The law finally caught up with Jignesh Shah, the promoter of Financial Technologies India (FTIL) and the Multi Commodity Exchange (MCX) on Wednesday with the Mumbai police arresting him under the Maharashtra Protection of Interest of Depositors Act. Approximately 18,000 investors are understood to have lost money after a R5,574-crore payments crisis broke out on the National Spot Exchange (NSEL) in late July last year.
The Mumbai police said Shah had tried to shift the blame for the NSEL payments crisis to Anjani Sinha, the former MD and CEO of the spot exchange, who was arrested by the Economic Offences Wing on October 17. The police debunked Shah’s claim that he had no knowledge of the contracts being traded on the NSEL saying volumes on the bourse were linked with the profits of FTIL. The police confirmed that brokers who were trading on the exchange would also be investigated. “The brokers are in focus as we have detected certain malpractices, such as using accounts for making purchases and modifying the codes,” a police spokesperson said.
FTIL has called a board meeting on Thursday to discuss the arrest.
Shreekant Javalgekar, former managing director and CEO of MCX and director, Indian Bullion Market association (IBMA), the group’s bullion trading arm, was also arrested.
A Grant Thornton audit had pointed out that IBMA, a subsidiary of NSEL, owed the exchange Rs 1,100 crore as "net obligations". In particular, a manual entry made on September 13, showed a large "net obligation" of Rs 1,159 crore on behalf of IBMA to NSEL for "existing trades", the audit revealed.
Shah has been in the spotlight after the payments problem was detected on the NSEL and the forward Markets Commission discovered that NSEL was permitting trades without verifying whether sellers had stocks, in effect allowing short-selling by members. The regulator also discovered that contracts traded on the exchange for which the settlement period exceeded 11 days were non-transferable specific delivery contracts, which violated the Forward Contracts Regulation Act.
In December, Shah was declared not ‘fit and proper’ by the FMC which said in an order that the FTIL chairman was unfit to run an exchange in the country. FMC barred him from holding a management position in any recognised exchange in India and 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,