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Waging battles on several fronts, Jignesh Shah is unable to cover all his flanks.
Shah’s problems started when National Spot Exchange Ltd (NSEL), a profit-making venture under his flagship Financial Technologies (FT) Group, defaulted last month. The senior management was found guilty of several wrongdoings. The company’s board removed those at fault, including managing director Anjani Sinha, after the exchange defaulted in its weekly payments in the third week of August.
These incidents were merely the beginning of Shah’s woes. Soon after the default, the Forward Markets Commission (FMC), which was granted special powers by the ministry of consumer Affairs to resolve NSEL’s Rs 5,572-crore payment crisis, warned the NSEL board its ‘fit and proper’ status to run the exchange was at risk; Shah could lose control over all his domestic and global exchanges, if the regulator declared it unfit.
FMC wanted Shah to express a commitment towards NSEL investors. He could convince the FT board to give a bridge loan to NSEL to repay small investors, hoping this would be seen as a gesture that promoters of the beleaguered exchange remained committed. But thousands of small investors of the e-series started complaining when they didn’t receive physical deliveries after making applications to rematerialise their commodities.
Now, with FMC’s approval, the group’s commodity futures exchange, the Multi Commodity Exchange (MCX), is working on a mechanism to allow NSEL e-series investors to sell their demat investments on its platform through a special window. Another option being discussed is providing physical stocks to brokers through whom investors had invested; brokers should deliver the commodity or sell on their behalf and make payments. A meeting of the officials of the exchange and FMC is expected in a day or two.
For both the options, operational and technical issues had to be addressed, the source said. Investors hold 46 tonnes of silver, 910 kg of gold and 200 tonnes of other base metals in demat form, according to an audit report of Sharp & Tannan Associates, available on the NSEL site.
Several independent directors have quit FT, NSEL and MCX. At the same time, FMC and the Securities and Exchange Board of India asked these entities to restructure their boards. Currently, the posts of chairman at NSEL, MCX and MCX-SX are vacant. The boards of all the three exchanges were being restructures/expanded and chairmen would be appointed at the respective exchanges in the next few days, the source said.
NSEL is left with just two directors on its board. MCX’s annual general meeting is scheduled for September 30. Ashok Jha, who earlier chaired the MCX-SX board, has resigned. Appointments on the stock exchange’s board are expected in the next few days, and these would require the approval of the Securities and Exchange Board of India.
Shah has set up a team headed by P R Ramesh, officer on special duty at NSEL. The team, focused on recovery, is talking to borrowers, many of whom are showing readiness to sell their assets and make payments.
According to NSEL, “The commodities lying in warehouses under the control of NSEL are being auctioned after calling for sealed bids. In nine warehouses, relating to seven defaulters, significant stock shortage has been found.” However, recovering Rs 5,572 crore would be a long journey.
Jignesh Shah has met Economic Affairs Secretary Arvind Mayaram, who has to consider the reports he received from the income tax and enforcement departments, as well as a report by a taskforce headed by a Reserve Bank of India deputy governor. Soon after meeting Mayaram, Shah told journalists all efforts were being made to recover money and repay investors. He added the biggest victim of the crisis was the FT Group.
In an affidavit on September 11, Anjani Sinha, former managing director of NSEL, admitted he had fallen into a trap---he had continued securing new money and allowing borrowers to borrow more to pay back dues. He accepted all responsibility and said he had misrepresented the NSEL board.
Will the affidavit help Jignesh Shah avoid losing ‘fit and proper’ status? Time alone will tell.
