High court upholds NSEL merger with 63 moons
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Setting a precedent for private companies, the high court here upheld the order of the Union ministryofcorporateaffairs(MCA) foramergerof scam-taintedNationalSpotExchangeLtd(NSEL) with its parent, 63 moons technologies, earlier named Financial Technologies (India) Ltd).
The two-judge bench of Chief Justice Manjula Chellur and M S Sonak rejected the petition of 63 moons against the order; it, however, agreed to a stay on its operation for 12 weeks, for time to appeal. The company has decided to appeal to the Supreme Court.
63 moons’ share price closed in the five per cent lower circuit, at ~131.1. The order clears the way for the government to order merger of two private entities. Since NSEL is a limited liability company, its liabilities will become 63 moons’ once a merger takes place. The government exercised its power under Article 396 of the Companies Act. “We will be moving the Supreme Court. We have full faith in the judiciary,” said a 63 moons spokesperson. Venkat Chary, chairman, 63 moons, said in a statement the court’s order is devastating. Terming it as a “Black Day” in the history of corporate India, Chary said this order has a serious impact on the limited liability concept that is the cornerstone of the Indian corporate sector, by lifting the corporate veil by an executive order and without running a full evidence-led adjudication.
MCA had issued a draft merger order in October 2014, followed by a final order in February 2016, citing public interest. This followed the ~5,574 payment crisis in NSEL, involving the money of about 13,000 investors. MCA said its order would ensure the investors would get their money. 63 moons, however, contended the government order would hit its 60,000-plus investors, for no fault of theirs'. The payment crisis in NSEL came to light in July 2013, when commodities traded on the exchange were found to be not backed by stocks in its warehouses. 63 moons has 99.9 per cent stake in NSEL. If a merger takes place, all ~5,270 crore of pending dues would be transferred to the books of 63 moons. “It is a welcome judgement. The concept of limited liability allows you to trade and commerce, not to give you licence to commit fraud. The decision has reinvigorated the hopes of NSEL victims, who had almost given up,” said Ketan Shah of NSEL Investors Action Group, a body formed to fight for recovery of the said dues.
Sharad Kumar Saraf, chairman, NSEL Investors Forum, said the court’s order will discourage corporates from floating subsidiaries and disowning them when they commit frauds.
“We are anxiously waiting for the judgment of the National Company Law Tribunal where MCA has proposed supersession of FTIL board. After four years, the victims of the NSEL scam have some hope of getting justice and recovery of their investment,” he said.