The Government on Tuesday ordered merger of the scam-hit National Spot Exchange ltd (NSEl) with its holding company FTIl to ensure speedy recovery of dues for investors and others hit by `5,600-crore "fraud" at NSEl.
The decision, which comes over a year after the payment scam broke out at NSEl in July 2013, has been taken in "essential public interest" as the exchange is "not left with any viable, sustainable business while FTIl has necessary resources to facilitate speedy recovery of dues".
The move to merge NSEl with FTIl -- possibly the first major government intervention in a scam-hit private sector entity since the Satyam case in 2009 -- would take a final shape after taking into account submissions or objections made by the shareholders and creditors of the two companies.
However, the Government has ordered merger of NSEl with its parent firm itself in the present case, unlike the Satyam matter where the scam-hit IT firm was sold to a third-party (Tech Mahindra) through a Government-facilitated auction.
NSEl was set up as an electronic exchange for spot trading in agriculture and food commodities by Jignesh Shah- led FT Group. Financial Technologies (India) ltd is the holding company of this group, which had also set up commodity bourse MCX and stock exchange MCX-SX, among other exchange ventures.
Following the NSEl fiasco, various FT group entities have already faced regulatory actions and they do not figure as promoter entities in ventures such as MCX and MCX-SX.
"The Central Government has decided on the merger of NSEl with its holding company FTIl, in public interest under Section 396 of the Companies Act, 1956," the Corporate Affairs Ministry said in a statement.
With regard to NSEl case, a charge-sheet has been filed by the Economic Offences Wing of the Mumbai Police against Jignesh Shah -- the founder and managing director of FTIl.
There were no immediate comments on the government decision from FTIl, which saw its shares tank by nearly 20 per cent to hit the lower circuit of `169.65 on the BSE.
Post merger, NSEl's entire business, properties and liabilities, among others, will get transferred to FTIl. As on March 31, 2013, NSEl had a networth of `175.76 crore.
"All due procedures in this regard shall be followed. The members of the two companies, its creditors may provide suggestions/objections within a period of 60 days," said the ministry, which has the responsibility of implementing the companies’ law.
According to the draft order, FTIl has not furnished any explanation as to what steps have been taken by NSEl or by FTIl itself as a parent company to honour the commitment of assuring safety and risk free trading to the members and clients of the exchange.
NSEl does not have the resources, financial or human, or the organisational capability to successfully recover the dues pending for over a year, the order said.
Forward Markets Commission (FMC) had also suggested to the government last week the merger of the spot exchange with its promoter FTIl for speedy recovery of dues from defaulters.
The ministry said findings of the inspections carried out on NSEl and FTIl's accounts were taken into consideration while reaching a decision on the merger.
"The said inspections bring out non compliances of the various provisions of the Companies Act, 1956. It is further observed that the management of the affairs of NSEl was being controlled and directed by FTIl and its key managerial persons," the draft order said.
On the rationale of merger, it said the Government is of the considered opinion that the leverage combined assets, capital and reserves for efficient administration and satisfactory settlement of rights and liabilities of stakeholders and creditors of NSEl would be in "essential public interest".
Meanwhile, Mumbai Police on Tuesday arrested two top honchos of different defaulting companies, which collectively owe over `1,000 crore to the crisis-hit NSEl.
"Gagan Suri, one of the directors of Yathuri Associates, was apprehended from Chandigarh, while Ranjeev Agarwal, promoter of P D Agro Processors was picked up from Karnal (at Haryana) in connection with the NSEl case," said Rajvardhan Singh, Additional Police Commissioner (EOW) of Mumbai Police.