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Mumbai: Jignesh Shah-led Financial Technologies (India) Ltd (FTIL) on Wednesday sought relief from the Bombay high court against the Forward Markets Commission’s (FMC) order asking it to dilute its stake in Multi Commodity Exchange of India Ltd (MCX) to 2%.

The high court transferred the case to a division bench that is hearing five petitions against the crisis-hit National Spot Exchange Ltd (NSEL). The case will be heard on 9 January.

Also on Wednesday, Mumbai police’s economic offences wing interrogated Shah, chairman of FTIL, again in connection with the 5,574.35 crore payment crisis at the NSEL. Rajvardhan Sinha, additional commissioner of the EOW, said Shah was summoned for questioning after the agency uncovered “fresh facts" in the NSEL case, but did not elaborate on the facts.

The high court was hearing FTIL’s plea against the commodities market regulator’s 17 December order declaring the firm unfit to run any exchange in the country.

FTIL holds a 26% stake in MCX and is also the promoter of NSEL, of which it owns 99.9%.

FMC, in its order, said Shah, chairman of FTIL, was unfit to run an exchange and barred him from holding a management position in any recognized exchange in India. It also said FTIL could not hold more than 2% of the paid-up capital of MCX.

“FTIL, as the anchor investor in MCX, does not carry a good reputation and character, record of fairness, integrity or honesty to continue to be a shareholder," FMC said.

On Wednesday, Janak Dwarkadas, senior counsel representing FTIL, said, “FTIL has 70,000 shareholders and diluting stake to 2% is an irreversible situation if finally the regulator does not find FTIL guilty in the NSEL case."

Dwarkadas said FTIL’s nominee directors had already resigned from MCX board and, therefore, had no control over it.

FTIL also agreed to give an undertaking in the court that it will not interfere in MCX board’s resolutions if it is allowed to maintain its capital structure till the case is decided by the high court.

“The FMC order is having a domino effect on FTIL and has far reaching consequences," said Dwarkadas.

The order by the commodities market regulator followed a probe into the operations of NSEL in connection with the crore payment crisis at the commodities spot exchange.

This is not the first time that FTIL or related entities have dragged a regulator to court.

FTIL-promoted MCX Stock Exchange Ltd (MCX-SX) had in 2010 challenged an order by the Securities and Exchange Board of India (Sebi) denying it permission to trade in equities because of non-compliance with prescribed ownership norms.

In 2012, the high court ruled in favour of the two promoters of MCX-SX and set aside Sebi’s order, asking the regulator to reconsider the application of MCX-SX for trading in equities.

Following the FMC order, Sebi issued a fresh show-cause notice to FTIL asking it to defend its stance as a MCX-SX shareholder.

FTIL and MCX, the two promoter shareholders of MCX-SX, hold 4.99% each in MCX-SX through equity shares, but their combined holding would have been 71.84% as on 30 September if their warrants were to be converted into equity shares.

In its order, the FMC also declared Joseph Massey, former managing director and CEO of MCX-SX and former director of MCX, and Shreekant Javalgekar, former managing director and CEO of MCX, not fit to “hold any management position in any exchange recognized by the government of India and FMC".

It also barred all the three former directors of MCX from holding any shares in any association or exchange in the country “in excess of the threshold limit of the paid-up capital of any such exchange".

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 since.

The EOW’s Sinha said the agency is currently examining the role of brokers in the payment crisis at the commodity spot exchange. “Later this week, some of the brokers will be summoned for interrogation," said Sinha.

This is the second leg of investigations by EOW in connection with the NSEL crisis. Earlier this week, the agency filed its first chargesheet, naming the five suspects arrested by the EOW so far, including Anjani Sinha, former chief executive of NSEL.

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