The ongoing battle over the merger of Financial Technologies and the now inoperational National Spot Exchange took a new turn on Tuesday with the former's management proposing a settlement with traders who lost their money while dealing at the commodity bourse.
"We believe that a resolution or settlement path is better alternative for all including the brokers and trading clients of National Spot Exchange," a statement from Prashant Desai, chief executive and managing director of Financial Technologies said.
"We have proposed a solution that ensures that 94 percent trading clients receive between 50 and 100 percent of their claims. We sincerely hope all affected parties will opt for this path than the long legal litigation route, which is anyways being pursued by one and all," he said.
"We also hope that the government will also provide its guidance and assistance to help recover dues from defaulters to whom all money trails have been established," added Desai, who is among those opposed to the amalgamation proposal, floated by the government.
The settlement is proposed with the traders who lost their money while dealing on the exchange. Financial Technologies, which promotes the National Stock Exchange (NSE) in the first place, has made the following proposal:
- Payment of 100 percent dues to claimants below Rs.10 lakh (7,053 in number)
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- Payment of 50 percent of dues to claimants between Rs.10 lakh and Rs.1 crore (4,901 in number)
- Payment of 100 percent of the dues to state-run companies.
- Payment of 50 percent of dues to high net-worth trading clients (781 in number)
The government-mandated merger of National Spot Exchange and Financial Technologies, companies founded by Jignesh Shah, the prime accused in the Rs.5,600-crore commodity markets case, scaled into a major discord among the investors and the traders -- one in favour, the other opposed.
The investor forum formed by the exchange, among the aggrieved parties that is seeking government intervention in facilitating the merger, says the merger is the only option top address the woes of its 13,000-odd members, each one of whom it claims has been a genuine investor.
On the other hand, the board of Financial Technologies that is opposed to the merger feels the Ministry of Corporate is being unfair to the company's 63,000 shareholders and that this should be kept in abeyance till such time the courts do not take a decision on their pleas.
The connection between the two companies is thanks to the founder of the group, Jignesh Shah. Financial Technologies India is the flagship company of the group. And it, in turn, co-promoted the National Spot Exchange with the National Agricultural Cooperative Marketing Federation.
While Financial Technologies, among other businesses, runs the Multi-Commodity Exchange of India, MCX Stock Exchange and Singapore Singapore Mercantile Exchange, the other, the National Spot Exchange, is another group company, which has been asked to suspend operations since August 2013.
The Financial Technologies board says investigating agencies have established the money trail to 22 defaulting members of National Spot Exchange and that it is imperative for them to honour their 'pay-in' obligations.
"While eight defaulters account for Rs.4,823 crore of the pay-in, constituting 86 percent of the outstanding, Rs.513 crore worth decrees have been obtained against five defaulters from the Bombay High Court," it said.
The payment crisis at exchange came to light in July 2013, due to the non-payment of money or the non-delivery of purchased commodities to investors. Although these commodities were traded on the exchange, there was no physical existence of the items in warehouses.
The modus operandi was: Investors bought commodities through the exchange from sellers. For that, they were given what are called warehousing receipts -- an assurance that the stocks physically exist in the warehouses of the exchange.
When the time of delivery came, some investors were compensated with monetary returns, rather than physical delivery of stocks. But some suspicion arose, it was found that the warehousing receipts were allegedly forged. This led to immediate suspension of trading.