IL&FS goes to court on MCX-SX stake

The ownership issue in the MCX Stock Exchange (MCX-SX) has taken a judicial turn.

One of the shareholders has taken La-Fin Financial Services, an entity associated with Jignesh Shah, to court over a matter concerning acquisition of shares in the exchange. Shah is promoter of Financial Technologies, in turn a promoter of MCX-SX.

A Financial Technologies spokesperson said: A Civil suit w.r.t a commercial dispute has been filed by IL&FS against La Fin in the matter of ILFS acquiring shares of MCX-SX.  There are views and counter views and hence a legal interpretation is necessary for clarity. The matter will be duly attended to and we are unable to comment beyond this as the matter is sub-judice".

The promoters of MCX-SX used various methods to meet the regulatory norms on shareholding in exchanges. These included sales to other investors, such as IL&FS, and also reducing the paid-up capital. The promoters, however, retained warrants which entitled them to a right over the exchange's equity shares.

"The promoters of the exchange, Multi Commodity Exchange of India Ltd and Financial Technologies (India) Ltd, are required to reduce their entitlement to warrants in excess of the limit of shareholding as specified in the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, within a period of three years from June 20, 2012," according to a note on the exchange website.

They had been asked to bring the shareholding down to five per cent by January 2014. Attempts to reach IL&FS were unsuccessful. A query sent to a company email address remained unanswered at the time of writing.

Financial Technologies sold 44.2 million shares of MCX-SX to IL&FS at Rs 36 a share in August 2009, according to a Securities and Exchange Board of India order in 2010. A sale was also made to IFCI of 71.875 million shares at Rs 35 each. Punjab National Bank purchased 40 million shares at Rs 10 a share, it said. The regulator had also observed that the promoters of MCX-SX and their associates had arrangements with three shareholders (PNB, IL&FS and IFCI), where sale of shares between the parties were based on offers to buy back the shares at or within a specified time in the future. The regulator had denied the exchange permission to start operations in various segments, as it was not seen to be compliant with the shareholding norms.

A battle at the high court here and later the Supreme Court saw the regulator allowing it to start operations, subject to changes in the way it structured its ownership.
LEGAL HURDLE

• One of the shareholders has taken La-Fin Financial Services, an entity associated with Jignesh Shah, to court over a matter concerning acquisition of shares in the exchange. Shah is promoter of Financial Technologies, in turn a promoter of MCX-SX
• The promoters of MCX-SX used various methods to meet the regulatory norms on shareholding in exchanges. These included sales to other investors, such as IL&FS, and also reducing the paid-up capital
• They had been asked to bring the shareholding down to five per cent by January 2014