FTIL left adrift in sea of trouble

MCX board to discuss ways to sell FTIL stake at Friday meeting

After the arrest of Financial Technologies India Ltd (FTIL) chairman and group chief executive Jignesh Shah, Multi Commodity Exchange (MCX), at a meeting on Friday, will chart a road map to sell FTIL's stake in the exchange, in case FTIL isn't able to do so.

The MCX board will discuss a proposal to amend the articles of association of the company to accommodate the new set of norms issued by the Forward Markets Commission on Tuesday. The new norms say any shareholder declared not 'fit and proper' to run a commodity exchange will divest stake in the exchange; pending the divestment, the voting rights of such entities will be withdrawn and any corporate holding in lieu of such holding will kept in abeyance/withheld by the exchange. Also, "the exchange shall take steps it may deem fit to ensure the shareholding of such persons is divested forthwith", the norms said.

According to the FMC directive, the voting rights of FTIL, declared not 'fit and proper' by FMC, have already been withdrawn.

While the regulator has not specified the manner in which an exchange has to divest the stake of the unfit entity, at its board meeting, MCX will take a decision on this. A board member of the exchange said, "The modalities of the (stake) sale will also be discussed." He, however, clarified this would be so only if FTIL wasn't able to sell the stake before the exchange's articles of association were amended. The amendment will take time, as it will require the approval of all the shareholders, said the board member.

"The guidelines on the consequence of the 'fit and proper' clause (clause 6) could have been more specific on how the exchange could divest shareholding of those not 'fit and proper'," said Rajnikant Patel, former managing director of BSE.

FTIL has already received 10 non-binding offers for its 24 per cent stake on the block. But the divestment of stake, already delayed after a PricewaterhouseCoopers audit report and FMC's new guidelines, seems more uncertain now due to the arrest FTIL chairman Jignesh Shah.

Patel said, "While the current wording of the guidelines can be construed to be wide enough, it might lead to litigation against the exchange due to its openness to interpretation. Also, leaving such an important issue to an individual exchange's discretion… it would have been better to define the action in the guidelines to avoid protracted litigation and the possibility of different interpretation by exchanges."