Company Law Board hears FTIL plea on modifying interim order

The principle bench of the Company Law Board (CLB) on Monday heard Financial Technologies (India) Ltd’s (FTIL) plea for modification of its interim order on managerial mismanagement of the National Spot Exchange Limited (NSEL) scam.

The FTIL-NSEL fraud came under the scanner after the latter failed to repay its investors on commodity pair contracts after July 2013. The subsequent investigations led to the Ministry of Corporate Affairs ordering a forced merger of FTIL and NSEL, its subsidiary, on February 12 to pay back losses suffered to investors of the latter.

The government-mandated amalgamation, the first of its kind in India, has since sparked a series of challenges across various courts and tribunals. The order was challenged in the Bombay High Court, which eventually stayed its operation till June 15, pending final adjudication. In the meanwhile, the government had approached the CLB to substitute FTIL's board, for smooth functioning of the amalgamation process. Upon hearing the preliminary submissions, the chairman of the CLB passed an ad-interim order on June 30, 2015 freezing FTIL's assets to avoid siphoning off until a final order was passed on the application made by the government. The June 30 CLB order was subsequently challenged by FTIL in the Madras High Court, which issued temporary relief to the company by staying the ad-interim order, while directing swift disposal of the issue by the CLB.

The stay was challenged by the government in the Supreme Court, which on April 18 reversed the Madras High Court order.

In Monday’s hearing, Abhishek Singhvi, counsel for FTIL, said restricting transactions of movable assets had crippled the firm’s ability to transact on investments, leading to large losses to its portfolio.

He also mentioned how the company had lost the ability to divest its share holding in subordinate companies in compliance with Reserve Bank of India and Securities and Exchange Board of India directions, as well as orders of international regulators.

While attempting to assuage the CLB on concerns of asset siphoning, Singhvi placed reliance on the Bombay High Court order,which in his opinion already provided for ample precautionary measures, including restricting issue of dividends and caps on managerial payouts.

The government's counsel asked for a week to consult with the ministry before taking a final stand on the matter. The bench has scheduled the hearing on June 2.