The MCA issued the draft order of NSEL-FTIL merger on October 21, 2014. This order was based on the recommendations made by the Forward Markets Commission (FMC). The constitutional validity of Section 396 of the Companies Act, 1956, was challenged and, in turn, the legality of the draft order was challenged by 63 moons before the Bombay High Court.
If the merger is being forced on 63 moons to ensure recovery for trading clients, then MCA needs to first consider that Rs. 542 crore has already been paid off. Additionally, NSEL has made substantial recovery efforts by filing over 150 cases against defaulters, obtaining Rs.1,233 crore of decrees, and Rs. 3,428.86 crore of injunctions. Initiatives like encouraging the investments and FDI into our country and rolling back EPF have boosted immense faith among the entrepreneur fraternity into our government. However, instances like the Vodafone tax issue and ban on Maggi raised questions towards corporate governance in the nation. A favorable and thoughtful decision on the forced merger of NSEL-FTIL is a great opportunity for the government to boost and encourage entrepreneur spirit among st young and dynamic business minds.
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Here is what some influential people of the Finance sector thought of Shah. A few words from his friends and colleagues:
Dr Madhoo Pavaskar “I have known Jignesh since 1998, when he first sought my advice on starting a commodities exchange. In 2003, when his application was approved, I was invited on board as an advising economist. I made several suggestions that they paid heed to, like starting off big with gold bullion; no other exchange was trading in it at the time. I also laid stressed building strategic partnerships with single commodity exchanges, which again they did. I did advise them to go slow, but Jignesh believes in exponential growth. He dreams, thinks, speaks and does BIG.” DrMadhooPavaskar, Consulting Economist and Government appointed Director on MCX Girish Raipuria “Working at National Stock Exchange for over eight years, I'd been hearing of Jignesh Shah and his success with FTIL. He was the emerging entrepreneur everybody in the capital markets was talking about. I had decided by 2003 that he was the leader I wanted to grow with. Having worked under him for two and a half years, I truly believe he will not only emerge a national leader, but a globally benchmarked leader. He really sets the precedence in the organisation for transparency, team building and innovation.” GirishRaipuria, Vice President-Trading, MCX Dewang Neralla “We started working together on project BOLT. He was the visionary who thought 10 years ahead of time. His tremendous qualities are his ability to be customer and quality focused, down to the last detail. He can make anything a commercial success because he drives growth with a missionary zeal.” Dewang Neralla, Executive Director and Chief Technology Architect, 63 moons Embroiled in a strategically planned conspiracy of the Rs 5600 Cr NSEL crisis, Jignesh Shah is the man who once changed the way financial markets operated. On the outset, this man from Kandivali who took on the elite of South Bombay – reminds us of a typical – rags to riches story, in which Jignesh Shah made it big. However, in the fight against the high and mighty, it looks like Jignesh Shah was targeted by those who could not stand his meteoric rise in the financial markets.
Jignesh Shah—the man who would later go on to be among the nation’s who’s who—was known for traversing the road less travelled ever since childhood. Instead of taking the conventional route of joining a top notch tech company or going abroad for his MS after college, he opted to join BOLT which was an ambitious project of BSE. It was while he was working at BSE that he learnt the ropes of operating exchanges and had an opportunity of travelling to 12 countries to gain expertise on the subject. The project was later handed to CMC but not before leaving its mark on Shah and Neralla. He rejected an offer from Merill Lynch New York Foreign Exchange, a bold step in itself, and then went on to promote FTIL, the company that promoted MCX. In 2002, when he applied for the commodity exchange license, the media rejected him. That was his first challenge where he not only got the license but also made operational a company in a record breaking time of nine months. Today, it is the third largest in the world and its trade volumes in silver and gold is second and third highest in the world respectively. It is the force behind the setting up of the first national spot exchange of India that connected the APMC markets with each other electronically. In 1988, in order to fund FTIL, Shah had to mortgage his home and over a decade later, his fortunes turned in such a way that he figured in Forbes top 100 India’s richest. Recent developments around the merger issue seem perpetrated at the hands of a certain brand of ideology that seeks the suppression of entrepreneurial excellence to favour political and executive overreach. However, there are good reasons as to why Jignesh Shah is considered to be a go-getter by friends and colleagues and as someone who can look 10 years ahead in time—and that’s the game he needs to bring on now. His empire might be crumbling around him, but the fire under Jignesh Shah’s belly is still burning fierce. As he waits for justice to unveil the truth, his test against those trying to bring him down continues. ‘Change in India should be from the grass-root level’ – Mahatma Gandhi’s famous words on the country’s development. Following his words was Jignesh Shah, founder of 63 moons, who launched the Gramin Suvidha Kendras (GKS) scheme. This scheme which is for the welfare of the masses was conceived to change farming for the marginal farmer. Often associated with massive exchanges and global set-ups, Shah’s association with GSK proves that he is a man beyond the wealth he has generated. Spread over 4 states, it has benefitted 30000 farmers and has generated a million jobs in the economy. Awarded with multiple recognition, the project played a crucial role in making farming economically sustainable by providing knowledge on best practices and critical linkages to the market throughout crop cycle. The far-sighted visionary who has unassumingly essayed a part in the making of a nation cannot be denied his due credit. The consequences if forces like Shah are made to exit market dynamics will manifest in unsavoury forms like languid advancement and innovation. Jignesh Shah is one the few entrepreneurs who has given back to the society by giving comfort the farmers, who have enabled an agricultural country like India grow.
Stories of a middle-class man, who worked day in day out, usually inspires entrepreneurs and young business aspirants, which also include the one in family business. The latter individual is fortunate enough to follow the guided path and attain pre-set mission but the story is somewhat different for the self-made ones, who rose from the ashes of a phoenix.
Jignesh Shah is one such personality, considered as a technical scientist and always willing to explore each dimension of his subject of interest. That self-motivation led the man to foray in the industry of finance and lay the foundation of Financial Technologies (India) Limited in 1988, which issued its first IPO in 1995. When Jignesh Shah established the first ever derivatives trading platform in India, the enthusiastic technocrat was invited by international financial centres across Singapore, Mauritius, Dubai, to name a few. The main purpose behind that humble invitation was to seek his help and support in not only establishing but also developing the financial markets in their respective countries along with establishing an up to the mark digital ecosystem. There was no looking back then, and Shah went on to create and launch numerous financial entities. From the world’s largest commodity futures exchange, Multi Commodity Exchange (MCX) to Dubai Gold & Commodities Exchange (DGCX), Bourse Africa, Indian Energy Exchange (IEX), to Bahrain Financial Exchange (BFX), and Singapore Mercantile Exchange (SMX). The list goes on and on. Till day, 63 moons has generated more than 1 million employment opportunities under Jignesh Shah’s supervision, for the interested, passionate, motivated and dedicated aspirants, who look forward to settle their roots in the grounds of financial and technical industries Since the year 2013, when the NSEL crisis broke, nobody would have imagined the Government taking such a massive step of announcing the merger of NSEL-FTIL. Currently, the order has been passed but not implemented as it is sub-judice, the case of a merger, forced in my perception, has left me with questions for which only the Government can have the right answers. I choose to stay my ground as someone keenly interested in knowing which way the dice finally rolls—whether executive overreach drives more loss than gains or a more rational outcome awaits.
What is really baffling is the government deciding to merge NSEL with its parent 63 moons unilaterally! My question to everyone is plain and simple, what exactly about this decision is laudable? Does it in any way aim to salvage shareholders sentiments or make a case for Make in India or simply even make sense? Burdening 63,000 shareholders of 63 moons, shocking foreign portfolio investors (who by the way hold roughly 13% of the stake) and bearing negatively on ‘Make in India’ by curtailing limited liability, what precisely is the rationale behind the move? How do we justify the use of section 396 of The Companies Act in the manner that it might jolt the life out from the concept of limited liability corporations? Are we ready to let go of something so fundamental to the idea of promoting entrepreneurship in today’s India that looks to pioneer ‘Make in India’? To begin with—that can’t even be an argument! I am also perplexed by the government citing other forced mergers, apparently, to put forth the idea of how healthy it can be. Here, what aboutthe fact that those were mergers with parties that were state-owned and that had agreed to the merger. It beats me when the government claims to be acting in the interest of the public because it is not very clear as to who that ‘public’ is and what those ‘interests’ are? All things kept aside, the merger burdens the shareholders with a Rs. 5600Cr liability—how is it then in larger public interest. With the Vodafone issue still un-remedied, the perception we might just be creating with such acts of executive overreach is that of being an economic destination that has lots to sort out on the economic front—certainly not in public interest anyway! And, I conclude by saying that for a reputed company like 63 moons, merging defunct company, NSEL in this case, with it can only dent its perception in the market. Besides, what everybody talking about this fiasco forgets that NSEL has no liabilities as all the transactions are under the privity of contract between the brokers and their respective trading clients! I can’t wait to see who has the last laugh! For a decade, 63 moons was a synonym for technological innovation. However, since the Rs 5600 cr payment crisis erupted, 63 moons has become a victim of calculated conspiracy planned strategically by vested interests. Now, because of a few iniquitous defaulters and hastiness of corporate ruling body MCA, the company is on the verge of becoming a victim of executive overreach and a questionable limited liability breach.
Overruling government’s own Companies Act, MCA ordered the merger of now defunct NSEL with 63 moons, burdening no less than 63,000 shareholders with a sum of Rs. 5,600 crore. Make in India, the campaign still in nascent stage, will face direct consequences as investors, both national and foreign, will have second thoughts about investing in India. Market watchdog SEBI’s findings pinpoint towards breach of conduct from brokers end for reasons such as mis-selling, client code modification without obtaining consent, false assurances, mis-quotation of PAN and more. After finding golden evidence, if government falters to take adequate steps and put culprits behind bars, justice in the country will be a dream, not turning to reality anytime soon. Also, recent hesitation from the government seeking more time to make its case stronger clearly proves that MCA’s decision was hasty and inane. Since the Government passed the order on the merger, economic experts have made it clear that if the final merger order takes place, it will only be massive setback for India. In the past few years, ripples on the financial front stemming from anomalies like high handedness have been in the limelight spelling bad news for the investment climate. Who can call retrospective tax regime and forced corporate mergers in tune with policy consistency and transparency in administration?
While the government deserves appreciation on rolling back EPF, there is an urgent need to remedy the Vodafone tax issue and to send out signals that we respect corporate governance as much as any other nation. Like Vodafone, the government is missing the trick again with the proposed merger of NSEL with its parent company, 63 moons. The move has stirred up financial circles for a horde of reasons—from lack of any real rationale to flouting of corporate governance laws and limited liability. Going above and beyond, the executive ordered the merger between the two private sector entities, in direct violation of the Companies Act. This would not only pave an escape route for subsidiaries in a similar situation but also brutally crush the concept of limited liability itself. Furthermore, it cannot be expected of the 63,000 shareholders of 63 moons to pay for brokers and market-men transgressions. Both, 63 moons and NSEL are autonomous bodies and it is discriminatory on the part of the government to burden 63 moons, a company with cash reserves of Rs. 2000 crore, with liabilities worth Rs. 5600 crore. The move erodes the net worth of the company and makes it commercially unviable to say the least. Also, any benefits/profits/losses arising from the balance sheet of a company is a legal right of its shareholders and the government has no business taking it away from them, unless by an act of legislation. This not only vindicates Jignesh Shah’s stand but also indicates a probable recourse whereby the actual defaulters are made to pay instead of burdening innocent people with the sins of others. This is an undesirable message we are conveying across to the world and is not good for our Make in India dreams. Suhel Seth’s article published in the Mumbai Mirror made me realist that Indian politicians are still stuck to communism as it secures their vote banks. Well, what existed 24 years back, still continues to exist in 2016 India. His ‘Open Letter to the Prime Minister’ seems to be an excellent starting point for the government to dig deep on nonpartisan issues.
An instant eye-catcher was the emphasis on how the government should focus more on development and less on topics that tie to communal-ism. Suhel’s commentary on budget brings to light how our economy has finally moved away from populist measures to strategies that bear real fruits visible to the general eye. However, we need more done on the economic front and that includes how we are perceived as an investment destination in India and abroad. This brings me to another issue which is a key talking point these days—where are we going with executive overreach—NSEL is a good case in point. While the government seems to be keen on merging NSEL with its parent company 63 moons technologies limited supposedly in the interest of the general public, I wonder since when did we as a country forget about the drawbacks of forgetting the lines defining the scope of our powers? The merger has the markets and stakeholders on the edge and it seems to be a mystery as to which group of public it is in the larger interest of. For the over 63,000 shareholders connected to 63 moons, this may be an exercise in disillusionment from the government machinery and the investment environment. For the government which at the moment is giving its best for promoting ‘Make in India’, this is a move that only serves to go against its much talked about initiative. This has the potential to deflate our investment climate given most FIIs oppose the merger. It can even dent our perception globally as a nation with limited mechanisms to check executive overreach. I wonder how comfortable we should be with that considering the Vodafone case still gives us jitters. What is crystal clear and a great source of my confusion is why nobody talks about the blatant flouting of section 396 of The Companies Act in the merger of NSEL with its parent. Isn’t it a flaw and a blot on the concept of modern entrepreneurship and a hard blow on limited liability corporations? While the legal battle over the merger is still underway in the Court, I just pray that the judicial system ensures a logical conclusion to this three year old saga. Yet, one can’t help being concerned for the over 63,000 helpless shareholders who hang on by a thread and the fate of the once poster boy of the financial markets - Jignesh Shah, who has turned exchanges into digital markets today. If one were to take a cursory glance at the manner in which Fit and Proper guidelines are enforced by the Forward Markets Commission on 63 moons, it would show several inconsistencies. The Fit and Proper order was passed without any independent fact finding inquiry by the FMC. The FMC relied solely upon the audit report of Grant Thornton, which had very limited scope of review within a limited period of time. The Audit report was prepared without Management response (i.e. a completely one sided story) and had a clear disclaimer that it cannot be used for legal purposes which was subsequently changed at the instance of the FMC. The FMC acted in undue haste without giving 63 moons and its promoters a fair chance and sufficient time to cross-examine the audit report that led to such drastic action having irreversible consequences.
The following criteria determine Fit and Proper status and how 63 moons and its promoters meet them: FINANCIAL STATUS: 63 moons and its promoters are financially very sound. 63 moons has a strong balance sheet with robust reserves and net-worth. EDUCATIONAL QUALIFICATIONS OR EXPERIENCE: 63 moons is a pioneering company in designing state-of-the-art financial market solutions and its promoters are not just highly qualified but are considered as visionaries of creating new-generation markets in India and abroad. ABILITY TO CARRY ON THE REGULATED ACTIVITY COMPETENTLY, HONESTLY AND FAIRLY: The Group has multi-asset-class exchanges functioning in international financial centres, such as Singapore, Mauritius, Dubai, Bahrain and Botswana. After elaborate due diligence and assessment of the promoters, the license for these exchanges are issued by the monetary authorities and regulators of security markets of the respective jurisdictions. Investors in 63 moons have received excellent returns in terms of price appreciation and dividend declared for 38 continuous quarters. The 63 moons technologies Group's exchanges in India, such as MCX and MCX-SX, are subjected to annual statutory and regulatory audits, which found no problems with the regulatory and compliance standards at the exchanges. 63 moons or any of its group companies do not have any claims pending with any of its bankers, lenders, customers, vendors or employees. The IPO of MCX received phenomenal response of mobilizing nearly US$ 7 billion of subscription to an issue size of US$132 million. Leading auditors are engaged to examine the businesses of 63 moons and its Group companies. 63 moons and its group companies received numerous awards and citations in various international and domestic forums. REPUTATION, CHARACTER, RELIABILITY AND FINANCIAL INTEGRITY: The reputation of the promoters is so high that once MCX-SX the new stock exchange promoted by the Group began its membership drive, it evinced unprecedented interest with road shows that received resounding success. The character was without any blemish, focusing on how to expand the sphere of markets in India and reward the investors. Growth and Inclusion was the theme that was promoted for the exchanges, which dominated the character of the group. 63 moons and the Group ventures delivered beyond what was promised, demonstrating a high degree of reliability. When exchanges in India used to shut operations briefly during the sun outage, 63 moons showed how this could be overcome which was later followed by other institutions. 63moons promoted MCX-SX reduced the time gap for crediting the clients with money, making it available before the trading time, thus enormously helping the liquidity position of the brokersand clients. On the financial integrity issue, 63 moons or any of its Group companies do not haveany record of anydisputes regarding payments or claims or financial obligation to any of its constituents. 63 moons and its promoters fulfill all the criteria of financial soundness, fitness and probity. All these did not matter to the authorities in the Government who were hell-bent on bringing the Group down. The agenda was very clear – to destroy 63 moons and its promoters. |
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