Mumbai: The Bombay high court on Tuesday adjourned Financial Technologies of India Ltd’s (FTIL) plea against a ministry of corporate affairs (MCA) order which proposed to merge it with National Spot Exchange Ltd (NSEL). The case would be heard next on 20 December, where the government would argue to defend its order against the Jignesh Shah founded company.
In concluding arguments FTIL counsel Harish Salve said that the use of section 396 of Companies Act to merge the two entities was illegal considering the liability of NSEL is yet to be established. Section 396 provides powers to the central government to merge companies in public interest.
“If the power to amalgamate is being used to mulct (extract money) the shareholders and stakeholders of a parent company with putative liabilities of a subsidiary, it could only be done after the existence of such a liability is established upon adjudication,” said Salve.
“The very legal basis for such a liability is pending investigation and adjudication. (So), an Order under Section 396 – that has irreversible consequences – would be illegal,” he added.
In an order on 12 February, the ministry directed that NSEL be merged with its parent FTIL in the larger public interest. FTIL had soon after moved Bombay high court against the merger. With the merger order, the government sought to make FTIL responsible for the liabilities of the fraud-hit commodities bourse.
FTIL owns 99.99% of NSEL, where trading was suspended after a Rs5,574.35 crore fraud at the spot exchange came to light in July 2013.