Tuesday 30 August 2016

FT -Revolutioniser of the financial world

Technology has dug its claws everywhere. There is no one in this age that doesn’t use modern technology. It's present everywhere in office, in homes, in colleges, schools, etc. Mr. Jignesh Shah supporting this fact gave a public lecture at an event of NUS business school. According to him, technology has revolutionized the way we live and also has empowered the financial community of the world. He himself as a 1st generation pioneer entrepreneur gave a push to financial markets in India and of other international countries, which also includes Singapore. He made use of innovative ways of promotion, cost-effective technologies due to which he became one of India’s self-made billionaire just by the age of 40. More than 140 people attended this event, which also included advisory council members of CAMRI and excited students of NUS business schools and its alumni. After his lecture, he answered one-on-one questions asked by the audience. The discussion included topics like various benefits of technology in financial markets, commodity trading advantage in Asia and how Singapore is an exchange trading hub asked by Joseph Cherian, a finance professor and director of CAMRI.


On which Mr. Jignesh Shah stated that as compared to London and Chicago trade systems, Singapore exchange trading needs a clearer perception and detailed execution. And that would take almost 10 years. More questions on exchanges was raised by industry practitioners and MBA students of the university, which lead to a discussion on how to create a better transparency in commodity exchanges with the help of technology and what are the regulations to follow. The event was given a warm ending by Professor Bernard Yeung, the dean of this business school. He thanked Mr. Jignesh Shah for sharing his experienced knowledge, which surely would inspire and encourage business leaders of the future.

Thursday 14 July 2016

Big Opportunity cost to FTIL

In an interview with few media channels, FTIL CEO & MD Mr. Prashant Desai, highlighted the predicament that FTIL as a group was facing in the light of the recent legal actions against itself. The biggest of the this predicament was not being able to contribute towards the Digital India movement which could have had great momentum considering FTIL’s expertise in the technology domain. The most important loss of all in the losses that FTIL had to go through since the NSEL crisis was the Opportunity Cost which cannot be calculated in sheer numbers.



The statement that the company was going through rough time/ dire straits is probably an understatement because of the kind of action that has meted against FTIL despite there being no money trail established to FTIL or its promoters is unprecedented.
Ministry of Corporate Affairs, in the application for 396 in terms of the merger very clearly specified that there is no money trail established to either FTIL or its promoters. Despite that this is the kind of action that FTIL is meted upon with poses its own challenges for the company.

The biggest cost to FTIL is the opportunity cost considering the way this country is developing and progressing in the technology space and how digital India is moving ahead. FTIL’s ability to contribute from a technology perspective to this entire digitization can be massive considering our expertise in the field. It could well have been the biggest contributor towards the Digital India movement across sectors and business verticals.

Tuesday 5 July 2016

Why Revamp FTIL Board?

The government had filed a petition under Section 397 & 398 read with Sections 388D, 388C, 401, 402, 403, 406 and 408 of the Companies Act, 1956 before the Principal Bench of the Company Law Board, now National Company Law Tribunal (NCLT), in New Delhi seeking removal and supersession of the Board of Directors of FTIL on the following two grounds:

Flawed Ground #1: Attempts to Thwart the Amalgamation Process

The MCA has alleged that although the FTIL Board is attempting to frustrate the ultimate object of proposed merger, which if affected, would provide suitable recompense to the victims of the defaults. FTIL Board is also accused of diverting funds from FTIL and illegally selling valuable assets of FTIL. It has also alleged that FTIL Board is attempting to sell/dispose/alienate/ hive off valuable assets of FTIL: i.e. approval of postal ballots notice for shareholder to sell Bourse Africa and attempt to hive off FTIL’s most popular software, ODIN.

The Reality

Though the MCA had applied for restraint on sale of Bourse Africa, ODIN and other assets by way of an application in Section 396 Petition, the Hon’ble Bombay High Court did not grant that relief. It must be noted however that the sale of stake in Bourse Africa has been promulgated due to regulatory issues that arose as a result of the FMC order. In fact the process for sale of stake in Bourse Africa commenced long before the Draft Order dated 21st October, 2014 for amalgamation of NSEL with FTIL was even passed. In affidavit in reply MCA stated that MCA do not have objection for sale of investments if it is directed by the regulators.  With respect to ODIN, the information was in the public domain prior to filing of the Writ Petition by FTIL challenging the Draft Order.
The MCA says that FTIL’s current Board is opposing the merger hence justify taking over FTIL’s management, conveniently setting aside the fact that the merger of NSEL with FTIL is still sub-judice. Again, the MCA’s draft order invoking Section 396 of the Act doesn’t anywhere say why a merger of NSEL with FTIL is in public interest. The MCA also ignored that FTIL has the fiduciary responsibility to protect the interest of 63,000 shareholders, over 1,000 employees and other stake holders. FTIL has been lawfully opposing the merger with humble submission to restrain from any hasty decision when the matter is sub-judice.

Flawed Ground #2: Mismanagement & Oppression perpetrated by FTIL – MCX was sold at Loss

The MCA has alleged that due to mismanagement of NSEL by FTIL and its directors, the FMC passed an order and FTIL had to divest in a number of commodity exchanges in India and overseas, which caused a loss of investment, which raises a serious doubt on the viability of FTIL. It has also alleged that FTIL’s divestment in MCX is in complete contravention to the FMC order which only stated that FTIL is not “Fit & Proper’ (but didn’t direct divestment), but FTIL sold its entire stake (26%) at a loss of Rs. 290 crore. Such actions by the FTIL Board raise serious apprehensions of the continuance of FTIL Board.

The Reality

The MCA itself in its petition states that FMC directed FTIL is not fit & proper to continue to hold 2% or more paid-up equity capital in MCX and therefore to salvage the value of MCX, without prejudice FTIL divested its shareholding in MCX.  The FMC and other regulators forced FTIL to exit, despite the FMC Order being sub-judice and despite FTIL contesting the same vigorously in the relevant regulatory / appellate authority. It is absurd that compliance with regulatory orders by FTIL to salvage value of its investments in time – before they are rendered worthless by regulatory wrath such as cancellation of license, renewal of contracts, issuance of new contracts or putting shares in escrow followed by auction etc. – is being used against FTIL and its Board.
FTIL, without prejudice to its rights, divested its holdings in companies as a result of regulatory directions to do so. In the case of MCX, there have been numerous letters from MCX insisting that FTIL divest its holdings in short time as a result of the FMC Order. Pertinently, those letters also say that the regulator, i.e. FMC is not permitting launch of any new contracts to MCX unless compliance of divestment is made. Accordingly, FMC had threatened to bring down the value of FTIL’s holding to almost nil had it not complied with the direction of divestment. The Board of FTIL divested from MCX in manner where the loss caused to FTIL and its shareholders was significantly reduced.
None of the members of FTIL have made an application that the Company’s affairs in a manner oppressive to any member or members; however MCA invoked the Section under Sec 408 without validating how the affairs of the Company being conducted either in a manner which is oppressive to any members of the Company or in a manner which is prejudicial to the interests of the Company or to public interest.

Sunday 19 June 2016

The Forced Merger: An Unreasonable Order

On the recommendations of the FMC, the Ministry of Corporate Affairs initiated a move in October 2014 for a merger of NSEL with FTIL. Although October 17-19, 2014 were holidays, the otherwise “lazy and laidback” government officials worked throughout this period to collate information to draft the merger order as Krishnan was to leave the Finance Ministry on October 20 owing to his transfer. He is now the Additional Secretary in the Department of Land Resources.
The speed at which the draft merger order was processed after the FMC’s recommendation raises eyebrows behind the ill-brained motives related to the move. While we still hope for justice and fair play in the sub-judice NSEL crisis, only time will tell who the real culprits were.
This order has challenged the constitutional validity of Section 396 of the Companies Act, 1956. Moreover, FTIL has challenged this order before the Bombay High Court.
While considering the pros and cons of this forced merger, it is evident that the merger will destroy the concept of “limited liability”. It may also lead to global and local investors losing confidence in investing, given that FTIL has FDI and FII investments. It will further set a precedent to an array of PILs seeking merger of companies facing financial problems with their solvent parent companies.
The forced merger will also have an adverse impact on FTIL’s market capitalization. It may erode its net-worth by buckling the unproven and sub-judice liabilities of more than Rs.5,000crore of NSEL onto FTIL. This will directly harm thousands of FTIL shareholders along with hundreds of its employees, creditors, vendors and other stakeholders, which is against the spirit and purpose of Section 396. It can hardly be said that Section 396 was meant to fasten third-party unproven liabilities on a healthy company with a view to adversely affect the stakeholders of such healthy company, its creditors and employees