NSEL crisis: FTIL questions FMC’s jurisdiction over issuance of show-cause notice

Jignesh Shah-promoted Financial Technologies (India), or FTIL, which is under the scanner of the Forward Markets Commission (FMC) for its alleged role in the R5,600-crore settlement crisis at the National Spot Exchange (NSEL), has questioned the legal sanctity of the show-cause notice issued by the commodities market regulator.

According to sources familiar with the matter, FTIL has said in its 80-page reply that the commodity regulator does not have jurisdiction over FTIL ? in its capacity as the promoter of NSEL? as there are no such laws empowering the FMC.

Sources further add that the reply has stated that the regulations under which FMC has issued the SCN against FTIL were part of an Ordinance ? Forward Contracts (Regulation) Amendment Ordinance ? that was introduced in 2008 but lapsed in the same year without being enacted and so the regulatory body cannot issue a notice under those guidelines. ?FTIL has given a detailed response to the show-cause notice to FMC and have sought personal hearing. We cannot further comment on the content of the reply since the matter is yet to be adjudicated,? said an FTIL spokesperson.

In early October, FMC issued a show-cause notice to FTIL along with three individuals ? Jignesh Shah, Joseph Massey and Shreekant Javalgekar ? challenging their ?fit and proper? status to be a part of any commodity futures exchange. All the three individuals have resigned as directors and management positions from group entities like Multi Commodity Exchange (MCX) and MCX Stock Exchange (MCX-SX). On October 31, the day when FTIL filed its reply to the FMC notice, Shah resigned from the board of MCX, in which FTIL holds a 26% stake.

Sources also say that the reply has highlighted the fact that since all the three individuals have resigned, the notice has become ?infructuous?. 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 capacity as directors and that the resignations do not ?insulate? any entity from charges related to wrongdoing.

A section of lawyers, however, feel that the reply will not pass FMC muster as the recent events clearly show that the crisis was in the making for a long time and no efforts were made by the management or the board to contain it. Agencies like the Economic Offences Wing of the Mumbai Police, Income Tax Department and the Enforcement Directorate are currently probing the NSEL settlement crisis.