Mumbai: The Bombay high court on Wednesday vacated the status quo on a government draft order that had suggested a merger of National Spot Exchange Ltd (NSEL) with its parent Financial Technologies (India) Ltd (FTIL), and directed the government to proceed with passing a final order.

The court had ordered the status quo after FTIL challenged the government’s draft order. A division bench comprising justices V.M. Kanade and Revati Mohite Dere on Wednesday directed the government to proceed with a final order under section 396 of the Companies Act, 1956, adding that it will look into the case after the order is passed.

“We will keep all the options open for FTIL to challenge any adverse order passed by the government. The government will hear all the parties and their contentions within 30 days and pass an order within four weeks of the hearing," said justice Kanade.

Kanade also said the Union government’s final order, once it is passed, will be kept in abeyance till the court hears the case. The final order will be subject to the court’s clearance.

Kanade added that, in the interim, the government is free to pass any additional orders related to the case.

At the beginning of the day’s hearing, government counsel lawyer Ranjit Kumar had asked the high court to vacate the status quo order, saying FTIL’s decisions to dispose of its assets like Bourse Africa and hiving off its trading software Odin had violated the status quo.

Kumar said so far the government has passed a draft order and will pass a final order only after hearing all the parties concerned.

“I will pray that your lordship keep this matter pending and allow the central government to pass an order after hearing all the parties concerned," Kumar said. He also asked the high court to direct FTIL to not dispose of its assets.

A draft government order on 21 October had suggested merging the two companies in public interest. This would mean FTIL assuming all the liabilities of the commodity bourse and become party to all agreements entered into by NSEL. The draft order was put up for 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".

FTIL challenged the move in the Bombay high court, which ordered the status quo on the draft order until the final hearing of the case. The high court had 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.

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.

On Wednesday, FTIL’s lawyer Abhishek Manu Singhvi said only 781 wealthy individuals have lost around 4,000 crore of money in the NSEL payment crisis. “No default has happened from NSEL. It is just a platform. The people who have been crying hoarse and for whom government of India’s power has been invoked are just 781 people," said Singhvi.

Singhvi said NSEL has been effectively recovering money since the payment crisis. So far, the commodity spot exchange has paid all the people who have lost up to 2 lakh. NSEL has also returned 50% to investors who lost between 2 lakh and 10 lakh.

Assets of 24 defaulters of NSEL worth 6,000 crore has also been attached by the agencies investigating the case.

“A provision (section 396) has been used...for effective recovery of money. It is a compulsive coercive merger of two corporate entities. Merger by loading the liabilities by compulsion. What about the 63,000 shareholders of FTIL? These 781 people must be very very special that such an extra ordinary power has been invoked," said Singhvi. “When NSEL itself is not a primary defaulter, then how can FTIL be punished, who is neither a secondary or tertiary defaulter at all?"

On Wednesday, over 1,000 employees of FTIL intervened in the case and opposed the merger.

Janak Dwarkadas, arguing on behalf of Jignesh Shah, founder of FTIL, said that the entirety of the 63,000 shareholders have been sidelined by the government.

“As a stakeholder, my consent was not taken before the draft order was passed. My rights as a stake holder will be affected if a solvent company is merged with a company that has a liability of 5,600 crore," Dwarkadas said.

On 23 January, Mint reported that lenders to FTIL have also moved court opposing the government’s decision to merge NSEL with FTIL.

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