CBI begins probe against Jignesh Shah, ex-Sebi chief Bhave

They loved to hate each other at public forums not so long ago.

In a case of sheer irony, former Securities & Exchange Board of India chairman C B Bhave and Financial Technologies India Ltd promoter Jignesh Shah found themselves on the same platform on Thursday, with the Central Bureau of Investigation registering a preliminary inquiry against both, as well as former Sebi member K M Abraham, over alleged irregularities in grant of sanction to the MCX Stock Exchange in 2008 and renewal of recognition in 2009 and 2010.

The CBI probe is to ascertain how MCX-SX was given permission despite opposition from the finance ministry when Bhave was head of the regulatory authority.

The investigating agency also filed a first information report naming Shah, also a promoter of National Spot Exchange Ltd, besides officials of Projects and Equipment Corporation, for alleged criminal conspiracy and cheating.

According to late-night reports, Shah was questioned for over two hours by CBI at its Ballad Estate office in South Mumbai.

He was allowed to go home at 11.30 pm.

In its FIR against the two companies, CBI said it appeared PEC was floating 'fraudulent paired contracts for trading in agri-commodities on NSEL’s platform, without undertaking any genuine trade and causing a Rs 120-crore loss to the government'.

Bhave had become Sebi chairman in February 2008 and his three-year term ended in February 2011.

Abraham’s term as a whole-time member of Sebi also ended in 2011.

Incidentally, Abraham had written to the Prime Minister’s Office in 2011 that Sebi was being pressured by the finance ministry to go easy on some companies, including MCX and Sahara, against whom he had passed orders. However, these charges were rejected by the ministry as well as Sebi.

MCX-SX, set up by Shah’s FTIL and its commodity exchange arm MCX, began functioning as a full-fledged stock exchange in 2013 after a prolonged battle with Sebi.

While a spokesperson for FTIL said the company would provide full cooperation to the authorities, Bhave and Abraham could not be contacted.

The exchange was initially given permission for only a limited segment of currency derivatives (in 2008), on the condition that its licence will require approval every year.

Last year, Sebi asked MCX-SX to restructure its board and governance framework after a payment crisis broke out at NSEL.

Bhave had earlier told Business Standard the fact that MCX-SX was allowed to trade in currency futures was proof of the fact that he encouraged competition.

Sebi could have denied approval on the grounds that MCX-SX’s shareholding did not follow the guidelines. But he gave the exchange two years to comply.

The preliminary inquiry was registered on a day CBI carried out searches at official and residential premises of NSEL and PEC across 15 locations in Mumbai, Karnal and Delhi.

CBI said it recovered Rs 36 lakh (Rs 3.6 million) from the searches at the residence of Sinha. Searches were also carried out in the premises of NSEL borrowers, including Mohan India, ARK Commodities, Yathuri Associates, PD Agro, Dunar Foods, White Water and Vimla Devi.

An FIR on the NSEL controversy was also registered last year by the economic offences wing of the police here; a chargesheet was also filed in court.

The shares of FTIL and MCX took a beating on Thursday amid the CBI action.

The FTIL stock was down 4.3 per cent from previous close to Rs 378 a share, while MCX was down 4.6 per cent to Rs 515.7.

NSEL is facing allegations of a Rs 5,600-crore (Rs 56-billion) default due to about 13,000 investors.

In September last year, one of the latter had filed an FIR against the directors and key management executives of NSEL, for cheating, forgery, criminal breach of trust and conspiracy.

Agency reports suggested an emergency board meeting of MCX-SX had been called on Friday and that there might be resignations by its chairman G K Pillai and other public-interest directors in the wake of the CBI probe.

Apart from Pillai and vice-chairman Thomas Mathew T, two other public-interest directors (Ashima Goel and D R Dogra) could also quit, the reports said.

However, MCX-SX MD Saurabh Sarkar confirmed to Business Standard that the meeting was not an emergency one and had been scheduled at the previous board meeting a month earlier.

On the MCX-SX rights issue, Sarkar said the response from investors had been good.

There were apprehensions the licence of the exchange, already battling low business volumes due to problems at NSEL, could be cancelled if CBI probe found something detrimental, sources said.

Pillai and these three persons were appointed as public-interest directors at MCX-SX after Sebi last year asked the exchange to recast its board and governing structure.

Sources added the board members of the exchange were of the view that CBI inquiry would jeopardise the prospects of MCX-SX and make it difficult to get any strategic investors.

After the NSEL fallout, the original promoters of MCX-SX had been issued showcause notices by Sebi, as another regulator FMC ruled they were not 'fit and proper' to run any exchange.

Image: Jignesh Shah