A Merger Order That Hurts Public Interest

In February, the passing of an executive order caused ripples in financial circles across the country, even abroad. Passed by Ministry of Corporate Affairs, it relates to forcing the merger of NSEL with its parent body FTIL. Interestingly, that holds against the ministry’s own circular dated April 20, 2011.

The order stands judicial scrutiny for obvious reasons but what is more baffling is the rationale behind it and the hurry it entails. Billed to be in public interest, it can’t defy public interest any more as it clouds over the fate of over 63k FTIL investors. 

NSEL as a body has its own assets and liabilities. That in turn implies that a merger of this body with any other body is unfair, let alone forced. Currently, it has a crunch of Rs. 5600 crore, and overburdening shareholders of FTIL who have a cash reserve of Rs. 2000 crore serves no one.

Understandably, NSEL traders are under the gun too but how does that make the merger any more sensible than sacrificing one body part to save another.   For the 63k shareholders of FTIL, it would be a hard blow as it erodes their net worth and makes them commercially unviable. Now if that happens—no one gains--not even NSEL stakeholders!

It should be clear beyond all doubt that the cash reserves and all profits that arise on the balance sheet of FTIL belong solely to its shareholders. Anything that takes it away from them is a clear violation of their legal right and must not happen for more reasons than those that meet the eye.

People from across the world are watching how we treat a private sector entity and it can be safely said that the picture being formed is not rosy. It hurts India’s reputation as an investment destination and it hurts PM Modi’s pet project ‘Make in India’ and one of the better known faces that has exemplified it-Jignesh Shah.

The merger order seems to be a classic example of financial imprudence and it is to be seen how the court views the whole issue.  However, the silver lining could lie in the recent developments rounding up NSEL brokers and traders who have for long managed to stay untouched. Could it be that after all this while dissent against the merger finally has investigating authorities ruffled up?