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Even as the government looks at the possibility of asking Financial Technologies India Ltd (FTIL) to pare down its stake in the Multi Commodity Exchange of India Ltd (MCX) if promoter Jignesh Shah loses the ‘fit and proper’ tag, market and legal sources said such a move may be easier said than done.
This is because Jignesh Shah owns only 45.63% stake in Financial Technologies and it is FTIL, not Jignesh Shah, that holds a 26% stake in the commodity futures exchange, sources said. A senior government official said last week that Financial Technologies might be asked to sell its stake in MCX if the fit-and-proper tag of Jignesh Shah is withdrawn due to the settlement crisis at the National Spot Exchange Ltd, the bourse promoted by him. The government is examining the fit-and-proper status of Jignesh Shah and two other common directors of National Spot Exchange Ltd (NSEL) and MCX, the official had said.
A panel, headed by economic affairs secretary Arvind Mayaram, which is probing the NSEL crisis has suggested a firewall between the management and the board of the commodity exchange to prevent a repeat of an NSEL-like situation.
The move came after a group of secretaries, headed by Mayaram, met for a second time on Friday to discuss the reports submitted by two working groups on the crisis at the NSEL.
Mayaram submitted the report on the NSEL crisis with finance minister P Chidambaram on Monday and also sent it to the Prime Minister’s office on Tuesday, sources said.
Saurabh Kirpal, advocate at Supreme Court, said: “Under the relevant law, there is a distinction between ownership and management of an exchange. While the government may possibly exercise power regarding the management of exchange where it is in the public interest to do so, it certainly can’t direct alteration in the ownership of an exchange (through compulsory share transfer) as ownership of an exchange is governed by the Companies Act and the management aspect, possibly by the relevant Act (FCRA).”
Legal experts also said there are cases pending even before the Supreme Court where the competence of the FMC to give directions of this sort is being questioned as it has limited powers, unlike capital market regulator Sebi.
Some others said it’s difficult to strip Jignesh Shah of the fit-and-proper status in the first place.
“Jignesh Shah will lose the tag only if the government shows that his cross-holding is against the regulations and it also produces evidence that he has done something wrong. The evidence should show that Jignesh Shah has used his influence to ensure that offences, including insider trading, were committed or to ensure that losses were caused to others. Otherwise, such a move can be challenged by Shah in court,” said Srinivas Kotni, managing partner of Lexport, a law firm.
The Forward Markets Commission (FMC) had last month told the board members of the commodity spot exchange that “non-settlement of outstanding trade on NSEL seriously reflects on your credibility and reputation, which is a key ingredient in meeting the criteria for ‘fit and proper’ person. In the eventuality of you losing your status as a ‘fit and proper’ person, you cannot continue to hold directorship or share holding in any of the recognized futures commodity exchange”. And the latest statement showed the government is actively considering stripping the promoter of the ‘fit and proper’ status even now.