Home / Companies / News /  Modern India files class action suit in NSEL case

Mumbai: Four investors have filed a class action lawsuit against Financial Technologies (India) Ltd (FTIL), promoted by entrepreneur Jignesh Shah, in the Bombay high court to prevent it from selling its assets as the company’s unit National Spot Exchange Ltd (NSEL) battles a 5,574.35 crore payment crisis.

The case has been filed as a representative suit under the Civil Procedure Code, 1908 because the new law enacted in August to regulate Indian companies, which provides for class action suits, is yet to be notified.

The investors, including Modern India Ltd, have filed the lawsuit against FTIL and 40 other entities that include NSEL, which has been embroiled in crisis since the end of July, to stop them from selling their assets till the case is resolved in court. The suit seeks to recover 5,000 crore at an annual interest of 16%, said a lawyer who has seen the petition and requested anonymity.

In the first hearing on the matter on Wednesday, justice S.J. Kathawala asked Modern India, which has invested about 30 crore in NSEL, to advertise in a national daily, asking other aggrieved investors who have till now not approached the court to join the representative suit.

Modern India’s website says the company has interests in real estate development, runs an institute called Indian Institute of Jewellery (IIJ) and is a master distributor of US-based GemVision Corp.

The judge directed FTIL to file an affidavit in the court stating its shareholding in National Bulk Handling Corp. Ltd, a unit of FTIL.

The court also asked for certain disclosures from the company on its recent stake sale in Singapore Mercantile Exchange.

In November, FTIL sold its Singapore Mercantile Exchange unit to the IntercontinentalExchange Group Inc. for $150 million.

In addition, La-Fin Financial Services Pvt. Ltd, a firm promoted by FTIL founder Shah and his wife, has also been asked to disclose its current assets.

The disclosures will have to be filed by 27 January, the court ruled. It will hear
the matter again on 14 February.

The case could have a bearing on FTIL’s ability to sell shares in MCX, in which it holds 26%, and shares and warrants in MCX-SX, of which it controls a cumulative 70.9%. FTIL holds a 99.9% stake in NSEL.

The commodities market regulator said last month that FTIL could not hold more than 2% of the paid-up capital of MCX.

Last year, MMTC Ltd, another investor of NSEL, moved the Bombay high court asking it to prevent FTIL and its associate firms from selling its assets. The state-owned trading firm is seeking to recover 228 crore from NSEL. The case is currently pending in court.

The settlement crisis at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. These, too, were suspended a week later.

The closure of trading 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.

When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.

On 14 August, 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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