FTIL opposes any move for NSEL amalgamation

FTIL says FMC proposal in this regard is not in public interest and ignores what has been found and accomplished in addressing the payments default in question

Financial Technologies India (FTIL) has opposed the proposal of the Forward Markets Commission (FMC) in which the commodity derivatives market regulator proposed a merger of the former with its offspring, the scam-hit National Spot Exchange (NSEL).

FMC, in its latest fortnightly report, said it had on August 18 asked the Union ministry of corporate affairs to consider the proposal, so that the resources of FTIL were also directed towards facilitating speedy recovery of dues from the defaulters on NSEL.

Countering this view, FTIL said the merger would directly affect the interests of FTIL and its 60,000 shareholders, 1,000-plus employees, lenders and other stakeholders.

“Under the Companies Act, the government can merge two companies only if this is ‘essential in the public interest’. The interest of the 13,000 clients of the brokers who traded on the NSEL platform for higher returns (trading clients) cannot be termed as ‘public interest’ when 66 per cent of the entire amount due is being claimed by just six per cent of the trading clients (i.e. only 781 persons). Further, the high court of Bombay in its August 22 order has questioned whether these trading clients were ‘genuine investors’,” FTIL said.

If the dues of the trading clients are considered ‘public interest’, then the interests of the 60,000-odd public shareholders of FTIL are equally the ‘public interest’. Should these shareholders of FTIL suffer a liability of Rs 5,500 crore (the extent of NSEL default) by the device of a forced merger, asks FTIL, when the very existence of any legal liability of NSEL and consequently of FTIL as its holding company, is before the high court?

FTIL notes the HC has constituted a committee under the chairmanship of a former judge to ascertain the liability of each of the 24 defaulting members of the exchange who traded on the NSEL platform and failed to honour their pay-in obligations.

FTIL has, without prejudice to the legal rights, supported NSEL in its recovery efforts and also extended a Rs 179 crore loan to alleviate the suffering of all the 6,600 small investors by paying 50 per cent of the dues. In addition, NSEL has recovered Rs 360 crore from defaulters and proportionately distributed this among trading clients, it argued. It has also, with support from FTIL, been making all efforts for recovery of the money.

There is no trail of the missing money leading to NSEL, FTIL or their managements, it further argues, citing the finding of the police and the observations in this regard by the HC.

In addition to properties worth Rs 200 crore attached by the enforcement directorate, the city police's economic offences wing (EOW) has attached properties worth Rs 4,900 crore and their liquidation process was underway. Further, EOW has identified 200 properties of the defaulters for attachment.

“While investigations and various legal proceedings are pending where actual facts are yet to be established, any action based on FMC’s recommendations towards merging NSEL with FTIL will irreparably prejudice and harm FTIL and its shareholders, employees, lenders and other stakeholders. Instead, the real solution lies in trading clients, the brokers and the government agencies joining forces with NSEL to ensure recovery of the money from defaulters, especially when 85 per cent of the money lies with only seven defaulters,” said FTIL.