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Chennai, Oct 22 (IANS) The central government Tuesday decided to amalgamate NSEL with its parent Financial Technologies (India) Ltd. (FTIL) to secure the interests of about 13,000 investors of the Rs.5,600-crore fraud-hit company.
The government has issued a draft order of amalgamation in public interest under section 396 of the Companies Act and has called for suggestions and objections from FTIL, National Spot Exchange Ltd. (NSEL), shareholders, creditors and others within 60 days.
In a filing with the stock exchange, FTIL said it is taking appropriate steps in the matter in consultation with its legal counsel.
According to the draft order, FTIL holds 99.9 percent of the Rs.45-crore share capital of NSEL.
NSEL has a net worth of Rs.175.76 crore as on March 31, 2013 while the net worth of FTIL as on that date is Rs.2,712.45 crore.
NSEL is a spot-trading exchange for agricultural commodities.
As regards the background for the amalgamation proposal, the government said a payment crisis to the tune of Rs.5,600 crore arose, affecting about 13,000 investors following NSEL's July 2013 decision to suspended trading and to merge delivery and settlement of all contracts and differ them for 15 days.
According to the central government, NSEL cannot be said to be independent of FTIL as it is effectively the only shareholder and controls the composition of the former's Board of Directors.
FTIL's promoter and chairman-cum-managing director Jignesh Shah has been on the board of NSEL and is also its vice chairman.
The government said crucial observations of NSEL's internal auditor on higher risk of credit default, insufficient stock of commodities at warehouses, favour shown to defaulting members, misutilisation of margin money and others were known to the company's Board.
The FTIL is also aware of such happenings in NSEL, the government said.
The government said FTIL cannot shy away from its role and duty as a parent company to take care and exercise prudence in management and governance of its subsidiary. The parent company cannot hide behind the corporate veil and isolate itself from the fraudulent actions of its subsidiary.
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