MCX, Ajay Shah and the response to sharp criticism

By R Jagannathan

How do you get justice in India? It is certainly not easy or cheap, given a decrepit legal system where delays are legendary.

However, there are many ways of delivering injustice. One way is to use the legal system to go after people you want to target. And one man who is currently being targeted for no other reason than his views on market regulation is Ajay Shah, professor at the National Institute of Public Finance and Policy (NIPFP) in New Delhi.

His crime: he boldly stated that MCX, the commodities exchange, may have been successful because it operated in an area where regulation was weak. Commodities are regulated by the Forward Markets Commission, which, unlike Sebi, does not have the necessary background to discipline and penalise players with clout.

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[caption id=“attachment_370959” align=“alignleft” width=“380”]  India’s Multi Commodity Exchange (MCX) vice chairman Jignesh Shah[/caption]

About the harshest thing Shah had to say in a Financial Express article written in February 2009 was this: “When regulation is weak, this encourages the players who have strengths in fixing the regulatory system to their own advantage. The firms that have risen to prominence in such areas in India tend to be those who were unable to compete in global markets under fair competition.”

Shah has been sued for defamation by MCX for this article and some other averments. Shah may have gone a bit over the top in his choice of words, but nothing he said should have attracted a criminal complaint for defamation.

On the other hand, the newspaper which published this article has been left alone. Under law, both the writer and the publication are equally liable for defamation. But MCX went after Shah, and not the publication.

And this pattern has been repeated two more times. When Ajay Shah made more or less the same points on CNBC Awaaz, which is part of the Network18 Group that publishes Firstpost, MCX filed a criminal case in Kolhapur. And then another one in Surat, this time for writing a blog on Sebi’s Anil Ambani consent order, which made an incidental reference to Sebi’s order in another case involving MCX.

In the Sebi order on MCX-SX, where the regulator rejected MCX’s application to run a stock exchange, the adjudicating officer KM Abraham wrote: “I have little hesitation in holding that MCX-SX has been dishonest in its disclosures to Sebi on material information and has failed to fulfil its disclosure and fiduciary responsibilities cast on it under Regulation 11 of the MIMPS Regulations (MIMPS is Manner of Increasing and Maintaining Public Shareholding in Recognised Exchanges Regulations 2006).

That was in 2010. In a letter to the Prime Minister in 2011, Abraham, who was not given as extension in Sebi, complained that pressures were being mounted on the Sebi chief by the finance ministry to settle many big-ticket cases, including one involving MCX (read the letter here).

The courts have since ruled in MCX’s favour, and the decks may soon be cleared for MCX to start its share trading after Sebi ushers in its regulatory changes, but this does not mean MCX is on the right path targeting Ajay Shah.

Suing a man three times over in three different places can reasonably be considered a way of harassing him. Firstpost, which believes in a writer’s freedom to argue his points, however harshly, believes that MCX is effectively trying to muzzle Shah, an outspoken advocate for free markets, which is what MCX too apparently believes in, since it took the NSE to the Competition Commission of India (CCI) for predatory pricing in currency futures. The CCI found in MCX's favour , and the NSE has challenged the verdict in court.

Ashok Desai, another free-market economist, has criticised MCX, even though he is an admirer of MCX’s promoter Jignesh Shah. He wrote in The Telegraph: “…MCX is a public limited company, not an individual. People invest in its shares; they use it to trade. Hence its affairs need to be as fully ventilated as possible in the media. The comments may be fair or unfair, right or wrong; all of them are a necessary part of the debate that forms public opinion. To accuse Ajay Shah of defamation for contributing to the debate has the effect, intentional or not, of discouraging people from engaging in such debate. Suits in out-of-the-way places like Kolhapur and Surat, where neither Ajay nor his adversary lives, are designed to cause Ajay extreme inconvenience, and to make it clear to potential critics that they could face similar consequences if they dared criticise the plaintiff.”

MCX may be targeting Shah because he has been an outspoken advocate of the National Stock Exchange, an MCX rival. But having made its point, it should got off its high horse and end this form of harassment.

MCX responds to our post

In your article “Why MCX should get off its high horse on Ajay Shah” published on 7 July 2012, the facts pertaining to Jignesh Shah and MCX have been misrepresented.

With regard to Ajay Shah’s article ‘The X factor in regulation’ please note that the statements made are slanderous and defamatory in nature. The imputation clearly suggests that MCX is taking illegitimate advantage of allegedly weak legal and regulatory foundations in conducting its business activities. The article also alleges that MCX has skills ‘in fixing the system’ as opposed to skills ‘in running a business’. The article insinuates MCX as being a beneficiary of FMC’s action of preventing NCDEX from cutting price.

In reference to the complaint filed by MCX in Kolhapur for a defamatory allegation made by Ajay Shah during a TV interview with CNBC Aawaz” had compared MCX with other scams in which some corporates were involved.

R. Jagannathan replies: Firstpost has no axe to grind for or against MCX. Our only interest was in pointing out what we believe is excessive legal response to a sharp critique through three different courts. In the interest of wider debate on the issues involved, public corporations should be more tolerant of dissent and criticism, even if they think it is motivated. A public rebuttal of Ajay Shah’s views would have been more than adequate in this case.