Jignesh Shah often claimed the late Dhirubhai Ambani as his role model. But while Ambani founded what is now India's biggest private-sector company by revenue, Reliance Industries, Shah is now watching his business empire crumbling before his eyes.
Shah, Founder of Financial Technologies (FT) group, was arrested on May 7 in connection with the Rs 5,600 crore payment scam at group company National Spot Exchange Ltd (NSEL). The Mumbai police's Economic Offences Wing (EOW) also arrested Shreekant Javalgekar, former managing director and CEO of Multi Commodities Exchange (MCX), which is also part of the FT group that provides financial software for trading terminals, along with Shah.
Shah and Javalgekar were arrested under the Maharashtra Protection of Interest of Depositors Act and are being held in police custody. According to Rajvardhan Sinha, Additional Commissioner of Police, Shah was arrested as he was not cooperating with police investigations into the fraud and a custodial interrogation was necessary. Sinha said in a press conference that police had evidence regarding Shah's involvement in the NSEL scam. Shah and Javalgekar were first sent to police custody until May 15, which was subsequently extended to May 19.
According to market grapevine, it was personal vendetta against Shah that landed him in police custody. Talk is that when Shah was fighting to get a licence to start his stock exchange (MCX-SX), he rubbed some people the wrong way. In fact, through his political and bureaucratic connections, Shah complained against a particular finance ministry official. The complaint spoiled the officials career graph and he was transferred from the ministry. However, after P. Chidambaram took over as finance minister the official was recalled to the ministry and tables turned for Shah.
Investors main losers
Shah's lawyers have told him he may have to stay in police custody for at least a month or two. The arrest may have stemmed public anger but one thing is sure: the money Shah was to shell out of his pocket by selling stakes in group flagship Financial Technologies (India) Ltd, or FTIL, and other entities is not coming.
According to a lawyer, who spoke on the condition of anonymity, Shah would have paid out Rs 1,100 crore to Rs 1,200 crore to investors of NSEL after selling stakes in FTIL and MCX. "The situation has taken a turn for the worse following Shah's arrest. Now, FT will not make any voluntary contribution. Investors' hopes of getting 20 per cent back have gone out the window," says the lawyer.
What next for FT Group?
The other big question is regarding the future of FT and MCX, the biggest revenue pie of Shah's empire. After the NSEL scam came to light in July last year, Shah resigned from the board of MCX in November. In December, the commodities market regulator the Forward Markets Commission (FMC) declared Shah and FT unfit to run a commodities exchange in the country.
JM Financial, a Mumbai-based financial services group, and Anil Singhvi, former CEO and managing director of Ambuja Cements, have now been mandated to find a buyer for FTIL and MCX. A senior lawyer who has been advising Shah said on the condition of anonymity that Shah will have to exit the exchange business. "He wanted to fight against the regulator's decision but he was going to fight a losing battle as no one was going to favour him due to the NSEL fiasco," the lawyer says. Queried for its reaction, JM Financial refused to comment on the matter, while email and text messages sent to Singhvi were not responded to.
Shah's lawyers had previously sought to blame former NSEL CEO Anjani Sinha for the payment scam but it appears highly unlikely that Shah, an astute entrepreneur, didn't know what was happening at the company. After all, NSEL contributed about Rs 125 crore, or 56 per cent, of the group's consolidated profit in 2012/13.
Shah's lawyers hope he will be out of jail sooner or later. The Bombay High Court has already granted bail to Sinha. But no one can guess when will investors get justice and the guilty will be punished. One thing is clear though, that the NSEL investors will have to wait a long time to get back their money. If at all they get anything.
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