Millennium Post

Govt orders NSEL’s merger into parent FTIL

To help investors and others hit by Rs 5,600-crore ‘fraud’ at the National Spot Exchange Limited (NSEL) get back their money, the government on Tuesday ordered merger of the scam-hit firm with its holding company Financial Technologies (India) Limited (FTIL).

The merger, pursuant to which Jignesh Shah-led Financial Technologies group would need to absorb National Spot Exchange Ltd  along with all its liabilities including payments due to be paid to brokers, investors and others, has been ordered by the Ministry of Corporate Affairs (MCA) through a rarely used clause in the Companies Act to intervene in the affairs private sector entities. In a brief statement, FTIL said it has received a communication from the government on this draft order and it ‘is taking appropriate steps in the matter in consultation with the legal counsel of the company’.

‘The decision, which came over a year after a payment scam broke out at NSEL in July 2013, has been taken in essential public interest as the exchange is not left with any viable, sustainable business while FTIL has necessary resources to facilitate speedy recovery of dues,’ the MCA order said.

The move to merge National Spot Exchange Ltd  with  Financial Technologies (India) Limited —  possibly the first major government intervention in a scam-hit private sector entity since the Satyam case in 2009 —would take a final shape after taking into account submissions or objections made by the shareholders and creditors of the two companies.

However, the government has ordered merger of NSEL with its parent firm itself in the present case, unlike the Satyam matter where the scam-hit IT firm was sold to a third-party (Tech Mahindra) through a government-facilitated auction. NSEL was set up as an electronic exchange for spot trading in agriculture and food commodities by FT Group, which had also set up commodity bourse MCX and stock exchange MCX-SX, among other exchange ventures.

Following the National Spot Exchange Ltd  fiasco, various FT group entities have already faced regulatory actions and they do not figure as promoter entities in ventures such as MCX and MCX-SX. A charge-sheet has been filed by the Economic Offences Wing of the Mumbai Police against Shah, the founder and MD of FTIL. Shah and his group have denied any wrongdoing in the NSEL matter and have put the blame on certain top executives including the then CEO of the spot exchange for the payment crisis.

Post-merger, NSEL's entire business, properties and liabilities, among others, will get transferred to FTIL. As on 31 March, 2013, NSEL had a networth of Rs 175.76 crore. ‘All due procedures in this regard shall be followed. The members of the two companies, its creditors may provide suggestions/objections within a period of 60 days,’ said the ministry, which has the responsibility of implementing the companies law.

According to the draft order, FTIL has not furnished any explanation as to what steps have been taken by NSEL or by FTIL itself as a parent company to honour the commitment of assuring safety and risk-free trading to the members and clients of the exchange.

Recently, Forward Markets Commission (FMC) had suggested the merger of the spot exchange with its promoter FTIL for speedy recovery of dues from defaulters. Forward Markets Commission (FMC) had also suggested to the government last week the merger of the spot exchange with its promoter FTIL for speedy recovery of dues from defaulters.  The Corporate Affairs Ministry said findings of the inspections carried out on NSEL and FTIL’s accounts were taken into consideration while reaching a decision on the merger.

‘Subject to provisions of law relating to limitation, any suit, prosecution, appeal or other legal proceedings which may be required to be filed against the dissolved company (NSEL) will be filed against the transferee company (FTIL),’ the Ministry of Corporate Affairs said.
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