FTIL to fight regulatory order to cut stake in MCX
10 Feb 2014
Financial Technologies India Ltd (FTIL) has threatened legal action against the Multi Commodity Exchange of India Ltd, saying the commodities exchange's board was not empowered to freeze its promoter / anchor investor's voting rights beyond 2 per cent or ask the promoter to cut its stake from 26 per cent to less than 2 per cent.
The MCX board had announced these decisions on Friday following a Forward Markets Commission (FMC) order that the Jignesh Shah-promoted FTIL wasn't ''fit and proper'' to run the exchange.
The FMC found FTIL unfit to be the anchor shareholder of any commodity exchange, and directed the listed entity to bring down its stake in MCX to 2 per cent.
The MCX board had decided to direct depository participants to transfer FTIL's shares in the exchange in excess of two per cent to an escrow account.
In response, FTIL said on Saturday, ''The FMC order is pending with the Bombay High Court. Within the constraints imposed by the matter being sub judice, FTIL can only say the FMC order is not sustainable in law and will be vigorously contested … the MCX board should be aware of its own duties and legal obligations and any action that is inconsistent with law will meet an appropriate legal response to protect the interests of its shareholders.''
The FMC ruling said mismanagement by FTIL had led to a Rs5,600-crore payment crisis in MCX subsidiary National Spot Exchange Ltd.
Following the FMC order, the MCX board had given FTIL a month to reduce its stake in the exchange. But FTIL could not carry out the stake sale.
A stock exchange announcement by MCX late on Friday said, ''With effect from the date of the order of the FMC, they (FTIL) could not any longer hold 2% or more of the equity share capital of the MCX. As the order of the FMC is an order of a civil court under the provisions of Section 4A of the FCR Act, both the FTIL and the exchange are duty bound to comply with that order.
''Accordingly, the exchange would once again call upon FTIL immediately to divest the shares in excess of the said 2%. Besides, FTIL is being informed that in view of the order of the FMC, with immediate effect, any voting in excess of the said percentage by them would not be taken into consideration.''
But according to FTIL, ''the board of any listed company does not have power, either under law or under equity, to issue directions contained in letter from MCX''.
It further added that directing FTIL to open an escrow account is untenable in law. ''The MCX board should be aware of its own duties and legal obligations and any action that is inconsistent with law will meet with an appropriate legal response to protect the interests of its shareholders,'' it said.
The MCX board had decided on 26 December last year advised FTIL to reduce its stake in the exchange from 26 per cent to 2 per cent within a month. Now it will approach the ''appropriate authorities'' to seek suitable directions for implementing the FMC order.