2014 (2) TMI 1316 - HC - Indian Laws

Court Upholds Disqualification of FTIL and Executives from MCX

The court upheld the Forward Markets Commission's order disqualifying Financial Technologies (India) Limited (FTIL), Jignesh Shah, and Shreekant ... Stay granted in exercise of writ jurisdiction under Article 226 of the Constitution of India - fraud in NSEL - Commission has issued directions for forcing disinvestment of stakes of the Petitioners in MCX - Held that:- As elaborate enquiry has been made by the Commission. Findings of fact of serious nature have been recorded against the Petitioners. The fraud perpetrated is to the tune of ₹ 5,500 Crores. Criminal investigations are in progress. Considering the gravity of the allegations which have been found to be established against the Petitioners, this is not a fit case where prayer for stay can be granted in exercise of writ jurisdiction under Article 226 of the Constitution of India. Accordingly, prayer for interim relief is rejected. Hearing of the Petition is expedited. Issues Involved:1. Legitimacy of the Forward Markets Commission's (FMC) order dated 17th December 2013.2. Compliance with the 'fit and proper person' criteria by Financial Technologies (India) Limited (FTIL), Jignesh Shah, and Shreekant Javalgekar.3. Alleged breach of natural justice principles in the FMC's proceedings.4. Validity of the FMC's findings and directions regarding the disqualification of FTIL, Jignesh Shah, and Shreekant Javalgekar.5. Request for interim relief and stay of the FMC's order.Detailed Analysis:1. Legitimacy of the FMC's Order:The petitions challenge the FMC's order under Article 226 of the Constitution of India, which disqualified FTIL, Jignesh Shah, and Shreekant Javalgekar from holding significant positions in the Multi Commodity Exchange of India Limited (MCX). The FMC's order was based on several ongoing investigations into events at the National Stock Exchange Limited (NSEL), where FTIL held a 99.99% stake and a 26% stake in MCX.2. Compliance with 'Fit and Proper Person' Criteria:The FMC's guidelines require directors and executives of commodity exchanges to meet the 'fit and proper person' criteria, which include financial integrity, good reputation, honesty, and the absence of disqualifications such as convictions for economic offenses. The FMC concluded that FTIL, Jignesh Shah, and Shreekant Javalgekar did not meet these criteria due to their involvement in the NSEL fraud, which involved a settlement default of Rs. 5,500 Crores affecting over 13,000 investors.3. Alleged Breach of Natural Justice Principles:The petitioners argued that the FMC's order was issued in a summary manner without conclusive findings and that they were denied the opportunity to cross-examine the forensic auditors from M/s. Grant Thornton. They contended that the denial was based on flimsy grounds and that the findings were speculative. However, the FMC noted that the petitioners were given an opportunity to be heard and that the findings were based on detailed evidence and forensic reports.4. Validity of the FMC's Findings and Directions:The FMC's order held that FTIL, Jignesh Shah, and Shreekant Javalgekar were not fit and proper persons to hold significant positions in MCX. The order directed that FTIL and entities controlled by it could not hold more than 2% of the paid-up equity capital of any recognized exchange. The FMC's findings included:- FTIL's involvement in planning and controlling NSEL's fraudulent activities.- Jignesh Shah's significant financial benefit from the fraud and his misuse of his position to mislead the public.- Shreekant Javalgekar's conflict of interest and lack of integrity due to his roles in NSEL and the Indian Bullion Merchants Association Ltd.5. Request for Interim Relief:The petitioners sought a stay on the FMC's order, arguing that the order was disproportionate and that they had already resigned from their positions at MCX. They also offered to refrain from exercising their rights in MCX during the petition's pendency. The FMC opposed the interim relief, citing the magnitude of the fraud and the ongoing criminal investigations. The court found that the FMC conducted an elaborate inquiry and recorded serious findings of fact. Given the gravity of the allegations, the court rejected the request for interim relief and expedited the hearing of the petition.Conclusion:The court upheld the FMC's order, rejecting the petitioners' request for interim relief, and emphasized the seriousness of the fraud and the detailed findings of the FMC. The court found no breach of natural justice principles and concluded that the petitioners did not meet the 'fit and proper person' criteria due to their involvement in the NSEL fraud.