‘Treat NSEL, FTIL as a single entity’

FTIL controlled the shareholding of NSEL and was privy to the happenings at the exchange

The National Spot Exchange Ltd (NSEL) and Financial Technologies India Ltd (FTIL) must be considered as a single business entity and FTIL’s objections to the merger are “orchestrated,” the Centre told the Mumbai High Court, as the government attempts to push through a merger of both the entities.

In an affidavit submitted to the court, a copy of which is available with The Hindu, the Ministry of Corporate Affairs (MCA) has highlighted the fact that FTIL controlled the shareholding of NSEL and was privy to the happenings in the exchange, which is currently in the midst of a Rs.5,600 crore settlement scandal.

Not independent

“It is indisputable that Respondent No.3 (NSEL) was a 99.99% subsidiary of Petitioner No.1 (FTIL) and that it acted at the behest of Petitioner No.1 and was not in any true sense an independent/separate company,” according to the government reply. The case will be next heard on July 25.

The NSEL scandal came to light on 31st July 2013 and trading activities were suspended by early August 2013. On 21st August 2014, MCA issued a draft order proposing to merge NSEL with FTIL, a public listed entity. The final order was issued in February this year.

The merger would force FTIL to assume all the liabilities of the Mumbai-based spot exchange. It would also make FTIL a party to the ongoing litigations involving NSEL.

Regulatory probes revealed that only a handful of entities were trading in so-called paired contracts and were making money based on the difference between the buy and the sell price. In the process, about 13,000 investors are believed to have lost their money.

The minutes of the board meetings of NSEL were regularly tabled before FTIL’s board and the listed entity “kept itself apprised about the affairs of NSEL and also approved/ratified the actions of NSEL in its board meetings on a regular basis,” according to the government.

“Thus, Respondent No. 3 (NSEL) was, for all practical purposes, a division/department, of Petitioner No.1 (FTIL) and Respondent No. 3 did not have any independent business or revenue generation model of its own apart from that permitted by software provided by Petitioner No.1.”

Software pact

To build its case for the NSEL-FTIL merger, the Centre also said that FTIL’s income was directly based on the growth in the business of NSEL as the software agreement pegged the charges to the number of persons trading on the exchange.

“It is pertinent to note that these software charges were calculated based on the number of persons trading on the exchange and therefore had a direct correlation to the performance of and turnover on NSEL,” the ministry said in its filing. “Hence, FTIL directly profited from the business on NSEL.”