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Mumbai: The Bombay high court on Monday barred entrepreneur Jignesh Shah’s investment company La-Fin Financial Services Pvt. Ltd from selling its assets till the final outcome of a case filed by Infrastructure Leasing and Financial Services Ltd (IL&FS) against the firm over acquisition of shares of MCX Stock Exchange Ltd (MCX-SX).

A single bench of high court while granting an injunction said that if La-Fin decides to dispose of its assets, it will first have to secure IL&FS in monetary terms and then seek a court nod. The details of the required monetary compensation were not clear.

“The defendant (La-Fin) is directed to disclose its assets including both the encumbered and non-encumbered assets to the court," said justice S.C. Gupte.

Shah is promoter of Financial Technologies (India) Ltd (FTIL), which is in turn is a promoter of MCX-SX. La-Fin, Shah’s investment company, holds 45% stake in FTIL.

In 2009, FTIL sold 44.2 million shares of MCX-SX to IL&FS at 36 a share. FTIL also sold 71.875 million shares at 35 each to IFCI and 40 million shares at 10 apiece to Punjab National Bank (PNB).

In September 2010, Securities and Exchange Board of India (Sebi) declined to allow MCX-SX to trade in equities citing non-compliance with prescribed ownership norms. The regulator had objected to the manner in which MCX-SX promoters Multi Commodity Exchange of India Ltd (MCX) and FTIL had pared their stakes in the exchange by issuing warrants to banks and financial institutions, and found them acting in concert.

Sebi said the promoters entered into certain buyback arrangements in the nature of forward contracts while selling stakes to PNB, IL&FS and IFCI, without disclosing them to the regulator.

It also said the exchange issued warrants to dilute promoter holding in violation of the so-called manner of increasing and maintaining public shareholding (MIMPS) norms.

Sebi also said that FTIL and MCX were acting in concert and hence could not hold in excess of 5% together in the exchange.

Subsequently, MCX-SX moved the high court against the Sebi order and got a favourable ruling after giving an undertaking that it won’t exercise the warrants issued to banks and financial institutions.

Shahezad Kazi, lawyer representing IL&FS, said, “We want to enforce certain undertakings given by La-Fin in the buyback agreement through our plea."

On 19 March, Sebi declared FTIL and its promoter Shah unfit to hold stake in any stock exchange or clearing corporation and gave it 90 days to sell its holdings in such entities. The order followed a 5,574.35 crore fraud at the Shah-promoted National Spot Exchange Ltd. FTIL appealed the Sebi order before the Securities Appellate Tribunal, which on 9 July upheld the ruling and gave the company and its affiliates four weeks to comply. The four-week deadline ended on 7 August, but FTIL has failed to sell its 4.86% equity stake in MCX-SX.

On 25 August, MCX-SX extinguished warrants worth 56.24 crore held by FTIL and transferred the non-refundable deposit against the warrants to the capital reserve to boost the net worth.

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