Home / Companies / FTIL’s decision to pay dividend angers investors of NSEL

A decision by Financial Technologies India Ltd (FTIL) to pay a dividend to shareholders despite posting a net loss for the June quarter has enraged investors, who have lost money in the 5,574 crore fraud at the company’s unit National Spot Exchange Ltd (NSEL).

Investor associations that have complained against FTIL to the government and regulatory agencies say that the move by the FTIL board amounts to asset stripping at a time when the courts have barred FTIL from selling any immovable assets.

The company is allowed to go ahead with the sale of its movable assets, including its stakes in other entities, although such transactions are subject to regulatory approvals.

Investors are concerned about the cash outgo also because of the proposed merger of NSEL with FTIL which will force the listed entity to assume all liabilities of the commodities bourse.

The Bombay high court has directed the government to decide on the merger by 30 October.

On 9 August, FTIL announced a standalone loss of 34.15 crore for the quarter ended 30 June while announcing an interim dividend of 5 per share that will lead to a payment of almost 10 crore to the promoters who collectively hold a 45.63% stake in the company.

The promoters of FTIL include Jignesh Shah and his family members, and La-Fin Financial Services Pvt. Ltd, which is the investment company of Shah, who spent more than 100 days in jail in connection with the fraud at NSEL before being granted bail on 22 August 2014. FTIL holds 99.99% of NSEL.

The company has been declaring dividends in most quarters since the three months ended June 2013, and it isn’t the only listed entity to announce a dividend after posting a loss. A Mint analysis found that since April 2005, around 269 companies have declared a dividend while reporting a standalone loss on an annual basis.

Since June 2013 till date, promoters have taken home over 52 crore through dividends, the analysis shows.

NSEL investors have not taken this lightly. A group of investors grouped under the NSEL Aggrieved and Recovery Association (NAARA) alleged that apart from dividends, Shah was also draining FTIL by way of huge legal expenses to defend the company and himself in NSEL-related matters.

“FTIL is carrying out its nefarious plans of siphoning and stripping FTIL of whatever is possible, and the significance is not simply by way of the amounts involved, but of actions that are getting to be known in public domain like the huge jump in legal expenses. It is an indication of their intent to defy all norms," says Madhu Desai, one of the trustees of NAARA.

As per FTIL’s annual report, the company’s legal expenses jumped 81.36% in 2013-14 to 40.08 crore from a year ago. The annual report for 2014-15 is not yet available.

Responding to an email query, an FTIL spokesperson said the firm had been making consistent dividend payout for the last 10 years and some entities were only trying to sensationalise the matter by calling it asset-stripping.

“With regard to your query, that trading clients (referred by you as NSEL investors) are viewing this as asset stripping, it is nothing but an attempt to sensationalise and prejudice your reader. In fact, this 38th continuous dividend has been unanimously approved by the board comprising five independent directors and is in the interest of approximately 63,000 shareholders," said the FTIL spokesperson.

The investor association has also highlighted the fact that the company’s proposal to bear the remuneration costs of persons such as Manjay Shah, Miten Mehta and Dewang Neralla, who are perceived to be close to Shah, will further lower the cash balance of the company.

In a notice to shareholders on 31 July, FTIL said that it intends to reimburse the remuneration of Neralla, who is the managing director and chief executive officer of Atom Technologies Ltd and Manjay Shah, managing director of TickerPlant Ltd. Both the companies are subsidiaries of FTIL.

While Manjay and Jignesh Shah are brothers, Mehta and Neralla have been Shah’s colleagues for many years.

As per the notice, both, Atom Technologies and Tickerplant had “losses/inadequate profits in the previous financial year" and so have approached FTIL for reimbursing the remuneration as per the laws framed under Companies Act, 2013.

“FTIL is continuously indulging in frittering away the cash balance of the company for rewarding the people who are manning the board of FTIL and other group companies at a time when the group’s financial performance has been deteriorating," says Desai.

FTIL also plans to fix the remuneration of Mehta, a non-executive and non-independent director, at 1 crore per annum in 2015-16 for “availing of services of professional nature" from him and extending a financial assistance of 50 crore to NSEL.

“The said resolutions are first of all in accordance and in compliance to the provisions of the Companies Act, 2013. The said resolutions are not for increase in remuneration at all. The allegation that Mr Miten Mehta, Mr Dewang Neralla and Mr Manjay Shah are perceived to be close to Mr Jignesh Shah is baseless. They all are qualified and well experienced professionals with proven track records. The company is following the best governance practices transparently and seeking approval from the shareholders as per the Companies Act, 2013. The shareholders are free to make an informed decision on the same by e-voting facility provided by the company," said the FTIL spokesperson.

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