How FTIL lost face in the two years since NSEL crisis; Only time will tell if the 30,000 investors that regulators claim lost in the scam would get back their money and whether the real guilty entities will get any kind of punishment.

How FTIL lost face in the two years since NSEL crisis

Ashish Rukhaiyar

31 July 2015


Mumbai, July 31 — Shares of Financial Technologies (India) Ltd (FTIL) closed at Rs.541.55 on 31 July 2013, a level it has never reached in the two years since the Rs.5,574 crore settlement fraud at the National Spot Exchange Ltd (NSEL) came to light. FTIL holds 99.99% stake in NSEL.On 30 July 2015, the shares closed at Rs.149.35. The listed entity, promoted by Jignesh Shah, has lost nearly three-fourth of its value in terms of market capitalization since July 2013, making it one of the hardest hit entities in the scam, which saw the economic offences wing (EOW) of the Mumbai Police arrest 24 suspects, including Shah, and attaching assets worth nearly Rs.6,000 crore.

The company has been forced to move out of the exchange space with regulatory agencies such as the Forward Markets Commission (FMC), the Securities and Exchange Board of India (Sebi) and the Central Electricity Regulatory Commission (CERC) declaring FTIL an unfit entity to hold a stake in exchanges.

The last two years saw FTIL sell its stake in Multi Commodity Exchange of India Ltd (MCX), Metropolitan Stock Exchange of India Ltd (MSEI) and Indian Energy Exchange (IEX) even as it is fighting various legal battles to claim its right to own an exchange in the country.

According to FTIL spokesperson Devraj Uchil, the company has been “forced to exit from its exchange businesses” and entities with vested interests have been creating roadblocks, though it has “not affected FTIL’s spirit”.

“Having said that, we now have a new board comprising professionals of elite stature who are doing their best to ensure that the company is taken towards a brighter future,” he added.

The crisis also scuttled Shah’s plan to have a wide geographical presence in the exchange business with assets in Dubai, Singapore, Mauritius and Africa. In India, he planned exchanges in all segments-equity, commodity, power-to take on larger rivals such as BSE Ltd and the National Stock Exchange of India Ltd(NSE). And he did succeed to a large extent before his downfall began in late 2013.

For instance, when MSEI, which was formerly known as MCX Stock Exchange Ltd (MCX-SX), launched its equity segment in February 2013, it played a disruptive role, and BSE and NSE were forced to lower membership charges and upgrade their technology platforms.

FTIL has sold its stake in most of its overseas ventures as well. Shah spent more than 100 days in jail before being granted bail on 22 August 2014. FTIL insiders say that currently Shah spends most of his time with his lawyers.

“Shah is not in any executive position of the company today and does not occupy any board seat as well. The company is being run by a board comprising professionals. Shah currently mentors a talent pool of FTIL so that his vast experience as an innovator can be passed on to the young and bright staff of FTIL,” said Uchil.

FTIL is battling hard with regulatory and investigative agencies in the courts of law. In October last year, the government issued a draft order proposing to merge NSEL with FTIL, which will lead to FTIL taking over all the liabilities of the spot exchange. FTIL is opposing it with all its might such that the government has even alleged that the company is only trying to flood it with fictitious objections to delay the process.

“It is also submitted that the applicant company had attempted to burden and choke MCA with over 45,000 representations on the draft order and that from the repetitive language and nature of the objections and suggestions contained therein, it is clear that they are filed in concert or with the intent of flooding the MCA with a huge burden and to thereby slow down the process of taking a final view,” says the government reply filed in the Bombay high court.

While it has been two years since the scam, there has not been much headway in terms of the actual recovery of the money. NSEL, which is at the centre of the scam, says that it has filed 129 cases against defaulters. However, it has added that being a corporate entity, it has limited civil and criminal prosecution legal options.

“NSEL has been relentlessly working at recovering the amounts due from these defaulters… We want stakeholders to join the sustained battle against the real culprits. With their cooperation, NSEL will be able to formulate a holistic strategy and plan to effect speedy recovery from the defaulters. We still believe that the only solution is that all victims should get together on a common mission of recovery rather than running vested interest agenda of someone against NSEL,” said Prakash Chaturvedi, joint managing director, NSEL, in an emailed response.

So while concerned entities have been making repeated claims about efforts towards recovery, the fact remains that only an insignificant portion of the money has been recovered in these two years. Allegations and counter-allegations have been levelled against investor associations, brokers, politicians, bureaucrats and regulatory bodies.

All this has affected the pace of legal and recovery processes. There are a number of ongoing cases in various courts against defaulters. The government has initiated the process of hearing in the merger case, but it has been postponed on various occasions.

Only recently, the government of Maharashtra decided to set up a special court to hear matters related to NSEL and also appointed two senior bureaucrats to coordinate all government efforts towards recovery.

Only time will tell if the 30,000 investors that regulators claim lost in the scam would get back their money and whether the real guilty entities will get any kind of punishment.


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