Forced amalgamation of NSEL against shareholders' interest: FTIL
13 February 2016
Financial Technologies India Ltd (FTIL) has challenged the executive fiat merging scam-hit National Spot Exchange Limited (NSEL) with its publicly-listed parent, saying it completely undermines and disregards the interest of 63,000 shareholders of FTIL.
''In the history of corporate India, for the first time a subsidiary company has been forcibly merged with its parent company through an executive fiat and this is a defeat of the fundamental edifice of limited liability concept in the Company Law. This step would have a devastating impact on the corporate landscape of the country and also the global investor sentiments in India,'' FTIL stated in a release.
The forced merger order has been issued despite the fact that 99 per cent shareholders and 100 per cent creditors of FTIL had registered their opposition to MCA as part of their constitutional right, FTIL stated adding that the merger is a travesty of justice for FTIL's 63,000 shareholders.
FTIL pointed out that it is also against MCA's own circular dated 20 April 2011, which states that compulsory merger of government companies under section 396 of the Companies Act, 1956, requires that the companies concerned and an overwhelming majority of their shareholders and creditors must be consenting to the merger.
Also, it said, since the matter is sub judice, the order not only breaches the concept of limited liability and the constitutional rights of the 63,000 shareholders of FTIL but also throws light on the gruesome act of the MCA, which acted on the flawed recommendations of the FMC without conducting any independent inquiry of its own.
''The merger recommendations were made by the FMC to cover up its own wrongdoings as well as those of the defaulters and brokers who are the main culprits for creating the payment crisis at NSEL.
''The FMC which had recommended the merger has not acted in good faith as a regulator of the commodities market while handling the payment and default crisis at NSEL. The FMC, in fact, abused its power to single-mindedly target FTIL and its promoters while deliberately not taking any action against the 24 defaulters with whom complete money trail up to the last paisa had been established by the Enforcement Directorate (ED) as well as the Economic Offences Wing (EOW) of the Mumbai Police.
''The FMC has not taken any action against some of the leading and powerful brokerage firms who are equal partners of the defaulters in the crime of money laundering, KYC manipulation and client code modification that led to the NSEL crisis.
''The FMC used the NSEL crisis as a handle to implicate FTIL group and its promoters and bar them from exchange businesses and thereby killing all competition that it posed to National Stock Exchange (NSE) group. Going further the FMC also recommended the merger of NSEL with FTIL to protect the interests of erring brokers and defaulters,'' It said.
FTIL said the issue of forced merger of NSEL with FTIL has all the potential of becoming another 'Vodafone retrospective tax' like situation for the finance ministry when it had implemented the general anti-avoidance rule (GAAR), which rattled foreign investors and raised concerns of tax crackdown with retrospective effect and that it would in a flight of capital.