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SAT rejects Jignesh Shah-led FTIL’s plea against Sebi order declaring it ‘unfit’

SAT on Wednesday dismissed Jignesh Shah- promoted Financial Technologies' (FTIL) plea against a Sebi order declaring it unfit to own stakes in market infrastructure institutions, stating that decisions by financial market regulators have bearing on each other. The Securities Appellate Tribunal (SAT) also gave FTIL four weeks to divest its stakes in bourses, including MCX-SX.

Presiding Officer J P Devadhar said the moot question was if the orders of one regulator have a bearing on others, and ruled in favour of Sebi saying the trades regulated by the commodity markets regulator Forward Markets Commission (FMC) are similar to those regulated by Sebi.

Sebi had passed its orders following a similar order by FMC after the Rs 5,500-crore scam at NSEL, 99.99 per cent owned by FTIL, came to light. Stating that there were differing views within the three-member bench, Devadhar said the order was being passed as per the majority view. SAT member A S Lamba had the contrarian view and termed Sebi order as ‘unprofessional’.

Devadhar said order passed by one regulator would have to de-facto apply to other regulators and not following this principle would defeat the spirit of regulation. He said that as the time granted to FTIL for divesting its stakes had already expired, the company can take another four weeks to exit its holdings. FTIL owns 26 per cent in commodities bourse MCX and has a 70 per cent stake in MCX-SX and MCX-SX Clearing Corporation.

Its MCX-SX ownership is 5 per cent through equity and the rest through convertible warrants. At the time of the Sebi order FTIL and MCX held just under 5 per cent stake in the stock exchange MCX-SX.
The troubled company also has stakes in the Delhi Stock Exchange and Vadodara Stock Exchange in addition to a small holding in the NSE.

The Securities and Exchange Board of India (Sebi) had passed an order on 19 March stating that FTIL was not ‘fit and proper’ to hold any stakes in any of these exchanges. The Sebi order followed a similar one on 17 December, 2013 by commodities watchdog FMC against the company and its promoter Jignesh Shah and key officials like Joseph Massey.

FTIL has also challenged the FMC order of December last year in the Bombay High Court, which is yet to conclude the hearing.  Company promoter Jignesh Shah was arrested in May in connection with the NSEL scam and continues to be in custody.

The Sebi order had also said that FTIL's voting rights in the exchanges should be frozen. The market regulator granted FTIL a 90-day window to divest its stake. It said FTIL could not be allowed to continue as a stakeholder in the securities market either, having been declared unfit by FMC.
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