The Securities and Exchange Board of India (Sebi) on Thursday told the Bombay High Court that MCX Stock Exchange (MCX-SX) was not compliant with shareholding norms even now, though the exchange had claimed compliance in April 2010. The court has been hearing a case in which the exchange has challenged a Sebi refusal to approve to commence new lines of business on charges like non-compliance of norms, lack of disclosure and dishonesty.
Putting a question mark over the exchange’s existing business of currency derivatives, the Sebi counsel said the fact of its continuing non-compliance and the findings of the impugned order would now be considered when the exchange’s application for renewal of its currency derivatives segment comes up for hearing. MCX-SX’s approval to operate currency derivatives is valid till September. Sebi has already given two extensions, with conditions.
Sebi counsel Darius Khambatta relied on the charge that the promoters — Financial Technologies and Multi Commodity Exchange — were ‘persons acting in concert’, (PAC) to prove the continuing non-compliance. He explained to the court that the “hand of Jignesh Shah” governed over all three entities — MCX-SX and its promoters FTIL and MCX. To show how MCX-SX, MCX, FT and another group entity La Fin acted as one group controlled by Jignesh Shah, the counsel produced correspondence between MCX, IL& FS and La Fin Financial Services.
One of the letters showed how La Fin gave an undertaking to IL&FS that MCX-SX would not sell shares in an IPO at a price lower than what IL&FS was paying for those. “While in a spot, give an undertaking — that seems to be the idea,” Khambatta pointed out.
Sebi also produced a new document that showed MCX had executed a buyback undertaken by La Fin in March 2010 to establish that these entities were interlocked, acting as one.
Khambatta argued that the promoters were persons acting in concert and hence their combined shareholding could not exceed five per cent under the Manner of Increasing and Maintaining Public Shareholding (MIMPS) rules.
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According to MCX-SX, the definition of PAC will apply to a situation where there is an acquisition of shares in a target company. “There is no acquisition of shares in this case. In fact, it is the opposite. Divestment is taking place. So, the provisions will not apply,” FTIL counsel argued.
Countering this, the Sebi counsel said though MIMPS derived the meaning from the takeover law, it is not necessary there should be an acquistion of shares. “Of course, there is no acquisition. The law has to be applied mutatis mutandis,” Khambatta said. The Latin expression means after making relevant/appropriate changes.