After the Securities and Exchange Board of India on Wednesday passed an order on Financial Technologies India Limited , deeming the company not 'fit and proper' to hold any stake in bourses, JN Gupta former ED of Sebi said FTIL can now move the Securities Appellate Tribunal against the Sebi order. Post that, if it is still not satisfied then it can always move the Supreme Court as a last resort.
HP Ranina, Senior Advocate, Supreme Court says FTIL will have to start the process of divesting stake in various stock exchanges immediately. Sebi has asked FTIL to divest its stake in various exchanges with 90 days. However, he adds: "In case they are not able to do so for whatever reasons then they can always make an application to Sebi again and ask for extension of time."
Below is the verbatim transcript of JN Gupta & HP Ranina's interview with CNBC-TV18
Q: What is the kind of remedy that FTIL may have in order to contest this Sebi order?
Gupta: Remedy is available against all orders of Sebi. First remedy is that they can move to honourable Securities Appellate Tribunal (SAT) against the order and if they are not satisfied with the order that SAT passes then they can move to honourable Supreme Court. It is not any special order, it is like any other order of Sebi which can be challenged.
Q: This is the second time Sebi has come out with a not Fit & Proper order against FTIL and its entities. The first order being the KM Abraham order which was set aside by the Bombay High Court, the second order which is today's order is based on the order passed by the Forward Markets Commission. How tenable will it be in the court of law because Sebi is basing its arguments saying that any impact on commodities market will have an impact on the securities market as well as and hence this order holds firm and they are right in saying that FTIL and its entities are not Fit & Proper?
Gupta: It all depends what are the details in the Sebi order, how Sebi has determined this time that what are the considerations on which they have treated FTIL and Jignesh Shah as not Fit & Proper? One cannot link the previous Sebi order and this order.
Of course the Sebi's logic that a person who has been found unfit by one regulator is likely to be unfit for the second regulator as well because the financial markets are integrated, you can't isolate one market from other market. So, because of the contingent effect Sebi would be very much within power to say that they are not Fit & Proper but it all depends what are the contents of the order and whether those contents will pass through the eyes of SAT or honourable Supreme Court.
Q: Sebi has given them 90 days to divest this stake in various stock exchanges. Can the board of these exchanges suo moto take action and divest the stake and they will have to wait out the 90 day period before acting?
Ranina: They have been told to divest within 90 days. So, the question of waiting doesn't arise. They will have to start the process immediately. In case they are not able to do so for whatever reasons then they can always make an application to Sebi again and ask for extension of time. So, the process must begin immediately and they will have to convince Sebi that this is what is being done, that they are taking adequate steps to do that.
Q: Can the board of these stock exchanges take any action or can they initiate the proceeding wherein the stakes are divested or it will be up to FTIL and its entities to do it?
Ranina: For the first 90 days they will have to give an opportunity to FTIL to do the same. They can't take a preemptive step. The stock exchanges can do it. It is only if they fail to do so that some action may be taken against them as may be decided by Sebi. Just now FTIL will have to act on its own.
Q: There is a case going on in the Bombay High Court where FTIL and its directors are challenging the not Fit & Proper order issued by FMC. Given that in the background and Sebi coming out with its own order, will FTIL be able to club both the case and take it to Bombay High Court or will it be done in two separate – one in SAT and one in Bombay High Court?
Ranina: They will have to make separate cause of actions. They will have to make a separate application in each case. Clubbing may not be relevant also. So, they will try to act in a manner which gives them the opportunity to come twice before the various authorities. I don't think there will be any issue of clubbing the two. It will have to be done separately.
Financial Tech stock price
On March 14, 2014, Financial Technologies closed at Rs 360.95, down Rs 17.05, or 4.51 percent. The 52-week high of the share was Rs 870.30 and the 52-week low was Rs 102.05.
The company's trailing 12-month (TTM) EPS was at Rs 50.03 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 7.21. The latest book value of the company is Rs 580.93 per share. At current value, the price-to-book value of the company is 0.62.
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