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
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
