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Mumbai: Financial Technologies India Ltd (FTIL) failed to get interim relief from a 17 December order by the Forward Markets Commission (FMC) declaring it unfit to run exchanges, in the wake of a 5,574.34 crore payment crisis at National Spot Exchange Ltd (NSEL). FTIL holds 99.9% stake in NSEL.

A division bench of the Bombay high court comprising justice V.M. Kanade and justice Anuja Prabhudesai recused itself from the matter and asked FTIL to file its appeal before a different bench.

“Since (advocate) Ravi Kadam has earlier appeared in this matter, I cannot hear this case," said justice Kanade while recusing himself. Kanade did not explain his reasons for recusing himself further.

“If the courts do not grant an interim relief, then FTIL would be forced to do a distress sale and incur huge losses," said Singhvi, before the bench recused itself.

He further added that according to estimates, FTIL’s stake in IEX is valued at 750 crore but a distress sale would not fetch more than 500 crore resulting in a loss of 250 crore.

In its December order, the FMC said Jignesh Shah, chairman of FTIL, was unfit to run an exchange in the country and barred him from holding a management position in any recognized exchange in India.

FTIL, which originally held 26% stake in the Multi Commodity Exchange of India Ltd (MCX), sold its entire holding following the FMC order. The company sold a 15% stake in MCX for 459 crore to Kotak Mahindra Bank Ltd and the remaining 11% in the open market to public and private investors.

The fraud at NSEL came to light on 31 July 2013 when the exchange suspended trading in all but its e-series contracts. These, too, were suspended a week later. The suspension may have been prompted by an instruction from the ministry of consumer affairs to the exchange asking it not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that.

NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading.

It later emerged that all trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.

The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. Subsequent investigations highlighted the involvement of promoters.

On 14 August last year, NSEL proposed a payout plan, but it has been unable to stick to the schedule and has not made a single successful payout ever since.

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