TaxTMI 
TaxTMI 
TaxTMI 
2014 (2) TMI 1316
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.... Stock Exchange Limited (NSEL). The impugned order has been passed dealing with the status of M/s.Financial Technologies (India) Limited (Petitioner in W.P. No.337/2014), Shri Jignesh Shah (Petitioner in W.P. No.363 of 2014) and Shri Shreekant Javalgekar (Petitioner in W.P. No.370 of 2014). M/s. Financial Technologies (India) Limited (for short "the FTIL") is anchor shareholder and promoter of Multi Commodity Exchange of India Limited (for short "MCX"). Shri Jignesh P. Shah is ExDirector of MCX and Shri Shreekant Javalgekar is ExManaging Director and CEO of MCX. FTIL has a stake of 99.99 percent in NSEL and stake of 26 percent in MCX. 3. Under Section 3(1) of the Forward Contracts (Regulation) Act, 1952 (hereinafter referred to as "the said Act of 1952"), Forward Markets Commission has been set up to regulate the commodity futures market. On 29th February, 2008, the Commission issued directions to the National Commodity Exchanges in the form of guidelines on the Constitution of the Board of Directors, Nomination of Independent Directors and appointment of Chief Executives at the National MultiCommodity Exchanges. As per the revised guidelines, persons to be appointed as Directors ....
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....at Shri Jignesh Shah is not a fit and proper person in terms of the guidelines. It was ordered that Shri Jignesh Shah is not a fit and proper person to hold any position in the management and the Board of any Exchange recognised under the said Act of 1952. It was directed that neither Shri Jignesh Shah individually, nor any Company/ entity controlled by him, either directly or indirectly, shall hold any shares in any association/ Exchange recognised by the Government in excess of the threshold limit of the total paidup equity capital of such Exchange. Similar order was passed in relation to Shri Shreekant Javalgekar. 6. The submission of the learned Senior Counsel appearing for the Petitioner is that investigations are in progress as regards fraud in NSEL and there is no conclusive finding recorded as yet. He submitted that in a summary manner the Commission has issued directions for forcing disinvestment of stakes of the Petitioners in MCX. He urged that there is no factual foundation for the drastic directions issued by the Commission by the impugned order. He urged that the impugned order is vitiated by the breach of principles of natural justice. He pointed out that though t....
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.... this stage, when we are considering the prayer for stay, the findings recorded under the impugned order will have to be considered in the light of the guidelines. There is no dispute that the Petitioners were granted an opportunity of being heard by the Commission. It must be noted here that in the impugned order, the Commission has noted various facts about mismanagement and poor governance of NSEL which were incorporated in the show cause notice. Detailed allegations have been set out in the show cause notices served to the Petitioners. The allegations are as regards established fraud involving settlement default of Rs. 5,500 Crores on trading platform of NSEL from a group of 24 borrowers with poor credentials who owed money to over 13,000 investors. 8. It is not necessary at this stage to set out detailed allegations made in the show cause notices. We must note here that FTIL has 26 percent shareholding in MCX and 99.99 percent shareholding in NSEL. We must note that in the impugned order, the Commission has recorded elaborate and detailed findings of fact after considering the evidence on record. A finding of fact has been recorded by the Commission that M/s. Grant Thornton f....
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....nvestment in FTIL running into thousands of crores of rupees. Shri Jignesh Shah, as the promoter of FTIL and NSEL has misused his position to create a confident in the minds of the participants regarding the legitimacy of the business and its operations in the exchange platform of NSEL. Shri Shah consciously used his position to represent to the public at large about the attractive features of the contracts being traded on NSEL platform while taking no steps to introduce any effective governance mechanism including risk management, due diligence, assured collaterals etc., to ensure the legitimacy of his claims and to prevent frauds." (underline added) 10. As regards Shri Jignesh Shah, in paragraph 15.2.4, relying upon the findings recorded earlier, it was observed by the Commission that the general reputation and character, record of fairness, honesty and integrity of Shri Jignesh Shah has been substantially eroded in view of his role in the affairs of NSEL and also as the Chairman of the holding company of NSEL. 11. As regards Shri Shreekant Javalgekar, in paragraph 15.4, the finding was recorded under the impugned order that he was not fit and proper person. In paragraph 15.4 ....
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....e criteria for a fit and proper person it could not hold 2% or more of the paid up equity capital of MCX." (underline added) We accept the statements in the reply. 13. As regards the grievance of the Petitioners regarding failure to grant opportunity to cross examine the auditors, the said aspect has been dealt with by the Commission in the impugned order. In paragraphs 14.6 and its sub paragraphs, this aspect has been dealt with. After discussing the manner in which the enquiry before the Commissioner proceeded, a finding of fact has been recorded by the Tribunal in paragraphs 14.6.9 that despite the Commission granting opportunity to the Petitioners in the present Petitions to question the auditors in the manner they liked, except for Shri Joseph Massey, no other noticee remained present when entire team of auditors was available for questioning. 14. In paragraph 14.6.1, it is noted that the Commission had directed the NSEL to appoint a forensic auditor for inspection of their books of accounts, for review of their maintenance of records and other housekeeping activities. Accordingly, M/s. Grant Thornton India were appointed. It is recorded that FTIL being the parent company ....