Government issues draft order to merge NSEL with FTIL
Govt has invited suggestions/objections from the companies and creditors within a period of 60 days
 "Government issues draft order to merge NSEL with FTIL")
The government has issued a draft order causing the merger of scam ridden National Spot Exchange ltd (NSEL) with its holding company Financial Technologies ltd on account of public interest. In a release issued by the ministry of corporate affairs, the goverment has said that the merger of the two companies would be done under Section 396 of the Companies Act 1956.
"The Central Government has carefully considered the proposal received from FMC and DEA and is of the considered opinion that to leverage combined assets, capital and reserves for efficient administration and satisfacotry settlement of rights and liabilities of stakeholders and creditors of NSEL, it will be in essential public interest to amalgamate NSEL with FTIL", the release said.
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"The Central Government has carefully considered the proposal received from FMC and DEA and is of the considered opinion that to leverage combined assets, capital and reserves for efficient administration and satisfacotry settlement of rights and liabilities of stakeholders and creditors of NSEL, it will be in essential public interest to amalgamate NSEL with FTIL", the release said.
ALSO READ: FMC tells govt to merge NSEL with Financial Technologies
The merger of the two companies will be effective on the balance sheet of FTIL as on 31 March. With this merger, the liability of NSEL's Rs 5600 crore is now on FTIL.
Reacting adversely to the order, FTIL stock has crashed 20%.
Reacting adversely to the order, FTIL stock has crashed 20%.
In the draft order the government has said that, “For accounting purposes, amalgamation shall be effected with reference to the audited accounts and balance sheets as on 31st March, 2014 of the dissolved company, and the transactions thereafter shall be pooled into a common account.”
The government has also said that the affairs of NSEL was controlled and directed by FTIL and its key managerial persons. This draft order was issued after reviewing the proposal sent by the commodity market regulator, Forward Markets Commission and Department of Economic Affairs.
The two companies and its creditors have also been invited to provide their suggestions and objections within a period of 60 days.
The NSEL scam came to light in July 2013 as the exchange started to default on payments to investors as money was siphoned off to 24 borrowers. Jignesh Shah, the promoter of FTIL was also arrested for his involvement in the scam on 7th May 2014 by Economic Offences Wing of Mumbai police but was later released on bail. A chargesheet has been filed by EOW against Shah. This clearly shows that Mumbai police has already found prima facie evidence against Shah regarding his culpability in the NSEL matter, the draft order said.
The NSEL scam came to light in July 2013 as the exchange started to default on payments to investors as money was siphoned off to 24 borrowers. Jignesh Shah, the promoter of FTIL was also arrested for his involvement in the scam on 7th May 2014 by Economic Offences Wing of Mumbai police but was later released on bail. A chargesheet has been filed by EOW against Shah. This clearly shows that Mumbai police has already found prima facie evidence against Shah regarding his culpability in the NSEL matter, the draft order said.