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The Bombay High Court have on Tuesday dismissed a ‘notice of motion’ moved by Financial Technologies (India) Ltd, or FTIL, seeking an injunction on a proposed move by the ministry of corporate affairs (MCA) to supersede the FTIL board and appoint government nominees on it.
In July 2013, a Rs 5,600-crore payment scam had broken out at FTIL’s subsidiary, National Spot Exchange Ltd (NSEL), allegedly trading in commodities without having physical underlying stocks. Through a draft order dated October 21, 2014, the MCA had proposed amalgamation of NSEL with FTIL, which was challenged by FTIL in the high court. The MCA’s order granted a month to stakeholders, creditors and others linked with FTIL to raise objections.
Before the completion of this period, however, the MCA issued a draft order invoking Section 396 of the Companies Act, which allowed the government to merge NSEL with FTIL, supersede its board and appoint its own nominees. While the MCA didn’t issue a final order, the ministry moved the Company Law Board (CLB) to supersede the FTIL board. The case is to be heard on Thursday.
Judges B R Gavai and A S Gadkari said, “We heard the counsels of both sides and took note of the observations made by the court in this case. We are of the considered view that the proceeding of section 396 (merger of two companies) is separate from Section 397 (supersession of the board). Therefore, we find (FTIL’s) notice without substance and, therefore, it is dismissed…The CLB should hear the contentions from all parties concerned before passing the final order.”
In its response, FTIL said, “The high court has stated all contentions of FTIL pertaining to the application of the government seeking supersession of the board should be argued by FTIL before the CLB, which is bound to consider all rival submissions in the matter.”
With this, however, the interim injunction sought by FTIL was rejected. Now, the CLB can pass an order depending on the merits of the case. In case of an adverse CLB order, FTIL can move a high court. The FTIL counsel, Janak Dwarkadas, questioned the MCA’s intention, saying it justified invoking section 396 (merger of NSEL with FTIL) and, at the same time, told the court its order was “draft”, not a final one.
Dwarkadas alleged the government was predetermined to merge NSEL with FTIL. “Supersession of the FTIL board means ‘no objection’ on any move, as the government’s board nominees will only approve the government’s decision. Thus, the manner in which the government’s has moved is mala fide,” he said.
Meanwhile, the high court has adjourned a hearing on a case filed by FTIL, challenging an order of the Forward Markets Commission declaring FTIL and its three directors not ‘fit and proper’.
The court also granted relief to Ravi Sheth and Bharat Sheth, directors of Great Eastern Shipping, who together hold eight per cent stake in FTIL. Their counsel argued laws barred action against non-executive directors who weren’t directly aware of any commission or omission of any company activity. As their names weren’t mentioned in NSEL-related issues, the court said no action was necessary against the brothers.
