Updated: Thu, Sep 26 2013. 07 28 AM IST
Mumbai: Regulatory troubles at National Spot Exchange Ltd, which is battling a Rs.5,600-crore payments crisis, have started spilling over to its parent Financial Technologies (India) Ltd (FTIL).
The Securities and Exchange Board of India (Sebi), the capital markets regulator, is set to probe FTIL's financial statements for possible misrepresentation of facts and figures to shareholders, officials said on Wednesday, a day after FTIL said the company's statutory auditor had withdrawn its report for the last fiscal year.
Following the regulatory probe, Sebi may debar FTIL promoters and directors from accessing the capital markets and ban them from holding directorship in any listed firm if the auditor's concerns are proved to be valid and FTIL is found guilty of misrepresenting facts and figures to its shareholders, Sebi officials said.
"If the charges are proved, action will be taken against the company's promoters in line with Sebi's Prohibition of Fraudulent and Unfair Trade Practices regulations... It is a serious offence. Whatever may be the case, if we find the company guilty of misleading shareholders and investors, quasi-judicial proceedings may be initiated against the firm's promoters," said a senior Sebi official who declined to be named.
"FTIL has not received any communication from Sebi on your query (and) hence we cannot comment," an FTIL spokesman said in response to a query from Mint on the regulatory probe. "As a listed entity, we have informed all material facts to FTIL shareholders vide our notices to stock exchanges."
On Tuesday, a day before FTIL's annual general meeting, the company said its auditor Deloitte Haskins and Sells had withdrawn its audit reports on the accounts of the company for fiscal 2013 in the wake of the settlement crisis at NSEL.
The audited accounts were to be presented at FTIL's annual general meeting on Wednesday in Chennai, but the auditor raised serious doubts on the company's financial statements, saying the stand-alone and consolidated reports for the last fiscal "should no longer be relied upon".
"Deloitte will recast the accounts, it is in our interest to do (so) fast," said Shah, chairman and managing director of FTIL.
Investors in NSEL outnumbered FTIL shareholders at the venue of the annual meeting. One investor said he had lost the entire money he had saved for the marriage of his three daughters.
Shah said he was a victim too and had lost his money and reputation, saying he understood the pain of the investors.
"...this company (FTIL) should not be judged by NSEL, please don't take away the credit of the organization. FTIL has 55,000 shareholders," said Shah.
He said he couldn't spell out a timeline for resolving the issues at NSEL.
On Wednesday, Mint reported, citing two government officials familiar with the situation, that the Enforcement Directorate and the Economic Offences Wing of the Mumbai police had found possible indications of money laundering while probing the crisis at NSEL.
FTIL shares dropped 10.25% to close at Rs.150.20 on BSE on Wednesday even as the exchange's 30-share benchmark Sensex lost 0.32% to close at 19,856.24 points. FTIL's listed commodity exchange subsidiary, Multi Commodity Exchange of India Ltd (MCX), lost 4.29% to close at Rs.418.30 on BSE.
While conducting its probe, Sebi may issue show-cause notices to FTIL, followed by quasi-judicial hearings. If it is able to prove that it had misled investors in its financial statements, the case may either be settled through a consent mechanism or be subjected to adjudication proceedings.
If indeed the charges are proved, the company's promoters and directors could either face a monetary penalty or be prohibited from dealing in the securities market for a certain period, or may lose their positions as directors in other firms.
In case offences are found to be of a serious nature, Sebi may enforce all the three actions on the company's promoters and directors.
FTIL and MCX have attempted to distance themselves from the troubles at NSEL in the past.
Although the NSEL crisis does not have a direct link with Sebi's probe of possible misrepresentations of facts and figures by FTIL, the two are related to the extent that the parent company's auditor cited the troubles at the spot exchange as the reason for withdrawing its reports.
On a consolidated basis, FTIL earned a net profit of Rs.227 crore in fiscal 2013, of which NSEL contributed 55% with a net profit of about Rs.125 crore. In the same year, FTIL's other ventures posted losses of around Rs.200 crore because of the gestation period required for new ventures, an FTIL spokesperson said.
In fiscal 2012, FTIL recorded a net profit of Rs.67 crore on a consolidated basis, in which NSEL accounted for about 37% or Rs.25 crore.
On Tuesday, FTIL said the impact on account of NSEL is not material to its stand-alone financial statement.
S. Bridget Leena in Chennai contributed to this story.
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