An executive fiat passed by MCA in February has stirred
up financial circles with a big question mark on financial prudence. The order
proposes merger of NSEL with its parent body FTIL in what seems to be a case of
executive overreach and wrongful interpretation of section 396 of the Companies
Act. The order also violates Article 14 of the constitution as it suffers from
excessive delegation.
Furthermore, it comes down heavily on the concept of
limited liability which is at the core of corporate jurisprudence in our nation.
The merger has the potential of not only destroying that and opening floodgates
for vested interests to seek amalgamation of subsidiaries with their parent
companies whenever confronted with a problem at the subsidiary level.
More importantly, if there is a rationale behind
burdening FTIL shareholders with a liability to the tune of 5600 crore, it
appears flawed and discriminatory as a company with cash reserves worth Rs. 2000
crore to be piled up with liabilities worth Rs. 5600 crore is not just eroding
its net worth but also rendering it commercially unviable. How can the interests
of the shareholders of FTIL be sacrificed to uphold trading interests of NSEL
brokers when none of them can benefit from the merger?
To add on, the forced merger is being proposed without
any regard to stakeholder’s will. This may be a very dangerous precedent for
the corporate sector which needs foreign interests to develop. Besides adversely affecting the shareholders,
the merger entails far reaching ramifications for ‘Make in India’ as global
investors keenly watch our comfort level with excesses being committed on a
private entity.
The bottom line then is--if the merger were to take
place, who would really gain except those with vested interests involved? While the proposal stands judicial scrutiny
at the Bombay High Court with dissent brewing around it, it has to be seen if the
outcome upholds India as an entrepreneur haven or a nation against its own
wealth creators.
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