Finance Minister P. Chidambaram on Wednesday said the Central Bureau of Investigation (CBI) did not have the entire facts yet when it registered a preliminary enquiry against C. B. Bhave, former chairman of the Securities and Exchange Board of India (Sebi).
“I have been briefed in the case. I don’t think the entire facts are yet before the CBI. The original licence granted to MCX-SX was only to deal in currency futures. It was not a licence to deal in equity. I think the distinction is important,” Chidambaram told FE in an interview.
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The CBI had last Thursday registered a PE against Bhave and former Sebi full-time member KM Abraham for granting permission to MCX-SX to start trading in currency futures in 2008, and renewing it in 2009 and 2010, despite income tax raids on the Jignesh Shah-promoted Financial Technologies India (FTIL) and MCX, the commodities exchange promoted by FTIL, in June 2007. These two entities are the promoters of MCX-SX.
According to sources close to Bhave, the permission to MCX-SX was granted at a time when the derivatives market was completely dominated by the National Stock Exchange. “The finance ministry did provide Sebi information on the tax raids. It needs to be mentioned here that MCX, at that point, was running a full-fledged commodity exchange. Subsequently, there was an update on the closure of the income tax case. Anyway, Sebi could not have denied them permission based merely on information that there were tax raids,” the source said.
They also pointed out that Sebi, under M Damodaran, had allowed FTIL to pick up a marginal 5% stake in Delhi Stock Exchange and Vadodara Stock Exchange in August 2007 and September 2007, respectively.
Finance ministry officials said the facts of the tax case against FTIL and MCX were sent to Sebi in October 2007 when FTIL wanted to buy a marginal stake in National Stock Exchange. This was also to be treated as “relevant information” the capital market regulator may take note of while declaring FTIL and MCX ‘fit and proper’ to set up a currency futures exchange. “Sebi is an autonomous regulator. It is entitled to take a view,” Chidambaram said, when asked if the regulator was within its right to declare an entity ‘fit and proper’.
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