In a setback to Financial Technologies (FTIL), the Supreme Court on Friday refused to entertain its petition seeking a stay on the Forward Markets Commission (FMC) that declared the firm unfit to run exchanges and asked it to divest its shareholding in the Multi Commodity Exchange of India (MCX).
The FMC’s order declaring FTIL “not fit and proper person” to hold more than 2% shares of a recognised commodities exchange had come in the wake of a R5,574.34 crore- payment scandal at National Spot Exchange (NSEL).
A bench headed by justice Vikramjit Sen refused to entertain FTIL’s petition after FMC’s senior counsel Shyam Divan argued that FTIL had fully complied with the commission’s order and divested its entire stake in MCX. “The operative directive has been fully complied with. Now nothing is left at this stage,” he said, while asking the apex court not to entertain FTIL’s plea for stay on FMC’s order as the matter is pending before the Bombay High Court and the next date of hearing has been fixed on May 9
FTIL was seeking a stay on the FMC’s December 17, 2013 order so that other regulators do not pass “copycat orders” like the one passed by Sebi. FTIL further said that while FMC’s order was under challenge before the HC, it was directed by other regulatory authorities like Sebi and the Central Electricity Regulatory Commision to divest its holding in other exchanges.
However, the apex court issued a notice to Sebi on another FTIL petition challenging the Securities Appellate Tribunal’s (SAT) order that endorsed the market regulator’s decision asking it to divest its shares in bourses, including MCX-SX. Sebi’s order in March last year had followed a similar directive by FMC.
In its order, the commodity futures market regulator said that FTIL and Jignesh Shah, the then chairman of FTIL, were unfit to run an exchange and barred Shah from holding a management position in any recognised exchange in India. Subsequently, FTIL divested its entire 26.30% stake in the MCX at a loss of R223 crore. It sold a 15% stake in MCX for R459 crore to Kotak Mahindra Bank and the remaining 11% in the open market. Besides, it said that it sold its 25,3% shareholding in Indian Energy Exchange at a loss of R200 crore.
“FTIL has withdrawn the Fit & Proper petition from the Supreme Court so the same can be pursued on fast track in the Bombay High Court. We are disappointed that no interim relief is being granted for the order that is sub-judice and transitionary in nature and for which there has not been a single substantive hearing for almost 1.5 years,” FTIL said in a press statement.
Mihir Kamdar, legal head of FTIL, said that “the consequence of the same has led a large corporate house like FTIL to force exit most of its businesses and world class institutions painstakingly built over past 10 years. It has been a death knell for the FTIL group, without any adjudication by a competent judicial authority causing irreversible damage and loss to over 60,000 FTIL shareholders. It is extremely disappointing to see that the same order has been basis for Section 396 action by an authority which will completely destroy shareholder value.”
According to senior counsel Abhishek Singhvi appearing for FTIL, FMC’s “unilateral declaration” has become the basis for subsequent regulatory orders and forced divestment by FTIL in its exchange ventures. He said that although the impugned order operates for a fixed period of three years, the consequence of such divestment is “irreversible and permanent” and has resulted into “forced divestment” of FTIL’s shareholding in different exchanges, domestically and internationally, thus causing a loss of R1,000 crore.
He further said that that FMC does not regulate FTIL’s business and the commission had passed the order against FTIL as the parent company of NSEL. FTIL holds 99.9% stake in NSEL.