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Mumbai: Four creditors of Financial Technologies (India) Ltd (FTIL) have moved the Bombay high court opposing the government’s decision to merge the company’s unit National Spot Exchange Ltd (NSEL) with the parent.

Union Bank of India, Syndicate Bank, DBS Bank Ltd and Standard Chartered Plc, who filed multiple intervention petitions in the high court between 20 December and 22 December, have been given 15 days to file a detailed submission on their decision to oppose the merger.

“These banks are creditors to FTIL and have a significant exposure. The basic plea is that if anyone wants to utilize the assets of FTIL to pay off the liabilities of NSEL, then the banks’ money has to be first secured. Set aside the amount due to the banks and then go ahead with the merger," said a person directly involved in the matter. He did not want to be named as the matter is in court.

An email query sent to FTIL remained unanswered as of press time.

A division bench of the high court comprising justices V.M. Kanade and Revati Mohite Dere will now hear the case on 4 February.

The high court also ordered status quo on the draft order of the government that proposed the merger until the next hearing.

“This is a huge systemic issue that has been raised that impacts the basic credit mechanism. So if a bank has to lend money to a corporate, then it will have to evaluate all the entities promoted by the corporate before extending any kind of credit. Or else such events will impact the exposure," said the person cited above.

Supreme Court senior laywer H.P. Ranina said creditors have the right to intervene in such cases as they need to secure the repayment of the money they have advanced and, at times, seek guarantees from the new controlling entity.

FTIL owns 99.99% of NSEL, on which trading was suspended after a 5,574.35 crore fraud at the latter came to light in July 2013.

In December, the court said the government’s decision to order the merger by applying Section 396 of the Companies Act 1956, needs to be looked into. The section enables the government to order a merger in public interest.

Appearing on behalf of FTIL, lawyer Abhishek Manu Singhvi had argued that never before had Section 396 been used to merge private companies without consent.

“This is an extraordinary matter. It (Section 396) has been used a maximum of four times and that too for the consensual merger of government companies," he argued while questioning the powers of the government in issuing the draft order.

On 21 October, the government had issued a draft order suggesting that FTIL be merged with NSEL in public interest. The merger would mean that FTIL would assume all the liabilities of the commodity bourse and become party to all the contracts and agreements entered into by NSEL.

The government said the order would be finalized after comments and feedback from stakeholders and the public.

The merger was recommended by commodity market regulator Forward Markets Commission (FMC) and was also a long-standing demand of investors affected by the fraud at NSEL.

FMC is of the view that the workforce and financial strength of NSEL has been depleted and so it is “financially and physically incapable of effecting any substantial recovery from the defaulting members."

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