Pursuant to the merger, ordered by the Corporate Affairs Ministry, Jignesh Shah-led Financial Technologies group would need to absorb NSEL along with all its liabilities including pending dues, estimated at over Rs 5,200 crore, that needs to be paid to investors, creditors, brokers and others.
This is the first time that the Corporate Affairs Ministry has ordered a 'forced merger' of private entities using a clause under the Companies Act that allows the government to intervene for "essential public interest".
Shares of Financial Technologies (India) Ltd, the holding firm of Shah-led group, fell sharply by 20 per cent to hit its lowest permissible level of Rs 169.65 a piece at the BSE following the government action.
In a brief statement, FTIL said it has received a communication from the government on this draft order and it "is taking appropriate steps in the matter in consultation with the legal counsel of the company".
The decision, which came over a year after the NSEL crisis broke out in July 2013, has been taken in "essential public interest" as the exchange is "not left with any viable, sustainable business while FTIL has necessary resources to facilitate speedy recovery of dues", the order said.
"In the face of a fraud of such a magnitude involving settlement crises of Rs 5,600 crore owed to over 13,000 investors on the trading platforms of NSEL, FTIL cannot seek to take refuge behind the corporate so as to unjustifiably isolate itself from the fraudulent actions that took place at NSEL resulting in such a huge payment crisis," it added.
So far, NSEL has managed to recover nearly Rs 360 crore from defaulters. A small amount out of this has already been refunded to the investors, while the rest has been kept in an escrow account.
The move to merge NSEL with FTIL - first major government intervention in a scam-hit private sector entity since the Satyam case in 2009 - would take a final shape after taking into account submissions or objections made by shareholders and creditors of the two companies.