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.
