Table

of Contents
PREFACE
C-COMPANY - HOW CHIDAMBARAM MADE HIS FORTUNE USING BABUS AND BUSINESSES
Feb 20, 2017 Constitution Club of India, New Delhi
Who is Chidambaram?
How does one amass riches so quickly?
IN STOCKS I TRUST: CHIDAMBARAM
Setting up a new Stock Exchange
Use one Stock Exchange for all scams
A NEW COMPETITOR IS BORN
A Performance Leader
ODIN - Feature rich, kinder, gentler software
Alarm bells at NSE?
A CENTER FOR EXCELLENCE
A World Class Commodity Exchange
In Gold we trust: MCX
MCX captures market share
Signs of trouble from Chidambaram
MAKING A MARK IN THE WORLD SOFTWARE
Growth of Software companies in India
FTIL - The fount of knowledge
How MCX established itself as a Global Player
More exchanges followed soon after
FTIL - AN ENGINE THAT CREATED MILLIONS OF JOBS
How FTIL became a Force Multiplier
HURDLES PLACED IN THE WAY
Commodity Exchanges - A Primer
Commodity Futures vs Commodity Spot Market
How NSEL was established
THE TIPPING POINT - MCX-SX
Writing on the wall for NSE
A LONG HISTORY OF HARASSMENT
How NSEL became a convenient scapegoat
FMC had the powers yet did not act
C-COMPANY MACHINATIONS
The Mastermind
The Manipulator
The Executor
THE WAY FORWARD
What does the C-Company want?
Could this be it?
What is the solution?
EPILOGUE
Why did I write this series
Preface
The Stock Market has become a tool for making money by corrupt politicians in
office with the help of unethical stock brokers. From the time the markets
opened up in the early nineties, these greedy politicians have made this their
playground, resulting in a distorted market place, which aids just a few at the
expense of the rest.
One politician in particular, P Chidambaram tweaked the Participatory Note, a
hideous financial instrument to convert “black” or illegal money into “white”
accountable legal tender and also pay no taxes on the resulting capital gains, by
investing through Government mandated exemptions through Mauritius.
This route has been exploited by many a corrupt politician, who will find a
hawala in India to convert his/ her money from Rupees into Dollars, which he/
she then collects (after paying a commission) in say Dubai. Then the politician
(or proxy) heads to a Global Investment Banking company such as Goldman
Sachs or Morgan Stanley, deposit the dollars and get a Participatory Note with
no name but just the amount.
The same note is then deposited into a Mauritius company, which then trades in
the Indian Stock Market. When the money is put in a particular stock, it pumps
up the stock price and draws the investing public with dreams of making a quick
buck. This process is akin to a mechanized fishing trawler, which scoops all the
fish in its path, leaving nothing in its wake. Having got the stock pumped up, the
said ilk of politicians dump the stock for a handy profit. If this is not enough, the
profits are free of capital gain tax because the investment is from a company
incorporated in Mauritius.
To achieve this, Mr. Chidambaram nurtured and cultivated the National Stock
Exchange (NSE) and made the others sacrificial lambs. Chidambaram, with his
compliant coterie from the finance ministry and the assistance of rogue NSE
officials, thereby misused his power and position as Finance Minister to
steamroll a flourishing company Financial Technologies (FTIL) and its founder
Jignesh Shah, to protect his own monetary interests in the NSE.
This series, on C-Company gives a detailed account of how a group of
individuals, placed in strategic posts helped Mr. Chidambaram amass wealth
using NSE and at the same time, keep rival interest groups pinned to the ground.
Readers will find it revealing and interesting.
Subramanian Swamy,
Member of Parliament (Rajya Sabha) New Delhi
Former Union Minister of Commerce, Law and Justice January 24, 2018
C-Company - How Chidambaram made
his fortune using Babus and Businesses
Feb 20, 2017 Constitution Club of India, New Delhi
“Chidambaram is a big thief. His son Karti is also a thief [1] . Their net worth
spans thousands of crores, with properties in 14 countries,” thundered Dr.
Subramanian Swamy on February 20, 2017 , at a Press Conference in the famed
Constitution Club of New Delhi. He went on to add that the Chidambarams own
directly or indirectly, approximately 1/6th of the real estate in Bengaluru. As part
of this Press Conference, a list of 21 foreign bank accounts operated by Karti
Chidambaram was also provided.
Several months have passed since this presser. The Enforcement Directorate
(ED) summoned Karti Chidambaram thrice , and he has ignored these calls. The
Central Bureau of Investigation (CBI) has also issued two summonses to Karti,
on a different matter and he has ignored those too. Yet, he walks free, although
he can no longer travel abroad.
What makes the Chidambarams think that they are above the rule of law? And
more importantly, what is preventing the current government from acting against
what some arguably say as the Putin of India ?
Who is Chidambaram?
Grandson of Raja Annamalai Chettiar (the title of Raja was given by the British)
through the Raja’s daughter, Palaniappan Chidambaram (PC) did not get to
enjoy the same perks and privileges as those of his cousins born to the Raja’s
sons. Marrying outside of the Chettiar community to Nalini, who is a Gounder
did not help matters. Perhaps this drove him to ceaselessly pursue wealth in any
and every form that he could conjure. The Raja’s family tree is shown in Figure
1.
Figure 1. Raja Annamalai Chettiar Family Tree (Courtesy Business Today )

Only this can explain the meteoric rise in riches of this mercurial minister. It is
believed that at the Center, politicians choose one field and make their mark (and
the moolah) from it. For instance, Pawar allegedly made his fortunes in Defence
(and later in Agriculture when he had to swallow his pride and accept Sonia
Gandhi’s leadership). Chidambaram chose Finance. From 1996-98, 2004-08 and
2012-14, he reigned supreme in this ministry, doling out favors [2] / threats/
bending administrative officers to his will (and when that failed, to foist false
charges)… the list is long. It is widely believed that in UPA-2, only Pranab
Mukherjee could stand up to him and once Pranab-da was kicked upstairs to be
the President of India, Chidambaram and his C-Company could get away with
anything. Sonia was happy because Vadra2 could do in Dubai what Karti was
doing in Singapore, making money off the stock market. For the brief period that
he was not in the Finance Ministry, he even tapped Pranab-da’s phones so he
could keep tabs on the goings on [3] .
How does one amass riches so quickly?
This is what will be described in this series. Cabinet ministers can be compared
to crabs in a bag, each ready to pull down any one that tries to climb out of the
bag. Yet, this CEO of the C-Company could amass wealth in plain sight, much
bag. Yet, this CEO of the C-Company could amass wealth in plain sight, much
to the dismay of his equally venal colleagues! A Harvard degree combined with
an evil mind, alive to all money making opportunities propelled his drive. There
was also the small matter of proving to the A C Muthiahs of the world that his
money was self made.
In a hypothetical party funding meeting where each one weighs in with a
money bag (all for party finances of course!), if one weighed in with five bags
consistently, then that person is sure to get noticed and more importantly given a
seat close to the chief. Vitamin M can overcome un-electability, lack of mass
base, inefficiency, missteps and just about every other failing.
In Stocks I trust: Chidambaram
A Harvard Business School degree, a keen acumen for how Global Finance was
changing the world and the extent of computerization in the Stock Market to
allow computers to do the trading did not go unnoticed. Chidambaram made
India’s Stock Market his battlefield and he used three Weapons of Wealth
Accumulation – C-Company, P-Notes and Media. And how he wielded them
with dexterity!

Figure 2. Chidambarams Weapons of Wealth Accumulation

C-Company
A group of individuals working in the Government and outside (e. g. National
Stock Exchange) whose primary loyalty was (and in some cases continues to be)
to Chidambaram. Placed strategically to ward/ thwart/ delay and deflect anything
that can potentially harm Chidambaram or his interests, these fiercely loyal
minions have been one of the biggest bottlenecks to the current administration in
its pursuit of Chidambaram. But when he was a Minister, these C-Boys were
powerful and wielded a big stick and would stamp on anyone who got in the
way!
P-Notes
Participatory Notes, a financial instrument was tweaked by Chidambaram to
create a legal way for converting Black money into White. This devious note had
no name, only the amount and the issuing authority. Black money could be given
to Hawala traders in India who would convert it into US Dollars for a fee and
give the owner US Dollars in Dubai. Then the owner could go to a financial firm
such as Morgan Stanley or Goldman Sachs and get a Participatory Note with
just the value . The owner would then bring this P-Note into India (via a
Mauritius company) and show it to RBI, which in turn was obligated to allow
the owner to use the money to trade in the Stock Market. When a few ganged
together to pump a stock, it rose to stratospheric heights and they would then
dump it and make a killing. Owing to the money being invested through a
Mauritius company, it was tax free! And the resulting fortune could be converted
into Dollars at any time. This created huge wealth for those shrewd enough to
understand and exploit the scheme.

Media
The media was a smaller (albeit significant) player in this scheme. When he was
the Finance Minister, Chidambaram would make an off-the-cuff remark that he
is considering raising tariffs on a sector (say Steel). The next day stocks of Steel
companies would drop and his son would mop up these stocks. The following
day, Chidambaram would reverse his stance and say that he was “misquoted”
and that there is no plan to raise the duty on Steel and the stocks would get back
to their original level, with Karti turning a tidy profit. This happened too many
times for the media to not notice. Media seldom doubted him, even lapping up
his Hindu terror theory hook, line and sinker.
Fool me once, shame on you.
Fool me twice, shame on me.
Randall Terry
Randall Terry
Setting up a new Stock Exchange
The Bombay Stock Exchange (BSE) has been in existence for over 140 years.
BSE was considered as being old and not nimble enough to be in step with
changing times. Ergo a new National Stock Exchange (NSE) was formed in
1992 designed to be a fully demutualized electronic exchange [4] in the country.
Chidambaram was the Union Minister of State (Independent Charge) for
Commerce then. But it did not last long… On July 31, 1992, Chidambaram
resigned over allegations that he had invested Rs. 1 Lakh in a scam tainted
financial services company, Fairgrowth Financial Services [5] , based in
Bangalore. Chidambaram fully expected his letter of resignation to be not
accepted, but the “Apara Chanakya”, Prime Minister Narasimha Rao accepted it
with alacrity, having been convinced of the company’s “pedigree [6] ” and
Chidambaram was left to lick his wounds.
C-Company recruitments start
The NSE started trading electronically in 1994. NSE was the first to use V-SAT
[7]
, a communication system that links up via the satellite that enabled electronic
trading. With this move, NSE killed all regional exchanges except perhaps the
BSE. In just 1 year, NSE overtook BSE. From that point forward, for the next
decade or so, NSE stole a march over BSE. Two of the founders of NSE, Ravi
Narain and Chitra Ramakrishna, were close to P Chidambaram and were some
of his earliest recruits to the C-Company .
Looking back in time, it is clear that Chidambaram treated NSE as his favorite
stock exchange. Government should treat all stock exchanges in the same way
but the events that played out in the years to come show a distinct bias by PC
towards the NSE. It was as if he had personally invested into the success of NSE
and would give it every possible advantage.
The following example illustrates this – During the period 2010-2015, using the
Stock market and gaming the market using High Frequency Trading [8]
computers, a small group made up to Rs. 100 crores ($16 million) a day for 5
years at the NSE. Assuming that there are 250 trading days in a year, this works
to $4 billion a year (250 * 16). Over a 5 year period, this alone would have
netted $20 billion. But to be able to do this consistently, Chidambaram needed to
have absolute control over a Stock Exchange. And that is exactly what
happened, as it turned out later.
Use one Stock Exchange for all scams
Use one Stock Exchange for all scams
While Chidambaram made a considerable fortune while being at the helm, it is
widely believed that most of his billions were made using India’s Stock market.
In the coming episodes, I will detail how he used his position and the C-
Company to ensure that NSE is the only viable exchange in India and anything
that came in its way was decimated.
A new competitor is born
While NSE was growing quickly under R H Patil, two engineers were toiling
away in a boiler room. Jignesh Shah and Dewang Neralla, both of whom started
their careers with the Bombay Stock Exchange (BSE) left to start their own
venture, Financial Technologies India Limited (FTIL) in 1995. Both had gained
valuable experience of how Stock Exchanges worked with their in-depth
knowledge and understanding of functioning of global exchanges like
NASDAQ, Hong Kong and Tokyo Stock Exchanges. When it came to how
Stock Exchanges operated in the new era of electronic trading, they knew a thing
or two and were far ahead of their creed in the learning curve.
ODIN

Instead of seeking their fortunes abroad (Shah

turned away a lucrative offer from Merrill Lynch), they decided to stay in India
and started working 15 hour days. Jignesh Shah raised Rs.500,000 from
mortgaging his home [9] and they set to work. As is typical for any startup they
toiled hard and long and came up with their first product, Open Dealer Integrated
Network (ODIN) for brokers. The going was tough at the beginning - they were
competing with the likes of IBM and Oracle but they had found a niche - the
Mom and Pop Broker firms, which could not afford the high prices of the US
based software to begin with.
Word spread amongst the broker community about this low cost but feature rich
software and their fortunes began rising as they could sell their products to even
the big ticket brokerage firms. Within a short period ODIN had captured
significant market share (almost 80% at its peak) and was the preferred software
of choice for brokers.
Based on the success of ODIN, FTIL went public on the BSE in 1999. But Shah
was just getting started. ODIN had several firsts to its credit (see Figure 4) - it
was the first to offer Multi-exchange, Multi-asset-class trading solution in India.
Multi-asset-class [10] is a combination of asset classes (such as stocks or bonds,
commodities, currencies) typically traded on exchanges. This was more complex
as the technology brings together various products traded in different exchanges
brought under one single platform leading to significant savings in the costs.
ODIN thus emerged in India as the first multi-Exchange, multi-asset, trading
and risk management system. Before that brokers had to use dedicated terminals
for products of every stock exchange!
ODIN also made it easy to see trades to different exchanges on a single terminal.
Before that brokers had to use dedicated terminals for each platform!

Figure 4. ODIN's many firsts

A Performance Leader
ODIN was a scalable solution that ensured high performance standards, and
could be easily deployed across varied locations with relative ease. It provides
could be easily deployed across varied locations with relative ease. It provides
real-time connectivity (meaning the brokers could see instantaneous changes as
trades happened at the exchanges) with the highest order execution speed and
operational stability.
ODIN was put through its paces by Cisco [11] , which subjected it to a series of
rigorous tests. For the technically inclined, its performance is revealing.
Cisco concluded as follows:
Our tests show that ODIN has not only the capacity to handle current and future
market loads, but is also capable of supporting operations over extended periods
of time. The system is scalable, both horizontally and vertically, thereby
providing the client with an ideal platform that can support the growing business
requirements. The tests have also conclusively demonstrated that ODIN is a
well-designed software that is robust and capable of functioning over the
extended market period.
ODIN - Feature rich, kinder, gentler software
Some of the features of ODIN are listed below:
Enhanced the viability of local brokerage firms due to cost
effectiveness of the trading platform
Enabled intermediaries to expand their national footprint across the
wider geography of the country
Expanded the scope of the business of stock exchanges with a wider
and broader national reach and access. National exchanges derived
larger benefits from this technology in expanding the size of trading
volumes.

ODIN did not stop with just trading technology - it kept adding an entire range
of services across the whole stock exchange spectrum with robust and reliable
product offerings such as Straight Through Processing (STP Gate), Digital
Signature (e-Hastakshar), Exchange technology that provided a comprehensive
suite of products and services for successful running and administration of
exchanges, Warehouse management System, Info Vending software for
dissemination of real time information, to electronic payment gateway.
Despite being subjected to numerous pressures and harassments, Shah kept
innovating ODIN by adding additional features such as Voice Cast messaging,
integrating Artificial Intelligence, Machine Learning and Natural Language
processes.
Alarm bells at NSE?
The incredible success of ODIN would have set off alarm bells in the minds of C-
Company and Chidambaram. Chidambaram wanted nominal competition for
NSE and for that there was BSE. But here was a new kid in town, not afraid to
blaze a new trail. It was time to disrupt the momentum of FTIL. By this time, a
Chidambaram acolyte, Ravi Narain had succeeded R H Patil to the throne at
NSE. And the shenanigans began.
A Center for Excellence
A World Class Commodity Exchange

Jignesh Shah was not satisfied merely with a robust

software product. Confident that India has the wherewithal to build high
performance technology companies, Shah set out to apply for a Commodity
Exchange license when the opportunity arose in 2002. At first, he was not taken
seriously - he was neither a trader nor a banker. And he was going up against an
established player such as the Bombay Commodity Exchange (BCX).
He had to work hard the power corridors of Delhi to get noticed. But Shah
persevered and finally won approval for a Commodity Exchange. And he
surprised everyone by going live in just nine months , on November 10, 2003.
NSE had a competing exchange called the National Commodities and
Derivatives Exchange (NCDEX) and was forced to wake up to the reality that
now there is a new player in town, who is quick on the draw. The next step was
market domination. How did MCX achieve this?
In Gold we trust: MCX
Zaveri Bazar in Mumbai is perhaps one of the oldest gold markets in India.
Located in South Mumbai, some shops go back 300 years. There are no less than
7000 shops [12] that sell Gold, Silver and Platinum based jewelry in shops, some
of which are as small as 150 square feet!
One of the lessons told over and over again to startup entrepreneurs is to identify
the right problem and solve it. Then work on capturing the market as quickly as
possible. Shah used to roam the streets of Zaveri Bazar, talking to some of the
bigger consumers of Gold bars to find out their issues. The first thing he noticed
was that the merchants did not have the accurate price of Gold as it was being
traded in various exchanges across the world. The jewelers were calling banks/
brokers/ each other to get the latest price.
In order to stay connected, many of these bigger jewelers had a private exchange
(PBX) with extensions so they could call amongst themselves to know the price
movements. Shah noticed that in this PBX box, there was an unused Data Card
socket, while all Analog card sockets were used up. A light bulb went off! Using
the Data card, Shah developed a simple Electronic display that could show the
price of Gold in real time in every shop that was using the PBX. Sales from
these may not have made a lot of money for Shah but more importantly, he had
earned the trust of the jewelers by solving a vexing problem.
Gold purity
In the course of his discussions with the jewelers, Shah found out that though
they were importing gold bars of 99.5% purity, efficient price discovery and
hedging opportunities were not available. MCX filled this gap and that led to
huge volumes and MCX was on a tear. By making this simple but ingenious
move, MCX stole a march over the others. \* MERGEFORMAT
Figure 6. Gold purity - creating a new standard

MCX was FTIL’s crown jewel, while ODIN was its cash cow. NSE and BSE,
because they used V-SAT had a one-hour down time in the afternoon because of
interference from the Sun. MCX worked a way around this and provided
continuous operation from start to end of the trading day. This riled the other
exchanges no end.
MCX captures market share

Figure 7. MCX captures 80% of the Commodities market

A superior technology, under a man who was on a mission to prove to the world
that India can lead from the front in the world of Finance led to several
spectacular successes. The average daily turnover at MCX touched a high of Rs.
503 billion ($8 million approx.) in 2011-12. The ecosystem generated by MCX
created a million jobs and a million more opportunities [13] . More on this later.
Signs of trouble from Chidambaram
MCX’s meteoric rise nettled Ravi Narain, the head honcho at NSE no end.
Jignesh Shah was beating him at every turn. Their rivalry was approaching that
of Ambani-Wadia of the 1980s [14] as each battled to control the stock markets.
The C-Company moved into action (see Figure 8) to tilt the scales in favor of the
NSE and its subsidiaries:

Figure 8. Attempts by C-Company and Chidambaram to hurt MCX

MCX brushed away these roadblocks and continued to grow. Here is a short list
MCX brushed away these roadblocks and continued to grow. Here is a short list
of its achievements:
No. 1 Commodity Derivatives Exchange in India; No. 3 in the world
No. 1 in Gold and Silver in the world
MCX had record turnover for any exchange in India
First exchange from India to get listed in public capital markets (it was
oversubscribed)
First ever evaluation by any exchange in regard to contribution of
jobs14 , incomes and sustainable livelihoods.

Why was Chidambaram and C-Company going to such great lengths to cut down
Jignesh Shah’s companies? You will need to read the previous parts in this series
as well as the series on #HFTScam [15] and #ForexDerivativeScam [16] . A gullible
country finding its feet in the world of High Finance got shortchanged by a
cunning operator who built an army of sepoys who enriched their boss and
themselves.
Making a mark in the World Software
Growth of Software companies in India
The full impact of Economic liberalization was felt only after 1996 or so, when
companies like Infosys, Wipro started blooming on the international scene. The
world woke up to the real and imaginary fears of a rollover of the data from 99
to 00 when the new millennium was going to be ushered in. The moniker Y2K
was born.
While the Y2K problem and similar issues made the Indian IT companies to
grow quickly, the image of India’s IT as being an outsourcing specialist got
stuck. But Jignesh Shah was cut from a different cloth. He wanted to dominate
the world markets with his powerful software offerings. The technology was
born, bred and brought up in India.
FTIL - The fount of knowledge
A concept that is frequently mentioned in the startup world is that of Verticals .
You create a fundamental technology that can be adapted for different
applications and then you build each app, called a vertical. This is one way to
multiply the wealth in the startup ecosystem. While it sounds easy in concept, it
is difficult to implement in practice. Which is why the verticals that Shah built
around his core jewel Financial Technologies (FTIL) is noteworthy.
Having built MCX in a very short time, it came as no surprise when Shah could
use the same building blocks to create the technology for DGCX, as show in
Figure 9.
Figure 9. FTIL a fount of knowledge

How MCX established itself as a Global Player

The runaway success of MCX in India emboldened Shah to venture outside of
India. First, there was a strategic collaboration with The Baltic Exchange, based
in London to launch freight futures index contracts (could not be launched as
regulations did not allow indexes to be traded at that time), followed by a deal
with the Chicago Climate Exchange to offer the first environmental products to
be traded in the subcontinent9 . Then, there was establishment of the Dubai Gold
and Commodities Exchange (DGCX) through a joint venture for which he was
invited by the Sheikh of Dubai, by which MCX, along with FTIL became the
first commodities exchange that co-owned an international exchange.
It is one thing to run an exchange in India, where most of the resources are local
such as computers/ programmers/ support etc. But to be invited to establish a
joint venture with the Government of United Arab Emirates (UAE) is something
of an honor, for Shah beat out all the other competitors who may have wanted to
partner with Dubai. DGCX’s charter was clear - it wanted to be bigger than the
Asian peers [17] .
On November 12, 2007 Dubai Multi Commodity Center (DMCC), the Govt.
organization that owned 50% of DGCX, bought 1% more from Shah to become
the majority partner. The price? $12.5 million. Based on that DGCX was valued
at $1.25 billion [18] . That was within two years of operation! This would have
caused Chidambaram and his minions in C-Company major heartburn.
When a company wants to compete on an international arena, it goes up with the
best of the best and must be able to hold its own, and in many cases be better
than the established competitors. Rules are different, setting is different, and
delivering on promises can be excruciatingly stressful. One false step and it will
take generations to regain lost ground. But if the foundation was designed
properly, with scalability and customizability built in from the ground up, then it
is a matter of hard work and perseverance. And that is what Shah and his team
did. It was nothing short of breathtaking.
More exchanges followed soon after
Figure 10. Multiple exchanges followed

If you have the foundation done right, it is easy to do what is called as cookie-
cutting in startup parlance. FTIL could take the technology used in MCX and
build several exchanges, many of which are mentioned above.
Shah built small crack development teams, who would, on short notice leave for
these exotic destinations and hunker down to work overtime to get the
customization done and get the exchange up and running smoothly. What FTIL
had was something similar to Idli batter, which, with a bit of creativity can be
made into Idlis, Dosas and Uthappams!
From Commodities to Real-time analytics and
nationwide electronic payment service
Once MCX was up and running, it needed to bring buyers and sellers together.
There was a need to have a real-time information system that provided cost-
effective data and analytics, i. e. something similar to what Reuters and
Bloomberg provided. In 2005, Shah developed TickerPlant that provided all
that. It was fast, used a very small data footprint and could compete effectively.
In 2005, FTIL also developed Atom , which allowed for secure payment over
mobile phones (a precursor to today’s hugely popular PAYTM). Again this was
a need so that farmers and rural entrepreneurs could transact with MCX. Both
these apps were incubated from FTIL(Figure 11).

Figure 11. More Apps from FTIL

That so many verticals sprung up from FTIL posed two challenges to the C-
Company. First they had to match each and every product and second , they
needed to stop the desertion of their customers to Shah run companies. And they
responded in the only way they knew - get the Govt. to put obstacles in Shah’s
path (see Figure 12).
Figure 12. Hurdles placed in the path of Shah

The video below describes Shah’s endeavors to put India on the global map as a
major player in the world of finance.
FTIL - An engine that created millions
of jobs
How FTIL became a Force Multiplier
Soon after coming to office, on September 25, 2014 Narendra Modi announced
the Make In India initiative [19] . The major objective of the initiative was to
focus on job creation and skill enhancement in 25 sectors of the economy. At the
same time, the initiative also aims at high quality standards and minimizing the
impact on the environment. Well, Jignesh Shah’s FTIL eco-system was already
creating its own Make in India narrative, creating a million jobs and a million
opportunities14 .
As Figure 13 shows, FTIL created many avenues that generated jobs.
FTIL: Trading terminals that were spread across the nation, employing 2 to 3
people per terminal. At a given time, about 3.5 Lakh (350,000) terminals ran
FTIL’s ODIN software. This alone created close to 7 Lakh (700,000) jobs.
MCX: A number of jobs were created in the real economy of the rural areas. In
addition to creating jobs in the Exchange industry and trading related activities,
MCX spun off a number of jobs in the Commodity Market Value Chain such as
Distribution, Grading, Assaying, Valuing, Warehousing, Finance, Risk
Management and related activities.
NBHC: This entity emerged as the largest collateral management facility in the
private sector, creating numerous jobs in the rural areas.
IEX: Better pricing and distribution of Electricity has led to better sustainability
of Small Scale and other Industries, adding jobs.
Eco-system Verticals: Software verticals such as Ticker (real time information),
Atom (Payment solutions) have added jobs across the value chain. FTKMC,
setup for Knowledge Management and Skill Development, trained scores of
youngsters and professionals enabling them to find better paying jobs.
Figure 13. FTIL Job creating eco-system

Shah was not satisfied just with establishing a multi-commodity exchange

(MCX). There was a need for having warehousing facilities with Cold Storage
features so commodities could be stored. An important requirement was the
quality that had to be maintained (otherwise how could you trade?). If potatoes
were to be traded, they have to be of the same or very close in order for them to
be traded on an exchange. From this need grew the next idea for Shah - The
National Bulk Handling Corporation (NBHC) . At its peak, it was the largest
warehouse and collateral management facility in the private sector in India.
Having a standardized procurement center across the length and breadth of India
had its advantages - Multi-national Fast food chains did not mind paying a
premium of up to 25% more for produce warehoused at the NBHC since they
were assured of the quality.
NBHC also eliminated the middleman that used to gobble up much of the profit
the farmer made because the farmer did not have a way to store his produce.
the farmer made because the farmer did not have a way to store his produce.
With MCX and NBHC, farmers knew the day to day pricing information and
could be assured that they could realize the best profit. The benefits were not
limited to agricultural sector alone - Non-agricultural sector also reaped the
benefits (see Figure 15).

Figure 14. MCX eco-system created jobs and better returns for the producers
Figure 15. How MCX helped all commodity sectors

The video below describes how the FTIL eco-system created a million jobs and
a million job opportunities.
Hurdles placed in the way
The NSE was Chidambaram’s playground. This is where he amassed riches.
Anything that threatened the supremacy/ viability of NSE was dealt with
severely. There were several skirmishes between the BSE and NSE and in most
of them it was NSE that came out on top. The message was clear - C-Company
was backing NSE. The BSE brokers, quick to sense which way the wind was
blowing, started to gravitate towards NSE and many of them ended up getting a
broker license there too. Slowly but surely NSE became the dominant stock
exchange in India. All regional exchanges became less and less relevant and
many closed because NSE was electronic and could reach all parts of India.
Here was an upstart, Jignesh Shah, fresh from the success of his software
product ODIN, who was threatening to turn NSE’s turf upside down with a
string of exchanges. And the C-Company fought back - by putting hurdles,
impediments, strictures etc. C-Company was trying to slow down every venture
of Shah but only two entities are discussed here for brevity, the NSEL (National
Spot Exchange Limited) and MCX-SX (MCX Stock Exchange Ltd.).
Commodity Exchanges - A Primer
Chicago Mercantile Exchange (CME) was perhaps the first commodity
exchange in the world, when it started operations in 1898. Why was an exchange
needed for Commodities? To provide a centralized marketplace where
commodity producers can sell their commodities to those who want to use them
for manufacturing or consumption [20] . The beauty of a commodity futures exchange
is that a whea t farmer can lock in a price for his crops months before they're even
harvested. This process increases business survival among farmers, and the
exchanges always make sure there's a buyer for every seller, provided their
prices meet.
Commodity exchanges make the economy much more efficient. There are two
types of Commodity Exchanges - Commodity Futures and Commodity Spot
Market.
Commodity Futures vs Commodity Spot Market
What is the difference between Futures and Spot as far as commodities go [21] ? It
is similar to what they mean in Stocks. Spot is the equivalent of selling/ buying
stocks today whereas in the futures market, you can specify conditionally to buy
or not buy, sometime in the future. You would go to the spot market if you
wanted to buy or sell something today. On the other hand, you would go to the
futures market if you want to buy or sell something at a future date but you want
to fix the price today [22] .
MCX allowed investors to hedge and manage risks in commodity futures. But
Shah was not going to have an exchange just for futures. He came up with one
for the Commodity Spot Market too. And that was the National Spot Exchange
Limited (NSEL). MCX started operations in 2003 while NSEL started in 2008.
For more see Figure 16.

Figure 16. Commodity exchanges started by FTIL

NSE’s response to MCX was NCDEX (the National Commodities and

Derivatives Exchange Limited). By 2004, MCX was beginning to steer business
away from NCDEX to itself. This was not something the C-Company expected.
All FTIL ventures were beginning to dominate every sector in which they were
playing (Figure 17). Something had to be done to stall the juggernaut. So in
2007, the C-Company swung into action. K P Krishnan (KPK), the then Joint
Secretary, Department of Economic Affairs, Ministry of Finance, and a trusted
lieutenant of Chidambaram, issued a missive to weaken the foundations of
MCX. In an unprecedented diktat to two leading financial institutions ,
namely, the Life Insurance Corporation of India (LIC ) and National Bank for
Agriculture and Rural Development (NABARD ), Krishnan directed these two
behemoths to sell their equity stake in NCDEX to NSE so that NSE could
‘provide credible competition’ to FTIL’s MCX! This unwarranted move by
Chidambaram and KPK clearly indicates their vendetta against the FTIL Group
and their ulterior motive to kill competition. How can the Government side with
one Private entity (NSE) over the other (FTIL)?
Figure 17 shows the domination of FTIL-promoted ventures over those of the
NSE.

Figure 17. Domination of FTIL promoted ventures

Back to NSEL. NSEL had come into being as a follow up of numerous

recommendations from institutions in India and abroad for a vibrant spot market
to ensure efficient and uniform pricing for agricultural commodities in the spot
market in the country which received the endorsement and support of the then
government including the Prime Minister Manmohan Singh. Similar sentiments
were echoed by the then Finance Minister P Chidambaram in his Union Budget
2004 address.
How NSEL was established
The Forward Markets Commission (FMC) asked MCX to submit a concept
paper for creation of spot exchanges. Once it was approved, NSEL was formed
as a subsidiary of MCX. Similarly others such as NCDEX promoted NCDEX
Spot Exchange Ltd. (It has since been renamed as NeML). A new space and a
Spot Exchange Ltd. (It has since been renamed as NeML). A new space and a
new war between the two famed competitors, FTIL and NSE.
After a while a view emerged that since MCX was in the business of trading in
commodity futures segment, MCX's shareholding in NSEL should be transferred
to FTIL. And that is how FTIL ended up owning NSEL.
Did FTIL make big profits from NSEL?
FTIL received no dividends or bonus from NSEL. On the contrary, money was
always pumped in by FTIL. Neither FTIL nor its promoters or directors have
benefited even a single paisa from NSEL. Dividends declared by FTIL are from
its standalone profits.

Who are NSEL’s major players and partners?

NSEL had a network of alliances with clearing banks (such as SBI, Axis, HDFC,
ICICI, Kotak etc.); national depositories (NSDL, CDSL); public sector
undertakings, (NAFED, FCI, MMTC etc.) and other market participants. All
leading brokers on BSE, NSE and MCX were also members of NSEL. Several
states passed APMC act, under which NSEL obtained licenses to trade in those
states.

What was the APMC Act?

An excellent explanation for why The APMC (Agricultural Produce Market
Committees) Act was passed by states is given by Balaji Viswanathan [23] .
APMC forces the farmers to sell their produce only to middlemen approved by
the government in authorized Mandis (markets).
Who regulated NSEL?
At the time the NSEL was asked to shut down, it was regulated by the FMC. As
part of the compliance process, NSEL provided fortnightly information to FMC as prescribed
including details of commodity stocks. The rash action of FMC in closing NSEL could be
looked from the following points which prove quite in contrast to the decisions
taken by regulator.
1. Spot Contracts for more than 180 days in some cases are offered by
banks. Exemption was given to NSEL for 1 day forward contracts and
extended to all. NSEL used to settle contracts in 25-36 days, rival
exchanges in 70-75 days and banks in 180 days
2. Every aspect of trading was reported to the FMC every fortnight .
 Warehouse visits were made by brokers on behalf of the clients and
the Comptroller and Auditor General (CAG) auditor of Public Sector
Undertakings (PSU) have verified the existence of stocks
3. Such contracts traded at NCDEX too but were given a year's time to
wind up.
4. NSEL replied to a show cause notice for validity of contracts beyond
11 days and short selling. NSEL responded and presented legal aspects
of the Contracts to the government and the FMC for which no
response was received for 15 months.
5. FMC action was not because of any default by NSEL. The payment
default happened after FMC's abrupt action.
 MAJOR ASPECTS OF NSEL BUSINESS
C ORPORATE OVERVIEW
INCORPORATION Set up as a demutualized corporatized exchange on May 18,
2005 as a company under The Companies Act, 1956
PROMOTER Financial Technologies (India) Ltd.
NATURE OF BUSINESS Operating as national-level electronic spot exchange providing
platform to trade in commodities
REGULATORY MINISTRY Department of Consumer Affairs, Ministry of Consumer
Affairs, Food and Public Distribution, Govt. of India
DESIGNATED AGENCY Forward Market Commission, an agency that regulates trade in
forward trading in commodities contracts
LICENCES NSEL OBTAINED NSEL has obtained licences from several state governments
under respective state APMC Acts before dealing in agricultural
produce with delivery centres in Maharashtra, Karnataka,
Gujarat, Odisha, Rajasthan, and Madhya Pradesh
BASIS FOR TRADING IN Exemption under Section 27 of the FCRA, granted by
FORWARD CONTRACTS Department of Consumer Affairs, Ministry of Consumer
Affairs, Food and Public Distribution (June 5, 2007)
SIMILAR ENTITIES NCDEX Spot Exchange Limited; National APMC Ltd

Is it fair to close an exchange all of a sudden even if some deviance is found

only in certain contracts (as the exchange was offering various types of
contracts) which could have been addressed by an orderly winding up of
positions over a specific time period?
The details of the decision to close NSEL and through it attack the parent FTIL
will be discussed in detail in the coming posts. But was NSEL the real cause for
C-Company to shut down FTIL? To get the answer for this question, we need to
look at the other brainchild of Shah, the MCX-SX (MCX Stock Exchange
Limited).
The tipping point - MCX-SX
The year was 2007/ 08. The SEBI and the RBI had opened up the currency
derivatives trading in India and stock exchanges were allowed to seek a license
for trading in this market segment. Flush with the success of MCX, DGCX and
other ventures Jignesh Shah had applied for getting a license for a Stock
Exchange. Promoted by FTIL and MCX, the exchange was to be named MCX-
SX.
But even as the door opened ever so slightly for Shah, the Finance Ministry tried
to protect the NSE (or so many in Mumbai thought) by capping the percentage
of ownership to 5%. Note that such restrictions did not exist for BSE or NSE
when they became exchanges. Even such restrictions were not there for banks
and insurance companies set up in the private sector. At the time of
incorporating MCX-SX, FTIL and MCX owned 51% and 49% respectively.
Because of the changing of rules, FTIL and MCX together could only invest up
to 5% in their new venture, the MCX-SX. The excess shares were converted and
warrants issued to the shareholders, causing enormous losses to FTIL and MCX.
This would have gutted any investor who was looking for better valuation for
investments (hoping to make a killing out of the stock), which they were most
likely to do, having been so successful in all their previous ventures.
But banks were exempted from this 5% limit. So one can deduce from this the
fact that most banks in India are Public Sector Owned and indirectly come under
the Finance Ministry, and therefore could be controlled through them. What a
devious plan!
If this sounds hard to believe, the Income Tax (IT) department raided MCX
which was used as leverage by vested interests to malign the image of FTIL
Group and create roadblocks for the equity market license application of the
Group’s stock exchange, MCX-SX. It was a calculated move to protect NSE’s
monopoly. The department had allegedly acted on a fabricated report that Shah
had stacked Rs. 300 crores but nothing was found. Why was this done? Because
MCX-SX had to raise 51% of its money from the public (another rule change)
and any rumor of malfeasance by one of the promoters would have spooked the
investing public. This action was unprecedented in any exchange’s history - it
was taken without informing either the ministry or the concerned regulator.
MCX-SX had applied to be a full-fledged Stock Exchange but permission was
granted only for the currency derivatives segment - they could not trade stocks
and other capital segments. It took three years and protracted legal battles in the
Bombay High Court and then the Supreme Court before MCX-SX was given
Bombay High Court and then the Supreme Court before MCX-SX was given
permission to trade in equity stocks. SEBI would find new, specious reasons to
keep rejecting their application. Figure 18 Illustrates the various hurdles put in
the way of the application process of MCX-SX.

Figure 18. Obstacles placed in the way of MCX-SX

Writing on the wall for NSE

Using one pretext or the other, the C-Company had kept needling FTIL and
through it the spirit of Jignesh Shah. He kept growing, undaunted by the
pinpricks. SEBI (with the covert or overt connivance of some C-Company team
mates) kept throwing mud at MCX-SX and that did not deter them one bit. The
timelines of MCX-SX from inception to going live is shown in Figure 19.
Figure 19. Timeline of MCX-SX

Therefore, after many a battle, when the SEBI finally granted MCX-SX
permission to trade in Currency Options, Equities and Equity futures, the vice-
like grip that NSE held over India as the only real Stock Exchange game in
town, was broken. If allowed to flourish, it was just a matter of time before NSE,
the Stock Exchange would go the way of all its feeble subsidiaries who tried to
take FTIL on [24] . The writing was on the wall . Something had to be done to
stop Shah. Something diabolical, ingenious, something from the left field (as
Americans would say) or bowling a googly, as the cricket lovers like to say, had
to be done. If allowed to survive, Shah and the FTIL group would do to NSE
what they did to the other exchanges of India. The smiling assassin was getting
ready to administer the coup de grace.
A Long History of Harassment
Once MCX-SX got a license to become a full-fledged Stock Exchange, NSE had
to move to a higher gear to protect the interests of Chidambaram and the C-

Company. In a previous series 8 , I have written about how NSE allowed co-

location at its premises that resulted in a scam of Rs.50,000 crores-

[25]

Rs.100,000 crores. While the main beneficiaries are being investigated , the
[26]

fact that most of the accused are card carrying members of the C-Company
cannot go un-noticed.
C-Company was looking for a weapon to launch against Jignesh Shah and his
FTIL group and the NSEL crisis came in handy.
How NSEL became a convenient scapegoat
National Spot Exchange Limited (NSEL), which was set up as per the vision of
the then Prime Minister, and which has been making rapid progress across the
country, was made a scapegoat in order to hatch a conspiracy against the FTIL
Group. The Forward Markets Commission (FMC), the then commodity markets
regulator, misinterpreted and misrepresented facts to the Ministry of
Consumer Affairs, Food and Public Distribution (MoCA) by alleging that NSEL
was violating certain terms and conditions pertaining to exemption granted to it
under Section 27 of Forward Contracts Regulation Act (FCRA). Though the
exemption was general in nature, acting on its evil intentions, the FMC ill-
advised MoCA following which it issued a show cause notice to NSEL.
Interestingly this happened only after Ramesh Abhishek took over as the
Acting Chairman of FMC in August 2011, which in[DBRP&S1] retrospect
shows that the pawns were being moved in position to make a strike.
Figure 20 below captures the time lines of MCX-SX getting a license to become
a full-fledged stock exchange and the reaction of the C-Company by going after
NSEL.
Figure 20. MCX-SX, NSEL timelines

Normally regulators intervene when an exchange faces a default. But the NSEL
was a running exchange, without any history of payment problem. After the
FMC abruptly stopped the exchange from launching new contracts , the
defaults happened. The FMC created the crisis and took no action against the
defaulters or to resolve the crisis despite having all the powers. The FMC acted
only against NSEL, FTIL and Jignesh Shah, initiating all actions against the
FTIL Group on the instructions of Chidambaram which were executed through
K P Krishnan and Ramesh Abhishek, the then FMC Chairman. The regulator
became the destroyer .
As the majority of actions by the regulators and other government agencies
were concentrated only against NSEL and Shah, the defaulters possibly
swindled the goods from the warehouses and in some cases failed to deposit
full stock in connivance with Anjani Sinha, MD & CEO of NSEL. Some had
already hypothecated certain stocks to banks. In hindsight, it can be said that
the hiring of Anjani Sinha as the CEO, given his precedents was perhaps a
mistake. But why did FMC stop with just NSEL? Why did they not go after the
defaulters ?
The defaulters, did not honor their part of the commitment. Once the Exchange
stopped functioning, and the FMC began pursuing only FTIL , they were
emboldened to not only disregard their side of contracts to purchase back the
goods, but also did not deliver the stocks.
Like SEBI did in solving the NSDL scam [27] , the FMC should have taken a lead
role to solve the crisis... The rashness that FMC showed in punishing and
penalizing FTIL has not been seen anywhere else. The FMC had failed to act as
a regulatory body and was creating a crisis just to spite Shah. It was easily
solvable but was deliberately kept alive to target the FTIL Group. A vicious trial
by media, with articles blaming Shah and NSEL appeared every day, adding fuel
to the fire.
FMC had the powers yet did not act
Defaulters assured FMC Chairman to pay back money
On August 4, 2013, the FMC held a meeting of all stakeholders of the NSEL
crisis including the defaulters and brokers. The defaulters admitted to FMC
Chairman Ramesh Abhishek to holding the entire default amount and even
agreed to pay back in a phased manner . In normal circumstances, any
regulator after due consultation with the exchange would have endorsed or
certified the liability of individual defaulters which could have been followed up
for quick payment. This did not happen as FMC chose to be a bystander rather
than an active player in bringing the defaulters to book and ensure an early
resolution. Seeing the inaction of the regulatory body, the defaulters chose to not
adhere to the NSEL payment schedule, as a result of which the money is now
with the defaulters who have siphoned it off to buy personal properties and
start new businesses .
FMC targeted NSEL/ FTIL instead of Defaulters
The FMC continued its dilly-dallying tactics vis-a-vis the defaulters and brokers
despite the fact that on August 6, MoCA gave it wide-ranging omnibus powers
to take such measures as deemed fit against “any person, intermediary or
warehouse connected with NSEL.’’ But the FMC trained its guns only against
NSEL / FTIL and their promoters , allowing the defaulters to go scot-free .
Chidambaram wanted to shut the door on Shah
It was then that Chidambaram decided to deliver a body blow to the FTIL
Group. On August 26 , his Finance Ministry constituted the high-powered
Mayaram Committee comprising top bureaucrats from various departments
and investigative agencies to recommend measures to “ensure that there is no
systemic impact of the NSEL developments.” Shockingly enough, the Mayaram
Committee was given a mere two weeks to submit its report on such an
important issue. The committee, too, sprang a surprise by doing that in a record
time and recommending multi-pronged actions only against NSEL, its
directors and promoters while completely ignoring the defaulters and
brokers who had precipitated the crisis. Strangely, it never gave NSEL a chance
to explain its side of the story! A source privy to the findings of the committee,
who wished to stay anonymous said the following:
The RBI, a part of this committee, submitted that the NSEL crisis
would not lead to any systemic impact on the markets. Despite
this, the Committee asked all investigative agencies including
EOW, ED and CBI to take action against NSEL.
The RBI also told the committee that the NSEL operations did not
constitute a “deposit scheme as per section 45-I (bb) of the RBI
Act,” and as such “NSEL was under no obligation to repay the
buyers” but the Committee recommended that NSEL be booked
under the Maharashtra Protection of Interest of Depositors Act
(MPID) by EOW.

As a matter of fact, NSEL had not taken any money as ‘deposit’ but the traders
had paid it to buy commodities and even paid tax on that. The Committee also
ignored the findings of the IT department, that had conducted raids at
warehouses of all the defaulters on August 22. The Committee did not even
mention the stock verification done by the IT department.
FMC declared FTIL 'not fit & proper’ to run
Exchanges pending legal opinion
The FMC action of declaring FTIL and Jignesh Shah ‘not fit and proper ’
based on Grant Thornton (GT) report had several shortcomings - detailed
explanations given to FMC by NSEL were never considered; the report went
beyond the Terms of Reference (TOR) and just 3 weeks were given to do
forensic audit and finalize a report of such vital significance To achieve its
ulterior motive, the FMC intentionally misinterpreted the Grant Thornton
forensic audit reports and on December 17, 2013, declared FTIL and Jignesh
Shah ‘not fit and proper’ to run any exchanges even as all cases regarding
NSEL/ FTIL were sub-judice . This was despite the fact that GT had clarified in
its disclaimer that:
The report is based on information made available to it and GT have
not independently verified or validated it.
It does not constitute an audit under any accounting standards and
hence, cannot be relied upon to provide the same level of assurance
as a statutory audit.
The report is also not intended to be interpreted as a legal advice or
opinion.

The damage was done. Once the FMC called FTIL non fit and proper, it started
reverberating across different countries, where Shah had businesses. He was
forced to offload his stake in SMX and other ventures as shown in Figure 21.
Figure 21. Who bought what
C-Company machinations
By the end of 2012, it was clear that Jignesh Shah was going to make MCX SX
happen in spite of the hurdles put up by the C-Company . So when MCX-SX
opened for business on February 11, 2013, C-Company had a plan of attack in
place.
First came the introduction of the Commodities Transaction Tax (CTT) ,
despite numerous appeals from the entire commodity futures sector, in the
Union Budget announced on February 28, 2013 . As a precursor to it, a lobby
was created that made numerous arguments for imposition of CTT on
commodities. The several appeals put forward by the commodity professionals
that CTT will reduce the scope of hedging was not considered .
With the CTT being levied on Gold, Base Metals, Crude Oil and Processed farm
items in which MCX has the leadership, the tax affected its trading volumes
drastically. NCDEX was not that affected due to its relatively smaller market
share in the segments in which CTT was introduced. This was just a trailer. By
July the final blow was delivered with the rash action of FMC on the NSEL.
Thereafter followed in quick succession measures such as declaring Jignesh
Shah and FTIL ‘not fit and proper ’, forced sale of FTIL exchanges in India
and abroad without giving sufficient time, arrests and the merger order of
amalgamating NSEL with FTIL etc.
All this is without precedent in Indian exchanges, companies, banks and
financial institutions. For instance, in the most recent case of NSE’s co-location
market abuses too, excepting the resignations of the Vice Chairman and
Managing Director [28] , no action was taken on either its board or the exchange.
With regard to FTIL, severe measures were taken when the investigations are
still in process. And the money trail established that there was no money traced
either to Jignesh Shah or FTIL or any of the management personnel. Why then
was Shah and his group of companies singled out for such harsh punishment?
Did the persecution of Shah and the FTIL group end with a change in the central
government in 2014?
Figure 22. C-Company machinations

A quick look at Figure 22 will show that a change in the regime at the Center
does not appear to have stopped the C-Company from doing whatever it needs to
do to further its interests.
On August 18, 2014 , FMC Chairman Abhishek recommended to the Ministry
of Corporate Affairs, that NSEL should be merged with FTIL alleging that
NSEL did not have enough human and financial resources to ensure recovery of
the default money. This runs counter to the evidence of FTIL extending all
support all these years in terms of financial resources, infrastructure, legal and
manpower to NSEL since the problem arose. Sources say that just a day before
he was transferred (21 st October, 2014) KP Krishnan, the then Joint Secretary
in the Finance Ministry, forwarded the draft merger proposal to the Ministry of
Corporate Affairs (MCA) which also promptly issued the draft merger order
dated 21st October 2014, without any independent investigation of its own.
The FTIL Group challenged the constitutional validity of merger under Section
396 of the Companies Act in the Bombay High Court. Despite, the MCA
receiving near complete opposition by FTIL (99.55%) by shareholders and 100
percent by creditors, employees and Board of Directors, both in the form of
physical papers as well as emails opposing the merger, the MCA passed the final
merger order on February 12, 2016 , which is pending adjudication in the
Bombay High Court. It may appear strange that Section 396 is applicable for
merger of two government companies by consent, which was never applied in
the past in Independent India in regard to the private sector companies, which
is now being applied for forced merger of two private companies despite the
board, creditors, employees and above all, shareholders opposing it with near
unanimity .
MCA did not stop there. It petitioned the Company Law Board/ National
Company Law Tribunal (NCLT) (from June 1, 2016 , The National Company
Law Tribunal has been constituted and Company Law Board stands dissolved )
seeking to supersede the FTIL Board under Section 397 of the Companies Act
for alleged “mismanagement” even as the merger order was still pending
adjudication. This issue is also under adjudication.

SEBI accused FTIL and MCX officials of ‘Insider

Trading’
The FTIL Group was once again targeted when SEBI accused 13 current and
former executives of FTIL and MCX of alleged insider trading . SEBI alleged
that they had traded in FTIL and MCX shares with Unpublished Price Sensitive
Information (UPSI), and averted losses of Rs.4.1 crores in FTIL and Rs.81
crores in MCX. It may be noted that what SEBI called as UPSI was in fact
available in the public domain since long. SEBI had also immediately frozen
their bank accounts making it impossible for them to withdraw money for day-
to-day expenses. However, the Securities Appellate Tribunal (SAT) ordered the
de-freezing of these accounts. In view of SEBI’s action, the ED also revived its
action against the Group summoning these officials. Strangely, this order too
appeared to be issued by a whole time member who happened to be on the
verge of completion of his tenure .
What is distressing about this SEBI action is that it froze the bank accounts of an
employee, who was not even working at FTIL at the time of the crisis, had his
Bank account and Demat account frozen [29] . Was it sloppiness or brazenness or
total apathy on part of SEBI? And this happened on Aug 3, 2017 ! The same
SEBI is in total stupor, refusing to act on gross violators such as Tata [30] and
NDTV [31] !
Figure 23. The Team

The Mastermind
As shown in Figure 23, Palaniappan Chidambaram is the mastermind of the C-
Company. This is just one of his many teams, who allegedly still swear by him,
even today. That his minions are hard at work, trying to keep him out of jail on
the several scams that he is accused of, should be proof enough. The real
Machiavelli of the UPA, he was prepared to kill a job generating engine to
preserve the NSE.
The Manipulator
KP Krishnan, is an amazingly quick-to-respond bureaucrat, putting even some of
the ambitious management types in Private Sector to shame. He could
orchestrate Ramesh Abhishek, still at the FMC on Aug 18, 2014 , to recommend
that NSEL be merged with its parent company FTIL to the Ministry of Corporate
Affairs (MCA), and then on the day before he was transferred out of the
Finance Ministry , push the MCA order without any independent investigation.
Currently he is a Secretary in the Ministry of Skill Development and
Entrepreneurship. He helped kill a million-job creating entity and is now in
charge of creating jobs for the whole country ! Irony died a thousand deaths.
The Executor
Brought in as a Chidambaram man into the FMC in 2010 and becoming Acting
Chairman in 2011, his only notable contribution to the Commission was to
declare FTIL (and by linkage the rest of the exchanges founded by Jignesh Shah)
not fit and proper . He failed to bring even a single development to the
commodities market in India and in the last presided over the merger of FMC
with SEBI. After getting all the parties to agree to pay on August 4th, 2013,
Abhishek let off the defaulters by not executing the plan of action! Was this pre-
planned and done this way just to finish off Shah? FMC is now merged into
SEBI and Abhishek is currently the Secretary of Department of Industrial Policy
& Promotion Ministry of Commerce & Industry.
The Way Forward
Vision - A word often associated with entrepreneurs who can look ahead and
build what they think the world will need. Steve Jobs was a visionary - he
designed the simplest Digital Music Player, the iPod which had the fewest
number of controls and moved the User Interface to a computer. And in 2007, he
added the Phone functionality into it (The iPhone ). Today this device drives the
bulk of Apple’s business. Elon Musk is another visionary. He figured out the
right battery for an electric car and is now building an ecosystem of Battery
powered energy for the earth which would have run out of fossil fuels.
Jignesh Shah had all the makings of a visionary - he had figured out at a fairly
early stage of his career that India can rule the world of finance because that
industry needed people who were good at math and could put things together
quickly. From making an easy, low cost trading platform for brokers (ODIN), he
had the foresight to solve the problem of commodities such as nationwide price
discovery process and providing a platform for hedging risk.
In the course of his discussions with the jewelers, Shah found out that though
they were importing gold bars of 99.5% purity, efficient price discovery and
hedging opportunities were not available [32] . His Multi-Commodity Exchange
(MCX) solved this problem by offering derivatives and quickly expanded it to
help farmers get a guaranteed price for a harvest in the future . After his
success in the Domestic market, he saw an opportunity to do the same in the
International markets and hence the slew of commodity exchanges in Dubai,
Bahrain, Botswana, Singapore etc. Similarly a derivative exchange led to a spot
exchange and ultimately to a full-fledged stock exchange (MCX-SX).
Every step he took, every new segment he addressed, was a logical extension
that made perfect sense. Some of the international exchanges were conceived
and put into operation in record time, speaking volumes of his capacity to
execute. Figure 24 shows the various enterprises that Shah spawned, using his
technology engine, the FTIL. His tenacity to create enterprises and build
institutional excellence has made some observers to compare him with ‘John
Galt’ the fictional character in Ayn Rand’s epic novel ‘Atlas Shrugged’, who
showed that grit and determination and sometimes even defiance in creating a
masterpiece of work that would be beneficial to the people but could be an
eyesore to the enemies.
This eco-system had the capacity to create millions of well-paying jobs
throughout the country and yet got nipped in the bud. To preserve the interests of
a few.

Figure 24. FTIL Innovation Chart

Figure 24. FTIL Innovation Chart

The whole focus of FTIL’s business strategy revolved around creating and
developing an entire extensive 360 degree financial markets infrastructure that
encompassed all asset classes and all the ecosystem institutions that were
necessary to boost growth, participation and overall welfare. He was not even
10% into fructifying his ambitions before the C-Company stepped in to stop him
in his tracks. If just 10% effort resulted in a million jobs , imagine what 100%
would have done!
What does the C-Company want?
What does the C-Company want desperately? Why go through all this
maneuvering? To understand this look at the following table:
FTIL vs NSE
FTIL NSE
Born in the background of reforms as a private Born in the background of reforms as a
enterprise and the vision of an indigenous Government initiative promoted by public
entrepreneur financial institutions
Started as a technology company providing Started as a stock exchange with primary
software solutions in stock market trading responsibility of developing debt markets in India
Pioneered multi-asset-class trading solutions that Introduced electronic trading in stock markets and
enabled equity market trading to spread across the established as a demutualized stock exchange and
country and capture market leadership established a nationwide presence
From providing exchange solutions progressed to Having failed to create a vibrant debt market for
set up one of India’s national commodities which it was set up with government support,
derivatives exchange, the MCX. began competing in equity market segment with
BSE, then the only national stock exchange in
India
MCX became India’s no.1 commodity derivatives Shortcomings at BSE, special favors bestowed on
exchange and quickly scaled to become one of the NSE by the Government and public financial
top global commodities derivatives exchanges institutions, enabled it to overtake BSE in equity
market turnover and gain market leadership
FTIL began to set up exchanges of various asset NSE began to gain clout and focused more on
classes in India and build exchanges in leading developing futures and options products for the
international financial centers that have particular equity markets on the exchange which are all cash
relevance to the real economy settled and have no bearing with the real economy

In order to succeed, NSE needed the government to give a helping hand. That
alone was not enough. NSE also needed others to not rise and challenge its pole
position. Now why did the C-Company and more specifically P Chidambaram,
need to help NSE? The Government should not be interfering in the affairs of
private companies - period. Then why this approach of favoring one exchange
over the other? If Shah and the FTIL ecosystem was creating jobs by the
thousands, wouldn’t it have been easier for the Government to whisper sweet
nothings in the ears of Shah and claim credit for job creation? They were after
all, self-sustaining, not needing any handouts or rule fixing... There has to a
bigger reason.
Could this be it?
The National Stock Exchange has been trying to go public for some time now.
Just when it looked like the decks were cleared, the High Frequency Trading
Scam blew up in its face [33] . What is the reason for this eagerness? Why are the
investors eager to cash out? Let us look at who owns NSE - As of September 30,
2017, the Shareholder pattern [34] looks as shown in Figure 25.

Figure 25. NSE Shareholding details

The foreign investment, in the form of Foreign Institutional Investor (FII) and
Foreign Direct Investment (FDI) needs to be probed. If any of these investments
are through Participatory Notes, that raises a red flag. Who exactly owns the
country’s premier (some may say the only viable) stock exchange needs to be
public knowledge before they can do their Initial Public Offering. Some estimate
that NSE may be worth close to Rs. 80,000 crores ($12 billion at Rs.65 to a
USD). About $4 billion of this money is going to be the in the hands of the
secret investors whose identity has to be established . If it is proved that any of
it belongs to a politician or a bureaucrat of India, then that is really people’s
money unless they can prove it otherwise.
What is the solution?
People connected with this are going to great lengths to protect , preserve and
perpetuate the NSE. Figure 26 shows a suggested to-do list for various entities
that are probing the operations of the NSE.
Figure 26. NSE Co-location suggested to-do list

SEBI is the main regulator/ player in this co-location scam. The forensic audit
entities chosen to audit NSE’s operations have raised a lot of questions of the
conflict-of-interest category [35] . The least it can do is now place in public
domain all the forensic audit reports and let the real stakeholders (shareholders
and others associated with the markets) determine if the process has been above
board. There has been a rush by the NSE to sweep all the scams under the carpet,
which suggests that there may be more going on than meets the eye. This is not
an easy investigation and therefore it needs to be done step-by-step,
methodically and deliberately. There are implications for several C-Company
men in this investigation and no one who is guilty should escape.
Epilogue
Why did I write this series
I was an engineer, then an inventor and then an entrepreneur. Writing is
something that I picked up as a hobby, to share my thoughts to a wider audience.
In the last 12 months I have dealt with four topics at length, all of them
connected to scams in the Financial sector of India. This is my fourth and the
most detailed as yet. In some ways one led to the other.
The first appeared in July 2016 , titled # ForexDerivativeScam [36] . In a six-
part series, I laid out the intricacies of Derivatives, then Currency Derivatives
and further how Small and Medium Enterprises(SME) were ripped off by their
own bankers who sold them exotic derivatives titled Kick In Kick Out (KIKO)
derivatives. SMEs have not yet recovered from the body blows they received
from this. And it happened almost 10 years ago. In a grave travesty of justice, a
case is lying in the Supreme Court untouched. M R Venkatesh, a noted writer,
commentator, auditor and TV personality, has filed a petition with the Special
Investigation Team (SIT) on Black Money, constituted by the Supreme Court of
India to immediately intervene and review this Forex Derivative Scam. The
petition alleges that in several instances, the Regulator, notably the Reserve
Bank of India (RBI), either failed to or did not intervene. Action on this from the
SIT is still awaited.
The second in these was on # BringBackBillions . In this series [37] , I detailed
the efforts of three countries Philippines , Egypt and Libya to get back the
billions looted by their dictators. There was something new learnt from the
experiences of each of those countries. India, I reasoned, being a truly
democratic nation, has a better chance than these countries, who are taking baby
steps towards becoming democracies. This came in the months of Jul-Aug 2016
.
The third was on #HFTScam [38] , written in the month of Sep 2016 , detailing
what happened in a five-year period in the NSE, where a few allegedly conspired
to make Rs.50,000 - Rs.100,000 crores. This was based on a series of letters
written by a Whistleblower explaining how a few gamed the NSE servers to
make crores of money every trading day. SEBI has started acting on it and
several other agencies have jumped in to look into more details of the crimes
committed.
And the fourth is this series on C-Company . There is diversity in each of these
topics discussed and there is a message that each one brings for the awareness of
the public. If Forex Derivatives Scam deals with how greedy banks can become
in selling toxic products to customers not well conversant and how regulation
was not tough on them as they should be; BringBackBillions was to highlight
the imperative for stringent measures to arrest corruption that is bleeding the
country and HFTScam mainly dealt with the issue of how a national institution
of great importance such as a stock exchange can allow preference and bias to a
select few in trade execution that goes counter to the spirit of public markets. In
regard to C-Company , it is reflection of a sad state of the country where a
coterie of people holding power and authority, to serve their limited interests,
can go to any extent and resort to any devious means to malign and manipulate a
domestic enterprise and do unlimited harm to the entrepreneur, usurp the vast
enterprise that he created in India and abroad and waste the stellar contributions
that his enterprises made to the economy in terms of new market segments, new
business opportunities, newer jobs and self-sustaining self employment
opportunities. All these series making a telling point that in a country governed
by the rule of law and the spirit of democracy no power, or authority or official
should be allowed to indulge in practices that harm the interest of the nation and
any such action should be thoroughly investigated and bring the culprits to book.
The astute reader will observe that all these 4 series have one common element
among them. Other than the fact that these are White collar crimes, committed in
the sector of Finance. I have laid before you all the facts that I uncovered so you
can make an informed decision on who is responsible.
In conclusion, unless India can ensure that the right investment goes to the
right entity at the right time , creating jobs and prosperity for its growing
population is going to be impossible. For this to happen, India’s Financial
infrastructure - viz. Banks, Regulating agencies and Stock Markets have to be
fair, transparent and robust. Many of you are just getting introduced to Mutual
Funds and Exchange Traded Funds and you must read this series. I have tried
my best to de-mystify some hard to understand terms and concepts and would
encourage the reader to go back to Part 1 and start from there and try and read
them all in one sitting. Happy reading!

[1]
Foreign Accounts of Karti Chidambaram – Feb 20, 2017 – Swamy Press Conference, Constitution Club, Delhi
[2]
Friend, father & philosopher of black money is Chidambaram – The Sunday Guardian
[3]
Dr. Swamy’s letter to the PM – Jul 4, 2011 , Janata Party Press Release
[4]
About NSE - nseindia.com
[5]
Political tremors – Jul 31, 1992 , IndiaToday.com
[6]
The insiders’ story - Aug 31, 1992 , India Today
[7]
Linking up the country – Jul 30, 2008 , Outlook Money
[8]
Anatomy of a Crime P4 – Who benefited from the HFT scam? Oct 4, 2017 , PGurus.com
[9]
The amazing story of Jignesh Shah and MCX - Oct 13, 2005 - Rediff.com
[10]
Multi-Asset Class - Investopedia.com
[11]
ODIN Cisco Report - May 3, 2013 , Cisco.com
[12]
Zaveri Bazar, a treasure trove of precious jewels - May 18, 2015 , Rediff.com
[13]
A Million Jobs and a Million Opportunities - A study by Tata Institute of Social Sciences
[14]
NSE vs FT: The fireworks have just begun - Aug 10, 2010 , Business Standard
[15]
High Frequency Trading Scam at NSE - Sep-Oct 2017 , PGurus.com
[16]
Forex Derivative Scam - Jul 2016 , PGurus.com
[17]
Dubai Gold Exchange races to beat Tokyo - Jun 29, 2005 , Economic Times of India
[18]
DMCC becomes majority shareholder in DGCX - April 4, 2007 , Gulf News markets
[19]
Make in India initiative - Sep 26, 2014 , Business Standard
[20]
The importance of the Commodities Market - Sep 13, 2017 , TheBalance.com
[21]
Commodity Spot market versus Commodity Futures market - Aug 23, 2017 , MotilalOswal.com
[22]
Five key differences between Spot Market and Futures Market - Tradingsim.com
[23]
What is the APMC Act? Jun 21, 2014 , Quora
[24]
How Chidambaram and C-Company placed hurdles in the way of FTIL - Nov 24, 2017 , PGurus.com
[25]
Anatomy of a Crime - The HFT scam - Oct 2017 , PGurus
[26]
Why Income Tax Officers are zeroing in on Ajay Shah - Nov 26, 2017 , The Sunday Guardian
[27]
NSDL’s IPO scam won’t go away - Nov 26, 2013 , MoneyLife
[28]
Anatomy of a crime - Conclusion - Oct 9, 2017 , PGurus.com
[29]
Jignesh Shah challenges P Chidambaram to a Public Debate on NSEL - Aug 5, 2017 , 63 Moons web
site
[30]
Swamy slams SEBI Chairman for inaction against Tata companies for Insider trading - Oct 11, 2017 ,
PGurus.com
[31]
Gurumurthy writes to SEBI Chairman about NDTV - Oct 5, 2017 , PGurus.com
[32]
C-Company P4 - How Chidambaram tried to control all Financial Markets in India - Nov 11, 2017 ,
PGurus.com
[33]
SFIO may be roped in co-location case as probe gathers steam - Dec 3, 2017 , MoneyControl.com
[34]
NSE Shareholding pattern - Sep 30, 2017 , NSEIndia.com
[35]
Is NSE becoming its own Judge, Jury and Acquitter? Nov 19, 2017 , PGurus.com
[36]
#ForexDerivativeScam - How SMEs got ripped off - Jul 2016 , PGurus.com
[37]
#BringBackBillions - How India can quickly recover money from Tax Havens - Aug 2016 ,
PGurus.com
[38]
#HFTScam - The anatomy of a Crime - Sep-Oct 2016 , PGurus.com

[DBRP&S1] RA became member in December 2010, Acting Chaiman in August 2011 and became
Chairman only in September 2012. It can read as “Interestingly this happened when Ramesh Abhishek was
Acting Chairman…”