Tuesday, November 11, 2014

NSEL-FTIL merger proposal- Standards ruptured. How Satyam case is different from FTIL’s.

Appalling ideas wished-for, to further impose on FTIL! Earlier, it was the proposed idea of NSEL-FTIL merger by Forward Markets Commission, which was subsequently ordered by the Ministry of Corporate Affairs (MCA); then taking possession of FTIL management has been on government’s anvil. Now, is it just getting arms over resources or getting the claws into the healthily operational organisation, for which the activism is being sped up?
“The government owes the nation an explanation as to why and on what grounds the Forward Markets Commission (FMC) has been making these proposals to breach FTIL’s limited liability……..”(Source – EconomicTimes, Oct. 28, 2014. Edit, PageNo.16).

Would there be a tenable reasoning to all that the nation is looking up for. Also, suggests the excerpts of the Economic Times’ edit page titled “Who’s Targeting FTILBreaching all Norms?”It reads as –“It is entirely unwarranted to do a Satyam on FTIL, on the pretext of speeding up the process of recovery from the defaulting traders of NSEL.

The government owes the nation an explanation as to why and on what grounds the Forward Markets Commission(FMC)has been making these proposals to breach FTIL’s limited liability when no wrongdoing or improper pecuniary gain has yet been established against its management and when there are clearly identified defaulters who carried out trades with non-existent underlying stocks and whose obligation to pay is beyond dispute? And why have the ministries of law and corporate affairs been indulging in these patently misconceived demands by the FMC?”

As it has been talked on countless forums that the Economic Offences Wing (EOW) has identified and frozen the assets of the defaulters and a panel has been set up by the Bombay High Court for recovery, what’s the panic to merge and take over all about? But what’s more stroppy is that the hounding actions taken on Satyam are being proposed for FTIL.

Straightforwardly, these are two diverse gears! There are contrasting events in both the cases, thus no parity can be drawn between the two. FTIL’s case cannot be labelled as a corporate scandal.
Here are some contrasting reasons as to how FTIL’s case is far different from Satyam’s, in detail:
Firstly, in the case of Satyam, the promoter had confessed in writing to the regulator of his wrong-doings, whereas there was vehement and consistent denial by the promoter of FTIL, of any wrong-doings whatsoever. The matter of his culpability is sub-judice. Also, the question whether NSEL itself is liable for the trading losses incurred by the 13,000 clients of the brokers who traded on the NSEL platform for higher returns (“Trading Clients”) is currently sub-judice before the Bombay High Court. Hence, the question of FTIL being held liable through piercing the corporate veil does not arise.

Secondly, Satyam’s promoter confessed siphoning-off the company’s funds to his realty firm Maytas infra. Whereas in the case of FTIL, even after 12 months of investigation byEOW, ED and CBI, not a single paisa of the Trading Clients’ money traced eitherto NSEL, Mr. Jignesh Shah or FTIL. On the contrary, the entire money of the Trading Clients (i.e. Rs. 5,500 Crores) has been traced to 22 Defaulters who used that for repaying loans, working capital requirements, real estate and luxury cars. In fact, 85% of the Trading Clients’ money is with just 7 Defaulters. Both the above aspects confirmed by the Bombay High Court’s Order of 22 August 2014 granting bail to Mr. Jignesh Shah.

Thirdly, Satyams promoter confessed fudging of books of account of Satyam. But in FTILs case, No major irregularities found in the ROCs inspection of FTIL. FTIL audited by one of the Big-4 accounting firms which has not found any irregularities in FTILs accounts so far. Further, no loan defaults by FTIL till date have been found. FTIL was granted licenses to set up exchanges by Indian regulators (such as SEBI, CERC, FMC) and overseas regulators such as Singapore, Dubai, Mauritius, Bahrain etc. after thorough due-diligence and background check of the company and its promoters.

Thus, in the case of Satyam, there was a fraud in the company (i.e. Satyam) itself perpetrated by the promoters who were also in management. Hence, the remedy was to change the management- whereas in the case of FTIL, no fraud has been detected by the courts or investigating agencies. It is a case of payment and settlement defaults at FTILs subsidiary NSEL due to the 22 Defaulters failing to honor their pay-in obligations towards NSEL. Hence, the remedy lies in chasing these Defaulters and ensuring recovery of the Trading Clients monies from them.

In spite of all that, the actions are planned to be cuffed on FTIL. The sanctity of limited liability is expected to hobble with such actions, and it’s been time and again voiced out by numerous media houses. ‘Coming up good times’, as the colloquial more coined now and then - will it see the times when norms and laws are not violated, and also, the rights and ‘limited liability’ privileges of the investors across-the-board are protected, by even-handed outlook.

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