that they are speculative in nature.