Financial Technologies told to absorb NSEL

Written by fe Bureau | New Delhi | Updated: Oct 22 2014, 09:04am hrs
In sync with the recommendations of the commodity markets regulator, the government on Monday decided to merge crisis-ridden National Spot Exchange Ltd (NSEL) with its holding group, Jignesh Shah-promoted Financial Technologies (India), despite stiff resistance from FTIL.

Responding to the government's decision on the merger, FTIL shares plunged to a lower circuit and closed down 20% at R169.65, their lowest in 10 months.

A draft order by the ministry of corporate affairs said: "Whereas the central government is satisfied that to leverage combined assets, capital and reserves, achieve economy of scale, efficient administration, gainful settlement of rights and liabilities of stakeholders and creditors and to consolidate businesses, ensure co-ordination in policy, it's essential, in public interest, that FTIL... and NSEL...should be amalgamated into a single company."

The members of the companies and creditors have been asked to provide suggestions/objections regarding the draft order in 60 days.

Forward Markets Commission (FMC) in August suggested the merger of the two companies for speedy recovery of dues, which was supported by the department of economic affairs in the finance ministry as well.

NSEL in which FTIL holds a 99.99% stake is in the midst of a settlement

crisis of around R5,600 crore, which is owed to 148 members/brokers, representing 13,000 investor clients, after the exchange suspended trading in one-day forward contracts on July 31 last year following a government directive.

FMC had discovered that the exchange was violating rules by allowing contracts of tenures longer than

11 days and by permitting trading without verifying whether sellers had stocks, in effect allowing short-selling by members.

Already various official agencies are investigating NSELs activities and some assets of defaulters have also been attached.

According to the latest corporate affairs ministry draft order, FTIL has not submitted any explanation as to what steps have been initiated by NSEL, or by FTIL itself as a parent company, to honour the commitment of ensuring safety and risk-free trading to members and clients of the bourse.

It also said NSEL is not having the resources or the organisational capability to successfully recover dues pending for over a year, the order said. "Further, NSEL is not left with any viable, sustainable business while FTIL has the necessary resources to facilitate speedy recovery of dues," it said.

A source close to FTIL said the proposal to merge NSEL with FTIL "is not in order, as the matter is sub-judice". "The merger will legally lift the corporate veil when the very matter whether FTIL has committed any irregularities and the extent of liability of FTIL for operations of NSEL and consequently whether the corporate veil should be lifted is sub-judice in various proceedings in the Bombay high Court," he said.

"Bombay High Court in its order on August 22 held that NSEL or its promoter is not the recipient of any monies and the dues are to be recovered from defaulting members. When the court has held that the monies are not with NSEL or FTIL, it would only be appropriate for the government to await the conclusion of other legal proceedings before foisting the liability on FTIL through an administrative action," he added.

NSEL Investors Forum said in a statement: "We are happy with the order. FMC's enhanced efforts in helping investors as well as our representations with the MCA has paid of. There is enough evidence of FTIL's complicity in the way things worked at NSEL and it cannot use the shield of 'limited liability' to dismiss our plight.