The Bombay High Court has just upheld the government's order directing the merger of the erstwhile Financial Technologies (India) Ltd (FTIL) and its subsidiary, National Spot Exchange (NSEL).
To refresh your memory, NSEL, a commodities exchange promoted by the Jignesh Shah-led group company, was rocked by a Rs 5,600 crore scam first unearthed in mid-2013. It involved NSEL executing illegal forward contracts along with commodity spot trading along with running a Ponzi scheme, according to Capital Mind. When a notification from the Forward Markets forced the exchange to suspend most contracts in view of violation of regulatory norms, a payment crisis snowballed out of control, leaving over 10,000 investors in the lurch. This was among the biggest commodities markets frauds in the country.
Acting in public interest, in February 2016, the Corporate Affairs Ministry had ordered the merger under section 396 of the Companies Act, 1956. But shortly thereafter, FTIL-now known as 63 Moons Technologies, which owns 99.9% of the defaulting NSEL's equity-had approached the high court challenging the decision, for allegedly vitiating the limited liability concept. FTIL counsels argued that use of section 396 in this way was illegal, considering that the liability of NSEL was yet to be established. "If the power to amalgamate is being used to mulct (extract money from) shareholders and stakeholders of a parent company with putative liabilities of a subsidiary, it could only be done after existence of such a liability is established upon adjudication," an FTIL lawyer had argued.
But while the Bombay High Court has dismissed pleas against the forced merger, the story is far from over. "The Honourable Bombay High Court has dismissed our writ petition. However, it has granted 12-week stay on the operation of the merger order. We will be moving the Supreme Court during this 12-week period. We have full faith in the judiciary and continue to believe that ultimately the truth and justice shall prevail, " said a 63 Moons Technologies spokesperson in an e-mailed statement.
In the meantime, share price of 63 Moons dropped 5% immediately after the news about the High Court was reported in the media, hitting a lower-circuit limit at Rs 131.20 on BSE.
With PTI inputs