The Bombay High Court on Wednesday vacated its order dated November 27, 2014 asking the central government to maintain status quo on the proposed merger of the defunct National Spot Exchange Ltd (NSEL) with its parent Financial Technologies India Ltd (FTIL).
Acting on recommendations from the Forward Markets Commission (FMC), the Ministry of Corporate Affairs had on October 21, 2014, issued a draft order seeking objections from all concerned parties to exercise its power under section 396 to merge, in the public interest, the two companies.
The two judge bench comprising Justice V M Kanade and Justice Revati Mohite Dere held that the government is now free to pass a final order after hearing from all concerned parties including FTIL, NSEL, creditors, shareholders and all others related to the case.
The court also ordered the Central government to proceed with the hearings of contentions within four weeks and issue a final order within four weeks thereafter. The order will become effective two weeks from now.
"In case of adverse order, however, the petitioner (FTIL in this case) may come back to the court. The final order would be kept in abeyance till the hearing continues in this court.
The government's final order will be subject to the court's approval," the court said.
The court, meanwhile, has kept all options open and allowed government to pass any additional orders related to the case.
Appearing on behalf of NSEL, senior counsel Abhishek Manu Singhvi urged the court to incorporate the legal validity of the government's order and questioned the government's jurisdiction to pass such an order.
"Under Section 396 of the Companies Act, two public sector companies can be merged only in public interest provided the government is prima facie satisfied that the amalgamation will benefit shareholders and all concerned of the two companies which is absent in this case. While FTIL is a business oriented company with 63,000 shareholders with it, NSEL is a separate entity with no business and only liabilities. No rules in the world suggest merger of two legal entities with varied business interest," Singhvi argued.
Singhvi alleged that the government issued the draft order - presumably to be the final order - to safeguard the interest of just 781 high networth investors (HNIs) who account for about 66% of the total defaulted amount of Rs 5600 crore.
Janak Dwarkadas, an FTIL counsel, said "... the government's draft order takes care of just 781 traders and completely neglects 63000 shareholders and 1500 employees of FTIL."
The Bombay High Court ordered that while exercising the special power under Section 396 for merger of NSEL with FTIL, the government should consider sub-Sections 1, 2 and 3, which spell out protection of interest of all concerned.
Meanwhile, government counsel Ranjit Kumar alleged that the sale of FTIL assets like Bourse Africa and Bahrain in addition to proposed hiving of its core business 'Odin' was in violation of the status quo order, an argument that the court rejected.
Singhvi, meanwhile, said that the entire draft order is based on single order of the FMC in which the regulator has held FTIL "not fit and proper person" to hold stake in commodity exchanges. Such orders are normally issued through Parliamentary proceedings.
"The proposed merger order, if any, would be irreversible and hence would open a floodgate of litigations as a number of litigations of similar nature are pending before various courts," a Mumbai-based corporate lawyer said.