HC vacates its ‘status quo’ order on NSEL, FTIL merger
05 Feb 2015
The Bombay High Court on Wednesday vacated the status quo it had placed on a government draft order for a merger of the National Spot Exchange Ltd (NSEL) with its parent Financial Technologies (India) Ltd (FTIL), allowing the government to proceed with passing a final order.
The court had ordered the status quo after FTIL challenged the government's draft order. A division bench comprising Justices V M Kanade and Revati Mohite Dere on Wednesday directed the government to proceed with issuing a final order under Section 396 of the Companies Act, 1956; but added that it will look into the case after the order is passed.
''We will keep all the options open for FTIL to challenge any adverse order passed by the government. The government will hear all the parties and their contentions within 30 days and pass an order within four weeks of the hearing,'' said Justice Kanade, ruling for the bench.
Kanade also said the union government's final order will be kept in abeyance till the court hears the case. The final order will be subject to the court's clearance.
Kanade added that, in the interim, the government is free to pass any additional orders related to the case.
A draft government order on 21 October had suggested merging the two companies in the public interest. This would mean FTIL assuming all the liabilities of the commodity bourse and become party to all agreements entered into by NSEL.
The draft order was put up for feedback from stakeholders and the public.
The merger was recommended by the Forward Markets Commission (FMC) and was also a long-standing demand of investors affected by the fraud at NSEL. FMC is of the view that the workforce and financial strength of NSEL has been depleted and so it is ''financially and physically incapable of effecting any substantial recovery from the defaulting members''.
FTIL challenged the move in the Bombay High Court, which ordered the status quo on the draft order until the final hearing of the case. The high court had said the government's decision to order the merger by applying section 396 of the Companies Act, 1956, needs to be looked into. The section enables the government to order a merger in public interest.
FTIL owns 99.99 per cent of NSEL on which trading was suspended after a Rs5,574.35 crore fraud at the latter came to light in July 2013.
On Wednesday, over 1,000 employees of FTIL intervened in the case and opposed the merger.
Janak Dwarkadas, arguing on behalf of Jignesh Shah, founder of FTIL, said that the entirety of the 63,000 shareholders have been sidelined by the government.
''As a stakeholder, my consent was not taken before the draft order was passed. My rights as a stake holder will be affected if a solvent company is merged with a company that has a liability of Rs.5,600 crore,'' Dwarkadas said.