A proposal from the Ministry of Corporate Affairs (MCA)to summon legitimate procurements to take control of Financial Technologies India Ltd (FTIL) for ‘Deliberate bungling’ in National Spot Exchange Ltd (NSEL), has been rejected by the Ministry of Law and Justice. NSEL is an auxiliary unit of FTIL, which is under the investigation for Rs 5,500 crore case.
Terming that the lawful procurements don’t have any significant bearing in the case, the Law Ministry has restricted the possibility of action on NSEL and Multi Commodity Exchange (MCX). The MCA looked for a legitimate conclusion from the Law Ministry through a letter, on January 24, 2014, in which the MCA made it clear that it was looking forward to take some action against FTIL because the MCA concluded on its own that the promoter intentionally practiced unlawful activities while conducting firm business operations of its subsidiaries.
The MCA alleged “oppression and mismanagement” by a “common” board of directors of parent and subsidiaries under Sections 397 & 398 of the Companies Act. It also invoked Sections 401, 402 and 408 to approach the Company Law Board to take over or dissolve FTIL. The Law Ministry in its opinion dated June 4, 2014, clarified that the said Sections are not applicable to FTIL.
The deputy legal advisor in the Ministry of Law and Justice shared his opinion on the matter by saying, “Section 397 might not apply as NSEL which is (almost) wholly owned subsidiary of FTIL and NSEL’s majority shareholders (i.e. FTIL) have never acted in any manner which could be termed as ‘oppressive’ against the minority shareholder of the company. Section 398 might also not be applicable as fraud and acts and mismanagements were allegedly done by the key officials and employees of NSEL and not FTIL and different statutory auditors have issued clearances to them.”
NSEL, which defaulted on the payments, also made necessary changes in its management and board after the crisis came to light.