 "MCA initiates process of final order on NSEL-FTIL merger")
The ministry of corporate affairs (MCA) has started the process of taking a decision on its proposal to merge National Spot Exchange Ltd (NSEL) with its promoter, Financial Technologies (India) Ltd, or FTIL, holding separate meetings with the two recently.
Both FTIL and NSEL have opposed such a merger.
Meanwhile, the revenue department under the finance ministry has clarified it only forwarded the Enforcement Directorate (ED)’s views to the MCA, adding the investigative agency was only against the timing of the merger, not the merger per se. The revenue department did not give its own views to the MCA.
The Bombay High Court has asked the MCA to take a final decision on the merger by October 30.
The MCA held meetings with FTIL on Tuesday and NSEL on Wednesday. Law ministry officials were also present at the meetings. In their submissions, both NSEL and FTIL said the merger would destroy the concept of limited liability and open the doors to similar action against holding companies whose subsidiaries were facing unproven, potential liability.
Prakash Chaturvedi, managing director and chief executive of NSEL, told Business Standard the company had argued no private company had ever been forced to merge with another “independent” company. Section 396 of the Companies Act, 1956, under which MCA had proposed the merger, was previously used for the merger of public companies alone, he said.
“They gave us a patient hearing and appeared to be in agreement with our points of view,” Chaturvedi said.
Besides, 99.55 per cent of FTIL shareholders had opposed the merger, he said.
Under section 396, the consent of 100 per cent shareholders and 90 per cent creditors is essential for the merger of two companies.
MCA had proposed the merger on the grounds that NSEL lacked financial and human resources and the recovery from defaulters was slow. Countering this, NSEL said it had 61 employees for recovery purposes. Besides, defaulters had sufficient money to pay dues. On this, Chaturvedi said the Economic Offences Wing had frozen Rs 6,000 crore of assets of various defaulters.
The Rs 5,600-crore scam at the FTIL-promoted NSEL came to the fore in 2013, after the defaulters failed to pay investors in commodity contracts after July 31 that year.
Meanwhile, finance ministry sources confirmed the ED was never against the NSEL-FTIL merger. When the Department of Company Affairs came out with a draft order of the proposed merger, it sought views from all stakeholders and government departments concerned. The revenue department asked the ED for its views, as the latter was one of the agencies probing the Jignesh Shah case. “The ED was never against the merger. Its view was only that a merger should not take place while investigations were underway, as that would hamper the ED’s investigations,” said a senior official.
He added the ED was well within its rights to give its views, as all departments concerned had put forward their views regarding the government’s proposal. “The revenue department verbatim forwarded the ED’s views to the department of company affairs. There were no changes or additions to ED’s views in any way whatsoever,” the official said.
Sources dismissed media reports that the revenue department was against the merger and was colluding with Jignesh Shah. They termed these reports “baseless and unsubstantiated”.
According to the finance ministry, “On January 20, 2015, the ED, which is investigating cases under the Prevention of Money Laundering Act against NSEL, had written to the Department of Revenue that the case was under investigation and it didn’t seem to be an appropriate time for amalgamation, adding this was likely to cause impediment in investigation and prosecution.”
After securing the comments of the Central Board of Direct Taxes, the revenue department forwarded the ED’s suggestions to the department of company affairs. The only role of the revenue department was to forward the ED’s suggestion to the department of company affairs, the statement said.
“Any imputation that the Department of Revenue wanted to help any private party is absolutely incorrect and there is no basis for any such assumption,” the ministry said.
