The draft order, issued by the ministry of corporate affairs under Section 396 of the Companies Act, comes after more than a year after the payment crisis broke out at NSEL in July 2013. The order sought suggestions and objections, if any, from creditors and members of the two companies within two months, a government statement said.
The Central government has decided on the merger of NSEL with its holding company FTIL in public interest ... 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, the statement said.
Even as the NSEL Investors Forum representing nearly 13,000 investors of NSEL cheered the decision, shares of Financial Technologies sank 20 per cent, wiping out nearly Rs 200 crore from its market valuation. In a brief statement, FTIL said it has received a communication from the government on this draft order and is taking appropriate steps in the matter in consultation with the legal counsel of the company.
The draft order posted on the ministrys website said, The Centre has carefully considered the proposal received from Forward Markets Commission (FMC) and department of economic affairs and is of the considered view that to leverage combined assets, capital and reserves for efficient administration and satisfactory settlement of rights and liabilities of stakeholders and creditors of NSEL, it will be in essential public interest to amalgamate NSEL with FTIL.
Earlier in August, the FMC had suggested that against the backdrop of high employee attrition, inability of NSEL to make payments and absence of financial and human resources to facilitate speedy recovery of dues, the centre should consider the merger of the two entities. The proposal found support in the economic affairs department.
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, the order said.
After the Satyam scam of 2009, this is the first such case where the government has intervened to protect public interest. However, in the Satyam case the government had sold the beleaguered IT major to a third company. NSEL was set up as an electronic exchange for spot trading in agriculture and food commodities by Jignesh Shah-led FT Group, which had also set up commodity bourse MCX and stock exchange MCX-SX.