Jignesh Shah promoted-Financial Technologies India Ltd today urged the Bombay High Court to grant temporary protection from the order of Forward Market Commission (FMC) seeking reduction of its shareholding in Multi-Commodity Exchange from 26 to 2%.
However, a bench headed by Chief Justice Mohit Shah did not grant status quo on the shareholding pattern but decided to hear the matter tomorrow while clubbing all PILs filed by the investors in the Rs 5,500 crore scam involving National Spot Exchange Ltd, founded by Shah. FTIL and its promoter have filed a petition in the High Court challenging the recent FMC order which ruled that both were not fit to run any stock exchange in the country and asked for reducing its shareholding in MCX to 2%.
Petitioner's counsel Janak Dwarkadas assured the court today that FTIL will not block any board resolution so long as MCX makes a statement that it will not change its capital structure.
He said as an MCX investor, FTIL had a right to oppose such a resolution on reduction of shareholding pattern of the multi-commodity exchange but it was ready to forgo this right till the matter is heard and decided by the court.
Dwarkadas argued that currently FTIL did not have a single director on the board of MCX as all the three directors had resigned before the FMC passed the impugned order.
He also said that the 26% shareholding of FTIL in MCX would not cause any prejudice to shareholders. Criminal cases filed against NSEL were pending and probe was in progress. In the midst of these developments, such an order passed by FMC was not proper, he said. FTIL argued that it was being targeted by FMC, though investigating agencies has not held them guilty so far. FMC counsel Iqbal Chhagla said, "We are not holding them guilty, we are just saying that they are not fit to run any stock exchange. It cannot be argued by them (FTIL) that Shah was not aware of what was going on (in the scam-tainted organisation)." "To say that FTIL knows nothing of what was happening in its subsidiary company would not be correct," he said.
The petition sought quashing of the FMC order that held FTIL is not 'fit and proper' to hold anything more than 2% shareholding in MCX from the existing 26%.
The petition also asked for interim relief to the extent of granting a stay on the FMC order until the matter is finally decided by the HC.
In its 80-page order, the FMC, which went into the running of NSEL following payment defaults of Rs 5,500 crore to investors, said that Shah was "practically the highest beneficiary of the fraud perpetrated at the NSEL Exchange." FMC said, "Jignesh P Shah is not a 'fit and proper' person to hold any position in the management and the Board of any Exchange recognised or registered by the government of India/Forward Markets Commission under FCRA, 1952." FMC had directed that neither Shah individually, nor though any company/entity controlled by him, either directly or indirectly, should hold any shares in any association/ exchange in excess of the threshold limit of the total paid-up equity capital as prescribed under FMC guidelines.
Other petitioners are Joseph Massey and Shreekant Javalgekar, former directors of MCX, against whom also FMC held that they were not fit to hold any position in the management and the Board of any Exchange.
Shah founded MCX in November 2003 and then went on to set up a stock exchange this year. He is the chairman of FTIL, which owns and runs National Spot Exchange Ltd (NSEL), currently hit by a scam. Shah, on October 9, quit as vice-chairman and shareholder director of MCX-SX, the third major stock exchange in the country. Few weeks later, he also resigned as vice chairman of MCX.
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