Multi Commodity Exchange (MCX) has paid Rs 709 crore to its promoter Financial Technologies, NBHC and other group companies — all promoted by Jignesh Shah — for “various services stipulated to have been rendered by these companies” under questionable agreements.
This was revealed in a special audit conducted by PricewaterhouseCoopers (PwC) and submitted to the MCX board, which in turn disclosed the contents of the report to the stock exchanges on Tuesday. The audit highlighted the gaps and inconsistencies in the way MCX processed related party transactions, especially marked up inflated deals, unprecedented tenures of 99 years, MCX decisions taken from the FTIL chairman’s office and flouting of rules while fixing the terms.
“MCX incurred net expenditure of approximately Rs 649 crore for various services rendered by FTIL,” the report said. “It incurred an expenditure of Rs 42 crore for the services of NBHC and Rs 18 crore by other FTIL group companies,” it said. The commercial terms and conditions agreed by related parties (FTIL group) were not substantiated with any underlying market benchmarking or competitive bidding, it said.
In another revelation, the report said that “under the existing contractual terms, MCX appears to be contractually bound to FTIL for an unprecedented long tenure ranging between 33 years to 50 years with a provision of automatic renewals for up to two similar terms.” The longevity of tenure of contracts extends up to 99 years in certain cases.
PwC said that “it appears senior management of FTIL played a significant role in decisions pertaining to the commercial terms between MCX and other group companies. In various instances…”
In a statement, FTIL said the transaction with MCX has violated any legal provisions of corporate law or taxation and it will vehemently pursue legal action against MCX and PwC for painting wrong picture in its audit report.
All transactions carried out between MCX and FTIL are based on commercial agreements with FTIL creating long term infrastructure platform in terms of technology back-bone and support for the exchange. The question of transfer pricing is not at all applicable. FTIL has paid all the necessary taxes for the services performed & revenue earned by the company, FTIL said.