Parts 1-4 of this series can be accessed here. This is Part 5.
How regulatory principles are distorted to favour a few
The art of abuse of regulatory powers crafted by Ramesh Abhishek were not just devious but dangerous for the growth and progress of India’s markets. He twisted and tweaked facts, misrepresented to the agencies, lost minutes of vital meetings, suppressed investigation reports of the enforcement agencies, etc. As one looks at the National Spot Exchange Limited (NSEL) episode, more and more of his murky deeds are coming to light and one such instance is discussed here.
…NSEL was a mere stick to beat FTIL (read Jignesh Shah) with, run his conglomerate into the ground because he was ruining the machinations of the C-Company at the NSE
What is Section 27 of FCRA?
Section 27 in the Forward Contracts (Regulation) Act (FCRA) of 1952, states that the Central Government may, by notification in the Official Gazette, exempt, subject to such conditions and in such circumstances and in such areas as may be specified in the notification, any contract or class of contracts from the operation of all or any of the provisions of this Act.
On Jun 5, 2007, the Consumer Affairs ministry issued a gazette notification in exercise of the power under sec 27 of FCRA giving NSEL specific exemption from organizing trades in one day forward contracts.
But NSpot got more!
Look at the benevolence of the Consumer Affairs ministry. When exemption was granted to NSpot, a special caveat was added, stating that the promoter namely NCDEX will not be liable for any omissions or commissions of NSpot. The parent, NCDEX was insulated from all acts of its subsidiary. “The National Commodities Derivatives Exchange NCDEX shall not take any responsibility for any act of omission or commission by the NCDEX Spot Exchange or share its infrastructure, software, or human resource, the two being separate and independent entities”. This demonstrates clear favouritism towards NSpot and NCDEX.
This special injunction, which was not there earlier in the exemption given to NSEL, was clarified later through a letter from Department of Consumer Affairs (DCA), to the Ministry of Finance (MoF) on August 8, 2011, which included all the spot exchanges into this caveat. For the timelines, refer to Figure 1. This was three years later.
Asymmetric application of the law
The above is another illustration of C-Company providing every handicap possible to the National Stock Exchange (NSE) group of companies in their battles against the Financial Technologies India Ltd. (FTIL) group. The question that comes up in this context is then on what basis did the Ramesh Abhishek recommend that FTIL was not fit and proper when clearly a directive was issued that the parent and subsidiary were two separate and independent entities and that the parent would not be responsible for any act of omission of the subsidiary? How then did he force FTIL to sell its business at fire sale prices, exit the exchange business completely (when it had conclusively proved to be a market leader, innovator and established India’s footprint on the global map of the exchange industry)? How did Ramesh Abhishek get away with going beyond his regulatory brief and recommending merger of NSEL with FTIL and supersession of the newly formed board of FTIL?
The answer is simple – NSEL was a mere stick to beat FTIL (read Jignesh Shah) with, run his conglomerate into the ground because he was ruining the machinations of the C-Company at the NSE. The Rs,75,000-crore NSE co-location scam has still not been addressed and the perpetrators roam free, preaching morals as if it is business as usual.
 Sec 27 in the Forward Contracts (Regulation) Act, 1952, IndianKanoon.org
 C-Company machinations – Part 10. How Chidambaram continues to rule over Fin Min – Dec 1, 2017, PGurus.com
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