Financial Technologies to move court as govt orders merger of NSEL

13 Feb 2016

The ministry of corporate affairs (MCA) on Friday ordered the merger of scam-hit National Spot Exchange (NSEL) with its promoter Financial Technologies (FTIL), paving the way for FTIL to handle the financial fallout of the Rs5,600-crore settlement scandal at NSEL.

This is the first time the government has ordered two private companies to merge.

"The merger shall result into making NSEL and FTIL as one single entity wherein all the assets and liabilities of NSEL will become assets and liabilities of the resulting company (FTIL).

"Adequate safeguards have been provided in the final order with regard to the litigations pending and devolving of liabilities and assets arising out of pending proceedings," the corporate affairs ministry stated in its 47-page final order.

The amalgamation would be effected from 31 March 2015 for the accounting purposes, the order noted.

FTIL said it is moving the Bombay high court to challenge the government order. The ministry's objective is to compensate the traders who had transacted on the now defunct NSEL (the government had asked it close down in late 2013), from the cash holdings of FTIL, a listed entity.

In July 2013, following a settlement scam, commodities market regulator Forward Markets Commission (FMC) had ordered NSEL to discontinue its commodities contracts. Within weeks, the exchange folded up with about 13,000 investors unable to receive payments from a handful of borrowers on the exchange. The borrowers owed about Rs5,500 crore to the investors on the bourse.

Subsequently, the government also merged FMC with capital market regulator Sebi, which ruled that NSEL's contracts were illegal. It also filed police complaints for alleged money laundering that led to the arrest of several bourse officials, including FTIL's main promoter Jignesh Shah and its MD Anjani Sinha. Several of the borrowers were also arrested. All are now out on bail.

The MCA then also mooted the idea of merging NSEL with FTIL so that its promoter, which held almost the entire equity of the spot exchange, could take up the liability of the investors.

FTIL, however, had challenged the order in the Bombay high court, which asked the government to pass its final order on the FTIL-NSEL merger. The government had till 15 February to pass its final order.

Reacting to the government order, FTIL said that "the merger order has placed the interest of trading clients higher than that of the shareholders of a listed company. MCA has also chosen to ignore the thousands of representations made by the shareholders, its creditors and hundreds of employees of FTIL and NSEL" who opposed the merger.