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NSEL crisis: Jignesh Shah quits MCX to blunt FMC's fit & proper notice

Nov 01 2013, 10:43 IST
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Jignesh Shah launched MCX in 2003 and made it the second-largest commodity futures bourse globally. Jignesh Shah launched MCX in 2003 and made it the second-largest commodity futures bourse globally.
SummaryShah's resignation does not insulate FTIL from the accusations or the wrongdoings.

While Jignesh Shah resigned from the board of Multi-Commodity Exchange (MCX) on Thursday to take the wind out of FMC’s fit & proper show cause notice to him, Financial Technologies India Ltd (FTIL) and others, Forward Markets Commission (FMC) sources said the notice was still valid. FMC sources said the notice was not just given to Shah — and Joseph Massey and Shreekant Javalgekar — but also to FTIL, which is the promoter of NSEL. So, even if the fit & proper notice to Shah in his personal capacity becomes infructuous as FTIL is maintaining, the notice to FTIL remains valid. “Shah’s resignation does not insulate FTIL from the accusations or the wrongdoings,” said a person familiar with the development, adding that were the show cause not followed up, Shah could come back to MCX later.

Shah, who launched MCX in 2003 and made it the second-largest commodity futures bourse globally, resigned from the board of the exchange on Thursday. It was, incidentally, also the last day for Shah, FTIL and others to respond to the FMC show cause notice questioning his fit & proper status.

FTIL, in its 80-page reply to the FMC, has linked Shah’s resignation to the show-cause notice (SCN) issued by the regulator, stating the notice has been rendered “infructuous” since Shah has resigned as FTIL nominee on the board of MCX. Sources at FMC, however, clarified that the notice was sent to FTIL as a separate legal entity and to Shah, Massey and Javalgekar in their respective capacities as directors.

To further support its argument, the reply said Grant Thornton’s forensic audit of NSEL did not find any adverse findings about FTIL. If the fit & proper status is revoked, FTIL would need to exit its 26% holding in MCX.

FTIL’s reply says there is, as yet, no ruling on whether the T+25 contracts were illegal, nor was there anything to show that NSEL’s board members or FTIL were guilty of misconduct. While various agencies including the Mumbai Police’s Economic Offences Wing were probing the case, declaring FTIL or others like Shah as not fit & proper would prejudice the investigation.

NSEL is a wholly-owned subsidiary of Shah’s Financial Technologies (India) (FTIL), which, along with MCX, is also one of the promoter entities of MCX Stock Exchange (MCX-SX). Shah has already resigned from the board of MCX-SX.

In a single-page release, Shah said the ongoing

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