BackBombay HC bars MSEI from extinguishing warrants held by MCX
MCX wanted MSEI to refund the deposit amounting to `41.59 crore held against the warrants
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Mumbai: The Bombay high court has barred Metropolitan Stock Exchange of India Ltd (MSEI) from cancelling the warrants worth ₹ 41.59 crore held by commodity bourse Multi Commodity Exchange of India Ltd (MCX) till the court decides on the matter. The court will hear the case on 31 July.
MCX, the country’s largest commodity bourse in terms of market share, approached the court after MSEI board decided to extinguish 415.92 million warrants that are held by MCX.
MCX, which recently sold a part of the warrants it held in MSEI to various entities, wanted MSEI to refund the deposit amounting to ₹ 41.59 crore held against the warrants.
“Despite receipt of MCX letter, MSEI failed to respond to the same, much less refund the deposit. In the circumstances, MCX was constrained to file a suit... before the Bombay high court on July 8 for protecting its rights in respect of the warrants and the deposit," said a stock exchange statement issued by MCX on Saturday.
It said that the court has granted an interim relief to MCX by restraining MSEI from cancelling or extinguishing the warrants and appropriating the deposit of ₹ 41.59 crore.
MCX, as part of its submissions in court, said that in August 2014, MSEI, which was then known as MCX Stock Exchange Ltd (MCX-SX), had “unilaterally extinguished" the warrants held by Financial Technologies India Ltd (FTIL) and transferred the amount held against these warrants to its capital reserve.
It added that it has moved court since it apprehends that MSEI might treat warrants held by MCX in a similar manner to show that it has a “higher net worth than it actually does."
In an order dated 10 July, justice G.S. Patel ruled that even though the board of MSEI has decided to extinguish the warrants and appropriate the deposit, “no steps will be taken to implement the decision" and if ruled by the court then the board “decision or action relating to the cancellation of those warrants will be reversed."
Mint has reviewed a copy of the order, which is available on the website of the high court. The court has passed two orders—one on 9 July and the second on 10 July.
According to the orders and the statement issued by MCX to the stock exchanges, the second order was necessitated after MCX was informed that the board of MSEI has already decided to extinguish the warrants and the same stood extinguished as on 27 June.
“On MCX notifying MSEI about passing of the said order (on 9 July), MSEI for the first time informed MCX by its email of July 9, 2015, about the purported resolution (regarding extinguishing of the warrants) passed by its board of directors at their meeting of June 27, 2015... the warrants stood extinguished on June 27, 2015. MCX then amended its plaint in the said suit to reflect the aforesaid purported development and applied for further ad-interim reliefs," said the MCX statement issued to the stock exchanges.
A spokesperson for MSEI said the board decision to extinguish the warrants held by MCX was taken in order to comply with an order by the Securities and Exchange Board of India (Sebi). The capital markets regulator had set 19 June as the deadline for divestment of all warrants held by MCX in the equity exchange.
“The deadline as set by Sebi for divestment of warrants held by MCX was June 19, 2015. The regulator had granted three years to MCX for the said divestment. Post expiry of said deadline, MSEI board met on June 27, 2015, and decided that the exchange should follow the regulatory directives in true letter and spirit and decided to extinguish the remaining warrants held by MCX in order to comply with SEBI SECC Regulation 2012," said an MSEI spokesperson in an emailed response to a query sent by Mint.
MCX received warrants of MSEI in 2010 when the latter undertook a scheme of arrangement-cum-reduction of capital to comply with Sebi norms related to ownership of stock exchanges. The norms stipulated that no person or entity other than stock exchanges, banks, insurance companies among others, can hold more than 5% stake in an equity exchange.
In June 2012, Sebi ruled that warrants would also be included in ascertaining the shareholding of an entity and any excess shareholding has to be diluted within three years. The three-year deadline expired on 19 June.
MCX declined to comment on a query sent on Sunday.
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