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National Spot Exchange (NSEL) is not the first Financial Technolgies (FT) group venture that has collapsed spectacularly landing investors and trading partners in a financial quagmire.
Four years ago, another venture that opened with much fanfare and projected to hit volumes of Rs 60,00 crore shut down suddenly.
SAFAL National Exchange of India Limited (SNX) was incorporated on June 14, 2006 as a joint venture between FT, Multi Commodity Exchange (MCX) and Mother Dairy Fruit and Vegetable Private Limited, company promoted by National Dairy Development Board. SNX was incorporated for the purpose of spot trading in horticulture, floriculture, dairy and allied produce and products. FT group, which held 51%, also provided the electronic trading infrastructure.
The exchange picked up, drawing a lot of interest from farmers but was suddenly called off in March 2009.
Among the theories that were floated include that the FT group wanted to drive traffic to its 100% venture NSEL, which was taking baby steps then. People also talked about lack of agreement between buyers and sellers on quality and price, a problem that would come to haunt NSEL at a much larger scale four years later.
Following the shut down of SNX, a group of investors and members had filed complaints with the Economic Offences Wing (EOW) against the promoters of SNX, including FT and MCX, which together held 51%.
The investors alleged they were cheated of Rs 5 crore by Safal National Exchange (SNX).
It was alleged that the promoters, which included Multi Commodity Exchange and Financial Technologies, did not return the membership fee to its 200 investors after winding up.
According to the investors, Rs 2.6 lakh each deposited with SNX for membership was not returned after the exchange was closed.
"All of sudden the trading was suspended on the portal without any information being given to the members. Further, the information about the members, directors and contact details were removed from the website. SMS enquiry facility was stopped, all the business development officers and supply chain people were removed," said the members in their petition.
According to them, after dissolving SNX, the members were later given the option to migrate to another exchange, National Spot Exchange Ltd (NSEL), and trade in fruit and vegetables only.
The complainants further submitted, "Launch of SNX was a plot scripted by FT and executed in connivance of NDDB by which the FT could secure a large number of members for trading purposes at NSEL."
In addition, they were asked to pay Rs 5 lakh along with an annual subscription fee to get full trading rights on the new exchange. The FT annual report of FY2010 does not have any reference to SNX’s closure of operations. In the FY11 annual report it said, “Your Company exited as JV Partner of “SAFAL National Exchange of India Limited” by entering into a settlement along with MCX and Mother Dairy Fruit and VegetablePrivate Limited (“Mother Dairy”) inter alia agreeing to terminate the joint venture and to amalgamate Safal with Mother Dairy.”
FT had an investment of Rs 4.56 crore in the venture, according to the annual report, which was written off.
A group spokesperson did not comment on the closure and legal position vis-à-vis investors but in an email response referred to disclosures made in the MCX public issue prospectus.
According to the prospectus, “We had previously invested in a joint venture, Safal National Exchange of India Limited, which permanently ceased operations during the fiscal 2009. Pursuant to the settlement agreement dated June 25, 2010 to terminate the joint venture, Mother Dairy Fruit & Vegetable Private Limited (MDFVL) holds 100% of the equity share capital of Safal National Exchange of India Limited with effect from December 29, 2010.”
MCX further said that the Company has accounted for its investment in SNX of Rs 7.2 crore under Accounting Standard 13 - Accounting for Investments and has fully provided for diminution in value being other than temporary and for advances due from SNX based on its assessment of net realizable values of SNX's assets and liabilities.
