Amidst the attempts to entrench an off beam precedent by calling for NSEL-FTIL merger; whilst myriad media vents calling it untenable, there’s barely a recourse to save the sanctity of limited liability. Also, the hoot and holler of the business community against the merger order has gone unheeded.
Fending off the unwarranted blitzkrieg is perhaps the panacea to subdue the tempest, thus FTIL moved the Bombay HC for reprieve.
Several actions were intrepid and radical, resonating impulse activism. Distraughtly, a recommendation of the NSEL-FTIL merger by Forward Markets Commission (FMC) led to a draft order by the government. Not limiting to that, the government also indicated replication of actions taken against Satyam on FTIL; in other words, a complete take-over of the management, revamping the board. Every debate, redact and views by the media outlets across-the-board stated that government seems to be raring to impose actions on FTIL. Every now and then, it was stated by most of them, including FTIL that it will ‘defeat and destroy’ the fundamental edifice of limited liability and independent corporate personality in company law, but in vain.
Therefore, FTIL opted for legal resort; thus moved the court, to challenge the order. A petition filed by FTIL in the Bombay High Court against FMC, the commodity futures market and the government, raises crucial issues. Some of them happen to be, as stated in The Economic Times news report on12th Nov. 2014 - “the merger will destroy and defeat the fundamental edifice of limited liability and independent corporate personality in company law.” Secondly, “it will open the floodgates for vested interests for seeking such forced mergers of subsidiaries with their parent companies or other entities whenever there is a problem at the subsidiary level. Finally, “The company has also prayed, among others, that the court prohibit the government and its servants, agents, officers and subordinates from superseding, substituting or otherwise howsoever changing the management of FTIL.”
FTIL is equipoised to pursue the matter, propounding the issues strongly against the government draft order, based on FMC’s recommendations of amalgamation of NSEL with FTIL, under Section 396 of Companies Act 1956. The section is a provision to empower central government for mergers or amalgamation of companies in public interest.
The petition has been filed to challenge the constitutional cogency of Section 396 of Companies Act. The bone of contention is while the edict is being construed, the High Court should interpret that the provisions of the said statute, in order to confirm the same, to be constitutionally legal and valid. Further the petition contends that enactment of Section 396 of the Act was to make available precisely little exception pared out for adherence to the provisions of Section 394 and 395 of the Act – as these put down extensive provisions pertaining to the revamp or merger of companies, along with the supplementary components.