TMI Blog2014 (2) TMI 1316X X X X Extracts X X X X X X X X Extracts X X X X ..... san, Paras Parekh, Abhishek Venkatraman, J. Sagar Associates, for Petitioner. Mr. Iqbal Chagla, Mr. Shiraz Rustomjee, a/w Simil Purohit, Mr. Jayesh Ashar Solicitor, Mr. Mihir Mody K. Ashar Co., for the Respondent. ORDER A.S. OKA, Rule. The Advocate on record for the Respondent waives service. We have heard the learned Senior Counsel appearing for the parties on the prayer for interim relief. By these Petitions under Article 226 of the Constitution of India, the substantive challenge is to the order dated 17th December, 2013 passed by the Forward Markets Commission (Department of Economic Affairs). 2. Several investigations are underway regarding unfortunate events which have occurred at the National Stock Exchange Limited (NSEL). The impugned order has been passed dealing with the status of M/s.Financial Technologies (India) Limited (Petitioner in W.P. No.337/2014), Shri Jignesh Shah (Petitioner in W.P. No.363 of 2014) and Shri Shreekant Javalgekar (Petitioner in W.P. No.370 of 2014). M/s. Financial Technologies (India) Limited (for short the FTIL ) is anchor shareholder and promoter of Multi Commodity Exchange of India Limited (for short MCX ). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) any other order against the person or any of its whole time directors or managing partners which has a bearing on the commodities market, has been passed by any regulatory authority and a period of three years from the date of the order has not elapsed; (f) the person has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; and (g) the person in financially not sound. 5. By the impugned order, the Commission held that the FTIL is not a fit and proper person to continue to be shareholder of 2 percent or more of the paidup equity capital of MCX, as prescribed under the guidelines issued by the Government of India for capital structure of commodity exchanges post5 years operations. It was further held that Shri Jignesh Shah is not a fit and proper person in terms of the guidelines. It was ordered that Shri Jignesh Shah is not a fit and proper person to hold any position in the management and the Board of any Exchange recognised under the said Act of 1952. It was directed that neither Shri Jignesh Shah individually, nor any Company/ entity controlled by him, either directly or indirectly, shall hold any shares in any associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of this Court in the case of Killick Nixon Ltd. V/s. Bina Popatlal Kapadia (Company Cases Vol.54 432), he urged that a Company cannot be allowed to suffer due to the role played by one of its Directors. The learned Senior Counsel appearing for the Respondents supported the impugned order and submitted that considering the magnitude of the fraud practised by the Petitioners which is to the tune of ₹ 5,500 Crores, interim relief should not be granted. He submitted that even assuming that an opportunity of crossexamining the auditors was not granted, that by itself will not vitiate the order impugned in these Petitions unless a serious prejudice is shown. 7. We have already quoted the guidelines by which the criteria for fit and proper person has been laid down. At this stage, when we are considering the prayer for stay, the findings recorded under the impugned order will have to be considered in the light of the guidelines. There is no dispute that the Petitioners were granted an opportunity of being heard by the Commission. It must be noted here that in the impugned order, the Commission has noted various facts about mismanagement and poor governance of NSEL which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er directly or indirectly, shall hold any shares in any association/ Exchange recognised by the Government or registered by the FMC in excess of the threshold limit of the total paidup equity capital of such Association/ Exchange as prescribed under the commodity exchange guidelines and post 5year guidelines. (underline added) 9. As regards Shri Jignesh Shah, in paragraph 15.2.3 it is held thus : 15.2.3 It is also pertinent to mention here that Shri Jignesh Shah was practically the highest beneficiary of the fraud perpetrated at the NSEL Exchange. It is because of the huge profit of ₹ 125 crores (approx.) earned by NSEL during FY 201213 that the value of the shares of Shri Jignesh Shah in FTIL shot up manifold giving him the benefit of a spectacular market capitalization of his investment in FTIL running into thousands of crores of rupees. Shri Jignesh Shah, as the promoter of FTIL and NSEL has misused his position to create a confident in the minds of the participants regarding the legitimacy of the business and its operations in the exchange platform of NSEL. Shri Shah consciously used his position to represent to the public at large about the attractive features ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Petitioner. 21. I submit that the aforesaid contention of the Petitioner is based on a fundamentally erroneous premise inasmuch as the Respondent has not directed the Petitioner to divest its shareholding in MCX. The Respondent has merely held that the Petitioner is not a fit and proper person to continue to hold 2% or more of the paid up equity capital of MCX. This is in terms of the above referred directive dated 22nd April, 2010 by which it was prescribed that no person will hold 2% or more of the paid up equity capital of MCX without satisfying the criteria for a fit and proper person. Consequently, it follows that to hold 2% or more of the paid up equity capital of MCX the Petitioner would require to satisfy the criteria for a fit and proper person. Equally, if the Petitioner did not satisfy the criteria for a fit and proper person it could not hold 2% or more of the paid up equity capital of MCX. (underline added) We accept the statements in the reply. 13. As regards the grievance of the Petitioners regarding failure to grant opportunity to cross examine the auditors, the said aspect has been dealt with by the Commission in the impugned order. In paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the decision of the Apex Court in the case of Vodafone International (Supra). He relied upon paragraphs 102, 103, 104 and 105. In paragraph 102, the Apex Court held thus : 102. When there is a parent company with subsidiaries, is it or is it not the law that the parent company has the power over the subsidiary. It depends on the facts of each case. For instance, take the case of a one man company, where only one man is the shareholder perhaps holding 99% of the shares, his wife holding 1%. In those circumstances, his control over the company may be so complete that it is his alter ego. But, in case of multinationals it is important to realise that their subsidiaries have a great deal of autonomy in the country concerned except where subsidiaries are created or used as a sham. Of course, in many cases the courts do lift up a corner of the veil but that does not mean that they alter the legal position between the companies. 16. After having perused the impugned order, we find that elaborate enquiry has been made by the Commission. Findings of fact of serious nature have been recorded against the Petitioners. The fraud perpetrated is to the tune of ₹ 5,500 Crores. C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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