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Mumbai: The Bombay high court on Monday offered interim relief to Financial Technologies (India) Ltd (FTIL) by restraining the Company Law Board (CLB) from passing an order on a government petition seeking to supersede the board of the company, which is fighting to keep management control with itself.

FTIL moved court after its board passed a resolution on Sunday to oppose the government’s petition, which followed a 5,574.34 crore payments fraud at its unit National Spot Exchange Ltd (NSEL) in 2013.

The principal bench of the CLB at New Delhi is scheduled to hear the government petition on Tuesday.

FTIL argued that the company had not been given enough time to file its reply at the CLB and so the tribunal should be directed not to pass the order on Tuesday.

A high court bench comprising justices V.M. Kanade and Anuja Prabhudesai restrained the board from passing an order on the petition. The bench said the court will hear FTIL’s petition on Wednesday.

R.S. Loona, managing partner at the law firm Alliance Corporate Lawyers, said given that the high court ranks higher than the tribunal, CLB was duty-bound to follow the order.

FTIL shares rose 20% to 214.40 on the BSE on Monday, a day the benchmark Sensex gained 0.33% to 29,459.14 points.

On 25 February, the ministry of corporate affairs (MCA) filed a petition before the CLB, asking it to restrain FTIL directors from remaining in office and allow the government to appoint its nominee directors in their place to “prevent further acts of fraud, misfeasance, breach of trust".

Mint has reviewed a copy of the petition.

FTIL moved court after its board passed a resolution on Sunday to oppose the government’s petition, the latest punitive move against the company, promoted by entrepreneur Jignesh Shah, for the fraud at NSEL, in which FTIL owns a 99.99% stake.

In a notice to the exchanges on Monday morning, FTIL said a resolution was passed in which the board of directors said that the move is a “clear attempt by the MCA to render ineffective and, in fact, defeat FIL’s challenge and opposition to the proposed amalgamation of NSEL with FTIL."

FTIL’s management is fighting to retain control over the firm founded by Shah in 1988. Shah and other promoter entities hold nearly 46% of FTIL, although Shah stepped down from all key management positions in November 2014 as a way to ringfence FTIL from the payments fraud at the commodities bourse.

On 21 October 2014, the government passed a draft order to merge NSEL with FTIL—an order that has been opposed by FTIL and its shareholders in the Bombay high court. The court has allowed the government to proceed with a final order while holding that the implementation of that order would be subject to the court’s clearance.

The government also wants FTIL’s board to be barred from carrying out any moves towards a restructuring, merger or demerger of the company. The government is of the view that such moves indicate “ill designs" of the company, said the petition filed with the CLB.

FTIL has asked its shareholder to oppose the proposed merger between NSEL and FTIL. On 25 February, FTIL chairman Venkat Chary wrote to shareholders saying all shareholders are entitled to “object to the forced amalgamation of NSEL with your company (FTIL) by exercising your right of opposition under Section 396 of the Companies Act, 1956".

“We request you as a responsible owner of your company to send to MCA (ministry of corporate affairs), your genuine, bona fide and reasoned objections to the draft order," the letter said, adding that FTIL has 2,000 crore in cash, and debt of 475 crore. The merger of FTIL and NSEL has been proposed under Section 396 of the companies law, which empowers the government to order such a union when it is deemed to be in public interest. This is the first time that the government has invoked the provision in a case involving non-state entities.

The merger was recommended by commodities market regulator Forward Markets Commission (FMC) and has also been demanded by investors affected by the fraud at NSEL

In a December 2013 order, FMC ruled that FTIL and Shah, then-chairman of FTIL, were unfit to run an exchange in the country and barred Shah from holding a management position in any recognized exchange in India.

This led to FTIL selling its stake in all its exchange ventures including Multi Commodity Exchange of India Ltd (MCX). FTIL, which originally held a 26% stake in MCX, sold a 15% stake in the exchange for 459 crore to Kotak Mahindra Bank Ltd and the remaining 11% in the open market to public and private investors.

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