SAT dismisses FTIL's petition against SEBI's 'unfit' order

09 July 2014

The Securities Appellate Tribunal (SAT) today dismissed a plea by Financial Technologies' (FTIL) that market regulator Securities and Exchange Board of India (SEBI)'s order declaring the company unfit to own stakes in market infrastructure institutions be held void.

SAT, in an order by majority view, upheld SEBI's order declaring Jignesh Shah-promoted Financial Technologies India Ltd unfit to own stakes in market infrastructure institutions.

SAT said that the time granted to FTIL for divesting its stakes had already expired and the company may take another four weeks to exit its holding in bourses, including MCX-SX.

SAT said the impugned decision of SEBI in holding that appellant shall be deemed to be not a ''fit and proper person'' to hold shares of the stock exchanges solely based on decision of FMC cannot be faulted and, accordingly dismissed FTIL's appeal with no order as to costs.

''Since time for disinvestment set out in the impugned order has already expired, we extend time for disinvestment of shares of relevant entities held by the appellant by further four weeks from today,'' SAT said in its order.

SAT's presiding officer JP Devadhar said the moot question was if the orders of one regulator have a bearing on others, and ruled in favour of SEBI saying the trades regulated by the commodity markets regulator Forward Markets Commission (FMC) are similar to those regulated by SEBI.

SEBI had passed its orders following a similar order by FMC after the Rs5,500-crore scam at National Spot Exchange Ltd (NSEL), 99.99 per cent owned by FTIL, came to light.

Stating that there were differing views within the three-member bench, Devadhar said the order was being passed as per the majority view. SAT member AS Lamba had the contrarian view and termed SEBI order as ''unprofessional''.

Devadhar said the order passed by one regulator would have to defacto apply to other regulators and not following this principle would defeat the spirit of regulation.

FTIL owns 26 per cent in commodities bourse Multi-Commodity Exchange (MCX) and has a 70 per cent stake in MCX-SX and MCX-SX Clearing Corporation.

Its MCX-SX ownership is 5 per cent through equity and the rest through convertible warrants. At the time of the SEBI order, FTIL and MCX held just under 5 per cent stake in the stock exchange MCX-SX.

The troubled company also has stakes in the Delhi Stock Exchange and Vadodara Stock Exchange in addition to a small holding in the NSE.

The SEBI had passed an order on 19 March stating that FTIL was not ''fit and proper'' to hold any stakes in any of these exchanges. The SEBI order followed a similar one on 17 December 2013 by commodities watchdog FMC against the company and its promoter Jignesh Shah and key officials like Joseph Massey.

FTIL has also challenged the FMC order of December last year in the Bombay High Court, which is yet to conclude the hearing.

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