The Central government is considering a proposal to take over the management of Financial Technologies (India) Ltd. It would be the second such takeover after that of Satyam in 2009. FTIL and its promoter, Jignesh Shah, are currently being investigated for a Rs 5,600 crore default by FTIL subsidiary, National Spot Exchange Limited. This comes in the wake of another proposal to merge NSEL with FTIL to allow NSEL investors to recover their investments from FTIL. Over the last year or so, NSEL paid back only Rs 263 crore to investors.
The NSEL case is one of government failure and corporate misdemeanour more than regulatory lapses. First, the ministry of consumer affairs — under whose administrative purview the FMC operated — gave special exemption to NSEL to undertake activities that are not allowed for spot exchanges. Later, even after the regulator pointed out that NSEL’s activities risked investor money, the ministry did not intervene, resulting in a payment crisis. The regulator declared Jignesh Shah and FTIL “not fit and proper” last year. A committee under then finance secretary Arvind Mayaram recommended management takeover of all exchanges — MCX, MCX-SX and NSEL — promoted by FTIL. That too was ignored. Clearly, the FMC has established that NSEL conducted its affairs under the control, direction and supervision of FTIL. A merger, which has been prescribed in a draft order by the corporate affairs ministry, and a management takeover would effectively lift the corporate veil and not only allow NSEL investors direct recourse to FTIL but also expedite the recovery process.
