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Mumbai: The Bombay high court on Monday refused to grant an interim stay on a 17 December order of the Forward Markets Commission(FMC) that declared Financial Technologies (India) Ltd, or FTIL, unfit to run exchanges. The court was hearing a plea filed by FTIL seeking temporary relief.

The FMC’s order had come in the wake of a 5,574.34 crore payment scandal at National Spot Exchange Ltd (NSEL). FTIL holds 99.9% stake in NSEL. According to FTIL, FMC’s order has become the foundation for subsequent regulatory orders and forced divestment by FTIL in its exchange ventures. FTIL has claimed that it lost 1,000 crore due to “forced divestments" as a result of the order.

The court’s refusal to grant an interim stay also means the government can proceed with its proposal to merge NSEL with FTIL. FTIL’s lawyer Abhishek Manu Singhvi had said the FMC order is being used by the government for a forced merger with an insolvent NSEL.

On 21 October, the government proposed that NSEL be merged with FTIL. FTIL has also filed a writ petition in the Bombay high court, challenging the issuance of the draft order by the government proposing a forced merger of the company with NSEL.

On 30 October, a division bench of the Bombay high court comprising justices V.M. Kanade and Anuja Prabhudesai recused itself from the matter and asked FTIL to file its appeal before a different bench.

In its December order, FMC said FTIL and Jignesh Shah, chairman of FTIL, were unfit to run an exchange and barred Shah from holding a management position in any recognized exchange in India. FTIL, which held 26% stake in the Multi Commodity Exchange of India Ltd (MCX), sold its entire holding following the FMC’s 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.

The fraud at NSEL came to light on 31 July 2013 when the exchange suspended trading in all but its e-series contracts. These were suspended a week later as well.

The suspension could have been prompted by a direction from the consumer affairs ministry to the exchange asking it not to offer futures contracts. A spot exchange is not supposed to do so, but NSEL did.

NSEL tried to implement the change but failed 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.

In a separate development, the Supreme Court on Monday dismissed a special leave petition filed by the NSEL investors challenging the Bombay high court order of 22 August granting bail to Shah.

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