Despite attempts by Jignesh Shah Chairman & Group CEO of Financial Technologies India Ltd (FTIL) to distance himself from the settlement crisis at the National Spot Exchange (NSEL),his role as a key management personnel at NSEL until last year has put him in the direct line of fire.
In a show cause notice issued by the Forward Markets Commission (FMC) on Friday,the regulator pinned the blame for the crisis not just on the exchange management but also a group defined as key management personnel,which included Shah and Joseph Massey,who is managing director and chief executive officer of MCX-SX.
Accounting Standard 18 defines key management personnel (KMP) as officials with the authority and responsibility for controlling,planning and directing the activities of a reporting enterprise,and are required to be included in the companys annual report.
Based on the FMC scrutiny,it was found that Jignesh Shah was among the key management personnel for the exchange between FY06 and FY12. It was only in 2012-13 that Shah was not included in that group.
Notably,since the FMC found nearly 2,000 instances of default at the exchange spread over the past two years,the regulator was of the view that Shah could not be absolved of responsibility for the settlement crisis.
In addition,the decision to go ahead with paired contracts was taken in 2009 a year in which Shah was among the key management personnel.
In the case of Joseph Massey,it was found that he held the position of key management personnel for five years beginning FY06 and hence would have been in the know of the decision to go ahead with paired contracts even though they were against the rules for spot exchanges.
Interestingly,the list of executives included in the group of key management personnel continued to shrink with each passing year. By 2012-13,Anjani Sinha former managing director and chief executive officer of NSEL was the only person included in that list.
Is it that they were aware of the irregularities and that’s why they left, wondered a senior official privy to the developments.
The show cause notice which questions the fit and proper status of FTIL,Jignesh Shah,Joseph Massey and MCX MD & CEO Shreekant Javalgekar comes in light of a Rs 5,600-crore settlement crisis at NSEL.
The settlement crisis was the result of a conspiracy by the board,management and borrowers to defraud the investors, says the strongly-worded show cause notice.
FTIL and Shah have two weeks to reply to the show cause notice and a final decision will be taken after that. If the fit & proper status is withdrawn,FTIL and Shah will have to divest their 26% holding in the group’s flagship commodity futures exchange MCX.
The show cause notice also bases some of its findings on the forensic audit submitted by Grant Thornton. The audit found that no management information system was in place,which would allow different operations within the exchange to be integrated.
For instance,warehousing records and reporting were not integrated with the front end operations of the exchange,which may have allowed borrowers to continue trading without adequate scrutiny into the stocks held by them. It is possible that these operations were deliberately kept separate so that these irregularities don’t come to light, said the senior official.
Separately,of the 10 oversight committees which were required to be set up by the board,only one was in place. The show cause notice questions whether this too was deliberate.
They have been charged with dereliction of duty as these committees were not formed. The intention was not there or else the committees would have spotted the issues related to risk management,warehouses and defaults. By not forming committees,they actually made sure that no oversight takes place, said a source privy to the show cause notice.
Jignesh Shah,Massey appear before EOW
Weeks after the EOW registered an FIR in the NSEL matter,Jignesh Shah along with Joseph Massey,Dewang Neralla and Shreekant Javalgekar presented themselves before the police.
According to EOW officials,Shah and the three other directors reached the Crime Branch on Tuesday afternoon in response to the summons issued to them last week. They met senior EOW officials and a note of their visit was made by the agency after which they were told that they would be called again for questioning.
The EOW will soon be sending an official letter to Shah,Massey,Neralla and Javalgekar,asking them to appear for questioning. Meanwhile,the NSEL office in Andheri was searched once again by a team of EOW officials and some more data in the form of hard drives was recovered. We first want to analyse the contents of the hard drives…It is important to get an idea of where Rs 5,600 crore went before we can get down to questioning the people named in the FIR, said a senior EOW officer.
Fiscal: Key management person
FY06: Jignesh Shah,Joseph Massey,V Hariharan
FY07: Jignesh Shah,Joseph Massey,V Hariharan
FY08: Jignesh Shah,Joseph Massey,V Hariharan,
Shankarlal Guru,B D Pawar
FY09: Jignesh Shah,Joseph Massey,V Hariharan,
Shankarlal Guru,B D Pawar
FY10:Jignesh Shah,Joseph Massey,V Hariharan,
Shankarlal Guru,B D Pawar
FY11: Jignesh Shah,Anjani Sinha
FY12: Jignesh Shah,Anjani Sinha
FY13: Anjani Sinha