Regulator FMC presses for merger of NSEL with FTIL, even at the risk of challenging the concept of limited liability company
The Forward Markets Commission (FMC) has recommended the merger of National Spot Exchange (NSEL) with its holding company (FTIL), even at the risk of lifting the corporate veil, but is it showing enough enthusiasm in getting 24 defaulting companies to liquidate properties and pay back 13,000 trading clients of NSEL remains to be seen.
A step like the merger of NSEL with FTIL will shake the foundations on which the concept of limited liability company rests. There is no accusation which has been made out against the promoters of NSEL that they have stashed funds of 13,000 trading clients who used NSEL's platform, rather it is the directors of 24 defaulting companies who have not denied that they are liable to repay the trading clients. So, unanswered question remains why NSEL should pay back the money which the 24 defaulting companies are due to pay.
The FMC in all its earnestness recommended the merger of NSEL with FTIL, but has it shown enough zeal in ensuring that the properties owned by these 24 companies are liquidated at the earliest and money repaid to 13,000 trading clients to send a strong message to the trading community. In addition, in the merger of NSEL with FTIL, the rights of over 63,000 shareholders of FTIL are also at risk. Questions are also being raised whether the holding company can be held liable for actions of subsidiary company, which has an independent board and management.
Advocate P R Ramesh opined that the government should expedite the process of auctioning off the properties of the 24 defaulting companies. Many of these companies are fraudulently used trading clients investments into their companies into other businesses such as building malls and other real estate activity. Though these properties are now attached by the Economic Offences wing of the Mumbai police, justice will only be delivered when these are sold and the money repaid.
Out of the total of 13,000 trading clients of NSEL, 781 investors account for 66% of NSEL's liability of Rs 5,300 crore.
The Bombay High Court also observed that, "The fact remains that the persons who are raising the grievance of about such fictitious trading were themselves not genuine traders, and had entered into the transactions purely as financial investments. There is every reason to believe that a sizeable number of so called 'investors' whose transactions were being entered into through brokers, actually did not bother about the fictitious trades, and knowingly participated in such illegal activities, without raising any issue of illegality thereof."
Data available with dna states that out of the total outstanding liability of Rs 5,300 crore, almost Rs 1,816 crore is to be paid by two companies. Ahmedabad-based NK Proteins has to repay Rs 938 crore while Delhi based Mohan group has to repay Rs 878 crore.
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