Proceeds pushed for next – Bombay HC adjourns NSEL-FTIL merger hearing

FTIL’s quest for pivots to save numerous stakes has been a determined effort. The Bombay Court, on 27 November, 2014, adjourned the NSEL-FTIL merger issue till 22 December, 2014. The merger draft order came as a stinker from the Ministry of Corporate Affairs (MCA) on 22^nd October, 2014, which was swilled by many from the business community and several of the media mouth pieces and vents ever since, calling it unwarranted and uncalled for. The swarming views were - the pragmatic shortcomings from the amalgamation will wear away the fundamentals of limited liability; it may also affect the corporate business moorings adversely, apart from discouraging new and enthusiastic investors and traders. In entirety, it may be detrimental to the economy as a whole.  

Apparently, the adjournment, if construed specifically, means the hearing has been deferred till 22 December, 2014; momentarily, it can be seen as the idea is devoid of enough reasoning, as the basis of Article 396 and ‘public interest’ nomenclature can’t be held to be entirely realising. Thus no parity can be drawn in this case. Also, as per a former argument by Abhishek Manu Singhvi, counsel for FTIL, at Supreme Court, section 396 of the Companies Act, 1956, has been exercised, with a thoroughgoing approach, maximum four times, on government companies – that too, with their consent. While in this case, the rummage for expedited merger implementation is on two private companies; needless to say, without their consent, which is unprecedented. Implicitly, the motive seems to be ‘hurried implementation’, which, as per several views and reviews, will emasculate the sanctity of limited liability, affecting the interests of stakeholders, viz. employees and shareholders of FTIL, largely. Therefore, it hasn’t been taken in good taste, for the most part.

It’s been a dour demeanour of FTIL; at first, challenging government’s order for merger of NSEL with FTIL. Then tenaciously striding ahead to protect the sanctity of ‘limited liability.’ Earlier, FTIL had moved Bombay HC against the government’s order. Vehemently put by FTIL, against several arguments – the matter is currently sub-judice before the Bombay HC; thus liability through piercing the corporate veil does not arise.

Myriad voices and arguments against the order were put forward by the business community as well as the media fraternity, to galvanise the matter to reach the authoritative and law dispensing ears. Their objective, seemingly, was to converge fortitudes of the stakeholders, future investors and entrepreneurs at large.

As per the excerpts, mentioned in quotes in the news edit of Economic Times, on 13^th Nov., 2014, reads – “The issue of lifting the corporate veil is, thus, already sub-judice before this court. The petitioners crave leave to refer to and rely upon the papers and proceedings, including various interlocutory applications and orders passed by this Hon-'ble Court, in the said suits."

Now, FTIL is all the more determined to protect the interests of the corporate India, along with those of 60,000 shareholders and 1000 employees. On 21^st October, 2014, questions have been raised on the Ministry Corporate Affairs’ impugned order of enforced amalgamation of the crisis-hit NSEL with FTIL. FTIL solicited in the petition that the government’s order was “bad in law and needs to be quashed.”

Supreme Court dismisses SLP against Jignesh Shah’s bail

Pursuits defanged; efforts for special leave petition against Jignesh Shah’s bail order stymied

The scenes seem more ratcheted with the goings-on. Getting in the act, the efforts made by several trading clients of the crisis-hit NSEL was to reap self-desired fruition - by challenging the bail granted to Jignesh Shah, the promoter of FTIL by the Bombay high court, on 22^nd August, 2014, in the Supreme Court. Earlier this year, in August, Justice Abhay Thipsay of Bombay HC had granted bail to Jignesh Shah. 

Ultimately, the Supreme Court quashed the plea of the trading clients on Monday, 17^th November, 2014. What’s more; the state of Maharashtra wasn’t even issued notices by the bench that comprised Justice Pinaki Chandra Ghose and R K Agarwal.

To peal the overhang of the past happenings, trading clients exercised expedience. Discernibly, the appeal was in vain, when the SC quashed their special leave petition on Monday. It was flatly dismissed with no relief grant to them. Retrospectively, Justice Thipsay granted bail to Jignesh Shah, additionally stating that his custody was not necessary anymore for further investigation.

The HC then, in its judgement, pronounced saying, “Though termed as a "Rs 5000 crore NSEL scam", it is not that monies were received by NSEL, but they have gone from one bogus trader (investor) to another bogus trader (borrower).”

On another occasion, hearing on Forward Markets Commission’s mid-December order, last year, asserting that FTIL was ‘not fit and proper’ to hold shares in MCX or any other entity was before Judge S J Vazidar, last week.

On the occasion, Abhishek Manu Singhvi, FTIL’s counsel, said that the FMC’s order was implemented by the SEBI (Securities Exchange Bureau and Central Electricity Regulatory Commission (CERC) and constrained the company to go for a harried sale of its stakes in IEX, MCX and MCX-SX, which adversely impacted the companies’ valuation, entailing FTIL an enormous loss of over Rs. 1000 crore. In other words, the exits were, in a way, enforced ones, making the company face the brunt of financial damages.

“The FMC order was also being used by the government to forcibly merge the crisis-struck National Spot Exchange Limited (NSEL) with FTIL.”

FTIL’s argument was that the overall exit and sale of stakes have been ominously unsavoury; firstly, a loss of Rs. 291 crore in MCX; then Rs.250 crore lost in IEX and Rs.280 crore lost in the sale of MCX-SX stake. Furthermore, losses of Rs.11 crore from stake in Bourse Africa and Bahrain Financial Exchange incurred by the company steamrolled the state of affairs.

Counsel Singhvi’s view is – “the FMC order was also being used by the government to forcibly merge the crisis-struck National Spot Exchange (NSEL) with FTIL.”

FTIL was steadfast in filing a Writ Petition in the Bombay High Court against the government’s order to amalgamate NSEL with FTIL.

Also, the news featuring on Business Standard on 13^th Nov. 2014, reads, “FTIL also argued the fit and proper order did not specify the penalty for FTIL. This came six months later, forcing them to exit MCX at a loss.”

Unjust demeanour is evident; prejudices of sorts supersede the course of law, leaving mere footprints of agony for the present and future investors. It’s for us to muse earnestly if all of this is benign or malignant to the health of the economy at large. 

FTIL spurs against government merger order in HC

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.

Supreme Court today dismissed the SLP filed by the trading clients challenging the Bombay High Court's Order dated 22.8.2014 granting bail to Mr Jignesh Shah.

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, Satyam’s promoter confessed fudging of books of account of Satyam. But in FTIL’s case, No major irregularities found in the ROC’s inspection of FTIL. FTIL audited by one of the Big-4 accounting firms which has not found any irregularities in FTIL’s 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 FTIL’s 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.

NSEL-FTIL merger call likely to create pangs of discontent

Privileges of limited liability emasculated in one blow!

As the course of law is yet to dispose, why did the government propose the merger? Is it some kind of hurry or prejudice? These are the questions raised by several media houses besides the business fraternity. There’s a lobe of hope still flickering as the business community and media guilds resonate their concerns over government’s NSEL-FTIL merger order.

Like the most, one of the excerpts from an article featured in Economic Times on 23^rd October, 2014, reads that, “Merger Violates Limited Liability”; it specifically states –“This kind of governmental activism will not help the traders who are owed money to recover their dues, but will taint India’s record on respecting the basic principle of limited liability. The move will, in all probability, also amount to contempt of court, as the Bombay High Court is already seized of the matter and is in the process of recovering the amount from defaulters.”

Devoid of dispute, the defaulting traders’ blameworthiness has been established! As much veracity lies in the crisis that unfolded, mugging trading clients, there’s as much credibility in the Economic Offences Wing (EOW) of Mumbai Police having identified defaulters and frozen their assets- almost the entire amount. It was further fortified by the committee formed by the Bombay High Court, chaired by a former high court judge, in order to diligently function and initiate money recovery efforts from the defaulters. Thus when the feisty approach can be reflected in redeeming the seized assets, why the government cannot expedite it on priority basis than condoning the importance of limited liability.

“This kind of governmental activism will not help the traders who are owed money to recover their dues, but will taint India’s record on respecting the basic principle of limited liability. The move will, in all probability, also amount to contempt of court, as the Bombay High Court is already seized of the matter and is in the process of recovering the amount from defaulters.”(Source – ET, 23^rd Oct ’14)

Abiding by the law - the proceeds in the court of law happens to be sub-judice, which, in all fairness, is supreme. Also, no linkage of FTIL promoters or the company in neither the whole crisis nor any money trail has been established; therefore, unwavering focus, plausibly, should be on recovery than anything else. So, is it prejudice triggering radical activism of this magnitude? Numerous questions have been raised; predominantly, if FTIL should be substituted for NSEL, and make its investors face the brunt and suchlike. In any circumstance, it is bound to have a cascading effect on the ‘corporate India’, Investments and economy, as a whole. Does it make us ponder over it pensively? 

FINANCIAL TECHNOLOGIES INDUCTS MR. BERJIS DESAI AND MR. ANIL SINGHVI ON ITS BOARD OF DIRECTORS

Link- http://bit.ly/111SFVZ

Unprecedented Shocker - NSEL-FTIL merger

NSEL – FTIL amalgamation is supposed to be an unnerving move for all, juddering establishments and tenets of law - particularly, the Companies Act. Outnumbering excerpts of myriad media releases and stories have been of the view, and have articulately indicated that frequently. 

As one in the Business World editor’s note reads as - “As per the order of the Ministry of Corporate Affairs, NSEL will have to merge with FTIL and lose its existence. As a result, FTIL will have to bear the consequences of the Rs 5,574-crore fraud. The owners of the remaining 55 per cent will also bear the brunt. This goes against the fundamentals of limited liability. The reason so many companies register themselves as ‘limited’ is because shareholder’s liability is limited to the investment in the company.” Most in the business and media realm are crestfallen by the move. Beyond principles, the most startling side is how a limited company can be liable for another company’s liabilities.

Clearly, the shockwave is unprecedented for various reasons. First - the legal proceeds ascertained that there has been no trail of money leading to the promoters of the company. Second - It is also seen as a pre-judgement of Bombay High Court’s order, wherein the case is still being pursued, and the matter is sub-judice. Third - As the whole pursuit has been for recovery of trading clients’ monies, recently a historic order was passed by the Bombay High Court to form a 3-member committee that will determine the assets of the defaulters - this, obviously, came as a reprieve for the trading clients of NSEL. Thus the merger call by the MCA defeats the fundamental edifice of limited liability which is the basic principle of company law; as the law has been laid down to ensure limited liabilities are efficiently and impeccably managed.

“As per the order of the Ministry of Corporate Affairs, NSEL will have to merge with FTIL and lose its existence. As a result, FTIL will have to bear the consequences of the Rs 5,574-crore fraud. The owners of the remaining 55 per cent will also bear the brunt.

This goes against the fundamentals of limited liability. The reason so many companies register themselves as ‘limited’ is because shareholder’s liability is limited to the investment in the company.” (Source –Editor’s Note, Business World)

Experts may be of the opinion that the move may inflate the potential of raising questions at the country’s highest court  - ‘if the law is being abided by’ or being bent based on bureaucrats’ decisions? If yes, then the merit of law perhaps is being subverted out of prejudices. Then, for sure, it can be said as ‘the off beam precedent’ will undermine the sanctity of the ‘limited liability.’ 

FTIL - NSEL Merger – A marring move

In the wake of government’s proposal to revamp FTIL board following its order to merge NSEL with FTIL last week, the business community at large cedes it to be starkly unsavoury. The move has been debated on various media mouthpieces calling it unwarranted or “a bad precedent.” It has been countered by FTIL maintaining all the while that all efforts pertaining to recovery are being diligently escalated. Also, FTIL is a healthily functional company with the strength of over 1000 employees and over 60,000 shareholders; therefore, persecuting FTIL will be prejudiced and uncalled-for, for expediting recovery from the defaulters.

The outcry has gone unheard, and the merger proposed by Forward Market Commission (FMC) is believed to culminate, making all those who haven’t invested for it bear the brunt of liability. The massively voiced standpoint ‘why to foist one’s liability on the other’ has gone unheeded. The merger will not only have a tumbling impact on the tradition of limited liability - mainly, on the corporate India, but it will also discourage investors from investing in various portfolios, impacting the economy adversely. It is also viewed as the nosedive of defaulters to the extent of duping trading clients is being ignored, besides disregarding FTIL’s diligent recovery efforts.  

What’s more thwarting is that there’s no charge against the company itself, with no trace of fund squandering even to the promoters, yet the move has been initiated. Needless to say, the sanctity of the bourse and markets is being imperilled, setting a wrong precedent. On various occasions during the proceeds of the case, Bombay HC’s observation on some portraying as traders, being sceptical about their legitimacy as traders has been emphasised time and again, which has also been utterly condoned.

More precisely, Limited Liability of a parent company determines the amount of money and resources the company has invested in its subsidiary company; this emerges as the straightforward norm of modern financial officialdom, which is seen as being “violated and forsaken” and, principally, believed to send wrong indication to present and future investors. Thus, it will have a surging effect on the economy, as the ‘limited liability’ model is an indispensable offshoot to propel entrepreneurship and investment.

It is commonly viewed that a small section of trading clients claiming their money may not constitute a vast majority of people, thus the parity of ‘public interest’ action is far from being apt to the Companies Act provision, especially, in this scenario. The protection of public interest mechanism is equally workable across-the-board; therefore, safeguarding interests of parent company’s shareholders, employees and stakeholders at large is as much essential, which is being overlooked. As a result, to protect a handful of brokers of the crisis-hit NSEL, staking a colossal cluster of 60,000 investors and over 1000 employees of FTIL, is simply based on a decision of the bureaucracy. How far it is wise to substitute FTIL’s stakeholders’ liabilities and interests for NSEL’s, needs a relook, and a popular perspective.