In a setback to Jignesh Shah and his Financial Technologies (India) Ltd, the ministry of corporate affairs (MCA) is pursuing legal provisions to take control of FTIL and could, in the extreme, shut it down for deliberate bungling in its subsidiary NSEL which is under the scanner for the alleged payment scam.
Based on an Interim Inspection Report, the MCA has concluded that parent FTIL purposely faulted on conducting prudent and sound business of its subsidiaries — NSEL and MCX.
The MCA has alleged “oppression and mismanagement” by a “common” board of directors of parent and subsidiaries under Sections 397 & 398 of the pre-amended Companies Act and invoked Sections 401, 402 and 408 to approach the Company Law Board to take over or dissolve FTIL.
“It has been recommended that as FTIL failed to carry on the business of the company along with its subsidiaries, on the boards of which there were common directors, on the basis of commercial prudence and sound business principles, the ministry may invoke provisions under Sections 397 & 398 read with Sections 401, 402 and 408 as well as under Section 388B of the Companies Act, 1956 against FTIL.”
While the regulators and the government have taken steps to make Multi Commodity Exchange and MCX-SX independent of FTIL, the parent continues to be held and managed by Jignesh Shah and his close associates, and a change of board and management at FTIL would mean that Shah would lose the last fort he was captain of.
The MCA’s resolve to control its board and management is clear. Through a letter dated January 24, 2014, it has sought legal opinion from the law ministry to pursue its proposed actions against FTIL.
“A Statement of Case has been prepared on the issues which require legal opinion. It is requested that expert opinion of your ministry may please be conveyed so as to enable this ministry to proceed further in the matter,” the MCA wrote to the law ministry.
Legal experts from top corporate law firms said the MCA’s proposed sections allow it to appoint its own directors and, in the extreme, permit winding up FTIL on grounds that the subsidiaries’ affairs were being managed in an oppressive manner that was also prejudicial to public interest.
In September 2013, MCA ordered an inspection on FTIL, NSEL and MCX in the wake of the payment default of around Rs 5,500 crore at NSEL. The Interim Inspection Report put FTIL at fault on various accounts of mismanagement and recommended the MCA to take legal action under various sections.
Earlier, the management at MCX and MCX-SX regulated by FMC and SEBI respectively underwent complete overhaul and the board was made independent of FTIL by their regulators.