New Delhi: Capital markets regulator SEBI Thursday asked Financial Technologies (India) Ltd to issue an 'advisory' on matters relating to a government-proposed merger of its crisis-hit subsidiary NSEL, to help the investors take an "informed decision".
The development comes at a time when NSEL and FTIL are galvanising support from all stakeholders against the merger order, while groups supporting the merger have also launched a counter-campaign. These campaigns have been launched across traditional as well as social media platforms.
Following SEBI's direction, FTIL has issued the advisory through the two top stock exchanges, NSE and BSE, stating that "the matter is presently sub-judice", and gave an update on the draft merger order issued by the Ministry of Corporate Affairs, which was later challenged by the company.
"The investors may note that the matter is presently sub- judice. The above information is being provided to investors to help them take an informed decision," it said.
The advisory has been issued "in the interest of investors," as advised by SEBI today, it added.
This is the first case of the Corporate Affairs Ministry ordering a 'forced merger' of private entities using a clause under the Companies Act that allows the government to intervene for "essential public interest".
One media campaign against the merger is being run through NSEL Recovery Group, which alleges massive lapses on the part of the brokers of NSEL in the Rs 5,700-crore crisis that eventually led to the exchange shutting shop.
On the other hand, an entity named NSEL Investor Forum has been campaigning in support of the proposed merger while putting the blame on the exchange's promoter FTIL.
Earlier this month, FTIL also said that 99.55 per cent of its shareholders, representing 79.58 per cent stake, have objected to the proposed merger of crisis-hit NSEL with it.
In its draft order, MCA had said it was aimed at ensuring faster recovery of dues for entities hit by Rs 5,600-crore fraud at the bourse.
FTIL had further said that 100 per cent of its creditors, the entire Board of Directors and 100 per cent of its over 1,000 employees have also objected to the amalgamation. Promoters have 45.63 per cent stake in FTIL.
In a separate matter related to the FTIL-NSEL case, the Company Law Board today adjourned hearing till April 17 on a plea filed by FTIL against an MCA direction proposing removal and supersession of the company's board.
Giving update in the case, the advisory from the two exchanges stated today that MCA had issued a draft order on October 21, 2014, proposing merger of National Spot Exchange Limited (NSEL) with FTIL.
"The proposed order was challenged before Bombay High Court by FTIL," it said, while adding that the court on February 4, 2015, directed that the government may consider passing a final order after hearing contentions of NSEL and all other interested parties.
The advisory quoted from the court order: "Petitioners and all other interested parties may file their objections within 30 days and within four weeks thereafter Central Government may pass appropriate order after giving brief hearing to all the interested parties.
"It is, however, clarified that all contentions raised by the Petitioners - FTIL in this Petition and by shareholders of NSEL and all other parties regarding jurisdiction of the Central Government to issue the said order as also regarding challenge to the validity of the said sections are kept open and, therefore, we propose to keep these Petitions pending.
"It is further clarified that if any adverse order is passed, the same shall not be notified for a period of two weeks after the order is communicated to the Petitioner. It is clarified that Central Government may give brief hearing to the parties mentioned in section 396 of the Companies Act.
"In view of the above, the order of status quo passed by us on November 27, 2014 is vacated. It is clarified that Central Government may pass such other orders which the Central Government deems fit and proper in accordance with law...."
It has further given links to the copies of the Draft order of MCA and the order of the High Court in this matter.
In its order, MCA had said that the merger of scam-ridden National Spot Exchange Ltd with its parent FTIL was to help investors, hit by a Rs 5,600-crore "fraud" at the exchange, get back their money using resources of entire group.
Pursuant to the merger, FTIL was to absorb NSEL along with all its liabilities including pending dues, estimated at over Rs 5,200 crore, that needed to be paid to investors, creditors, brokers and others.
The merger decision, which came over a year after the NSEL crisis broke out 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 order had said.
"In the face of a fraud of such a magnitude involving settlement crises of Rs 5,600 crore owed to over 13,000 investors on the trading platforms of NSEL, FTIL cannot seek to take refuge behind the corporate so as to unjustifiably isolate itself from the fraudulent actions that took place at NSEL resulting in such a huge payment crisis," it added.
The move to merge NSEL with FTIL - first major government intervention in a scam-hit private sector entity since the Satyam case in 2009 - was to take a final shape after taking into account submissions or objections made by shareholders and creditors of the two companies.
