63 Moons Merger : A Matter of huge Concern

The merger order of Ministry of Corporate Affairs to merge two private corporate entities—NSEL and 63 moons, forcefully is an unwarranted recourse to the infamous NSEL case.

The areas of concerns involving this case are multiple-- from legislative and fiscal purview—to public interest. The claim by MCA that the move aims to alleviate the 13,000 trading clients of NSEL is based on untenable grounds. 

Based on MCA’s own circular dated April 20, 2011, it is a known fact that for any merger to materialize permission of 100% shareholders and 90% creditors needs to be obtained. By forcing the merger on 63,000 shareholders without so much as giving them a chance to consent/object to the amalgamation, MCA has not only goes against its own circular but also article 14 of the constitution.

The two companies are autonomous bodies with 63 moons showing cash reserve of Rs. 2000 crore, on the other hand, other, owning a liability of Rs. 5600 crore. The merger is likely to erode the net worth of 63 moons and may render it unviable. Such merger cannot be considered as the best recourse in any case.  

What is even more baffling is that at a time when we are projecting ‘Make in India’, how would we rationalize such executive high-handedness. Such a step will affect investor sentiments thereby hurting the nation’s interests as well.

It is completely unfair to make shareholders of FTIL pay for the sins of defaulters. What is the hurry and rationality behind the merger when we should clearly be chasing the actual defaulters?

Reference - Shantanu Guha Ray:(2016): ‘The Target Book’: New Delhi: Publisher: AuthorsUpfront

MAYHEM OF FORCED MERGER

There have been reports about the Ministry of Corporate Affairs (MCA) actively considering merger of the National Spot Exchange Ltd (NSEL) with its listed parent 63 moons technologies limited (formerly FTIL). MCA had issued the draft order of merger on October 21, 2014, based on the recommendations made by the Forward Markets Commission (FMC). This order has challenged the constitutional validity of Section 396 of the Companies Act, 1956. Moreover, 63 moons have challenged this order before the Hon. Bombay High Court.

While considering the pros and cons of this forced merger, it is evident that the merger will destroy the concept of “limited liability”. It may also lead to global and local investors losing confidence in investing, given that 63 moons have FDI and FII investments. It will further set a precedent to an array of PILs seeking a merger of companies facing financial problems with their solvent parent companies.

The forced merger will also have an adverse impact on 63 moons’ market capitalization. It may erode its net-worth by buckling the unproven and sub-judice liabilities of more than Rs. 5,000 CR of NSEL onto 63 moons. This will directly harm thousands of 63 moons shareholders along with hundreds of its employees, creditors, vendors and other stakeholders, which is against the spirit and purpose of Section 396. It can hardly be said that Section 396 was meant to fasten third-party unproven liabilities on a healthy company with a view to adversely affect the stakeholders of such healthy company, its creditor, and employees.

This is not the first instance when biased decisions by the government have affected corporate houses in India. An earlier instance on ban of Maggi is still fresh. The Food Safety and Standards Authority of India (FSSAI) had banned Maggi noodles in June 2015 alleging unfair trade practices, false labelling, and misleading advertisements by Nestle India. The ban was in accordance to tests and results depicting that Maggi noodles contained lead and Monosodium glutamate (MSG) in excess of permitted levels, which allegedly harmed consumers. While the ban was later lifted by the Hon. Bombay High Court saying the national food regulator had acted in an “arbitrary” manner and not followed the “principles of natural justice” while banning the product. Nestle India had, too, argued that the government was biased and had “singled out” the Swiss food maker by banning their popular snack while no action was being taken against manufacturers of similar products.

We can only hope for an unbiased and beneficial resort to the NSEL-FTIL crisis, a resort that would be globally favourable and fortunate for other corporate houses too.

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Why Amalgamate Private Sector Entities?

The Government’s draft order directing the merger of NSEL with 63 moons is one of its kind, as this is the first instance involving two private sector companies. Both NSEL and 63 moons belong to one group in the private sector. This is the first time that a listed entity in the private sector is involved in a Section 396 order of the Central Government. Moreover, 63 moons have challenged this order before the Bombay High Court.

1. Limited Liability Destroyed

While considering the pros and cons of this forced merger, it is evident that the merger will destroy the concept of “limited liability”. It may also lead to global and local investors losing confidence in investing, given that 63 moons have FDI and FII investments. It will further set a precedent to an array of PILs seeking a merger of companies facing financial problems with their solvent parent companies.

2. Burden On Shareholders

The MCA has ignored the agony of 63000 shareholders of 63 moons in its order to merge NSEL-FTIL. Why should these shareholders be forced to pay Rs.5,600 crore of NSEL’s defaulting brokers? In fact, even if this merger were to be executed, it would be nothing more than a farce, since 63 moons cash reserves only amount to Rs.2000 crore. “To say that public or national interest is involved is quite a stretch. It’s been over two years since the case was detected, and no systemic risk has manifested, either in India’s commodities or any other financial markets,” says Venkatesh Panchapagesan, adjunct professor, finance, and control area, IIM-B.

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A Merger that Breaches Limited Liability | 63 Moons

It’s the first time that a subsidiary company is being forcefully merged with its parent company, through an executive fiat overruling the judiciary which defeats the fundamental edifice of Limited Liability under the Indian Companies Act, 1956.

The areas of concerns involving this case are multiple-- from legislative and fiscal purview—to public interest. The claim by MCA that the move aims to alleviate the 13,000 trading clients of NSEL is based on untenable grounds.

Based on MCA’s own circular dated April 20th, 2011, it is a known fact that for any merger to materialize permission of 100% shareholders and 90% creditors needs to be obtained. By forcing the merger on 63,000 shareholders without so much as giving them a chance to consent/object to the amalgamation, MCA has not only goes against its own circular but also article 14 of the constitution.

The two companies are autonomous bodies with 63 moons (formerly FTIL) showing cash reserve of Rs. 2000 crore, on the other hand, other, owning a liability of Rs. 5600 crore. The merger is likely to erode the net worth of 63 moons and may render it unviable. Such merger cannot be considered as the best recourse in any case. 

What is even more baffling is that at a time when we are projecting ‘Make in India’, how would we rationalize such executive high-handedness. Such a step will affect investor sentiments thereby hurting the nation’s interests as well.

It is completely unfair to make shareholders of 63 Moons pay for the sins of defaulters. It is difficult to grasp the hurry and rationality behind the merger when we should clearly be chasing the actual defaulters.

In these circumstances, while investigations and various legal proceedings are pending, any action based on the FMC's recommendations towards merging NSEL with 63 moons, will irreparably prejudice and harm all stakeholders and slow down the on-going recovery process.

Reference: Shantanu Guha Ray:(2016): ‘The Target Book’: New Delhi: Publisher: AuthorsUpFront

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Jignesh Shah - The Modern Entrepreneur

If one were to attribute few adjectives to Jignesh Shah, they would be - ambitious, far-sighted, well-versed, and innovators. An erratic business sense, combined with luck and unusual skills took Shah to an astonishing climb.

It is rare to see a thought converting into a state of the art financial infrastructure ecosystem all within a short span of less than a decade - made possible by the foresight of Jignesh Shah.

The Founder of 63 moons technologies ltd [formerly Financial Technologies India Limited], Jignesh Shah is the first generation entrepreneur who established a string of state of the art and world class exchanges across the world. Through sheer patience, persistence, and perseverance in creating robust infrastructure, Jignesh Shah combined his intellect and expertise in information technology.

From creating next generation multi-asset class trading systems to exchanges of different nature (Stock, Commodity, Currency, Energy, etc.) located in 9 regulatory jurisdictions, Jignesh Shah established his ventures in leading international financial centers of Asia, Middle East, and Africa.

Reference - ShantanuGuhaRay:(2016): ‘The Target Book’: New Delhi: Publisher: Authors Upfront

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63 Moons Contribution To Financial Markets

63 Moons played a prominent role in the Indian financial system with the distinction of being the only entity in India to establish 10 exchanges covering all the asset classes including equity, debt, currency, commodities and energy along with an extensive ecosystem of supporting institutions in India & abroad. It enabled tech-centric market systems that democratized markets and provided technology solutions and trading platforms to the Indian financial market infrastructure.

The company is acclaimed all over the world for the pioneering work it has done in the creation of state-of-the-art, modern and people-centric financial markets.

 Key Facts On 63 Moons’ Contribution:

• Leader In Technology:
  
  63 moons have a good and running technology business, in which it has pioneered and stands as a global leader even today. Further, the group is on its way to create the future through innovation and technology in the emerging Digital India space.

• Revenue Generation for Exchequer:
  
  63 moons group has made a significant contribution to the tax revenue without seeking any subsidies or tax reliefs like the IT sector. The operations of the exchanges and ecosystem institutions generated a number of taxes, such as sales tax, income tax, VAT, STT, and CTT.

• Global Influence:
  
  International ventures of 63 moons put India on the world map of global finance. The exchange development strategies have become case studies for emerging markets.

• Connecting Indian Finance With Global Markets:
  
  Opening a gateway for Indian businesses to explore opportunities in Asia, Africa, and the Middle East by opening exchanges in major centers of Dubai, Singapore, Mauritius, Bahrain, and Singapore.

• 63 moons have not taken any subsidy and any tax incentive/favor from Government. On the contrary, the group has created minimum 1 million jobs through its ventures directly and indirectly.

• The group has paid more than approx. Rs 2,000 crores as a tax. Every venture that has been rolled out of the group has been no. 1 in India and no. 2 in the world, thus making it proud - A true ‘Made in India’ story.
  
  
• The company has a track record of paying 100% dividend since the past 38 quarters to its shareholders, which itself is a record in India by itself.

For more information check 63 Moons.

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63 Moons Cripped : What the Nation Lost

63 moons technologies limited is a well-run company, with close to 60,000 public shareholders, an accomplished Board and a dynamic management, that has steered this company from being a start-up in early 2000s to one of the most respected and widely regarded technology solutions company that pioneered multi-asset-class trading segments, which stood the tests of competition from global majors such as IBM. Cost-effective and efficient technology solutions enabled Indian financial markets to expand the reach and access nationwide, benefiting millions, including financial institutions, intermediaries, investors and other stakeholders.

Since its inception, 63 moons has not received any complaint from exchanges or intermediaries, which are its biggest clients and customers. Even competing institutions used to buy technology solutions from 63 moons, which is a testimony to its integrity and business ethics. There was never any regulatory action of any sort, although the exchange and ecosystem ventures of the Group were operating in several regulatory jurisdictions in India and abroad.

Despite all these, 63 moons were declared ‘Not Fit & Proper’ and forced to exit from its exchange ventures after the NSEL crisis. This is a huge loss for the nation as one of the finest financial institutions has been savaged and crippled by certain vested interests.

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If not for Vested Interests, The NSEL Crisis could have been Solved Easily

To understand the NSEL Crisis, one needs to take note of the following points:

·        NSEL had a valid and legal business model

·        There was no omission or commission on part of the NSEL Board

·        The crisis was solvable but was blown out of proportion by the action of the FMC, which focused on disciplinary action first, even prior to an investigation, and left out recovery and action against defaulters completely

·       FMC has been changing its stance in NSEL matter even before the crisis erupted. When on July 19, 2013, it replied to the Government that the 2007 exemption was a general exemption, then where did the question of illegality arise for suspending the trading of NSEL?

·        Due to a conspiracy, the NSEL crisis was treated differently than any other previous crisis in the financial sector including the manner in which the FMC treated other spot exchanges and NSEL

·        When NSEL suspended its trading, there were 46,000 trading clients with outstanding, out of which 33,000 trading clients in e-Series got their full payment and out of the remaining 13,000 trading clients more than 50% of them, around 7,000 trading clients, were paid more than 50% of their outstanding from the loan provided by 63 moons

·        Comprehensive investigation by the EOW has revealed that the entire outstanding dues of the trading clients are with the 22 defaulters

·        Time and again, NSEL and its parent have been singularly targeted while the real culprits – the defaulters roam free. 

For more information check 63 Moons.

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63 moons innovation for efficient price discovery

MCX emerged as the world’s third biggest exchange in terms of contracts traded. Global leadership in trading of contracts in gold, silver and energy

In 2012, MCX accounted for 8 of the top 20 metals commodity contracts traded in the world . A nationwide study by Tata Institute of Social Sciences showed the role of MCX in creation of jobs and incomes (A Million Jobs and a Million More

Opportunities – a joint study of MCX and TISS)

It provided reach and access to price information on commodities across the nation through partnership with India Post (Gramin Suvidha Kendra)

The public listing of MCX was the first-ever exchange listing in India, which became one of the most successful issues in the Asia Pacific in midsized corporates in 2012.

It is the first stock exchange in the private sector with majority ownership of the public sector financial institutions.  The development theme adopted for the new stock exchange was “Growth and Inclusion” and a market manifesto that clearly spelt out the development objectives and business outcomes

Developed the currency derivatives trading that made MCX-SX reach the top of the league tables in trading of USD-INR contract  Developed special programme for promotion of rural entrepreneurs and rural start-ups.

There has been an extensive focus on market education and skill development even before the launch of Skill India , and special thrust and focus on the development of market segments in the realm of corporate debt, SME capital markets and retail debt markets.

Also Read : Jignesh Shah applauds Modi’s vision on technology & innovation

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The Fiercely Ambitious Man : Jignesh Shah

Jignesh Shah had nurtured dreams of becoming a business tycoon since the tender age of six. This goes on to show the burning ambition of the man, now known as the ‘Baadshah of Exchanges’.

After passing out as an electronics engineer, he worked for the BSE, with a team that was in the process of setting up its BOLT system. After understanding different aspects of the finance field, he realized the potential and need for a technology firm in this sector. Shah, along with a partner, set up Financial Technologies India Limited (FTIL) in 1988, which offered solutions to brokerage firms and exchanges. Later, FTIL set up commodity futures exchange MCX, the National Spot Exchange and thereafter the MCX-SX currency-and-stock exchange. MCX went on to become the world’s fourth-largest commodity derivatives exchange by trading volumes at one point.

“The Innovator of Modern Financial Markets”, as he is rightly called, Shah soon started to enjoy power with the rest of the elite. Our present Hon’ble President, Pranab Mukherjee, who was the then Finance Minister was instrumental in issuing a license to MCX. The exchange was launched by P Chidambaram. In Shah’s own words, “the exchange was set up to help farmers manage their stocks and aid price discovery”. However, the payment crisis at NSEL had far-damaging effects on Shah and his firms.

However, he was undeterred. “The joy is in creation. Founders of a company have to realize they are building an institution that survives beyond individual lives,” Shah once told the Wall Street Journal when asked about the prospect of having to renounce control at most of his key exchanges.

Reference -ShantanuGuha Ray:(2016): ‘The Target Book’: New Delhi: Publisher: Authors Upfront

For more information check 63 Moons.

  

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