63 Moons, founded by Jignesh Shah, accuses Chidambaram of abusing his office to bring the company down.


NEW DELHI: It is not the practice of the academic journals of Indian Institutes of Management (IIMs) to laud a businessman, and that too one having trouble with the law, in superlative terms. But this is exactly what a case study in the Indore Management Journal, a publication of IIM Indore, has done. It has lionised 63 Moons Technologies and its founder Jignesh Shah.

It is also not the practice of Indian magnates to sue politicians, however vindictive and atrocious the latter may have been. But this is exactly what Shah, the promoter of the now-defunct National Spot Exchange (NSEL), and founder of 63 Moons (previously FTIL) did when he recently served legal notices to senior Congress leader and former Finance Minister P. Chidambaram, former bureaucrat K.P. Krishnan, and former Forward Markets Commission (FMC) chairman Ramesh Abhishek. In the Ministry of Finance, Krishnan was additional secretary, in charge of capital markets. Accusing Chidambaram of abusing his office to bring down NSEL, Shah claimed that the ex-minister’s intention was “mala fide”, as he wanted to unduly benefit the biggest equity bourse National Stock Exchange (NSE) at the expense of NSEL.

Ganapathy Lakshman Sharma, a marketing professional with over three decades of experience and author, has gone to the extent of equating Shah with Ayn Rand’s famous protagonist in her magnum opus, Atlas Shrugged. A subtitle of the study is called “India finds its John Galt in Jignesh Shah”. The study itself has been named “How Vested Interests Eroded the Best ‘Make In India’ Story”.

Sharma wrote, “Galt became a cultural icon who epitomized freedom of innovation among aspiring entrepreneurs across the world.” Galt is actually Rand’s philosopher hero, who enunciates her philosophy in the later part of the novel. Though famous as a best-selling author, she is arguably the most passionate and erudite exponent of capitalism, which she called “the unknown ideal”—also the title of one of her books.

In the novel, great innovators and wealth creators go on a strike under Galt’s leadership; they wanted to show the world that it couldn’t function without them. In a speech to the world, he said, “You have heard no concepts of morality but the mystical or the social. You have been taught that morality is a code of behaviour imposed on you by whim, the whim of a supernatural power or the whim of society, to serve God’s purpose or your neighbour’s welfare, to please an authority beyond the grave or else next door—but not to serve your life or pleasure. Your pleasure, you have been taught, is to be found in immorality, your interests would best be served by evil, and any moral code must be designed not for you, but against you, not to further your life, but to drain it.” Galt is the embodiment of Rand’s philosophy.

Shah’s family business was trade in iron and steel, but he studied electronics engineering in Mumbai. Just after completing his graduation, he got an opportunity to get involved in the electronic networking project at the Bombay Stock Exchange (BSE). This is where he got interested in the world of finance and capital markets. Training in electronics engineering and interest in finance led to the setting up of a company named Financial Technologies (FTIL) at the turn of the century. The objective was to offer an electronic trading platform.

He quickly moved on to launch his own exchanges. The Multi-Commodity Exchange (MCX) became not only the first listed bourse, but also a favourite stock. Then came exchanges under FTIL in five other countries. Shah was growing fast, and soon became big enough to rival the established exchanges the BSE and NSE. The latter particularly didn’t take MCX’s rise, indeed its very existence, kindly. Shah, however, sailed through.

Since NSEL was a spot exchange, settlement had to be at the same time or, as per the international norm, within two days. In 2007, Shah managed to get the settlement period extended by the authorities by 11 days after the trading day. It is at this time that NSEL entered the realm that was outside the remit of regulation.

NSEL started offering new products, “paired contracts” being one of them. Meant for agricultural commodities, they proved to be a big hit among investors. But, apparently, these were not flawless, resulting in defaults; by mid-2013, they had exceeded Rs 5,600 crore. Government crackdown followed. The Forward Markets Commission (FMC), the regulator for futures and commodities trading, scrutinised the contracts. Other regulators and authorities too swung into action.

Shah’s dream had turned into a nightmare, with criminal cases filed against him resulting in arrest, his business grounded, bank accounts frozen, property seized; he was made to look like a scamster rather than a visionary entrepreneur.

Sharma, the author of the Indore journal study, blames it on the systemic inadequacies. Shah, he says, “was at odds with the inadequacies of a system that did not allow freedom for innovation and instead, placed hurdles in the way of the enterprising few.”

Sharma says, “FTIL is only a case in point because it is exceptional in the way it rose to dizzying heights, displaying its cutting-edge innovation and the way it was targeted because its highly competitive innovative spirit was perceived as a threat by established players aided by powerful godfathers in politics and bureaucracy.”

Further, he wrote, “Like Mr. Shah, there are many entrepreneurs who have the potential to be torch-bearers of innovation and can build world-class ‘Made in India’ MNCs. With so many John Gaits waiting to burst onto the entrepreneurship scene, it is only lack of conducive business environment and regulatory failures that prevent India from having its own Google or Microsoft. The travails of Mr. Shah’s FTIL indicate that regulatory impediments can curb the prospects of innovation.” Especially if misused by powerful officials and politicians, as is so easy and commonplace in India despite three decades of “liberalisation”.

Shah may or not be a Galt, but he doesn’t look like a crook either. Fortune India reported in December 2013 that NSEL “did not break any existing laws when it launched ‘paired contracts.’ The chairman of the FMC, Ramesh Abhishek, acknowledges this, and says there was a ‘regulatory vacuum with respect to spot exchanges’.”

This has cost Shah dear. Hindu BusinessLine reported on 11 February, “Assets of over Rs 2,000 crore belonging to Financial Technologies, re-christened 63 Moons, its promoter and face of the company Jignesh Shah remain attached under the Maharashtra Protection of Depositors Act, awaiting further court orders. Total assets of around Rs 8,000 crore (including defaulters’ assets) have been attached.”

Further, the report said, “In October 2018, the HC stayed attachment of more assets of 63 Moons, and its key software product ODIN and investments. Last month, the Supreme Court dismissed petition to intervene on the stay by the HC. The government had ordered merger of the NSEL and 63 Moons under section 396 of the Companies Act.” This is the first time that two private entities are being sought to be forcibly merged through state intervention, a precedent that could apply (but has not) in several other instances as well.

Bombay High Court judge Abhay Thipsay went through the 8,000-page first police charge-sheet against Jignesh Shah in 2014. Grantin g him bail, he said, “Though this is termed as scam of Rs 5,600 crore by the NSEL, it is not that monies have been received by the NSEL, but have gone from one bogus trader (investing) to another (borrower). There is no material to show any direct link between amount dishonestly earned by borrowers and the amount received by the applicant [Shah].”

This was curious. A high court judge raises questions about the conduct of brokers accused of bogus trades, and yet it took years for real action to begin. The cases against those involved in bogus trades started getting filed much after the trials and tribulations of Shah began. Who was responsible for such a delay? So far no one seems to have asked this obvious question. Indeed, several officials responsible have seen their careers boosted rather than blighted.

It was only a few days ago that the Securities & Exchange Board of India or Sebi, the stock and commodities regulator, commenced initiated criminal proceedings against 300 brokers. Civil proceedings are already underway against them. Top brokers Motilal Oswal Commodities and India Infoline Commodities were declared not “fit and proper” to carry out commodities derivatives trading.

Apparently, there was some malevolence in the system that proved to be the company’s bane. Whether the malevolence was introduced by Chidambaram needs to be proved in the court of law. But this much can be said: the former Finance Minister doesn’t appear to have been impartial in his dealing with NSEL. A comprehensive inquiry is needed to find out why.

This is a pathology nobody is even bothered about: a politician can make anybody’s life miserable in our country. And anybody means anybody—from the man in the street to the business tycoon. Consequently, businessmen have been tamed and the country and its progress made the victim.

Consider the irony: they were more free when India was under foreign rule. In free India they have been in many ways kept in chains. Jamnalal Bajaj (1889-1942), for instance, openly became an associate of Mahatma Gandhi. He “renounced the titles of Honorary Magistrate and Rai Bahadur… [and] refused to obey the instructions of the British authorities.” He participated in, among others, the non-co-operation movement in 1921, the boycott of Simon Commission in 1929, the Salt Satyagraha in 1930, and the anti-war campaign in 1941. “Jamnalalji was adopted as the fifth son by Gandhiji. He was the alter ego of the Mahatma…” (http://www.jamnalalbajajfoundation.org).

Similarly, G.D. Birla and other prominent industrialists openly supported and funded Mahatma Gandhi, who was fighting against the government. Since then, tycoons are afraid to candidly express their opinion about government policy, let alone slam it or work to bring it down. The head of a television company once said in his show that what industrialists say during commercial breaks is completely different from what they say on the air. Entrepreneurs are needed to create jobs. And to do that they need to be empowered and not emasculated as Jignesh Shah was.

This is not what should happen in a democracy. In the US, billionaire currency trader George Soros calls President Donald Trump a “narcissist” who “is willing to destroy the world,” but no harm comes to him on this count.

If our political masters are unwilling to tolerate even fair criticism, they can scarcely be expected to sit quiet at an individual they disapprove of. It looks like P. Chidambaram didn’t approve of Jignesh Shah. Hence his fall. Should it have been so easy to bring down not just an individual but an enterprise that employed so many people?

Pride, they say, comes before a fall. In the wonder that is India, can a once all-powerful minister ever face justice? Can we expect a decent business environment if officials and politicians have the powers to destroy a unicorn? The future will show.