Order on Shah's fit & proper status after forensic audit

Those under the scanner will cross examine the forensic audit report

The commodity market regulator, Forward Markets Commission (FMC), will finalise its order regarding ‘fit and proper’ status of two former directors of Multi Commodity Exchange (MCX) and the promoter of the Financial Technologies India Limited (FTIL), Jignesh Shah, after these entities cross-examine a forensic audit report by Grant Thornton.

The cross-examination is scheduled on November 25. This was revealed by FMC Chairman Ramesh Abhishek on Friday on the sidelines of the Federation of Indian Chambers of Commerce and Industry CAPAM conference on capital markets.

After the National Spot Exchange Limited (NSEL), facing payment crisis of Rs 5,574 crore, a spot exchange floated by the FTIL, defaulted in its payment schedule mid-August, FMC had issued a show-cause notice to the directors (who were also directors on MCX board) and Jignesh Shah and FTIL asking why their ‘fit and proper status to run a commodity exchange should not be cancelled’ on October 4.

In response to that notice and later in their personal hearing on November 12,  Shah and other directors had sought an opportunity to cross-examine the auditor who did forensic audit, and based on which the FMC had issued a show-cause notice. It is learnt that Shah and others had found that the audit report was weak on many aspects and not even worth calling it a forensic audit.

“Our decision on their fit and proper status will be taken after the cross-examination is done on November 25,” said Abhishek. Regarding special audit of the MCX, he said, “The board of directors and their audit committee are working on selecting an auditor for the special audit of MCX. Based on their recommendations, we will decide in next few days on who will do the special audit.”

The FMC chief outlined that the terms of reference for the special audit will include, trading in the exchange by the related parties, Indian Bullion Market Association, a subsidiary of NSEL, and major expenditure items such as donations, warehousing charges, etc. and all other related transactions.

Following an order by the Bombay High Court, which is hearing all NSEL related cases, the FMC had ordered forensic audit of the E-series contracts of the exchange.

Abhishek said, “We asked the Institute of Chartered Accountants of India to suggest names of forensic auditors. They gave a list of 99 auditors. Out of that, we have short-listed two  based in Mumbai. We have send them terms of reference and asked them for their offer. Next week, definitely we are going to appoint an auditor for the E-series.”