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National Spot Exchange (NSEL) is not the first Financial Technologies (FT) group venture that has collapsed spectacularly, landing investors and trading partners in a financial quagmire.
Four years earlier, another venture opened, with much fanfare and projected to hit volumes of Rs 60,00 crore; it shut down suddenly.
SAFAL National Exchange of India Ltd (SNX) was incorporated on June 14, 2006, as a joint venture between FT, Multi Commodity Exchange (MCX) and Mother Dairy Fruit and Vegetable Pvt Ltd. SNX was incorporated for spot trading in horticulture, floriculture, dairy and allied produce. The FT group, which held 51 per cent, also provided the electronic trading infrastructure.
The exchange picked up, drawing interest from farmers; however, it was suddenly called off in March 2009. Among the theories floated were that the FT group wanted to drive traffic to its 100 per cent venture, NSEL, then taking baby steps. People also talked about lack of agreement between buyers and sellers on quality and price, a problem to haunt NSEL at a much larger scale four years later.
Following the SNX shutdown, a group of investors and members had filed complaints against the promoters. It was alleged the promoters did not return the membership fee of Rs 2.6 lakh each to its 200 investors after being wound up. "All of a sudden, the trading was suspended on the portal without any information being given to the members. Further, the information about the members, directors and contact details were removed from the website. SMS enquiry facility was stopped, all the business development officers and supply chain people were removed," said the members in their petition.
According to them, after dissolving SNX, the members were later given the option to migrate to NSEL and trade in fruit and vegetables only. Therefore, they said, the launch of SNX was a "plot", to secure a large number of members for NSEL. In addition, they were asked to pay Rs 5 lakh and an annual subscription fee to get full trading rights on the new exchange.
The FT annual report of FY 2010 does not have any reference to SNX's closure of operations. In the FY11 annual report, it said, "Your Company exited as JV Partner of SAFAL National Exchange of India Limited by entering into a settlement with MCX and Mother Dairy... agreeing to terminate the joint venture". FT had an investment of Rs 4.56 crore in the venture, according to the annual report, which was written off.
A group spokesperson did not comment on the closure and legal position vis-à-vis investors but in an email response referred to disclosures made in the MCX public issue prospectus.
According to the prospectus, "We had previously invested in a joint venture, Safal National Exchange of India Ltd, which permanently ceased operations during fiscal 2009. Pursuant to the settlement agreement dated June 25, 2010, to terminate the joint venture, Mother Dairy Fruit & Vegetable Pvt Ltd holds 100 per cent of the equity share capital of Safal National Exchange of India Ltd, with effect from December 29, 2010."
MCX further said the company had fullu accounted for its investment in SNX of Rs 7.2 crore.
