Ministry of Corporate Affairs (MCA), on behalf of the Central Government (CG), based on the recommendation of Forward Market Commission (FMC) has issued a Draft Order on amalgamation of National Spot Exchange Limited (NSEL) with Financial Technologies (India) Limited (FTIL) in public interest under Section 396 of the Companies Act, 1956 on 21-10-2014. The merger would mean FTIL would assume all the liabilities of the commodities exchange and become a party to all the contracts and agreements entered into by NSEL. The government has said the order would be finalized after it considers feedback from stakeholders and the public.

This is also the first time that the Corporate Affairs Ministry ordered a forced merger of private entities using a provision in the Companies Act that allows the government to intervene for essential public interest under Section 396 of the Companies Act, 1956.

On 24 February 2015, FTIL has appealed to its shareholders to oppose the government’s plan to merge the company with its unit NSEL, hit by a Rs.5,574.35 crore fraud in 2013. In a letter sent to BSE, FTIL chairman Venkat Chary said that all shareholders are entitled to “object to the forced amalgamation of NSEL with your company (FTIL) by exercising their right of opposition under Section 396 of the Companies Act, 1956”. The board strongly believes that it has acted prudently in the larger interest of over 60,000+ shareholders.

The Government order to take the easy route of Amalgamating NSEL with FTIL, its majority shareholder (with 99.9% Equity Stake in the NSEL) was challenged on 10 November 2014 by FTIL through a writ petition, on which status quo till 4th February 2015 was granted by Bombay High Court. Earlier in December 2013 the FMC had declared FTIL not ‘fit & proper’. SEBI and other regulators also followed suits and forced FTIL to exit from all exchanges it had promoted. Even as this matter was sub-judice, the MCA passed the draft order.

After FTIL challenged the draft order in the Bombay high court, the court ruled that the government can first pass the final order and the aggrieved party can then challenge it legally. Separately, the company has also challenged the FMC order that declared FTIL unfit to hold a stake in any exchange. FTIL, in its letter to the shareholders, said the “forced amalgamation of NSEL with FTIL is without even seeking the consent of the stakeholders, including shareholders and creditors, of both the companies.

The 60,000+ shareholders of FTIL preferred to appeal against the government’s move on the ground that it would harm their interest. The Rs. 2500 Crore reserves could be wipe out, they pleaded. Some of the lenders to FTIL including Union Bank of India, Syndicate Bank, DBS Bank Ltd and Standard Chartered Plc—have also moved the Bombay high court, opposing the government’s decision to merge NSEL with FTIL and had filed pleas in the Court to include them as interested parties, claiming that the draft order is conspicuously and absolutely silent on the issue of rights and interests of creditors. The four banks, in their plea, said their dues should first be secured before assets of the company are utilized to pay off NSEL’s liabilities.

However, the main objection raised by the shareholders of FTIL is that there has not been proper justification on how the amalgamation is in the public interest. The ministry, they claimed that has failed to balance the interest of FTIL’s shareholders and lenders who have huge exposures. There has already been an erosion of over 50% in the share price of FTIL since the order was passed. The stock hit a high of Rs 210.80 and a low of Rs 178.25 so far during the day. The stock hit a 52-week high of Rs 403.60 on 10 March 2014. The stock hit a 52-week low of Rs 135.75 on 22 October 2014.

However, on Monday 2nd March 2015, FTIL’s share price on BSE and NSE hit the upper circuit of 20 per cent to close at Rs 214.05.

According to the letter, FTIL has Rs. 2,000 crore cash and a debt of Rs. 475 crore after it was forced to sell its stake in MCX, MCX-SX, and SMX, among others. These cash reserves FTIL belong to only 60000+ shareholders, 1000+ Employee, lender, vendors and other stakeholders of FTIL.

The Division bench of the Bombay High Court vacated the status quo order on the draft order of the MCA, seeking to amalgamate these companies. The Court did not go into the merits or otherwise of the government’s authority to forcibly effect amalgamation nor did it took into the matter of public interest.

While lifting the status quo in its earlier order, the High Court said that the government had a right to pass a final order it deem fit, but only after hearing all the objections of the concerned parties.

The ministry has said in the petition to the company law board that it was necessary to file the petition ‘‘to expedite the recovery process of creditors of the NSEL and prevent any further attempt being made by the FTIL board members along with others and prevent them from fraudulent sale of assets of the FTIL’’

The Bombay High Court had stated that FTIL and its lenders had to file a reply to the MCA by March 4, 2015, stating why NSEL should not be merged with FTIL. It said if the government eventually passed an order on the NSEL-FTIL merger it would not be implemented for two weeks, during which FTIL could approach the high court. FTIL, on its website, has urged its shareholders to oppose the merger with NSEL.

A senior MCA official said, “According to the Companies Act, 2013 when it comes to public interest issues, we can supersede a company’s board. We have initiated the process in this regard.” The official refused to comment on the FTIL’s argument.

Also, they said, there was about Rs 1,600 crore income tax due to the exchequer out of the proceeds of the NSEL investment. Elsewhere, investors tried to use the same argument used by FTIL, when they said a few large investors controlled the retail shareholding of FTIL. “As per the last annual report of FTIL, out of about 60,000+ shareholders, 56,254 are holding 500 or less number of shares. It is only 133 large shareholders who are holding 86.33 per cent of the shares (10,000 shares or more)

Terming the figure of “60,000+ shareholders” nothing but an eyewash, the Forum said, “Equity investment carries inherent investment risk and a shareholder knows he will either sink or swim with the company, which is decided by the acts of its board. All shareholders of FTIL (including small) enjoyed benefits like higher dividend, higher share prices, etc., on the back of bogus profits and bogus trading volume-related software charges derived from NSEL. After adding bogus software charges, about 81 per cent of the consolidated profits of FTIL came from NSEL operations

FTIL reported a net loss of Rs 4.86 crore in Q3 December 2014 compared with net profit of Rs 34.48 crore in Q3 December 2013. Net sales fell 55.9% to Rs 35.29 crore in Q3 December 2014 over Q3 December 2013

The board of Financial Technologies (India) (FTIL), which met on Sunday, 1 March 2015, passed the resolution to strongly oppose the Ministry of Corporate Affair’s (MCA) petition to Company Law Board (CLB) seeking removal and supersession of the FTIL board. The board has further termed the same as a clear attempt by the MCA to render ineffective and in fact, defeat FTIL’s challenge and opposition to the proposed amalgamation of National Spot Exchange (NSEL) with FTIL.


FTIL hold 99.99% of Share capital of NSEL, so NSEL cannot be said to be independent of the control of the holding company. Constitution of Board of Director of NSEL is entirely under its control as Shri Jignesh Shah the promoter and chairman –cum-Managing Director of FTIL, has been on the Board of NSEL and functioning as Vice Chairman of the Company since its inception. Shri Joseph Massey was also common Director in both companies.

Allowing trading in forward contracts on the NSEL platform in a circuitous manner which was neither recognized nor registered under FCA indicates mala fide intention on the part of the Promoter of FTIL to use the trading platform of its subsidiary Company for illicit gains away from the eyes of Regulator. This act is ultra-virus against the article of the NSEL.

By forcefully amalgamating NSEL into FTIL, FTIL will become commercially unviable as its net worth will be eroded. This violates FTIL and its shareholders’ fundamental right to carry on business under Article 19(1) (g) of the Constitution which can only be curtailed by legislation, and not by an executive action

According to provision sub-section (1) of Section 396 of the Companies Act, 1956 the Central Government has the power to amalgamate two or more companies when it is in the public interest.

In the present case, the Central Government only looks after the interest of creditors of NSEL and not Interest of 60,000+ shareholders and creditors of FTIL.

According to sub-section (3) of Section 396 of the Companies Act, 1956 every member or creditor shall have as nearly as may be same interest in or rights against resulting company. But there is no provision in draft order that liability of creditor of FTIL will be settled first and then payment of creditor of NSEL will take into consideration, it is absolutely silent on the issue of rights and interests of creditors.

Central Government should pass order against Mr. Jignesh Shah, who is solely responsible for fraud done by NSEL and not against FTIL as it will go against Shareholder and creditor of FTIL, who are not responsible for the act of Mr. Jignesh Shah.

According to sub-section (3A) of Section 396 of the Companies Act, 1956 if Mr. Jignesh Shah is aggrieved by any assessment of compensation made by the prescribed authority under sub-section (3) of Section 396 may within 30 days from the date of publication of assessment in the Official Gazette, prefer an appeal to the Tribunal and thereupon the assessment of the compensation shall be, made by the Tribunal.

Main Contributors : Dhanashree Bhalerao

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