No SC breather for NMCE promoter, told to reduce stake to 2%

In an interim order, Kailash Gupta gets three months to cut holding in the Ahmedabad-based exchange

In a positive development for the commodity derivatives market regulator, the Forward Markets Commission (FMC), the Supreme Court of India has stayed the Gujarat high court order granting partial relief from the order on Kailash Gupta, promoter of the Ahmedabad–based National Multi Commodity Exchange (NMCE).

This is a setback for Gupta, who owns 30.18 per cent stake in NMCE through a wholly owned company, Neptune Overseas Ltd (NOL). He would now have to reduce his stake to two per cent within three months, in line with the original FMC order of July 2011.

FMC’s July order had also said, “An extension for another three months can be granted, if Gupta wishes so and approaches the regulator with proper difficulties for not adhering to it in the first three-month period.” Not being able to get a price deemed reasonable by NOL shall not be accepted as sufficient reason for seeking an extra three months, the order had clarified.

 

The SC order, an interim one, given last Friday by a bench of judges Aftab Alam and Chadramauli Prasad, said the July 2011 order of FMC “gets restored” but would be subject to the final outcome of the petitions in question.

The FMC’s order had also said no company controlled by Gupta either directly or indirectly, including NOL, shall hold shares in the exchange in excess of two per cent of the total issued capital of the exchange.

“No comments,” was all that Gupta said when asked to comment on the SC order.

Interestingly, FMC had also directed the NMCE board to take appropriate legal action against Gupta and recover ‘wrongful and illegal over-payment’ of Rs 28.80 crore from Arrow Total Solution, a concern founded by Gupta’s son, in which his wife is a director. More such payments would also have to be recovered from companies promoted by the Gupta family.

The then FMC chairman, B C Khatua, who passed the order, had said Gupta was guilty of reimbursing from the company many foreign tours of his kin. Besides, many payments made to his family-owned companies were found wrong and illegal under the FCR Act, needing recovery.

FMC had also directed the exchange board to initiate legal proceedings against Gupta’s daughter, Poonam Gupta (Verma), and son-in-law Kaushik Gaurav Verma, apart from other employees, public relations agency Tarmac Affairs, and others.

The HC had said three months was not long enough for bringing down the promoter’s equity. While the court left FMC’s order intact, it waived the time limit it had imposed for reducing Gupta’s stake in NMCE.

“It is definitely a victory for us, as the Supreme Court upheld our observations. But, we need to wait until the final order,” said an FMC official.