HC rejects FTIL plea, paves way for NSEL merger
MUMBAI: The Bombay high court on Monday dismissed a plea filed by 63 Moons Technologies Ltd, formerly Financial Technologies India Ltd (FTIL), opposing a forced merger with its subsidiary National Spot Exchange Ltd (NSEL). The ruling clears way for the merger of the two entities.
FTIL said it will challenge the court’s order.
“The Honourable Bombay High Court has dismissed our writ petition. However, it has granted 12-week stay on the operation of the merger order. We will be moving the Supreme Court during this 12-week period. We have full faith in the judiciary and continue to believe that ultimately the truth and justice shall prevail,” said a 63 Moons spokesperson in an emailed statement.
Justice MS Sonak in his order held that it is not a forced amalgamation between two unrelated entities but of a wholly owned subsidiary with its parent in public interest. The order said it was an extraordinary case of a collapse of ‘a commodity stock exchange’ and the government deemed fit to pass the merger order in public interest.
“The merger is important to safeguard public confidence in forward contracts, prevent FTIL from distancing itself from NSEL and pooling resources from FTIL for recovering dues from defaulters,” the order said.
The court also noted that the position of recoveries to NSEL investors is not very promising and may further deteriorate if NSEL is to fend for itself.
The ministry of corporate affairs on February 12, 2016 had ordered a merger of FTIL and NSEL, making the parent responsible for the liabilities of its fraud-hit subsidiary.
It will be the first time any two private entities in India are merged by fiat, using a provision of the Companies Act that allows the government do so in public interest.
Controlled by entrepreneur Jignesh Shah, FTIL owns 99.99% of NSEL. Trading on NSEL was suspended in July 2013 after a ₹5,574.35 crore fraud surfaced.
Court clearance for the merger essentially means FTIL will have to shoulder NSEL’S current outstanding liabilities worth ₹5,269 crore.
“This order has a serious impact on the limited liability concept that is the corner stone of the Indian corporate sector, by lifting the corporate veil by an executive order and without running a full evidence-led adjudication,” said Venkat Chary, chairman, 63 Moons.
However, Madhu P Desai, trustee of NAARA, an NSEL investor association, said this judgement sends out a strong message, to all those who indulge in “economic genocide”.