For the first time in the history of corporate India, two private companies can be merged in public interest. The merger of crisis-hit National Spot Exchange Ltd (NSEL) with its parent Financial Technologies India Ltd (FTIL), now known as 63 Moons Technologies Ltd, will be the first such chapter in the annals of India Inc.
Recently, the Bombay High Court paved the way for the merger of NSEL with FTIL by upholding the merger order of Ministry of Corporate Affairs (MCA) under section 396 of the Companies Act, 1956, that allows the government do so in public interest.
The order passed by Chief Justice Manjula Chellur and Justice M S Sonak of Bombay High Court held: "It is not a forced amalgamation between two unrelated entities but of a wholly owned subsidiary with its parent in public interest. It was an extraordinary case of a collapse of 'a commodity stock exchange' and the government deemed fit to pass the merger order in public interest.’’
63 Moons Technologies said it will challenge Bombay High Court’s order in the Supreme Court.
According to an industry expert, the HC ruling is going to be a landmark for corporate India, particularly for the relationship between the parent companies and their subsidiaries. Going by the content and intent of the order, there is a vital indication that parent companies cannot shy away from the responsibilities of subsidiaries companies.
On the other hand, Venkat Chary, Chairman, 63 moons technologies, said: "The order would have a serious impact on the limited liability concept, the cornerstone of the Indian corporate sector, by lifting the corporate veil by an executive order and without running a full evidence-led adjudication."
With the merger order, the government sought to make FTIL responsible for the liabilities of NSEL, though the liability of NSEL was yet to be established.
''This is a worrisome development for corporate India as the aftermath is likely to be chaotic, impacting investment flow into India by way of domestic investments, FDIs, FIIs and also the spirit of entrepreneurship, so vital for the country’s economic development as investors will always be scared to invest in parent companies with subsidiary companies,” Mr. Chary added.
The Judgement can be a big ray of hope for all aggrieved investors, though the merger order of MCA also means that the government may enter a corporate boardroom, citing public interest. However, the big question is if the government's merger plans will stand the scrutiny of the Supreme Court.
A long and torrid legal battle is ahead in the apex court considering the complexities and legalities of FTIL-NSEL merger.