Sebi alleges MCX-SX concealed facts while diluting equity

The Securities and Exchange Board of India (Sebi) today alleged in the Bombay High Court that MCX Stock Exchange (MCX-SX) had concealed some facts while diluting its equity stake under the "capital reduction cum arrangement".

Sebi counsel, Additional Solicitor General Darius Khambata, argued that MCX-SX had also not informed it about modalities and nitty-gritties of this scheme.

Justices DY Chandrachud and Anoop Mohata were hearing a petition by MCX-SX against the market regulator Sebi for not allowing it to start equity trading despite complying with all regulations.

The court observed that it was obligatory on the part of MCX-SX to disclose the buy-back to Sebi and that such negligence could not be tolerated.

The Sebi counsel brought on record that MCX-SX promoter Jignesh Shah and his wife were controlling a company called 'Lafin', which in turn holds 26% stake in Financial Technologies (FTIL), also promoted by Shah.

MCX-SX submitted that during discussions, Sebi Executive Director JN Gupta had himself mooted the idea of warrant model for diluting equity stake of the stock exchange to five%. It was only then MCX issued warrants to 18 public sector banks with an assurance that this would not be converted into equity.

As per the Sebi guidelines, no promoter of a stock exchange can hold more than 5% equity stake.

The HC had yesterday asked Sebi whether it would accept an undertaking from the promoters of MCX-SX that they would maintain their equity holding at 5% and not exercise the option of converting warrants into equity. The regulator responded by saying it would seek instructions from the Sebi board in this regard.