The tribunal, however, gave FTIL four weeks to divest its stake in its stock exchange and market infrastructure institutions.
Two months after FTIL moved the tribunal against Sebi, the SAT observed on Wednesday that a similar order, passed by commodity market regulator Forward Markets Commission (FMC), had a bearing on the securities market. Presiding officer JP Devdhar noted that in view of the sensitivity of the role of exchanges in the commodity and securities markets, regulations have been framed so that a person found to be unfit by one regulator is deemed not a fit and proper person by another regulator.
In such a case, an order passed by one regulator would ipso facto have to be applied by another regulator because the very object of imposing such stringent conditions is to set high standards for the exchanges operating in both the financial markets, the SAT order noted.
On December 17 last year, the FMC declared FTIL and its promoter Jignesh Shah not fit and proper to be an anchor investor in any commodity exchange and asked the technology company to bring down its take in the Multi Commodity Exchange (MCX) from 26% to 2%.
Subsequently, on March 19 this year, on the basis of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations or SECC, Sebi also declared FTIL unfit to own any stake in a recognised stock exchange or clearing corporation. The securities market watchdog revoked the voting rights of FTIL and any of its related parties in the MCX bourse and MCX-SX clearing corporation and asked it to divest its stake within 90 days.
The FMC order was a fallout of the R5,600-crore scam at a subsidiary of FTIL, National Spot Exchange (NSEL). FTIL currently holds 26% stake in MCX and is required to divest its stake after the revised directive of FMC. FTIL and MCX both own 5% each in the equity share capital of MCX-SX, besides convertible warrants of MCX-SX that if converted could increase their combined holdings to 72%.
FTIL and MCX-SX hold 23% and 51% stakes in MCX-SX clearing corporation and the rest of the shares of the corporation is owned by MCX.
The tribunal had been critical of Sebi during the hearing as it observed that the Sebi order was largely reliant on the conclusion of the FMC order instead of the facts and reasons set out in it.
Janak Dwarkadas, senior counsel representing FTIL, had argued that the Sebi order showed non-application of the mind by the regulator and that the FMC order could not be the basis for asking FTIL to not be an investor in any stock exchange or related entities.
For its part, Sebi had argued that under the SECC, an entity can be declared unfit by the watchdog if any other regulator has identified it so. Senior counsel Shiraz Rustomjee, who represented Sebi, reasoned that in light of the similar mechanisms for settlement and trading in the commodities and securities market, it follows naturally that an entity which is unfit to operate in one market cannot be fit to function the other.