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Jignesh Shah finds himself in a new battle to save his empire, with the Forward Markets Commission issuing a showcause notice to Financial Technologies (FT) and its directors, asking why they should be considered “fit and proper” to operate the commodities exchange.
The response, if found unsatisfactory by the regulator, would result in the ouster of Shah from the management of the exchange he had founded and nurtured. Even the recognition of the MCX-SX would be in trouble, as the Securities and Exchange Board of India had said “any adverse findings by any other regulator may result in withdrawal of recognition” of the MCX-SX.
In a 40-page notice late on Friday evening, the FMC gave the FT and its directors two weeks to reply. Apart from Shah, others who received the notice are Joseph Massey and Shreekant Javalgekar, both directors of the National Spot Exchange Ltd (NSEL), which is in the midst of a payments crisis, and MCX, the commodity exchange promoted by FT.
Javalgekar is the managing director and chief executive of MCX and Massey is chief executive of MCX-SX. Both might be disqualified from their posts if FMC finds their responses inadequate.
The commodities regulator made several serious charges against all of them, the most prominent being that they allowed borrowers to raise money on the NSEL platform despite defaults in earlier loans (there were 2,000 defaults, FMC said). Not only that, borrowers were exempted from paying margins, allowing the defaulters to trade more and more on the exchange’s platform. The FMC said the borrowers were given corporate guarantees for getting bank loans. The exchange’s board first approved the launch of paired contracts in 2009.
Paired contracts are two contracts for similar commodities used to raise funds for the borrowers.
Shah’s problems have been compounded by the fact that the Mumbai police has issued a lookout notice against him and 49 others, including Massey, in connection with the Rs 5,600-crore NSEL payment crisis.
Some of the others against whom the lookout notices were issued include NSEL’s former chief executive officer Anjani Sinha, former assistant vice-presidents Amit Mukherjee, Jai Bhaukhundi, Santosh Mansingh and H B Mohanty, former chief financial officer Shashidhar Kotian and former manager Maneesh Chanda Pandey.
The FMC showcause notice said the board of NSEL had formed only panel for overseeing surveillance and risk management-related issues when it was supposed to have set up 10. Had these been formed, risk management, warehouses management and even declaring borrowers as defaulters in case of non-payment could have been ensured.
Another charge is that the Indian Bullion Merchants’ Association (IBMA), a related entity as it was a subsidiary company of NSEL, was allowed to trade on NSEL and on MCX.
Observers, however, said the process of disqualifying the promoter of MCX would be a long-drawn affair, as it was likely to be challenged in court.
The lookout notice issued by the Mumbai police includes the promoters and directors of 25 borrowers on the exchange, including NK Proteins, PD Agro, Mohan India and Lotus Refineries.
A lookout notice is a list of names sent to immigration offices at airports, seaports and international borders to prevent people required for investigation from leaving the country.
The National Spot Exchange said it was “not privy to the list”.
NSEL is promoted by Financial Technologies and National Agricultural Cooperative Marketing Federation of India Ltd. Balsing Rajput, deputy commissioner in the economic offences wing of the Mumbai police, said such notices were not meant for arrest or detention. “This is to avoid any disruption in the investigations into the NSEL payment crisis,” he said. The move was to ensure the cooperation of Shah and others, Rajput said.
A First Information Report was filed by the economic offences wing on September 30 against Shah, Massey, other promoters, directors and defaulters, charging them with cheating, forgery, breach of trust and criminal conspiracy, among others. Police teams that began raiding 193 locations on Monday — including the houses of NSEL’s brass, brokers and defaulters — have completed the process at 187 places. “Police officers said 75 voluminous files, 61 hard disks, six laptops, 25 pen drives, two central processing units and an iPad were among the evidence collected. Police have also frozen 58 bank accounts, including those of the troubled exchange and the accused. The Central Bureau of Investigation, too, had launched a probe into alleged duping of customers and irregularities at the commodity exchange.
LOOKOUT NOTICE EXPLAINED
* A step taken by law enforcement agencies to prevent a person against whom investigations are on from leaving the country
* Issued to immigration authorities at international exit points, such as airports and seaports
* It differs from a red corner notice, which is an arrest warrant issued by the Interpol on behalf of a government
