The government has approached the Company Law Board (CLB), seeking direction to replace the entire board of Jignesh Shah...
The government has approached the Company Law Board (CLB), seeking direction to replace the entire board of Jignesh Shah-founded Financial Technologies (India) Ltd with government nominees, in connection with the R5,600-crore settlement crisis at its subsidiary, the National Spot Exchange Ltd (NSEL).
If the government wins legal battles against FTIL, which are being played out in Bombay High Court as well, it would be the first corporate takeover by it since Saytam’s in 2009.
In a petition, the ministry of corporate affairs has asked the CLB to declare 27 people, including Shah and all the current directors of FTIL, ‘not fit and proper’ to hold office. It wants government nominees to be on the FTIL board to prevent “further acts of fraud, misfeasance, breach of trust of stakeholders” of NSEL, “persistent neglect of the obligations and functions to be discharged by the board of directors” of FTIL, and in “public interest”.
The CLB is slated to hear the case on March 19.
Affirming that the 27 people were involved in the scam at the spot exchange, the ministry has asked the CLB to declare they acted “in an oppressive manner” against both FTIL and NSEL. Both Shah and FTIL have already been declared unfit by regulators, the Forward Markets Commission (FMC) and Securities and Exchange Board Of India, although they have appealed against the orders in courts.
The ministry has also sought interim relief from the CLB, asking it to restrain all current directors of FTIL from working with the company and alienating or mortgaing any properties, assets owned or controlled by it, or investment in other companies or securities held by it. Among others, the ministry also wants the CLB to restrain the board of directors of FTIL from carrying out any arrangement or restructuring other than the amalgamation with NSEL under Section 396 of the Company’s Act, as proposed by the government.
In October last year, the ministry issued a draft order for the merger of NSEL with FTIL, invoking for the first time a clause in the Companies Act for a forced merger in the private sector due to “public interest”, following recommendations of FMC.
However, declaring all the 12 current directors of FTIL unfit and taking over the board are easier said than done, as they have joined the company after the NSEL crisis broke out in July-August of 2013, according to legal sources.
Attributing past irregularities at NSEL to the current FTIL directors could, therefore, be difficult to prove.