In December 2015, the Bombay High Court has given 45 more days to the Ministry of Corporate Affairs (MCA) to pass the final order in the proposed merger of scam-hit National Spot Exchange Ltd (NSEL) with its parent Financial Technologies (India) Ltd (FTIL). MCA will have to pass the final order by February 15, the court said. Although MCA sought two months time, the Bombay High Court has granted only 45 days’ extension.

Earlier, the Ministry had been asked to pass the final order by December 31. This is the third time that it has got an extension from the court. In October 2014, the MCA had issued a draft order to merge NSEL with its parent to recover ₹5,600-crore dues of investors who lost money in the exchange. FTIL moved court against the order. It says the forced merger would violate the concept of limited liability, which is the fundamental principle of corporate jurisprudence.

Ministry of Corporate Affairs, on behalf of the Central Government, has issued a Draft Order on the amalgamation of National Spot Exchange Limited with Financial Technologies (India) Limited under Section 396 of the Companies Act, 1956 on 21-10-2014.

In October 2014, the MCA had issued a draft order to merge NSEL with its parent to recover ₹5,600-crore dues of investors who lost money in the exchange

About National Spot Exchange Limited (NSEL):

NSEL was incorporated as the public limited company on 18.5.2005. Authorised Share Capital of the Company as per the last available Balance Sheet as on 31.3.2013 is Rs.50 Cr and the issued, subscribed and paid-up capital is Rs.45 Cr divided into 4,50,00,000 Equity Shares of Rs.10/- each. Of these 4,49,99,900 Equity Shares are held by FTIL along with its nominee. Thus NSEL is a subsidiary of FTIL.

NSEL is managed by its Board of Director and presently it consists of one Managing Director and Seven Directors. FTIL is holding Company of NSEL.

About Financial Technologies (India) Limited (FTIL):

FTIL was incorporated on 24.01.1995 and was later amalgamated with “Exchange On The Net Limited” After Amalgamation the resultant Company has changed its name to “Financial Technologies (India) Limited” with effect from 10.04.2001. Presently the Company’s shares are listed in NSE, BSE, MSE and ASE.

The company is providing start-ups to various Exchanges like MCX, IEX, and NSEL.

FTIL is managed by its Board of Director and presently it consists of one Managing Director, Two Whole Time Director and Four Directors. Mr. Jignesh shah is the common director in both Companies i.e. KSEL & FTIL.

The Shareholding Pattern is as under:

FTIL is having paid up share capital of Rs.9,21,04,112/- consisting of 46052056 Equity Shares of Rs.2/- each as on 31.03.2014.The details of each category of shareholders is as under:

Category of ShareholderNumber of SharesAmount% to total Capital
Promoter and Promoter Group2,10,25,8784,20,51,75646%
Public Shareholding Institution:1,04,58,7772,09,17,55422%
Public Shareholding Non-Institution:1,45,67,4012,91,34,80232%
Total Shareholding4,60,52,0569,21,04,112100%

Forward Market Commission (FMC) has ordered that in the Public interest and in the interest of the Commodities Derivatives Market which is regulated under Forward Contracts Act, holding that FTIL is not ‘fit and proper’ person to continue to be the shareholder in Multi Commodity Exchange (MCX). Further, the license of the exchange venture situated in Botswana which had not yet commenced its operation got canceled.

Considering these events and current scenario the Company on conservation basis has made as additional provision of Rs.6944.45 Lacs towards provision for other than temporary diminution in the value of investments including provision for other than temporary diminution in value of investments including provision (write down) in value of investments of Rs.15 lacs in respect of investment reclassified during the year from long-term to current investment and Rs.15550 lacs towards doubtful loans and advances.

As result of this FTIL has incurred loss after Tax of Rs.22854.85 (2013-2014) lacs as compared to profit after tax of Rs.32288.06 lacs in the previous year as during the year 2013-2014 the company has made Provision for other than temporary diminution in value of long term investments in subsidiaries and Provision for doubtful loans and advances and deposits.

Background to Proposal for Scheme of Merger:

  • According to Section 396 (1) and (2), Central Government has the power to provide for Amalgamation of companies in National Interest.

In this case Central Government is satisfied that to leverage combined assets, capital and reserve, achieve economy of scale, efficient administration, gainful settlement of rights and liabilities of stakeholders and creditors and to consolidate businesses it is essential in public interest that Financial Technology (India) Limited (FTIL) and National Spot Exchange Limited (NSEL) should be amalgamated into single Company.

  • NSEL started functioning ostensibly as a ‘Spot Exchange’ in 2008. NSEL was not registered under the provisions of Forward Contract (Regulation) Act, 1952 and it was never under the Regulatory purview of FMC. Subsequently, a supervisory role was given to FMC in respect of the settlement of outstanding one – day forward contract at NSEL.
  • After analyzing the trade data received from NSEL, FMC reported to Department of Consumer Affairs (DCA) on 10.04.2012 that NSEL was violating conditions of exemption granted to them and FMC is not satisfied with various reply given by NSEL. NSEL vide its Circulars dated 16.07.2013 and 22.07.2013 announced the suspension of the launching of any new commodity, product.
  • On 31.07.2013, NSEL announced that trading in all contracts (except e – series contracts) was suspended and that it had been decided to merge the delivery and settlement of all pending contracts and defer the same for a period of 15 days. As a result of this action by NSEL, a payment crisis of appx. Rs.5600 Cr arose in NSEL involving about 13000 investors.
  • On December 17, 2013, FMC passed an order declaring FTIL, Sh. Jignesh Shah, Sh, Joseph Massey and Sh. Shreekant Javalgekar as not ‘fit and proper’ to be shareholder / Director in the management and the Board of any Exchange, recognized by the Government of India / FMC under the Forward Contract (Regulation) Act, 1952. The Following points emerging from the order of FMC, are worth mentioning:
  1.  The violation of conditions prescribed in the exemption notification; trading in paired contracts to generate  assured financial returns under the grab of commodity trading; and giving margin exemption to those who    were repeatedly defaulting in settling their dues.
  2.  NSEL cannot be said to be independent of the control of the holding company i.e. FTIL which holds 99.99  % of its share capital.

      3. Constitution of Board of Director of NSEL is entirely under its control as Shri Jignesh Shah the promoter and               Chairman –cum-Managing Director of FTIL, has been on the Board of NSEL and functioning as Vice Chairman            of the Company since its inception. Shri Joseph Massey was also common Director in both company

      4. The Board of FTIL had full knowledge of the unsatisfactory affairs of its subsidiary and it was the duty of the                 Board to ensure that the corrective or penal action was initiated to set right such irregularities.

      5.  FITL cannot shy away from its role and duty as a parent company to take reasonable care and exercise                            prudence in management and governance of the subsidiary Company.

       6.FTIL has not furnished any explanation as to what steps have been taken by NSEL or by FTIL itself as parent               Company to honor the commitment of assuring safety and risk-free trading to the members and clients.

     7. Allowing trading in forward contracts on the NSEL platform in a circuitous manner which was neither                           recognized nor registered under FCA indicates mala fide intention on the part of the Promoter of FTIL to use the         trading platform of its subsidiary Company for illicit gains away from the eyes of Regulator.

Looking overview of all scenario a proposal has been received from FMC vide letter dated 18.08.2014 proposing the merger of NSEL with FTIL by Central Government under the provision of Section 396 of the Companies Act, 1956. FMC has proposed the merger / Amalgamation of NSEL with FTIL is essential in the public interest so that human and financial resource of FTIL are also directed towards facilitating speedy recovery of dues from the defaulters at NSEL and the FTIL takes responsibility to resolve the payment crisis at NSEL at the earliest.

  • Further FMC vide its letter dated 17.10.2014 has forwarded representations from various members / investors bodies requesting for the merger of NSEL with FTIL and has reiterated its recommendation submitted vide letter dated 18.08.2014.The said communication has provided additional grounds in support of the earlier recommendation, VIZ
  1. The Equity Investment carries inherent investment risk. The Shareholder of FTIL has enjoyed benefits like higher Dividend, Capital Appreciation at the time of higher profits of the Company which was derived from NSEL operation. Therefore as shareholders, they are bound to be fully aware of the fact that if they are enjoying the benefits from the performance of Subsidiary Company i.e.NSEL they may have to also bear the risk associated with the acts of omission and commission by the holding company.
  2. FTIL is conscious of its role as parent company as by giving a loan to NSEL which was distributed to the small investors of NSEL, has already owned up some responsibility for the NSEL payment crisis.

      3. The charge sheet has been filed by the Economic Offences wing Mumbai police in NSEL matter against Sh.                     Jignesh   Shah.


It is essential to Amalgamate NSEL to FTIL on the following grounds.

  • Even after one-year incessant efforts and in spite of FMC’s active role in supervising the settlement of the contracts, the settlement plan could not result in making any substantial payment to the investors as the process of recovery of dues by NSEL from the defaulting member is very low.
  •  Recovery of dues which is made by NSEL constitutes only 6.7% of the total amount due, indicating a very dismal progress of recovery of dues by NSEL.
  • The Employee attrition in NSEL in the recent months has been extremely high and it is learned that the staff strength of NSEL has come down considerably, adversely affecting the recovery process. The Company is hardly left with any financial resources to meet even legal expenses apart from defraying staff salaries and other expenses related to the recovery process.
  • FTIL cannot take corporate veil so as to unjustifiably isolate itself from the fraudulent actions that took place at NSEL.
  • NSEL as an Organization has become very weak. As NSEL is wholly owned subsidiary of FTIL it is primarily responsible for the affairs of its subsidiary company.

The conclusion is that NSEL is not having the resources both financial and human, or the organizational capability to successfully recover the dues to the investors pending for over year.  Further NSEL is not left with any viable sustainable business while FTIL has the necessary resources to facilitate speedy recovery of dues.

On the basis of above Central Government has taken a view that there is prima facie case for invoking Section 396 of the Companies Act, 1956 and to initiate this process by issuing the draft order in terms of Section 396 (4) of the Companies Act, 1956 for the amalgamation of NSEL with FTIL in the public interest.