Jignesh Shah resigns from MCX board Says FMC Can’t Draw Adverse View About Fit & Proper Tag Till Probe Is Completed

Mumbai: Jignesh Shah, founder, vice-chairman and a director of Multi-Commodity Exchange (MCX), resigned from the bourse's board on Thursday even as he replied to a show-cause notice to by Forward Markets Commission (FMC) about why he should not be disqualified from being a 'fit & proper person' to be on the board of an exchange. 

    FMC had slapped the notice on Shah for his alleged role in the Rs 5,600-crore payment crisis at the National Spot Exchange (NSEL), a group company of MCX, the only listed exchange in the country. 
    The 'fit & proper person' test for a person to be on an exchange's board requires that he/she should be honest, with high integrity, a good reputation and solvent. Regulators in India take into account all these factors before allowing a person to be either a shareholder-director or an independent director on an exchange's board. 
    Shah's resignation came exactly three months after the NSEL scam came to light. Shah, along with some others, set up MCX from the scratch over the last decade — it is now one of the largest commodity bourses in the world. Shah was on the board of MCX as a nominee of Financial Technologies (FTIL), the main promoter of the commodities bourse. 
    Shah has already resigned from the MCX Stock Exchange (MCX-SX). He, however, continues to be a director on the boards of FTIL and NSEL. 
    The resignation came at a time when the economic offences wing of the Mumbai Police has taken some of the former top NSEL officials into custody, and also Nilesh Patel, the promoter of N K Proteins, one of the biggest borrowers of the exchange which owes investors about Rs 970 crore. 
    On Wednesday, Mohan India, another large borrower in NSEL, agreed to pay Rs 600 crore to settle its dues that totalled about Rs 770 crore. There are talks that Patel is also on the verge of paying up Rs 600 crore to settle his dues with the commodity bourse. 
    In his reply to FMC's showcause notice, Shah pointed out that proceedings initiated by various agencies into the NSEL fiasco were pending and, hence, it would be premature to draw any adverse inference either against him or FTIL on account of such proceedings, sources said. Shah also defended his position as a qualified board member of the bourse on the basis that neither him, nor FTIL has been found to have played any role in the NSEL scam.

Jignesh Shah

Fwd: NOOSE TIGHTENS AROUND FT GROUP OWNER

FMC Show-Cause to MCX Promoter FT

Lookout notices against Jignesh Shah, Anjani Sinha and NSEL defaulters

The Forward Markets Commission (FMC) has issued a notice to Financial Technologies (FT), the promoter of commodity exchange MCX, FT Group owner Jignesh Shah and other officials, asking them to show cause why they should not be declared not 'fit and proper' to be shareholders and directors on MCX. 
Besides Shah, who is the chairman & CEO of FT Group, notices have also been issued to Joseph Massey, MD & CEO of MCX Stock Exchange, and Shreekant Javalgekar, MD & CEO of MCX. 
"The show-cause notice has been issued on Friday," said two government officials privy to the development. "Financial Technologies and the three officials have been given two weeks to reply to the notice." 
In a potentially significant finding, the officials added, the notice found the board of National Spot Exchange (NSEL) was aware of the happenings that led to the . 5,500-crore payments crisis. 
"The board approved the paired contracts in 2009, which were not allowed as they were a financing activity. Bye-laws on warehousing too were not followed. FMC has found there were 2,000 payment defaults in two years through 2012," one of the officials said. 'Board can't Absolve Itself' 
Despite the payment defaults on NSEL, "the borrowers were not barred from trading. On the contrary, they were given margin exemption and allowed to do more trading on NSEL, resulting in their outstanding exposure rising from . 2,009 crore in March 2011 to . 6,800 crore by June this year", one of the officials said. While Shah continues to be a director on NSEL, Javalgekar and Massey were past directors on the board. Shah and Javalgekar are also on the MCX board while Massey resigned as a director on September 30. 
The show cause notice also says that trading by group company Indian Bullion Market Association on NSEL and MCX was against rules. Further, former MD & CEO of NSEL, Anjani Sinha, was a key management personnel on the exchange and according to Accounting Standard 18, such a person's role is defined and approved by the board. Thus, the board cannot absolve itself of any responsibility for the fiasco, the officials added. Another potentially significant finding, according to them, was that the NSEL board gave corporate guarantees to banks against which some of the defaulting members could borrow. 
LOOKOUT NOTICE AGAINST 
SHAH, OTHERS 
In a related development, the Maharashtra Police unit investigating the NSEL defaults case issued a lookout notice against Jignesh Shah, who will now not be allowed to leave India without permission. 
"We have issued such notices against 22-24 persons, including the promoters, office-bearers and certain defaulters on NSEL," said Rajvardhan Sinha, additional police commissioner, Economic Offences 
Wing (EOW), Maharashtra Police. "This is a normal legal procedure whereby a criminal case is filed and it is (feared) that a person with financial standing could possibly leave the country to evade the consequences. It is done as a matter of abundant caution." 
The so-called lookout notices have been issued by EOW against Shah, Anjani Sinha, other office-bearers of NSEL and key personnel of some of the biggest defaulters, including Mohan India, NK Proteins and Lotus Refineries. 
The lookout notices have been sent to all immigration check posts in the country. 
NSEL and its promoter Financial Technologies are among entities facing police investigation following a complaint filed by an investor with EOW. Around two dozen members have defaulted on payments amounting to Rs 5,500 crore to more than 13,000 investors. 
The money was borrowed on NSEL through paired contracts. First, an investor bought commodities from a borrower on the second day of placing a trade. In the second part, the investor undertook to sell the commodity back to the borrower after 25-36 days. In the bargain, the investor earned an annualised return of more than 13%. The crisis erupted when it was found that most exchange-accredited warehouses had inadequate or non-existent stocks against which borrowers had raised funds. 
Apart from EOW, other agencies examining the matter include FMC, the ministry of corporate affairs and the income-tax department.