Ahmedabad/Mumbai: The founder of National Multi-Commodity Exchange of India Ltd (NMCE), India’s first national commodity exchange, is under the scanner of the regulator for alleged irregularities even as the rift between him and the managing director of the exchange is widening.
Unable to meet the ownership and net worth guidelines of commodity markets regulator Forward Markets Commission (FMC), NMCE has bought time till September to do so.
NMCE has a 2.9% market share in commodity futures, a business that has been growing rapidly over the past few years.
In fiscal 2010, total turnover in commodity exchanges soared 48% to Rs77.6 trillion. Turnover in Indian stock markets grew at a slightly slower pace of 46% in the same period to Rs339.31 trillion.
NMCE founder and vice-chairman Kailash Gupta, whose firm Neptune Overseas Ltd is the largest shareholder with a 30% stake in the exchange, is facing an inquiry by FMC into alleged irregularities.
“We have received complaints against Gupta and we are investigating,” said FMC chairman B.C. Khatua. “There are serious allegations against him, but I cannot elaborate at this point.”
The investigation could not have come at a worse time for Gupta, who is fighting the management and the regulator to have his nominee appointed as the managing director of the exchange to replace Anil Mishra, the current managing director.
The trouble between the two started after Mishra became managing director of NMCE in April 2010. In September last year, he resigned from the board of Neptune.
While Gupta said Mishra had lost the right to continue as managing director of NMCE after he resigned as a director of Neptune, Mishra said that as a part of the guidelines of a demutualized exchange, he could not have continued with one of the promoters or remained on the board of another company without the permission of the NMCE board.
Gupta claims that as the core promoter, he has the right to hire and fire top management, citing the constitution of NMCE.
Mishra contests that claim, citing that it is the prerogative of the board to appoint the managing director.
Gupta had sent a letter to Mishra asking him to step down from the post of managing director on 26 April. The regulator, however, issued a stay order and allowed Mishra to continue.
Gupta alleges that Khatua is denying him the right to make changes in the NMCE management.
“Mishra is using the stay order to justify his position and other board members are too scared to go against Khatua,” said Gupta. “Khatua should stop interfering in business decisions of the exchange.”
Khatua rubbished the allegations as “baseless” and said he is not involved in managing the exchange.
“We have given a stay order as there is an investigation under way against Gupta and his rights as a core promoter are under question. It is for the board to decide on these matters,” the FMC chairman said.
An email sent to NMCE chairman B.B. Patnaik on Thursday remained unanswered. He did not answer phone calls made to his office.
Patnaik heads Central Warehousing Corporation, which has a 29.7% stake in NMCE.
Kevin D’sa, chief financial officer of Bajaj Holdings and Investments Ltd, an NMCE stakeholder and a board member, confirmed that there was a running dispute between Gupta and Mishra on a number of issues, but refused to elaborate.
Bajaj Holdings owns a 12.82% stake in NMCE, Reliance Capital Ltd 8.72%, Punjab National Bank 8.12%, and Gujarat Agro Industries Corp. Ltd 5.47%.
“We would like the two of them to work together,” said D’sa.
Gupta said this was unlikely as he found Mishra ineffective as a manager. “The fact that the exchange has not been able to meet FMC guidelines on minimum equity capital and net worth requirements shows his inefficiency,” he said.
According to FMC norms, all national commodity exchanges should have a paid-up equity capital of at least Rs50 crore and a net worth of at least Rs100 crore. NMCE was to meet the norms by 30 September 2010, but the deadline had been extended till 31 March. Even then, NMCE could not meet the norms and had the deadline extended again to September. In the past three years, NMCE has missed the deadline at least four times.
NMCE’s net worth now is around Rs65 crore and its paid-up capital is Rs19.17 crore.
Mishra said the “dispute” is a “personal issue between him and Gupta” and since he enjoys the confidence of the board, he is “under no obligation to resign”.
“One person’s disliking me cannot make me step down from my position in NMCE. In a demutualized exchange, the managing director should be responsible to the board and not to an individual share-holder,” said Mishra.
Mint’s publisher, HT Media Ltd, has a 0.2% stake in NMCE’s rival MCX.