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Commodity futures market watchdog advises Govt to merge NSEL with FTIL

To ensure that FTIL takes responsibility to resolve the payment crisis at National Spot Exchange Ltd at the earliest, the Forward Markets Commission has also suggested the government to consider taking over the management of
FTIL.

Both the Corporate Affairs and Finance Ministries are studying the feasibility of implementing the FMC proposals. ‘The Commission, vide its letter dated August 18, has recommended to the Ministry of Corporate Affairs to consider the merger/ amalgamation of NSEL with FTIL in public interest so that the human and financial resources of FTIL are also directed towards facilitating speedy recovery of dues from the defaulters at NSEL,’ FMC said in its latest report.

The recommendation has been given to the government in view of the depleted resources in terms of manpower and financial strength available at the disposal of NSEL, it said. Also, ‘NSEL as a corporate entity has now been rendered bereft of any credibility and now seems financially and physically incapable of effecting any substantial recovery from the defaulting members,’ it observed.

The regulator has also recommended the Government to consider taking over of the management of FTIL, thereby ensure the company takes full responsibility to resolve the payment crisis at NSEL at the earliest. Taking over the FTIL management will help manage the affairs of the company in in a professional way by bringing in an institutionalised framework as recommended by the Working Group appointed by the government, it added.

National Spot Exchange Ltd, a subsidiary of the Jignesh Shah-led FTIL, has recovered so far a little over Rs 360 crore of dues from defaulters out of the total outstanding amount of Rs 5,689 crore. Recently, FMC had said that the NSEL has not made much progress in recovery of dues from defaulters, which the spot exchange refuted saying the watchdog has adequate powers to speed up efforts to get back the investor money.

Responding to the developments, FTIL on Tuesday opposed the merger of NSEL with itself for speedy recovery of dues, saying that such a move would affect the Jignesh Shah-led company and its 60,000 shareholders. Instead, Financial Technologies India Ltd has suggested that government agencies, brokers and trading clients should ‘join forces’ with National Spot Exchange Ltd to ensure recovery of Rs 5,300 crore from 24 defaulters.

‘... While investigations and various legal proceedings are pending, where the actual facts are yet to be established, any action based on FMC's recommendations towards merging NSEL with the FTIL will irreparably prejudice and harm FTIL and its over 60,000 shareholders, 1000 plus employees, lenders and other stakeholders,’ FTIL said in a statement.

The FTIL group is in big trouble after the Rs 5,689-crore payment crisis surfaced at its subsidiary NSEL last year. After FMC declared FTIL as 'unfit' to run any bourses, the company had to exit from its commodity exchange MCX and lose management control in the stock exchange, MCX-SX.

In a letter to BSE and NSE, FTIL said its Board is opposed to FMC's recommendations that NSEL be merged with FTIL and the government should take over management of FTIL. ‘Should more than 60,000 public shareholders of FTIL suffer a non-existent liability of Rs 5,500 crore by the device of a forced merger when the very existence of any legal liability of NSEL and consequently of FTIL as its holding company, is sub judice before the Bombay High Court,’ it said.

Stating that the government can merge two companies in public interest, FTIL said that interest of 13,000 clients of the brokers who traded on NSEL platform for higher return cannot be ‘termed as public interest’. The company said about 66 per cent of the entire outstanding amount is due to 781 persons.

Asserting that it has fully supported NSEL in recovery process, FTIL said it has given a loan of Rs 179 crore to the spot exchange to make part payment of dues to 6,600 small investors. It also informed that NSEL has recovered more than Rs 360 crore from 24 defaulters and same has been distributed proportionately amongst the investors.

‘NSEL with support from FTIL and under guidance from FMC has been making all efforts for recovery of the money from the defaulters including but not limited to filing various recovery suits and criminal complaints for dishonour of cheques against defaulters,’ it said. FTIL said it has also supported NSEL in meeting administrative and legal expenses.
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