Can Jignesh Shah win this tough battle?

Only time will tell, if the 'Shah' of exchanges will walk out of this battlefield unscathed.

Fit and proper. These words have come back to haunt the chairman and chief executive officer of Financial Technologies, Jignesh Shah, twice in less than three years.

On Monday, the Forwards Market Commission's (FMC) harshly-worded letter to the National Spot Exchange (NSEL) on the Rs 5,600-crore scam said: "Non-settlement of outstanding trade on NSEL seriously reflects on your credibility and reputation which is a key ingredient in meeting the criteria for a fit and proper' person.

In the eventuality of you losing your status as a "fit and proper" person, you cannot continue to hold directorship or share holding in any of the recognised futures commodity exchange."

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In September 2010, the Securities and Exchange Board of India's (Sebi) wholetime director, K M Abraham, had used the very same "fit-and-proper" criterion while rejecting the application of MCX-SX for opening a stock exchange: "I am of the considered opinion that the applicant has failed to adhere to fair and reasonable standards of honesty that should be expected of a stock exchange."

That time, Shah was accused for not complying with Sebi's MIMPS (Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges) guidelines. However, Shah later approached the courts and got the licence to launch the equity exchange.

 Things are much more serious this time. NSEL has been accused of a series of frauds. 

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These include allowing companies like Ark Industries, N K Protein and others with little or no net worth or commodity stocks to have exposure of hundreds of crores. Shah, who was at the forefront in the battle for the stock exchange, has been strangely silent.

Shah's aggressive nature is legendary. Then, you don't launch nine exchanges and a slew of other related businesses in warehousing and information management in just 12 years by being slow and steady.

When he was fighting a court battle over his stock exchange licence, he used a billboard at the entry of the Bandra Kurla Complex, which houses the headquarters of Sebi and National Stock Exchange, to constantly remind the top officials of the regulator and the country's premier exchange that MCX-SX and Shah were for real - it was the same billboard that Shah leased over seven years back to fight with the National Commodities and Derivatives Exchange (NCDEX) at a time when he could not even afford an office at the complex. 

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At the launch of the stock exchange, he was famously quoted as saying: "BSE is no competition. It is only moving closer to a museum."

Things are very different now. The board of NSEL, which includes Shah, has removed CEO & Managing Director Anjani Sinha, CFO Shashidhar Kotian and five others from their respective positions and made them part of a "special recovery team" led by former Sebi veteran P R Ramesh.

But FMC is unwilling to play passing-the-buck. In its letter on Monday, it accused Shah of doublespeak. In July, he had said that NSEL's systems were foolproof but cast serious doubts on the availability of commodities in August.

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Most of his businesses are going through a bad phase now. For example, the Dubai Gold and Commodity Exchange (DGCX) whose plans are in trouble as the Dubai Multi Commodities Centre has replaced the Financial Technologies platform with that of Cinnober, another exchange technology provider.

There are reports that Financial Technologies and MCX, which together have a 44 per cent stake in DGCX, are looking to sell the stake.

Then, the volumes of MCX are down due to the imposition of the commodities transaction tax. Currency volumes are suffering due to the Reserve Bank of India's decision to ban banks from indulging in proprietary trading.

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All these have led to the share prices of Financial Technologies and MCX falling by 86 per cent and 75 per cent, respectively, since January. Financial Technologies and MCX's market caps are down to Rs 609 crore (Rs 6.09 billion) and Rs 1,419 crore (Rs 14.19 billion), respectively. So, it would be quite difficult for him to pledge his stake with banks or other lenders to raise Rs 5,600 crore.

With the regulator, brokers and investors gunning for his head, this will be a long-drawn battle. Just a year back, Shah held elaborate press conferences in all the leading Indian cities to celebrate the launch of his stock exchange, MCX-SX. 

Only time will tell, if the 'Shah' of exchanges will walk out of this battlefield unscathed.