FMC wants NSEL to be merged with FTIL, latter's management changed

Last week FMC wrote to MCA to merge NSEL with its promoter and 99% owner, FTIL

If the government accepts the recommendations of the Forward Markets Commission (FMC), Financial Technologies India Ltd (FTIL) promoter Jignesh Shah (pictured), who recently lost the country’s largest commodity exchange, MCX, might lose control of his flagship firm as well.

Last week, FMC wrote to the ministry of corporate affairs (MCA) to merge the now-defunct National Spot Exchange (NSEL), which defaulted in payment of Rs 5,574 crore to depositors a year earlier, with its promoter and 99 per cent owner, FTIL.

A source said FMC had actually gone further and also recommended to MCA to change the management and board of directors of FTIL after merging NSEL with it.

A legal expert says: “There is no precedent where such power was exercised by the central government, to merge a private limited company (such as NSEL) into a listed company (such as FTIL) or to merge two private/public limited companies.”

The government has used its powers under the Companies Act on amalgamation of companies in cases related to public sector enterprises. Experts say a case can be made for the two companies to be amalgamated in the public interest as the interest of 13,000 investors in NSEL are at stake but “merger of NSEL with FTIL might be seen as transfer of NSEL liabilities to FTIL, detrimental to the 58,000 public shareholders of FTIL, especially when the money that investors lost on NSEL had gone only to 24 borrowers of the exchange, as stated in the police chargesheet against Jignesh Shah, promoter of FTIL”.

“FMC’s recommendation is a result of its meeting with the NSEL board and investors recently, where the regulator found NSEL doesn’t have the manpower to recover money from borrowers and nor does it have enough money to fight several court cases,” said the source, privy to that meeting.

NSEL defaulted in July 2013 and a year after, the investors have got back a tenth of the Rs 5,574 crore they’d lost. Several court cases have been filed, including one in the high court here, which has asked the borrowers for a repayment schedule.

On Tuesday, MCX informed the BSE exchange that at its board of directors’ meeting on Monday, R Amalorpavanathan, chief general manager of the National Bank for Agriculture and Rural Development, had been made an additional director. And, that Union Bank of India had withdrawn its nomination of K N Reghunathan as a shareholder director.

FMC’S CASE

• Investors lost Rs 5,574 cr
• NSEL doesn’t have enough manpower for recovery
• The exchange also needs huge funds to fight court cases
• Merging NSEL with FTIL could solve all such issues