Ghost of Jignesh Shah

The author, Shantanu Guha Ray, responds to the review of his book ‘The Target’, carried in the gfiles’ issue of February 2017, and reviewer Alam Sriniwas further replies

the-tagret-jignesh-shahI have read Alam Srinivas’ critique of my book and must take the bull by the horn.

As things stand, Jignesh Shah has never been called a fraudster, though he has been maligned, hauled over the coals and even sent to a dreary prison, not once but thrice, without any result. Even the Bombay High Court said no money trail was traced towards him or the Financial Technologies India Limited (FTIL).

Was FTIL a house of tinderbox with its more than 4,500 employees under various subsidiaries valued at Rs. 60,000 crore that drew global acceptance and praise? The answer is a big ‘No’.

The needless hurry to close down NSEL in one shot is not my argument; even the Law Ministry has told the Ministry of Corporate Affairs that merging NSEL with FTIL works against the very ethos of corporate law in India. In any case, the order of merger of NSEL with FTIL is at present sub judice.

The reviewer should have known India’s regulatory systems, and that the arbitrary powers vested in them, are often responsible for the demise of those who create empires, or challenge the system. The final verdict on the issue of the merger of NSEL with FTIL is not out yet. The reviewer has an issue with Shah being close to politicians. He is presuming that all Indian corporates are washed in milk, and only Shah was not. He knows little of the corporate history. The demise of textile corporates, including those of British, in Mumbai and Ahmedabad, because of the wrong policies of the Nehruvian era, reveals the reviewer’s pathetic ignorance. But he is entitled to his opinion, howsoever erroneous it may be.

The reviewer should have known India’s regulatory systems, and that the arbitrary powers vested in them, are often responsible for the demise of those who create empires, or challenge the system. The final verdict on the issue of the merger of NSEL with FTIL is not out yet

The handiwork of the troika was evident in the sudden closure of NSEL. The proximity of a powerful minister to a rival exchange has been documented time and again in the book, which the reviewer has decided to ignore. The reviewer is convinced that Shah grew because of political patronage. He should be reminded that governments back corporates when they buy into the latter’s visions. The reviewer would say everything is done for cash. By his criteria, even the Singapore, Mauritius, Botswana and Dubai governments must have been bought over by Shah and cash must have changed hands. Does he know how much effort and time are spent in building exchanges of global standards?

The review blames Shah for hiring retired bureaucrats, ignorant of the fact that in India bureaucrats have always joined the corporate world after retirement because they know the system and work towards it. By law, you cannot stop them from working for corporates once they have completed their “cooling period”. Were there more competent people who lost out to Shah? It’s for the government to answer, not me. He blamed me for lack of knowledge, but he himself copy pastes from an article in the same magazine to bolster his arguments.

The reviewer claims once MCX was set up, State-owned entities, with interests in commodities trade on MCX and NABARD, forced to become an equity partner. Can one push PSUs to trade or become partners just because an exchange is supposed to have political clout?

That the reviewer lacks knowledge is evident when he says the biggest, and unprecedented, sop to Shah and his National Spot Exchange was an amendment in the government’s gazette notification of June 5, 2007, exempting all one-day forward contracts of the exchange from the provisions of the Act. When was the amendment made; the section was there in the original act itself? Besides, there is no such Clause 3 of the Act that read that the National Spot Exchange would be subject only to “regulation by the authorities regulating spot trade in the areas where such trading takes place.” The reviewer has a problem with Shah’s spot exchange getting the exemption. May I ask him if it was possible to develop a spot exchange under FCRA without the exemption?

jignesh-shah-in-sad-moodThe reviewer repeats time and again that Shah grew because of political help. Worse, the government even bent backwards. I wonder why did the government bend backwards? The need for a spot exchange was advocated time and again by the former Planning Commission, the UPA government and even the former PM, Dr Manmohan Singh. Were the traders trading at MCX at the behest of the then government or ruling politicians? What a bizarre argument?

The reviewer says I lack evidence of a conspiracy, and that MCX was a monopoly, killing competition, including causing troubles for the NSE-backed NCDEX. Let me update him with facts that the reviewer does not have. If MCX had a real monopoly, why did the NCDEX did not petition the Competition Commission? The truth is that unlike MCX, NCDEX failed to design proper tradable commodity derivatives. No wonder, it could not face the competitive blast of MCX. Like NSE, one of its main shareholders, it found that it could survive with the State efforts at killing FTIL. Worse still, despite the government support, NCDEX trading has always been riddled with manipulation and fraud in price rigging and bad quality deliveries.

The reviewer calls BSE a hub of manipulation and the regional exchanges virtually dead operations. If this was the case, what wasSEBI doing all this time?

May I remind the reviewer of the number of times SEBI intervened in NCDEX affairs and even stopped trading in commodities like some of the pulses and castor seed? Actually, NCDEX and its management should have been chargesheeted for fraud and manipulation, and its shareholders like NSE, which was in reality controlling NCDEX, should have been declared “Not Fit and Proper”. But because it was State-owned, no action was taken by the government.

The reviewer says it’s perfectly fine for the Finance Ministry to revive the market share of NCDEX. But may I ask him: Was it the duty of the Finance Ministry to revive the market share? In a free market economy, the government has no business to interfere in trade, unless it finds something fishy with such trade. In that case, at best, the Finance Ministry should have advised FMC to look into the trades of MCX. But the latter never found anything wrong in the MCX trades.

THE reviewer calls BSE a hub of manipulation and the regional exchanges virtually dead operations. If this was the case, what was SEBI doing all this time? Harshad Mehta was called by even the Finance Minister for his advice. He was backed by the national banks like the SBI. The reviewer needs some definitive lessons in stock market history. Let me help him. The government wanted to stop the badla transactions, which had a history of over 100 years, and wanted to develop stock futures. And so, labouring under the illusion of developing the socialistic pattern of society, it developed NSE, drawing in it the staff of the dying public sector Industrial Development Bank of India (IDBI), which had no knowledge of stock trading. Guided by Ajay Shah, who later became an Adviser in the Finance Ministry, stock futures were introduced at NSE, and badla trading was banned at BSE. Later, history was repeated by the same Finance Ministry and its same minister to kill MCX to prop up the feeble NCDEX. The reviewer’s bias is now coming out in the clear.

The reviewer says, “NSE pushed BSE to become better, efficient and transparent, and pushed the entry of foreign institutional investors in the 1990s because, given the standards of BSE, no one would have touched an Indian stock exchange with a barge pole.” Does the reviewer know that foreigners were precluded from entering the Indian market before the 1990 financial crisis caused by the Soviet style economic policies? It was the IMF, to which India turned with its begging bowl that forced India to liberalise and privatise.

The reviewer should know that NSE was, and even now, is not in commodity trading. Nor were Shah’s exchanges then in stock trading. Why was then NSE fighting back with the crutches of the Finance Ministry, after laying down the so-called standards in stock trading? NSE’s criminal standards have now been exposed with the resignation of one of its top persons. The reviewer, I am sure, is aware of that.

THE reviewer finds no fault in SEBI’s claim that FTIL and MCX were “acting in concert”. May I humbly remind him that the SEBI Act, per se, does not define the term “persons acting in concert”. These words were introduced by SEBI in its regulations, ‘Manner of Increasing and Maintaining Public Shareholding in Recognised Stock Exchanges Regulations’ in the year 2006, when SEBI was under the Finance Ministry of P Chidambaram and KP Krishnan was a member of the SEBI board. MIMPS Regulations were in reality hostile to the principles of privatisation and competition, which are the hallmark of capitalism, free trade and democracy. These regulations were introduced solely to fulfill the ministry’s notorious objective of preventing FTIL and MCX from creating a private sector stock exchange Meanwhile, MCX-SX was recognised by SEBI as a stock exchange under Section 4 of the Securities Contract (Regulation) Act, 1956 (SCRA), on September 15, 2008, subject to the condition that “The Exchange shall ensure full compliance with the MIMPS Regulations within a period of one year.”

As may well be quite apparent, when SEBI mandated full compliance of MIPMPS Regulations for MCX-SX within a period of one year of its recognition, it clearly intended to set barriers to MCX-SX before it could become a full-fledged operational stock exchange for offering trades in all financial products. On September 23, 2010, SEBI rejected MCX-SX’s application of April 7, 2010, for recognition for non-compliance of its MIMPS regulations. On March 14, 2012, the Bench comprising Hon’ble Justice, Dr DY Chandrachud, and Hon’ble Justice, Anoop V Mohta of the Bombay High Court, quashed SEBI’s rejection order and even dismissed its contention that MCX and FTIL were acting in concert. These facts expose the lies of the reviewer.

As may well be quite apparent, when SEBI mandated full compliance of MIPMPS Regulations for MCX-SX within a period of one year of its recognition, it clearly intended to set barriers to MCX-SX before it could become a full-fledged operational stock exchange for offering trades in all financial products

On the issue of the losses suffered by investors in the NSEL payment crisis, the reviewer must know that these so-called investors were called by Justice Thipsay of the Bombay High Court as “bogus traders”. SEBI, EOW, ED, and CBI are investigating these brokers and defaulters. Some of them have even been arrested and have been chargesheeted. The High Court Committee investigating the matter has also named these brokers and defaulters.

The reviewer says, like “all bank chairmen”, Shah should have been penalised for the payment crisis. Let me ask him, is it possible for the chairman of a conglomerate to look into the day-to-day affairs of each of its companies? Can he tell as to how many bank chairmen have been arrested for loan defaults? Does the reviewer know how many and of what amounts of loans have been waived off by banks, including SBI? Lakhs of crores have been lost during the last decade, but neither the investigating agencies nor the government has done anything, except with respect to a bank that had lent to Vijay Mallya’s Kingfisher Airlines, while allowing Mallya to escape from the country.

Alam Srinivas replies: Biographer needs to tread carefully

WRITING a biography of a person, even if he is a “genius” or a perceived one, is a tough task. It can easily slip into the realm of hagiography, and it does so frequently, especially when the protagonist gives complete access to the author. This is why serious protagonists insist that the biography be honest, no-holds-barred, and even brutal at times. Take the example of Walter Isaacson’s Steve Jobs. The back cover reads, “It is clear that Jobs was honest about his opinions. He talked candidly, sometime brutally as well and also encouraged people to speak honestly (about him). He even cooperated with the author of this book and did not interfere in any of the author’s narration or viewpoints.”

This is especially critical and crucial when the protagonist is a controversial individual, who was maligned in public and by media. Take the example of Bernie Ecclestone’s biography by Tom Bower. Ecclestone, the former Emperor of Formula 1, lived a controversial, scandalous and successful life. He disclosed his secrets to Bower, whom the former had described as “the Undertaker”, and “the man who buries reputations”. This lent a ring of extreme credibility to the book, which captures Ecclestone in all his nuances, with all his faults and deficiencies. This is the beauty of a biography.

gfiles-stroy-o-jignesh-shahMost authors, at least the honest ones, try to emulate Issacson and Bower. The reason: they wish to write biographies, not incomplete and manipulated hagiographies. The fact is that even a great genius like Jobs had weaknesses; he too has made several mistakes, and witnessed the ups and downs of life, like any other person. In the case of Ecclestone, the job of the biographer was to unravel the personality to expose the wrongdoings, but with a heart that tried to empathise and understand the mind of the protagonist. Through this process emerged the “right” image of a “wrong” individual. In both the cases, the objective was to be as “objective” as possible–not to simply praise Jobs, or demolish Ecclestone. Any biography, which doesn’t achieve this, is merely a bad hagiography.

In a country like India, where business and politics converge seamlessly, where a businessman can rarely become successful without political backing, the job of a biographer is tougher. Quite easily, the author merely says “great” things about the protagonist–worst kind of hagiography–or merely criticises her–a subjective, but still valid, biography. In a country, where most businesspersons work with shadows, in grey areas (sometimes completely black ones), and skirt around the laws and rules, or openly break them, the job of the author is the toughest. If this is the case, even if the protagonist is a “genius” and “visionary”, it is imperative to also focus on the dark and seamier side of the person. Just because most businesspersons have a grey or dark side doesn’t condone any one businessperson.

The regulatory environment in such “highly politicised” nations like India follows the “capture” theory, as explained in an OECD paper. In such a scenario, experts see “regulation as being supplied in response to the demands of the interest groups struggling among themselves to maximize the incomes of their members”. Thus, these groups, or individuals, wield “unequal influence over regulatory rules/norms and hence outcomes”. The interest groups twist and manipulate the regulators; when they succeed, they become successful. But most forget that when the political tide turns, or when their politics gets disconnected from the mainstream, the same regulatory mechanism bites and hurts them. They thrive within the system, but they are likely to get killed, both figuratively and literally, by the same system. India’s post-Independence corporate history is awash with such glorious examples.

In such an explosive milieu of politics, business and regulation, getting the ruling regime to “buy into” one’s “vision” is a complex art. I deliberately use the word “art”, and not “science”. It’s an art because there are numerous uncertainties to deal with, several self-doubts to deal with. A businessperson has to oversell; she has to convince the policy makers not through mere merit, but in other forms, and we are all aware of the latter. Every intelligent person has a vision for a nation; the only discerning feature is whether that vision helps the businessperson more than her competitors. I have met scores of businesspersons who have sold their “vision” about national interests; I have witnessed and noted how they became part of a rotten system and pushed the latter to serve their, and only their, interests. They decimated competition, or ruined them. They wailed loudly when the same happened to them later.

OBVIOUSLY, the business environment is prone to seamless misuse, even when the policy makers and regulators retire from the jobs. For decades, we have had this debate about the “conflict of interest” when retired bureaucrats join the corporate sector. One view says that there should be freedom to allow the experienced officials to use their skills and knowledge in the country’s interest. Notice the re-emergence of national interest. Another contends that there should be restrictions. Several Parliamentary Committees have discussed the issue. A 2013 committee, as mentioned in an article, felt that the “possibility of senior officials, who hold vital and sensitive posts while in the government, getting influenced by the lure of plum private sector jobs post retirement, could not be ignored (emphasis mine).” Several businesspersons extracted favours from bureaucrats while the latter worked in the government and gave them non-retire-able post-retirement jobs. I met several of them, who admitted that they got their salaries even after they were unable to go to the corporate offices for physical reasons.

The same is true for the “hot honchos” in the public sector. However, the malaise in the public sector goes beyond post-retirement jobs. Time and again we have witnessed how the public sector benefits the private sector at the former’s expense. In the aviation and telecom sectors, the State-entities either deliberately or forcibly vacated markets to enable the fledgling private sector to survive, and then thrive. In the banking sector, the issue of rising bad loans, or non-performing assets, is linked to the favouritism shown by public sector banks to finance the loot by the private entrepreneurs. The case of Vijay Mallya, and the arrest of the former IDBI chairman linked to case, is just one example of the fraudulent activities and non-activities of the public sector. And no public sector entity can be asked to favour a private individual without political or bureaucratic interference and pressure.

When the boundaries between politics and business, and public sector and private business, get blurred, the result is chaos and confusion. The main beneficiaries: the private businesspersons. This is where the issue of whether India is a free-market economy or not gets fuzzy. India may adhere to capitalist policies and encourage the private sector, but as long as she has a strong public sector, which is majority-owned by the State, as long the governments insist that the public sector will not vanish away from the critical and sensitive sectors, and as long the policy makers insist on looking after the interests of the common man and poor, India will be deemed to be a form of a mixed economy. However, there’s another side to the story, even if one considers India as a purely capitalist economy like the US and the UK.

Even the best, or the worst, of capitalist societies need stronger, not weaker, governments. Even the US requires regular government intervention and monitoring, as had happened after the Financial Crisis of 2008. Without getting into details, it is apt to quote from an insightful article. “Consider this analogy (between football and capitalism): free-market capitalism is constituted by government laws in the same way that sports are constituted by their rules.” In reality, football, like capitalism, “is a highly circumscribed and regulated activity”. There are rules for almost everything in the former–and referees to “interpret and enforce these rules”. Change the rules, and you can change the game of football. As the article said, “The rules make the game.” Similarly, “government’s laws can create different kinds of capitalism and market relations.” In India, feeble attempts towards capitalism have created crony-capitalism, in which a certain kind of businessperson made the moolah.

If one plays the crony-capitalism football, the ‘Manner of Increasing and Maintaining Public Shareholding in Recognized Stock Exchanges Regulations’, in a takeover or an acquisition, can seem anti-capitalist and anti-free-market. If one wishes to play a transparent capitalist game in a mixed economy, these rules help the powerless retail investors–sometimes even the institutional ones. Even in the most capitalist society, the US, the nuances and implications of “persons acting in concert” are being debated. A few years ago, the issue became controversial due to an order by an US court. It maintained that as per law, such people or groups don’t have to disclose their affiliation to each other “unless and until they have agreed to act together”. Now consider two truths–one, that the US has strong laws on “persons acting in concert” and, two, such persons can continue to discuss and finalise their options behind the backs of the other shareholders until the time they agree to act to acquire, hold or vote. This, said experts, was a huge dilution of the perception that the US laws were strong.

Given this myriad of complexities, which hide, rather than reveal, the shenanigans by the business community, and the nexus between Big Business and Bigger Government, it is essential for a biographer to tread carefully, and to go where no author has gone before. This is especially true if it is a business biography.

The reviewer, in his bid to demolish the book, gets a few facts wrong. I wrote contracts in dispute were a paltry 17 per cent of the total business of NSEL because 17 per cent is not of multi-billion dollars. I have mentioned that the remaining 83 per cent business was properly fulfilled. Even this 17 per cent would have been fulfilled had not the three conspirators intervened to force NSEL to stop trading and close the outstanding contracts at their last closing rates.

On the issue of Anjani Sinha, the reviewer should not find fault in my claim that why a seasoned tracker of derivatives and financial markets not turn up on the wrong side of the fence. Being a visionary does not mean that he is always infallible in his selections. Mistakes happen at times in judgement. Anjani was appointed just when MCX was being set up. Being a seasoned tracker of derivatives and financial markets does not mean that he cannot be fraudster. Market manipulators are always seasoned traders.

Like everything else, the reviewer has an issue with my comparison of Shah with Jay Gatsby, the character in F Scott Fitzgerald’s classic because, as per the reviewer, “The Great Gatsby is described by critics as a “deeply flawed man, dishonest and vulgar, whose extraordinary optimism and power to transform his dreams into reality make him ‘great’ nonetheless.” My comparison of Shah with Gatsby is on his ‘greatness’, and not his other qualities. For some strange reason, the reviewer ignores the other comparison, that of John Galt, the character in Ayan Rand’s classic.

The reviewer has a problem in my equating Shah with Abhimanyu. He wants Shah to be Duryodhana, the leader of the Kauravas and finds no fault in the death of Abhimanyu in the Chakravyuha. May I remind him that the Kauravas set up the Chakravyuha knowing very well Arjun will not be there to fight. So, Abhimanyu’s death was cruel and unjust because he was conned into the death zone.

And if I go along with the reviewer on his argument that Shah was Duryodhana, he should remember even Duryodhana’s death was by deceit—he was hit below the stomach, forbidden by law.

I rest my case here. I have argued on facts and I have not been abusive.

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