Jignesh Shah-founded Financial Technologies (India) said on Tuesday it has submitted a proposal to the finance ministry to help clear dues of roughly 94% of investors in connection with the R5,600-crore settlement crisis at its subsidiary, the National Spot Exchange (NSEL).
The plan, submitted on March 13 but made public on Tuesday, suggests brokers and FTIL contribute equally — R500 crore each — towards payments to NSEL investors, which brokers were quick to reject.
Since FTIL had already offered R180 crore as loans to NSEL for payment to small investors when the crisis flared up in late 2013, it is willing to pump in R320 crore more, according to the proposal. It wants the brokers to share “the pain” equally, saying they, too, made money from brokerages, fees and other charges, and even funded their clients through NBFCs either owned by them or by their sister concerns and earned in this process as well.
Since the company said the proposal was “without prejudice” to FTIL’s legal entitlements and was subject to approval by the board and shareholders and acceptance by brokers and investors, it is unlikely to gain much of a traction due to brokers’ rejection.
While the brokers allege FTIL was trying to “mislead the government and the investors” and the company should pay the entire dues, FTIL sees the proposal as a “good-will gesture” by it to “move away from a conflict path to a resolution path”.
FTIL says with a corpus of R1,000 crore, including the R180 crore loan already offered by it, all dues owed to small investors with claims up to R10 lakh each would be cleared. Moreover, those mid-level investors with claims between R10 lakh and R1 crore each would get 50%, according to the proposal.
NSEL has recovered only R371.8 crore from defaulters until March 30 this year. The pending claims of small investors are about R164 crore, and that of mid-size investors R1,345 crore.
However, FTIL said as many as 779 high net worth individuals with claims of over R1 crore will get half their claims and two public sector undertakings (STC and MMTC) will be offered their entire claim amounts only with the recovery of money from defaulters. These two segments make up for around 6% of total investors involved and their claims are to the tune of R3,366 crore.
The FTIL proposal came after the ministry of corporate affairs has moved the Company Law Board, seeking direction to replace the entire board of FTIL with government nominees, in connection with the NSEL scam. If the government wins legal battles against FTIL, which are being played out in Bombay High Court as well, it would be the first corporate takeover by it since Saytam’s in 2009.
Commenting on the latest proposal, FTIL managing director Prashant Desai said: “We believe that a resolution/settlement path is better alternative for all including brokers and trading clients of NSEL. We have proposed a solution that ensures 94% trading clients’ receive between 50% and 100% of their claims”.
NSEL Investors Forum secretary Arun Dalmia, however, rejected the proposal and added it was submitted “without discussing with brokers and investors”.
NSEL — in which FTIL holds a 99.99% stake — is in the midst of the settlement crisis, which is owed to 148 members/brokers, representing 13,000 investor clients, after the exchange suspended trading in one-day forward contracts on July 31, 2013, following a government directive.
The Forward Markets Commission had discovered that the exchange was violating rules by allowing contracts of tenures longer than 11 days and by permitting trading without verifying whether sellers had stocks, in effect allowing short-selling by members. Already various official agencies are investigating NSEL’s activities and some assets of defaulters have also been attached.
