ANALYSIS. FTIL-NSEL merger case: it’s a catch-22 situation for Corporate Affairs Ministry

The Corporate Affairs Ministry clearly needs to do some tightrope walking on the FTIL-NSEL merger case.

This is more so given the backlash it is now faced with for its rather questionable move to usher in a forced merger of the scam-hit National Spot Exchange Ltd (NSEL) with its parent Financial Technologies India Ltd (FTIL), sacrificing the interest of the 63,000 shareholders of the parent company. Both from a moral and legal point of view, it does not seem appropriate for the Ministry to ask FTIL to pay the price for the fraud perpetrated within NSEL.

Rather, the Government should focus energies on the money trail and bring to book the perpetrators of this scam.

The Ministry’s latest move to seek three more months from the Bombay High Court (BHC) to pass the final order should be viewed from the context of the tight situation it faces in this case, as 19,000 FTIL shareholders have raised objections on its draft merger order.

All eyes are now on the Corporate Affairs Ministry as it is faces the difficult task of balancing the interest of those who lost money on account of the NSEL fraud, and FTIL’s 63,000 shareholders who face big uncertainty over the fate of their investments.

Many legal pundits frown at the proposed forced merger, as they feel it may send a wrong signal to foreign investors that India does not seem very keen to keep its faith on the concept of limited liability.

The moot point is how far the public interest concept can be stretched to justify the actions of the government. Will it be appropriate to sacrifice the interest of the shareholders at the doorstep of its scam-tainted subsidiary?

It is in the backdrop of such knotty legal issues that the upcoming final order of the Ministry will be watched in right earnest by corporate observers and other stakeholders.

The final order was expected this week, but may now get delayed if BHC accedes to the Ministry’s request for three more months to pass the final order. Truly, the upcoming order could be a litmus test for the future of joint stock companies in India. Any government move to provide a decent burial to the concept of limited liability could dampen the spirits of corporate houses in creating a maze of pyramidal structures within their group.