THE higher you go, the greater your fall. Two, there are no permanent mai-baaps to break your fall each time you land in trouble. These are the biggest lessons to be learned from the fate of businessmen like Subrata Roy, Jignesh Shah, B Ramalinga Raju of the Satyam group, Shahid Balwa of DB Realty, Sanjay Chandra of Unitech Wireless and Vinod Goenka of Swan Telecom.
The end game has begun. Shah is going to withdraw from the stock exchange business he painstakingly created, but not before the Economic Offences Wing of the Mumbai police filed a 9,360-page chargesheet against him in the Rs. 5,574-crore fraud at the National Spot Exchange Ltd (NSEL).
The Forward Markets Commission (FMC) declared him and his company, Financial Technologies India Ltd (FTIL), unfit to run any exchange.
Since his release on bail, Shah has been busy selling his stake to Uday Kotak, the promoter of Kotak Mahindra Bank, Rakesh Jhunjhunwala, SBI Life Insurance and anyone else who was interested. Kotak wanted to buy the entire 26 per cent and quoted Rs. 550-575 per share, but eventually increased the price to Rs. 600. Kotak already owns 40 per cent stake in Ahmedabad Commodity Exchange (ACE), which it purchased in 2009.
The FMC has cleared the MCX-Kotak deal. This means that Kotak will have a board nominee and will have a say in appointing the CEO and managing director of MCX. Kotak is banking on new amendments in the Forward Contract Regulation Act (FCRA), like reduction in CTT, and permission to start option trading and for institutions to participate in the commodity market. It is not clear when these will happen, but this was an important consideration for it to acquire a stake in MCX.
The FCRA amendment Bill is likely to be placed before Parliament during next year’s Budget session. Interestingly, while the Harshad Mehta scam in 1992 ensured the emergence of SEBI as a strong regulator, something similar is happening nearly two decades later. The Rs. 5,600-crore NSEL scam is proving to be a blessing in disguise for the FMC.
Another positive development has been that the FMC, which was under the Consumer Affairs Ministry, has been taken over by the Finance Ministry. The capital markets division of the Finance Ministry has been renamed Financial Markets Division and the FMC Chairman has been designated on a par with a Secretary in the Government of India.Hopefully, this should mean functional autonomy for the regulator which may not have to look behind its back for the ministry’s nod.
The regulator may soon be able to hire professionals and experts in the field of commodities, finance and law. If all this goes as planned, the FMC may emerge as a strong and powerful regulator like SEBI. Or maybe a new regulator may be put in place, merging the two as suggested by the Financial Sector Legislative Reforms Commission.
A positive development has been that the FMC, which was under then Consumer Affairs Ministry, has been taken over by the Finance Ministry
Meanwhile, some more startling disclosures are expected from Anjani Sinha, the sacked CEO and MD of NSEL, who initially tried to exonerate the promoters but later filed a fresh affidavit alleging that the NSEL board knew what was going on. Sinha, whose wife, Shalini Sinha, traded on MCX for about Rs. 40,000 crore in one year, claimed that his wife was a small garment designer and the trades reflected in the name of SNP Designs was actually speculative trading by Shah on MCX. If Sinha was the main culprit in the scam, why was he retained by Shah for 12-13 weeks after the scam? This only shows the collusion between the two, sources said.
According to sources, the investigation by EOW, CBI and ED seem to be not going anywhere and the FTIL-NSEL merger order (draft), passed by the Ministry of Corporate Affairs has been challenged in Bombay High Court by FTIL.
It is said that about eight companies registered at NSEL auditor Mukesh P Shah’s address had a La Fin connection (La Fin is the investment company through which Shah holds a significant stake in FTIL) and were active on NSEL. These include Maximum Trading, Prathama Trading Limited, Tezas Trading Co Ltd., Zylog Commercial Pvt Ltd, Dynamatic Developers Ltd, Zodiac Trade Link Pvt Ltd, Sarba Mangalam Fintex Pvt Ltd and Prathama Trading Ltd. All these companies got out in June 2013 without losing a penny in NSEL despite doing trading worth Rs. 1,400 crore. At least one of these companies, Dynamatic, is partly owned by La Fin.