Union Government has ordered the forced merger of two private sector
companies in “public interest”: National Spot Exchange Ltd (NSEL) with
its publicly traded parent company – Financial Technologies (FTIL).
Creditably, Mint had front paged a well argued opinion piece (by Mobis Philipose) titled “Order violates fundamental principles of rule of law”. Extracts (emphasis mine):
Here’s
the main problem: the government is forcing a parent company to take on
the liability of a subsidiary company, ignoring the fact the
subsidiary was formed as a separate entity precisely so that the parent
company’s liability is limited to the extent of its investment in the
firm.… who’s to say that the dues of investors
in NSEL’s products serve a greater public interest than the interests of
FTIL’s minority shareholders? An argument is being made by NSEL
investors that about 85% of FTIL’s shares are held by a few large
shareholders and the over 55,000 other shareholders hold less than 15%
in the company. But can it be concluded that the interests of these small shareholders don’t matter?…Of course, all this is not to say that NSEL’s investors shouldn’t be paid back their dues. But two
wrongs don’t make a right. If the government is keen on the recovery of
the dues of NSEL investors, it must act tough against NSEL’s
management, the FTIL directors who were involved in the running of the
spot exchange, including Shah, as well as the defaulting companies who owe the exchange large sums of money.…In both the FTIL and DLF cases, fundamental
principles about corporate limited liability, the rights of minority
shareholders and property rights appear to have been violated.
Unless corrected, they may well deal a blow to investor sentiment. It
will very probably now be up to the courts to uphold these basic rules.
Update: Venkat Chary, chairman and independent non-executive director, FTIL, and former chairman, Forward Markets Commission (FMC), makes some additional points in interview to the Business Standard..
Will this case become another Vodafone? Hopefully, better sense will prevail.
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