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Mumbai: The Bombay high court on Wednesday adjourned until 11 March the hearing of a petition filed by Financial Technologies (India) Ltd (FTIL) challenging the government’s move to supercede the board of the company.

A bench comprising justices V.M. Kanade and A.R. Joshi ordered the adjournment after being told that the Company Law Board (CLB) is scheduled to hear the matter on 19 March.

The high court also allowed commodities market regulator Forward Markets Commission (FMC) to be a party to the case.

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

The government move came against the backdrop of the 5,574.34 crore payment fraud at National Spot Exchange Ltd (NSEL), in which FTIL holds a 99.99% stake.

The company then filed a petition in the Bombay high court seeking a stay on the proceedings at the CLB on grounds that it had not been given enough time to file a reply. On Monday, the high court had directed the CLB not to pass an order until Wednesday.

In a notice to the exchanges on Monday morning, FTIL said a resolution was passed in which the board of directors said the move is a “clear attempt by the MCA to render ineffective and, in fact, defeat FTIL’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 entrepreneur Jignesh 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 ring-fence 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.

As per the petition filed in the CLB, 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 shareholders to oppose the proposed merger.

The merger 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 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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