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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