MCX paid Rs 709 cr to FTIL and group firms, says PwC

Commodity exchange MCX entered into agreements with related trading parties and paid about Rs 709 crore to erstwhile promoter FTIL and group firms without following proper documentation process, said the PwC special audit report released by the bourse.

In the wake of Rs 5,600 crore payment crisis at NSEL — a subsidiary of Jignesh Shah-led FTIL — market regulator FMC had appointed PwC in December last year to audit books of MCX.

PwC was asked to examine if NSEL arm Indian Bullion Markets Association and another FTIL subsidiary National Bulk Handling Corporation (NBHC) traded on MCX.

In the report, which was released partially by MCX, PWC alleged other inconsistencies and gaps in the way MCX processed the related party transactions and expressed doubts whether these agreements were conducted  "on an arm-length basis".

The Financial Technologies (India) Ltd (FTIL) had set up MCX in 2003 but it no more controls the exchange even as the company has 26 per cent stake in it.

"FTIL and NHBC are the two key related parties to which monies have been paid by MCX for the exchange technology solutions and warehousing, respectively.

MCX also entered into related party transactions with other FT group companies for various ancillary services," the report said.

"MCX incurred net expenditure of approximately of Rs 649 crore over the years for services stipulated to have been rendered by FTIL under various agreements.

MCX also incurred net expenditure of approximately Rs 42 crore for facilities provided by NBHC under the warehousing arrangement.

"Additionally, MCX recorded net expenditure of approximately Rs 18 crore for services agreed to have been provided by other FT group companies under various ancillary service provider agreements.

The quantum of monies paid by MCX to disclosed set of related parties, which were subject to this review, was approximately Rs 709 crore," the report added.

The PwC audit said that document approach or process were not followed for finalisation of related party contracts at MCX.

"Further there are various gaps and inconsistencies noted in the way MCX processed related party transactions," it alleged further.

"Additionally, there was limited or no supporting documentation available to evidence the existence, adequacy and robustness of price discovery mechanism which may have been adopted by MCX. Therefore, it is not possible to conclude whether various related party agreements and transactions were indeed conducted on an arms-length basis," the report said.

Financial Technologies rejected the PwC special audit report and said it will take legal action against the bourse and PwC for painting a wrong picture in the report.