FMC says FTIL, Shah unfit to run an exchange

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FTIL asked to pare holding in MCX to 2% from current 26%

The Forward Markets Commission (FMC) has declared Financial Technologies India (FTIL), its promoter Jignesh P Shah and two former directors of group company Multi Commodity Exchange (MCX) unfit to run an exchange.

FMC is the regulatory authority of the commodities futures market. The order said the FTIL-promoted NSEL masterminded the massive fraud in the spot exchange.

The regulator said Shah, FTIL, former MCX director Joseph Massey and former MCX MD Shreekant Javalegar were “not fit and proper” to hold any position in the management and board of any exchange recognised by the government.

FMC said FTIL was unfit to hold 2 per cent or more of the paid-up capital in MCX. At present, it holds 26 per cent.

The 80-page order further said neither Shah individually, nor any company/entity controlled by him, either directly or indirectly, should hold any share in any association/exchange recognised by the government or registered by FMC in excess of the threshold limit of the total paid-up equity capital of such association/exchange as prescribed under the commodity exchange guidelines and post five-year guidelines.

When contacted, an FTIL spokesperson told Financial Chronicle, “Our lawyers are examining the order and we will revert,”

On Wednesday, shares of FTIL fell 0.9 per cent to close at Rs 166.80 on the Bombay Stock Exchange, but those of MCX rose 8.29 per cent in a late surge to close at Rs 421.35, as investors expected a change of management in the firm.

The NSEL Investor Forum (NIF), which lodged complaints against NSEL promoters and officials with the economic offences wing of the Mumbai police, Bombay high court and other courts along with MMTC and some individual investors, welcomed the FMC order.

NIF, chairman, Sharad Kumar Saraf and secretary Arun Dalmia said in a communique to the members, “We feel it is a positive development in our favour and clearly shows the intention of the government to recover our dues and punish the guilty.”

NIF continues to follow up the case vigorously with EOW, sessions and MPID courts and high courts, Saraf and Dalmia said. “A suit filed by our investor colleagues and the one filed by MMTC are progressing well,” they said.

The FMC order issued late on Tuesday said, “The motive behind allowing trading in forward contracts on the NSEL platform in a circuitous manner on NSEL, which was neither recognised nor registered under FCRA, 1952, indicates mala fide intention on the part of the promoter of FTIL to use the trading platform of its subsidiary company for illicit gains away from the eyes of the regulator.”

The order further said, “FTIL had already promoted MCX, a regulated exchange under FCRA, 1952, for the purpose of trading in forward contracts. Therefore, having secured an exemption from the purview of FCRA, 1952 on the ground that it was intended to promote spot trading, NSEL was not authorised to allow trading in forward contracts through the scheme of paired contracts, thus it defied conditions stipulated in the exemption notification granted to it.”

The order said the FTIL-promoted NSEL masterminded the massive fraud.

“The fact that the FTIL-promoted NSEL sought exemption from FCRA, 1952, provisions even before it had started any trading or operation points to its intention from the outset. In this manner, it misinterpreted the conditions stipulated in the exemption notification in collusion with a handful of members, which ultimately culminated in a massive fraud involving Rs 5,500 crore, which has the potential effect of eroding trust and confidence in exchanges and financial markets.”

FMC in its order also noted that Jignesh Shah’s name appeared as one of the key management personnel in all the annual reports of NSEL until financial year 2011-12, but not afterwards.

“Curiously enough, in the balance sheet of NSEL for the financial year 2012-13, Jignesh Shah has not been shown to be one of the key management personnel. Such an exclusion of his name from the list of key management personnel coincides with the exit of the former statutory auditor S V Ghatalia & Co and induction of Mukesh Shah, who happens to be the maternal uncle of Jignesh Shah, as the statutory auditor for FY2012-13,” it said.

“The appointment of Mukesh Shah as statutory auditor of NSEL was inappropriate and questionable in the prevailing circumstances. It appears that Jignesh Shah has got himself excluded from the list of key management personnel ostensibly to distance himself from NSEL when continuous defaults by members had thrown the company completely out of gear during this period,” FMC said.

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