Can FTIL’s Proposed Solution Crack NSEL Logjam?

Often the solution is easy and lies before our eyes, and yet we do not see it. We move mountains and cross oceans, and yet all the while the remedy was lying in plain sight in our own courtyard.

This is what is happening with the  NSEL issue. If all the stakeholders—FTIL, the trading clients, brokers, and the government— join hands, the payment default crisis at NSEL can be speedily resolved. In fact, FTIL’s proposed solution as outlined to the government can heal the wounds of all the stakeholders inflicted by the defaulters on NSEL’s trading platform.

In a manner of speaking, the solution would entail that the pain is evenly distributed. The money trail to the last paisa has been found with the defaulters and they should be held accountable for their actions. So far, without any reason, it is only FTIL that has borne the brunt of the crisis by facing various proceedings which are sub-judice.

The privity of contract of the trading clients is with the brokers. It is brokers which have made multi-times money while transacting on the exchange. It is therefore important that they participate in the settlement process to enable payment to trading clients.

According to Business Standard, published on March 20, Prashant Desai, the Managing Director & CEO of FTIL, said, “FTIL proposes to pay Rs. 500 crore, of which Rs. 180 crore was already paid in 2013, with the brokers contributing equally”.  The proposed solution is without prejudice and is subjected to FTIL shareholder and board approval.

If all the parties concerned agree to implement it with government help, all trading clients with exposure of up to Rs. 1 crore, which are 11, 954 in number, will get at least half their dues as reported in the Business Standard article. The PSUs will receive 100% of their claims.  

Mr. Venkat Chary, the chairman of the FTIL, too had reiterated that “around 94% of trading clients’ claims can be immediately addressed in part or full measure by Rs.1, 000 crore payment.” 

Eleven defaulters have admitted liability of Rs 2,000 crore and high court has issued decrees for Rs 513 crore.

If all parties contribute and come forward to resolve the NSEL issue, then it will be one less problem for the government to solve.  

Overwhelming support for FTIL - Shareholders object to merger strongly

At the foreground, responses and objections, particularly, against the merger, zoom past everything else currently. As the proposed idea of amalgamation of NSEL with FTIL sprung up lately, support for FTIL, against the government’s decision to do so has been scampering in boundless and humongous volumes across the social media. Albeit the severity ratcheted enormously, nothing obviated the views, ideas and opinions from deluging the social media spouts indiscriminately.

Pained by extreme throes, shareholders have inundated several media platforms with their overwhelming responses against the proposed merger by the Ministry of Corporate Affairs (MCA). Definitely not a rumpus, but a disciplined swarm of views of shareholders, creditors and employees flocked the board, objecting to the proposed amalgamation.

Subsequent to FTIL management’s urge to vote on the government’s proposal - as per the records, close to 99.55% of the shareholders of the company voiced against the idea of merger, which translates into 18,700 shareholders; these shareholders also represent 79.5% of the equity capital in the company. Supplementing their votes, were the votes of the company’s creditors, 1000 employees and the board of directors, according to the news reported by Business Standard on March 10, 2015.  

“The merger proposal is detrimental to the interest of 63,000 shareholders and over 1,000 employees of FTIL. Nearly 80 per cent of our shareholding and a majority of other stake holders have clearly indicated they are against the proposed amalgamation in the name of public interest of trading clients of NSEL...….”

It was also stated by FTIL that the fallout of votes were computed; the shareholders emailed their responses to the MCA, marking a copy to FTIL, coinciding with the final date of the voting deadline stipulated by the high court; the responses were verified by competent bodies viz. KDS & Co. and an independent auditor, the report further stated.

Spread across 26 states, 5 union territories and 12 nations, the 18,700 shareholders took the baton of responsibility and initiative of voicing their views and responses, in order to make them heard by the law dispensing authorities and judiciary, at large. The exercise of monitoring was, supposedly, to prevent the responses from frittering away from people’s attention and the media, as they may be substantially crucial in making the authorities take cognizance of FTIL shareholders’, creditors’ and employees’ interests and concerns at stake.

It was also observed that the suggestions, concerns and objections on the draft order of the proposed merger inexorably persisted and continued to flow in, besides the ones that couldn’t get through due to mailbox getting filled up by the flooding mails. As per the company’s record, roughly 12,500 e-mails bounced back; thus the hard copies of those were sent to the MCA, in the form of a CD (compact disc), ensuring no response, email or objection is left unnoticed, unread and unheeded.

On the occasion, Venkat Chary, Chairman, FTIL, reacted, saying, “The merger proposal is detrimental to the interest of 63,000 shareholders and over 1,000 employees of FTIL. Nearly 80 per cent of our shareholding and a majority of other stake holders have clearly indicated they are against the proposed amalgamation in the name of public interest of trading clients of NSEL. While the recent report clearly questions the genuineness of 13,000 numbers of trading clients coupled with entitlement thereof, whereas the approximate 80% shareholding are real investors with complete know your client (KYC) bonafide owners of the Company who have objected to the amalgamation and have expressed solidarity and faith in the Company and its management.”

In all fair-mindedness, with no prejudice whatsoever, the spate of responses is believed to impact the happenings positively; though not eerily dishevel the process, but make the authorities believe in FTIL’s healthy existence, and re-emphasise the phenomenon and sanctity of “Limited Liability” beyond anything that may be misperceived and misarticulated to be irking and slovenly, in the whole episode.

(Source - http://www.business-standard.com/article/markets/majority-of-ftil-shareholders-objects-to-nsels-amalgamation-with-it-115031000984_1.html) 

FTIL puts firm foot down - FTIL challenges MCA’s petition firmly; Court stays MCA’s petition till March 11 which has been further extended till March 16

At the outset, embattled state of affairs can be dispelled with rectitude and mettle. FTIL toughly rebutted the Ministry of Corporate Affairs’ petition seeking supersession of the present board of directors of FTIL. Also, the Company Law Board (CLB) hearing that was to take place on 3^rd March, 2015, was stayed a day before, stating that it would be heard by the court on 4^th March, 2015, and no action will be initiated until then, according to the news reported by Business Standard on 2^nd March, 2015.

Further developments ensued, when the hearing took place before the court on 4^th March, 2015; the court adjourned the hearing till 11^th March, 2015 which has been further extended till March 16. In other words, the hearing for the petition filed by FTIL to stop the elimination of its board of directors, making FMC a party, will be heard on 16^th March, 2015. 

On 1^st March, 2015, Sunday, in the FT board meeting, a resolution was passed to oppose MCA’s petition to CLB seeking supersession of FTIL board strongly, terming it to be a clear attempt by MCA to render ineffective approach, and actually overthrow FTIL’s challenge and opposition to the proposed amalgamation of NSEL with FTIL.

“After considering on the matter and also considering that the issue is totally prejudice, mala-fide and not in the interest of FTIL its Board, its employees, its shareholders and other stake holders, we have decided to contest all issues raised by Union Of India vigorously as per the law of the land.”

Also, in the meeting, it was made clear that the material act of the new board since their joining has been its resolve to oppose the draft order and the proposed forced amalgamation by MCA, alluding such allegations of ‘mismanagement’ to be seemingly mala-fide and deserve to be challenged.

On the occasion, Mr.Venkat Chary, acting Chairman, FTIL, said, “After considering on the matter and also considering that the issue is totally prejudice, mala-fide and not in the interest of FTIL its Board, its employees, its shareholders and other stake holders, we have decided to contest all issues raised by Union Of India vigorously as per the law of the land.” He further added that as the Board is competent enough to deal with the current situation, the company will file a petition before the Honourable Bombay High Court or the Company Law Board or at any other appropriate forum as it deems fit.

In the meeting, It was further resolved that it is inequitable to seek replacement of the entire board since four legal suits are sub judice, which includes the representative suit, fit and proper and writ petition filed opposing amalgamation of NSEL with FTIL, as per the FTIL’s press note published on BSE website on 2^nd March, 2015.

FT also added in their press note that the board strongly believes that it has acted prudently in the larger interest of over 63000 shareholders.

It was further stated by the court that FTIL and its lenders are yet to file a reply to the MCA by 4^th March, 2015, stating why the NSEL-FTIL merger should not take place. FT has endeavoured to ply forward with grit to whittle out a trajectory, to legitimately protect the interests of all the shareholders, employees and other stakeholders.

Now, as per the latest developments that took place on 4^th March, 2015, the stay is retained by the court till 11^th March, 2015; the objective is to restrain the government, and seek reply from the ministry of corporate affairs.

 (Source 1 – 1. http://www.business-standard.com/article/markets/ftil-opposes-mca-s-petition-to-clb-for-removal-of-ftil-board-in-court-115030200113_1.html

2.  http://www.bseindia.com/xml-data/corpfiling/AttachLive/Financial_Technologies_(India)_Ltd_020315.pdf

3. http://www.business-standard.com/article/companies/hc-extends-stay-on-ftil-board-s-supersession-for-a-week-115030400890_1.html) 

FTIL Considers ATOM, DGCX Stakes Sale; urges shareholders to oppose merger of FTIL-NSEL

Departing mobile transaction and payment gateway – ATOM, is being contemplated by FTIL; there have been indications from FTIL of this revelation. It intends to sell 95% of the stake of the subsidiary of FTIL. It has also pointed out its intentions of divesting from Bourse Africa and Bahrain Financial Exchange, apart from its 27.3% stake in Dubai Gold and Commodity, according to the news piece featured in Business Standard on 26^th February, 2015.

Many in the business world may have been slow on the uptake, then FTIL came into being with innovative ideas and solutions, and ATOM was one of them. Thus the exchange business and its stakeholders got a perpetual whirl to enjoy the comfort of easy transactions.

A letter from Mr. Venkat Chary to 68000 FTIL shareholders indicated all of those, besides his appeal to them to oppose the merger of NSEL-FTIL merger as per the suggestions of Ministry of Corporate Affairs.

“as it is against the interest of FTIL shareholders and not legal, as NSEL is a limited liability company”.

The content of the letter indicates that the government may have sought this as recourse to compensate investors; but on the other hand, as per the content of the letter, Rs.2, 153 crore has been released by FTIL through sale of various assets and the stake sale processes. Thus he urges, in his letter, to the shareholders, to oppose the proposed merger, saying, “as it is against the interest of FTIL shareholders and not legal, as NSEL is a limited liability company.”

On the occasion, FTIL had also listed the cash and asset positions of the company in detail. More than might, rectitude and intents to take care of shareholders, employees and scrupulously thinking about limited liability as sacrosanct is believed to make right. Apart from FTIL, significant minority shareholders of FTIL viz. Bharat and Ravi Sheth, and earlier, four banks – DBS Bank, Union Bank, Standard Chartered Bank and Syndicate Bank, had opposed the merger.

It would be to the business world’s chagrin, if radical and imposing demeanour is adopted. At the foreground, going by several views and news in the recent past by numerous media mouthpieces, it visibly emerges that merger will, most definitely, enervate the sanctity of business functioning and limited liability tradition terribly. The gravitas of the situation needs to be given due attention, as it is supposed to impact many aspirations, careers and growth of the economy at large.

(Source - http://www.business-standard.com/article/companies/ftil-in-talks-to-sell-stake-in-atom-dgcx-115022600748_1.html) 

Is the government targeting FTIL under Sections 397, 398 read with Section 388 (B), 388 (C), 401, 402, 403, 406 and 408 of the Companies Act, 1956, to negate the company’s challenge to Section 396?

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.

The reality:

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.

The reality:  

.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. 

Status Quo on Merger vacated – expected to imperil several stakes in one go

Who will reverse the irreversible after the damage is done? On 4 February, 2015, Bombay High Court vacated the status quo in the NSEL-FTIL merger order by the Ministry of Corporate Affairs (MCA). The court had ordered status quo in the matter on 27 November, 2014. Now, it has vacated its order allowing the government to pass a final order, after hearing from all stakeholders and parties viz. NSEL, FTIL, shareholders, creditors and others affected and related in the case. The decision was held by the two judge bench consisting of Justice V M Kanade and Justice Revati Mohite Dere.

The government was ordered to proceed with the hearings within 4 weeks and issue the final order within 4 weeks from then on, reported by Business Standard on February 4, 2015. As per the news reported, the order will become effective in two weeks from this time.

"In case of adverse order, however, the petitioner (FTIL in this case) may come back to the court. The final order would be kept in abeyance till the hearing continues in this court. The government's final order will be subject to the court's approval," the court said.

The government was perhaps in a hurry for action, thus acted in a breakneck speed on FMC’s recommendation of merger, on 21 October, 2014; it was a view and voice of myriad from the business world besides the media vents. It was time and again decried against by many, in vain. It was also denounced saying though the merger order was as per section 396 of the Companies Act, 1956, but it is usually done in the public interest, which was missing in this case.

On the occasion, incorporation of legal validity of the government’s order was urged for by Abhishek Manu Singhvi, NSEL’s senior counsel; he further questioned if it was in government’s jurisdiction to pass the merger order.

He argued saying, "Under Section 396 of the Companies Act, two public sector companies can be merged only in public interest provided the government is prima facie satisfied that the amalgamation will benefit shareholders and all concerned of the two companies which is absent in this case. While FTIL is a business oriented company with 63,000 shareholders with it, NSEL is a separate entity with no business and only liabilities. No rules in the world suggest merger of two legal entities with varied business interest." (As per the news report by Business Standard, February 4, 2015)

It was alleged by him that the government’s issued draft order, seemingly said to be the final order, was to protect the interest of 781 high net-worth investors (HNIs), whose total investments amount to 66% of the total defaulted sum of Rs. 5600 crore.

"The proposed merger order, if any, would be irreversible and hence would open a floodgate of litigations as a number of litigations of similar nature are pending before various courts."

Supplementing it, Janak Dwarkadas, another FTIL counsel said, “.. the government's draft order takes care of just 781 traders and completely neglects 63000 shareholders and 1500 employees of FTIL." (As per the news report by Business Standard, February 4, 2015)

Further, government’s counsel, Ranjit Kumar’s allegation that saving ‘Odin’ as FTIL’s core business and the sale of assets like Bourse Africa and Bahrain was in violation of the status quo order was rejected by the court.

On this, a Mumbai-based corporate lawyer reacted saying, "The proposed merger order, if any, would be irreversible and hence would open a floodgate of litigations as a number of litigations of similar nature are pending before various courts." (As per the news report by Business Standard, February 4, 2015)

(Source - http://www.business-standard.com/article/companies/bombay-hc-vacates-status-quo-order-on-ftil-nsel-merger-115020401320_1.html) 

Banks compete against FTIL-NSEL merger order

More revelations have arisen in a short span! But the latest news round-up is - Four banks that have extended loans to Financial Technologies (FTIL) have appealed to the high court to allow them to oppose the Ministry of Corporate Affairs’ (MCA) order to merge NSEL with FTIL, the parent company.

Times may have been turbulent for many in the recent past - for myriad businesses and organisations, yet some may still survive, if they are allowed to, given their credentials, growth and their commitment to protect their shareholders, investors, employees and, of course, the economy’s growth, to which they contribute, directly and indirectly.

According to the news that featured in Business Standard on  January 24, 2015, the banks have come forward, seeking court’s permission to intervene as opposition to the government’s merger order, and they are - Syndicate Bank, DBS Bank, Union Bank and Standard Chartered Bank. The plea was filed by them in December, 2014; they were asked to file a detailed reply by February 4, 2015, which happens to be the next date of hearing, by the high court.

The whole episode got flared up by the government’s order on the recommendation by the Forward Markets Commission (FMC) and the department of economic affairs. In the hearings, the outcome has been status quo thus far, as per the high court’s discretion, until it hears the arguments from both sides that are for and opposed to the merger order.

On occasions, FTIL has said that the idea is unsettling and uncalled-for, as the defaults of the subsidiary wing would be transferred to FTIL, which will have an adverse impact on it, specifically, affecting its shareholders’ interests and stakes. Also, several of the media vents and news agencies through their mouth pieces have voiced it out time and again, and it reverberates yet again.

Highhandedness of several will have only remnants from devastation to offer to people and future investors. Yet diligent, upright organisations will eke out a living. The only tenable elements would be the mettle to subsist, truthfulness to stand strong; indomitability and intent to protect numberless interests of shareholders, investors, employees and the economy at large.

It would, undeniably, be more unnerving if one had to imagine emasculation of a healthily burgeoning company, and the liabilities imposed on its investors that may have not invested for it. The tumbling impact of this would have steamrollers run on countless aspirations.

(Source - http://www.business-standard.com/article/finance/four-banks-oppose-nsel-ftil-merger-in-high-court-115012400048_1.html)