NSEL-FTIL a forced merger

The National Spot Exchange Ltd payment crisis Rs 5,600 surfaced on July 31, 2013, when the exchange suspended trading in all its contracts. NSEL proposed a payout plan on August 14, 2013, but the commodity spot exchange had not been able to make a single successful payout till date.

MCA proposed an amalgamation of NSEL with FTIL by invoking Sec 369 of Co. Act 1956 on Oct 21 2014. FTIL-NSEL merger was recommended by the commodities market regulator Forward Markets Commission (FMC) Without issuing final order Ministry of Corporate Affairs (MCA) moved Co Law Board 2 supersede FTIL assailed Draft Order before Bombay High Court.

HC has given Government time until 30th Oct 2015 to pass a final order on proposed amalgamation of NSEL. Forced amalgamation of FTIL-NSEL will corrode confidence of the investor community. Forced merger on appeal of “public interest” with room 4 ambiguities will drag down India’s rank NSEL.

Section 396 of the Companies Act has never been used by the government to merge two companies and use assets of one company to pay for the liabilities of the other. Forceful amalgamation of FTIL and FTIL constitutes expropriation of property rights of FTIL and its shareholders. Prerequisite of “Essential public interest” for exercise of power under Sec 396 is absent, as interests of 63,000 shareholders of FTIL have been ignored vis-a-vis (in relation to) the interests of the 13,000 trading clients of the NSEL. So why is only FTIL being targeted under Sec 396? Also did the Forward Market Commission (FMC) conduct a fact finding exercise before the merger, especially when such an order was being sent out for the first time and could have had a cascading impact on corporate India? No private company has even been forced to merger with another independent company.

Again, the forced amalgamation of two private sector companies is unfair and ignores the MCA’s own circular dated April 20, 2011. Significantly, while hearing the case, the Bombay High Court has allowed the FMC to be a party to the case. The High Court has also allowed the FTIL shareholders to be party to the case who unanimously (99.55%) voted against the amalgamation of the NSEL with the FTIL.

FMC had all the powers to take any action deemed appropriate against defaulters and brokers, but the FMC chairman turns a blind eye to them. FMC has always been chasing only FTIL. It is high time that FMC starts chasing other parties like brokers and also defaulters to whom the money trail has been traced to, instead of concentrating only on FTIL.