Business standard updates 14-3-2014 *CBI begins probe against Shah, ex- Sebi chief Bhave* BS REPORTERS New Delhi/ Mumbai, 13 March They loved to hate each other at public forums not so long ago. In a case of sheer irony, former Securities & Exchange Board of India ( Sebi) chairman C B Bhave and Financial Technologies India Ltd ( FTIL) promoter Jignesh Shah found themselves on the same platform on Thursday, with the Central Bureau of Investigation ( CBI) registering apreliminary inquiry against both, as well as former Sebi member K M Abraham, over alleged irregularities in grant of sanction to the MCX Stock Exchange ( MCX- SX) in 2008 and renewal of recognition in 2009 and 2010. The CBI probe is to ascertain how MCX- SX was given permission despite opposition from the finance ministry when Bhave was head of the regulatory authority. The investigating agency also filed a first information report ( FIR) naming Shah, also apromoter of National Spot Exchange Ltd ( NSEL), besides officials of Projects and Equipment Corporation ( PEC), for alleged criminal conspiracy and cheating. According to late- night reports, Shah was questioned for over two hours by CBI at its Ballad Estate office in South Mumbai. He was allowed to go home at 11.30 pm. In its FIR against the two companies, CBI said it appeared PEC was floating “fraudulent paired contracts for trading in agri- commodities on NSEL’s platform, without undertaking any genuine trade and causing a ₹ 120- crore loss to the government”. Bhave had become Sebi chairman in February 2008 and his three- year term ended in February 2011. Abraham’s term as a whole- time member of Sebi also ended in 2011. Incidentally, Abraham had written to the Prime Minister’s Office in 2011 that Sebi was being pressured by the finance ministry to go easy on some companies, including MCX and Sahara, against whom he had passed orders. However, these charges were rejected by the ministry as well as Sebi. MCX- SX, set up by Shah’s FTIL and its commodity exchange arm MCX, began functioning as a full- fledged stock exchange in 2013 after a prolonged battle with Sebi. While a spokesperson for FTIL said the company would provide full cooperation to the authorities, Bhave and Abraham could not be contacted. The exchange was initially given permission for only a limited segment of currency derivatives ( in 2008), on the condition that its licence will require approval every year. Last year, Sebi asked MCXSX to restructure its board and governance framework after a payment crisis broke out at NSEL. Bhave had earlier told Business Standard the fact that MCX- SX was allowed to trade in currency futures was proof of the fact that he encouraged competition. Sebi could have denied approval on the grounds that MCX- SX’s shareholding did not follow the guidelines. But he gave the exchange two years to comply. The preliminary inquiry was registered on a day CBI carried out searches at official and residential premises of NSEL and PEC across 15 locations in Mumbai, Karnal and Delhi. CBI said it recovered ₹ 36 lakh from the searches at the residence of Sinha. Searches were also carried out in the premises of NSEL borrowers, including Mohan India, ARK Commodities, Yathuri Associates, PD Agro, Dunar Foods, White Water and Vimla Devi. An FIR on the NSEL controversy was also registered last year by the economic offences wing of the police here; a chargesheet was also filed in court. The shares of FTIL and MCX took a beating on Thursday amid the CBI action. The FTIL stock was down 4.3 per cent from previous close to ₹ 378 a share, while MCX was down 4.6 per cent to ₹ 515.7. NSEL is facing allegations of a ₹ 5,600- crore default due to about 13,000 investors. In September last year, one of the latter had filed an FIR against the directors and key management executives of NSEL, for cheating, forgery, criminal breach of trust and conspiracy. Turn to Page 19 > Case relates to alleged irregularities in ’ 08 sanction to MCX- SX; Shah grilled in NSEL case CB Bhave was the Sebi chief in 2008, when MCX- SX was given permission to operate FTIL promoter Jignesh Shah was questioned by CBI in the NSEL payment crisis case MCX- SX board meeting today Media reports suggested an emergency board meeting of MCX- SX, to be held on Friday, might see resignations by its chairman GK Pillai and other public- interest directors. However, the exchange’s MD, Saurabh Sarkar, confirmed to Business Standard that the meeting was not an emergency one and had been scheduled at the previous board meeting a month earlier. SHAH FOUND ‘ NOT FIT & PROPER’ 6 YEARS AGO P18 > *Shah found ‘ not fit & proper’ 6 years ago* BS REPORTER Mumbai, 13 March It now transpires that six years ago, Jignesh Shah, promoter of Financial Technologies India Limited ( FTIL), was declared “ not fit and proper” to acquire shares in stock exchanges. The verdict was delivered by the finance ministry in October 2007. In a letter addressed to M S Roy, the then Executive Director of the Securities and Exchange Board of India ( Sebi), M S Sahoo, the then Director ( Securities) in the finance ministry had said documents received from the Central Board of Direct Taxes ( CBDT) provided adequate basis to conclude that FT, MCX and Shah were not fit and proper to acquire five per cent stake in the Delhi and Vadodara stock exchanges. Just five days later – on October 12, 2007 – Sebi dismissed the ministry’s concerns and gave Shah the green light to acquire the shares. The market regulator, of course, gave detailed reasons for its decision. Pointing out that the ministry’s verdict is based on an income tax search and survey on the premises of FT and its directors on June 19, 2007, Sebi’s then Chief General Manager D Ravikumar said, “Initiation of an inquiry may not by itself disqualify the concerned entity from being considered as fit and proper, especially when the outcome of such an inquiry is not known.” Sebi remained firm in its decision, even though the ministry had forwarded the income tax department’s findings of admitted undisclosed income of ₹ 16 crore and admissions of wrong claims made by the FT Group. The market regulator’s benevolence towards Shah and his group wasn’t restricted to this one instance alone. Less than a year later, it allowed FT to set up MCX- SX for starting currency derivatives trading. At the time of the licence, FT and MCX owned 100 per cent in MCX- SX, even though the MIMPS (manner of increasing and maintaining pubic shareholding in recognised stock exchanges) regulations provided for not more than five per cent stake. The licence was renewed twice, although the entities failed to comply with the MIMPS regulations. But all this becomes insignificant by what followed. Barely three weeks after it renewed MCX- SX’s licence for currency derivatives trading, Sebi passed a detailed order on September 23, 2010, saying the promoters were “ dishonest” and, therefore, not “ fit and proper to start equity trading”. This means in the regulator’s wisdom, Shah and his entities were fit and proper for currency trading but dishonest and unfit for equity trading. The question that is doing the rounds is what on earth made Sebi change its mind about Shah and his entities in just three weeks. Even if one assumes that the regulator did not want to stop an exchange for which a permission had been granted earlier, sources familiar with the developments said what beats logic was the fact that Sebi did not even bother to issue any showcause or initiate any proceedings as to why the currency business should not be closed in view of its findings regarding the “dishonesty” of the promoters. The Sebi brass that time had not answered why they had dismissed the finance ministry’s concerns about Shah and why they gave him along rope on currency derivatives trading. A “ fit and proper” person, the souces said, could hardly be labelled “ dishonest” in a span of just three weeks. Sebi had in 2007 dismissed the finance ministry’s concerns and gave Jignesh Shah the green light to acquire shares in the Delhi and Vadodara stock exchanges ------------------------------ *Click here to read more...Turn to Page 19 >* *Click: Article continued from…CBI begins probe against* ------------------------------ *CBI begins probe against Shah, Bhave* MCX- SX board meet today Agency reports suggested an emergency board meeting of MCX- SX had been called on Friday and that there might be resignations by its chairman GK Pillai and other public- interest directors in the wake of the CBI probe. Apart from Pillai and vicechairman Thomas Mathew T, two other public- interest directors ( Ashima Goel and DR Dogra) could also quit, the reports said. However, MCX- SX MD Saurabh Sarkar confirmed to Business Standard that the meeting was not an emergency one and had been scheduled at the previous board meeting amonth earlier. On the MCX- SX rights issue, Sarkar said the response from investors had been good. There were apprehensions the licence of the exchange, already battling low business volumes due to problems at NSEL, could be cancelled if CBI probe found something detrimental, sources said. Pillai and these three persons were appointed as public- interest directors at MCX- SX after Sebi last year asked the exchange to recast its board and governing structure. Sources added the board members of the exchange were of the view that CBI inquiry would jeopardise the prospects of MCX- SX and make it difficult to get any strategic investors. After the NSEL fallout, the original promoters of MCX- SX had been issued showcause notices by Sebi, as another regulator FMC ruled they were not “ fit and proper” to run any exchange. *Roy’s Tihar stay continues as SC refuses bail* BS REPORTER New Delhi, 13 March Sahara chief Subrata Roy’s stay in Tihar jail is set to continue, with the Supreme Court turning down his request for bail on Thursday. A bench of judges KS Radhakrishnan and JS Khehar began hearing the arguments on the maintainability of a habeas corpus petition filed by Roy, claiming his detention was illegal. The court adjourned the hearing on the matter to March 25. “The prayer made by Ram Jethmalani, senior counsel for the petitioner, for bail cannot be considered at this juncture, since no written proposal for payment in compliance with the directions issued by this court has been made so far,” the bench said in an order posted on the court’s website. Radhakrishnan asked, “ Do you have any proposal? We are repeatedly asking you.” Sahara counsels Ram Jethmalani, Rajeev Dhawan and Ravi Shankar Prasad pressed for bail. Jethmalani offered to give a personal undertaking that Roy would be present at the next hearing. Jethmalani said, “ Persons who might help him expect something in return. They expect nothing in return from aman in jail. Nobody is going to help him if he is in this condition.” When he asked the court to specify the amount to be paid, Khehar said, “ We don’t know what you can pay. You have to say that.” When the Sahara counsel offered ₹ 2,500 crore, Khehar said, “That we have already rejected.” The bench reiterated the Sahara group hadn’t come up with a proposal so far. “ The key is in your hand. You open it, we allow you bail,” Khehar said. Earlier, Sebi counsel Arvind Datar had argued the writ petition filed by Roy was liable to be dismissed, as all prayers therein were not maintainable. Datar cited several judgments to reiterate the contempt jurisdiction of the court could be used as a tool for compliance of the order. He also questioned Roy’s plea to be allowed to celebrate Holi. “ I am astonished they are seeking release to celebrate Holi. What about the discharge of this court’s orders? What about the 30 million investors?” he asked. “ I don’t see what other order could be passed for the man behaving in such a manner… *Does Sec 11 of Sebi Act apply to the Maruti Suzuki case?* PRIMER What is Section 11 of the Act? The preamble to the Sebi Act states Sebi has been established to protect the interests of investors in the securities market and to promoter and regulate the development of this market. Section 11B of the Act says if Sebi is satisfied it is necessary in the interests of investors or the orderly development of the securities market, it might issue directions to any person as may be appropriate in the interests of investors in securities and the securities market. Section 11( 1) repeats the preamble --- to protect the interest of investors in the securities market and promoter and regulate the development of the securities market. It states Sebi can do this by “ such measures as it thinks fit”. Lalit Kumar, partner, J Sagar Associates, says, “ The use of the words ‘ such measures as it thinks fit’ shows the intent of the legislature to give Sebi wide powers to issue orders and directions for the objective for which it has been established.” Why has Section 11 come under the spotlight in the wrong side of the law, in terms of its proposal for the Gujarat plant. Under Sebi’s new corporate governance norms ( effective October 1, 2014) or the new Companies Bill ( certain provisions of this are yet to be notified), such a transaction can only go through most minority shareholders vote in favour of this. However, as the new norms are yet to come into play, Maruti could implement its plan without the consent of public shareholders. Therefore, in investors’ interests, Sebi could stall the Maruti proposal by taking action under Section 11. which Sebi might consider proceeding in the instant case,” says Jay Parikh, partner, Verus. What are the chances of Sebi taking legal action against Maruti? Lawyers say Sebi could only take action if it is fully convinced the interests of all investors have been affected by Maruti’s decision. The markets regulator has sought details from Maruti on its decision on the Gujarat plant. The company has already replied to Sebi and there hasn’t been any communication after that. COMPILED BY SAMIE MODAK Top institutional shareholders of Maruti Suzuki India are up in arms against the company’s controversial proposal for the Gujarat plant, which they say is against the interests of investors. With Maruti Suzuki refusing to go back on the plan, these investors have approached the Securities and Exchange Board of India ( Sebi), which is examining the possibility of taking action under Section 11 of the Sebi Act. Here’s a look at what Section 11 is about and how it could be used: -- CS A Rengarajan 9381011200 CS Benevolent Fund is a collective effort towards extending the much needed financial support to the community of Company Secretaries in times of distress Let us lend support and join for noble cause. SHARING KNOWLEDGE SKY IS THE LIMIT This mail and its attachments (if any) are confidential information intended for persons to whom the email is planned for delivery by the sender. 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Posted on: Fri, 14 Mar 2014 00:43:42 +0000
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