FMC- Not Fit and Proper as a Commodity Forward Markets

The Forward Markets Commission (FMC) by its Order dated December 17, 2013, FMC declare, amid others, that the Financial Technologies (India) Limited (FTIL) was “not fit and proper” to hold more than 2% shares of the Multi Commodity Exchange of India Limited (MCX), a company promoted by FTIL.


The Order was alleged to have been issued by FMC, in the public interest and in the interest of commodity derivative market. Earlier, in its show cause notice (SCN) served on October 5, 2013, FMC had argued that FTIL, which was the anchor shareholder in MCX, and had also 99.99% stake in the National Spot Exchange Limited (NSEL), FTIL and some of the Directors of  NSEL were jointly as well as severally responsible for the defaults at NSEL, following the abrupt closure of the exchange by the Central government, at the behest of  FMC.

In its reply to FMC’s SCN, FTIL had legitimately argued that the  facts/ allegations in SCN relate to NSEL, which is a distinct and separate legal entity, and not against FTIL. In its Order, FMC had also not disputed that subsidiary and holding companies are separate legal entities. Nevertheless, contrary to this recognized statutory position, FMC concluded that NSEL, just by virtue of  being a separate legal entity, was not independent from the control of FTIL, without adducing any legal provision to support its conclusion, which is also otherwise unfounded in terms of actual facts and logic.

While alleging mismanagement and poor governance of  NSEL by FTIL, FMC conveniently ignored that the responsibility for the management and governance of NSEL was strictly with its Managing Director, Mr. Anjani Sinha, and not with FTIL in both fact and law. Actually, the principle of demutualization, which FMC espouses and recognises, implies separation of management from ownership.

By that logic, FTIL, as an independent company, cannot be held liable for the management of its subsidiary, when the latter is also an independent and autonomous company. By disregarding this true legal and factual position, FMC has itself proved to be “not fit and proper” to regulate commodity forward markets.

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