The law ministry has advised MMTC to repudiate its deal and exit from the Indian Commodity Exchange (ICEX). The advice has been given to the ministry of commerce, the administrative ministry for MMTC, and other state trading corporations.
Official sources close to the development say the commerce ministry has taken strong objection to the decision of Indiabulls Financial Services to sell 26 per cent stake in the commodity exchange business in favour of another anchor-investor, Reliance Next, within a year of starting the venture and has sought legal opinion thereafter. While it had communicated its decision to MMTC through its nominee directors on board, it has also asked MMTC to take a decision in this regard soon.
Officials say the law ministry, armed with the views of the Solicitor General of India, has communicated this decision not only in the case of MMTC, but as a guidance note to all public sectors undertakings.
According to the opinion of the law ministry, the PSUs have been advised not to venture into areas with private participants where they themselves do not have expertise. MMTC has, thus, been advised to repudiate the contract in the commodity exchange venture.
MMTC did not reply to an email sent to them. State Trading Corporation was also asked to state how it planned to divest its stake or to explain any other course of action to this effect
Officials explained that as a possibility, MMTC could exercise its first right of refusal in the joint venture to nullify the deal between Indiabulls and Reliance Next. Thereafter, it could exit the venture in a phased manner over a period of time, they said. However, MMTC did not reply to any of the queries.
Indian Commodity Exchange is a screen-based online derivatives exchange for commodities that offers futures trading in 18 commodities including bullion, metals and agricultural items. It started operations in November 2009. It has Reliance Exchange Next Ltd as an anchor investor and MMTC Ltd, Indiabulls Financial Services Ltd, Indian Potash Ltd, KRIBHCO and IDFC as the other prominent members.
In ICEX, initially, Indiabulls held 40 per cent followed by MMTC Ltd with 26 per cent, Indian Potash with 10 per cent, Kribhco and IDFC with 5 per cent each and a segregated holding of 14 per cent with others.
Thereafter, in the later half of 2010, Indiabulls decided to sell 26 per cent in the venture in favour of Reliance Next, with the permission of the Forward Markets Commission (FMC), barring a small holding as a strategic investment. Reliance Exchange Next Ltd is a wholly owned subsidiary of Reliance Capital. Besides being an online commodity derivative trading exchange, ICEX is also in the process of putting in place robust assaying and warehousing facilities in order to facilitate deliveries.
