And so the FTIL saga continues. In the latest edition, another salvo was fired by the government against FTIL. In the most recent attempt to annihilate FTIL’s existence as an independent business enterprise, the Ministry of Corporate Affairs (MCA) in a petition to Company Law Board (CLB) had sought to supersede Financial Technologies (India) Ltd. (FTIL)’s current board under Sections 397, 398 read with Section 388 (B) and 388 (C) 401, 402, 403, 406 and 408.
No doubt the government has immense power to rein in errant and unlawful actions of companies. FTIL, an independent company, cannot and should not be punished when all the matters are sub-judice.
In any case, from all angles, the decision of MCA to file an instant company petition on March 3 with CLB is nothing short of browbeating the company into submission. More so as it comes just three days before the time given to FTIL to file its objections to the draft amalgamation of NSEL with FTIL on grounds of “public interest” in which 63,000 shareholders and other stakeholders’ interests were not considered at all.
The matter also has legal ramification for all companies incorporated and conducting business in the country. The central government is attempting to render FTIL’s challenge to Section 396 nugatory by attempting to remove the existing Board of FTIL.
Was MCA’s petition an attempt to stop FTIL from filing its objections to the draft merger order as granted by the Hon’ble Bombay High Court on February 4?
The main arguments used by MCA in its petition to CLB are wrong and should not be used to overturn the legally elected Board of Directors of FTIL.
The MCA says FTIL’s current Board opposes the amalgamation of National Spot Exchange (NSEL) with FTIL.
For the current Board, its fiduciary responsibility toward the 63,000 shareholders and other stakeholders of the company, including employees, is of paramount importance. In any civilized country governed by the covenants of business law, this is the practice.
Also, the use of “essential public interest” as a ground by MCA to propose the amalgamation of NSEL with FTIL is sub-judice.
The MCA further says that the current Board of Directors facilitated the sale of MCX at a loss of Rs. 290 crore and should be overthrown.
.As for sale of FTIL’s stake in MCX, the divestment was conducted in an independent and transparent manner. J M Finance was appointed as the financial advisor for the stake sale in March 2014. Interested companies were invited to bid. Among the reputed companies that showed interest in the stake sale were Reliance Capital, Chicago Mercantile Exchange (CME), Tata Capital, Kotak, Warburg Pincus and London Metal Exchange.
There were numerous letters from MCX insisting that FTIL divest its shares in a short time. Those letters stated that the regulator, i.e., Forward Markets Commission (FMC) would not permit launch of any new contracts by MCX unless there is compliance with the divestment.
It was FMC, through its various directives, including the not “fit and proper” person to continue to hold 2% or more paid-up capital in MCX order that forced FTIL to exit MCX and the same was confirmed by MCA in its Petition.
The interests of the shareholders and other stakeholders of FTIL were of paramount importance for the Board of Directors, which acted in a transparent manner to derive the appropriate value for the divestment in the relevant market and regulatory conditions.
It is unlawful and wrong of MCA to supersede the Board of Directors of FTIL. It is also unprecedented in the history of corporate India and will set a wrong example for future business entrepreneurs and lawmakers.