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Contravention of Limited Liability Concept in FTIL-NSEL Merger

FTIL-NSEL merger is saddening for the markets and shareholders. As the ministry of corporate affairs (MCA) has decided to merge the dependent National Spot Exchange Limited (NSEL) with its parent, Financial Technologies (FTIL) there will be ill-effects of the Merger.

FTIL’s 64,000 shareholders are affected by ministry’s merger decision as it breaking the rule of Limited Liability Concept. It is also hammering the foreign portfolio investors in FTIL, including Government Pension Fund Global and Blackstone GPV Capital, who own almost 13 per cent of the shares of the company. In this case MCA did not considered the flawed use of Section 396 of the Companies Act to push through the merger violates the concept of limited liability, the foundation of modern entrepreneurship. The parent company FTIL should not be ideally responsible for the liabilities of NSEL. It reveals the irregularity in India’s regulatory system.

Ironically ministry has argued the move was in public interest without properly defining the term public and without explaining on whose behalf the merger was being affected. The fact of  the draft merger order, issued in October 2014, was also negligent. Then, the ministry had argued that the draft order was based on a view that there was a prima facie case for invoking the never-before  forced merger rule. In some parts, the ministry has argued that there have been forced mergers, like that of troubled Global Trust Bank with healthy publicly-owned banks and the NSEL-FTIL merger is in continuation with this context. But what the government deliberately ignored the willingness of the same bank in case of merger.

As the case processed ministry doesn’t seemed to be bothered as it has asked FTIL’s shareholders not to object to the merger being equity investment carries inherent investment risk. Merger is ill advised as it has multiple loopholes, apparently because the government has authorized the ongoing process, under supervision by the Bombay HC, to recover dues from the defaulting traders. Even the assets worth Rs.5,800 crore have already been frozen by the Economic Offences Wing of Maharashtra. When they should identify the traders for recovery process. It is also unlikely to stand the test in the courts.

In case of recovery of the investors funds only money came in is from the decrees of defaulters assets. The order resulted in little results and the rest of it will be unfolded with time.

 

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Metkore Steel and Alloys declares lockout at Tekkali plant

kairavivyas70

Metkore Alloys, one among 24 Defaulters in the NSEL crisis that owes Rs 94.83 crore has declared a lockout at its Ferro-chrome manufacturing plant located in the north coastal Andhra district of Srikakulam. Earlier this year, bidders were invited by NSEL for the sale of 14,200 tonnes of ferrochrome belonging to Metkore that lies in their Andhra Pradesh warehouse. The company’s managing director Prashant Boorugu was arrested last year by the EOW for default of payment to the National Spot Exchange Limited (NSEL).

ferro-MThe company’s management on Friday posted a lockout notice on the factory gates. Around 300 workers were employed in the factory’s operations. The company cited increased power costs, losses and other factors as the reason for declaring the lockout. Efforts to reach out to the top management representatives were not successful. The deputy commissioner of labor (DCL) of Srikakulam district, D Venkataratnam, said he was not aware of the development.

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Rough stage faced by FTIL because of government actions

The Economic Atheneum

Company Law Board, a quasi-judicial body is all set to announce judgment on a petition filed by the Ministry of Corporate Affairs (MCA) to take over and replace the existing Board of FTIL. Management, trading clients and lenders of Financial Technologies India Ltd (FTIL) are also waiting for their judgment which was postponed on May 15 to June 30. The ministry had filed the petition asking CLB to allow the government to appoint its own nominees on the board of FTIL, the parent of scam-hit commodity exchange NSEL, in order to “prevent further acts of fraud, misfeasance, and breach of trust”.

This move by MCA has raised some unsettling questions. Is the government trying to supercede the company board (using section 397 of the Companies Act, 1956) so that it would not face any opposition while merging the company with NSEL under section 396 of the Companies Act? Does the…

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NSEL: CHRONOLOGY OF EVENTS

In the year 2004, NSEL was conceptualized from the PM’s vision to create national “Single Market”. NSEL business was bona-fide and approved by the Government. On 8th July 2004, Palaniappan Chidambaram, Finance Minister in his speech asserted importance of Spot Market. According to Economic Survey done in 2003-2006, 3 consecutive years of survey highlighted PM’s vision on Spot Market.

On May 2005, National Spot Exchange Limited (NSEL) was incorporated by Multi Commodity Exchange of India Ltd. (MCX). FMC seek’s concepts paper from MCX on creation of  National Spot Market on 31st May, 2006. Further taking into consideration on 18th July, 2006 MCX submitted a concept paper for setting up of Spot Market. On January 2007, the 11th Planning Commission recommended for  setting up Spot Exchange.

On 5th June 2007, NSEL was approved as a spot exchange by Department of Consumer Affairs (DCA). National spot exchange limited (NSEL), commenced live trading on October 15, 2008, and was the first commodity spot exchange of the country. NSEL was the first electronic spot market to obtain license under APMC Act in Maharashtra, Karnataka, Gujarat, Orissa, and Rajasthan and had carried out trades in all states by enabling farmers to sell their produce to bulk consumers. NSEL had operations in 16 States in India along with delivery-based spot trading in 52 commodities. NSEL is a company promoted by Financial Technologies India Ltd and NAFED.

Impact of NSEL Intervention:

  • On 26th August 2010, FMC recommended FCI to use Spot Exchange platforms like NSEL, as they provide better service and facilities compared to other models.
  • On 5th August 2011, FMC appointed as designated agency to regulate Spot Exchanges.
  • FMC wrote to MCA On 5th August 2011, urging RBI to exempt Spot Exchanges from the purview of Payment and Settlement System Act.

 

Crooked NSEL Brokers Flawed Deals

NSEL was an e-platform where Trading Clients through Brokers have bought and sold commodity contracts. Brokers had large legal and compliance departments and traded in commodities on NSEL on behalf of Trading Clients.

The NSEL Crisis came to light on 31 July 2013, when the present Defaulters of the Exchange failed to honour their pay-in obligations and Trading Members who traded on behalf of their clients could not receive their dues. After exhaustive investigations by multiple investigating agencies such as the EOW, CBI and ED, the 22 defaulters of the Exchange stand charged for perpetrating the crisis.

According to EOW, there were some brokers who played a vital role in crisis along with small brokers. EOW during interrogation with the investors, came to know that the brokers assured them of higher returns from NSEL for a higher brokerage. ” According to EOW Reports, few brokers had lent money to the investors at 10-12% interest and the investors had invested the same in NSEL trading platform expecting 15-16% returns.”

Another important aspect of the investigation, was the brokers assured investors regarding safety of their money and existence of stocks in warehouses. One of the investor, told the police that the brokers even executed bulk purchase orders without their consent. The investigation Officer told that the brokers who had to collect delivery orders or warehouse receipts for their clients did not do it and that amounts to criminal breach of trust. According to EOW charge sheet, the brokers acted as clearing and forwarding agents on behalf of their clients.

According to Media Reports, there were some of the most prominent names of Indians stock broking such as Anand Rathi Commodities, India Infoline Commodities and Geojit Comtrade. These people were being actively wooed by FT-MCX group in creating volumes in its various exchanges. While the names of members-borrowers who have defaulted are known, the list of member-brokers who funnelled the money for the borrowing-lending racket at 16%-18% fixed return has not been published so far. Here is the list of top 25. The complete list of those who owed money as well as those who were owed money from the NSEL system in early August.

Top 25 Members-brokers Owed To Amount owed (Rs Cr) Paid so far (Rs Cr) Still owed (Rs Cr)
Indian Bullion Markets Association 1159.55 24.94 1134.61
Anand Rathi Commodities 629.21 13.46 615.75
India Infoline Commodities 326.23 6.98 319.25
Geojit Comtrade 313.25 6.70 306.55
Systematix Commodities 277.74 5.94 271.8
Motilal Oswal Commodities 262.88 5.62 257.26
MMTC 220.08 4.70 215.38
AUM Commodity 214.71 4.59 210.12
Phillip Commodities 140.08 2.99 137.09
Purvag Commodities & Derivatives 132.58 2.83 129.75
PEC 123.39 2.64 120.75
Emkay Commotrade 100.54 2.15 98.39
CD Commosearch 94.71 2.02 92.69
JM Financial Commtrade 83.62 1.78 81.84
Ventura Commodities 67.2 1.43 65.77
Arihant Futures and Commodities 55.88 1.19 54.69
SPFL Commodities 55.47 1.18 54.29
RR Commodity Brokers 49.02 1.04 47.98
Nirmal Bang Commodities 46.64 0.99 45.65
India Nivesh Commodities 37.92 0.81 37.11
Suresh Rathi Commodities 37.7 0.80 36.9
Chimanlal Popatlal Commodities Broker 37 0.79 36.21
Rainbow Commodity and Derivatives 35.91 0.76 35.15
Ludhiana Commodities Trading Services 34.64 0.74 33.9
Greshma Commodities 34.59 0.74 33.85

Scope of Digital Marketing in India

In past few years, the world of marketing has seen a great revolution whether it is advertising, promotion or sales. Today, Digital Marketing is a booming career option. The rapid evolution of digital media has created new opportunities and avenues for advertising and marketing.

“Do you see those attractive Web banner ads, Video campaigns, Mobile apps, Informative blog posts quite often while surfing the net? All these are nothing, but different forms of Digital Marketing!”

Digital Marketing

Digital marketing is marketing that makes use of electronic devices (computers) such as personal computers, smartphones, cellphones, tablets and game consoles to engage with stakeholders. Digital marketing applies technologies or platforms such as websites, e-mail, apps (classic and mobile) and social networks. The way people are getting smartphones and tablets for anything and everything, it is apparent that demand for digital marketers will have large demand in coming time.

Social Media Platforms

Digital marketing is a vast field with a variety of areas and segments such as Social media, Content writing, Email marketing, SEO/SEM, Data Analysis, Designing, and much more. To get into Digital Marketing, you need to identify your interests and strengths in order to make a right decision to specialize into a particular area of Digital Marketing. Yes, it is good to get a basic and general knowledge of all the areas encompassing digital marketing, but specialization in one or more fields is the need of the hour.

Digital Marketing Mind Up

Careers in Digital Marketing

If you are considering digital marketing as a career, you should go for it with an open mind. You should be flexible so that you can adapt with the market well and update yourself as per market requirements. Common roles that you can get in the field of Digital Marketing include:

  • Digital Account Manager
  • Social Media Manager
  • E-commerce Manager
  • SEO Analysts
  • Affiliate marketing specialists
  • Email and SMS marketing specialists
  • Content Marketing specialist
  • PPC Manager

The scope of digital marketing and the associated career prospects are quite high in coming years. Digital media is a huge resource for shopping, entertainment, social interaction, news, etc. Thus, a large number of consumers can be tapped through this source. According to a Study made by Direct Marketing Association, Digital Marketing Industry is worth $62 billion! Also, according to eMarketer, Last year, advertising via mobile phones and tablets rose 180 percent, to $4 billion. This market is estimated to touch $7.2 billion soon. This rise is leading for high demand for professionals skilled in Digital Marketing.

NSEL Brokers

broker is an individual or party (brokerage firm) that charges a fee or commission for executing buy and sell orders submitted by an investor. A broker who also acts as a seller or as a buyer becomes a principal party to the deal. NSEL was an e-platform where Trading Clients through Brokers have bought and sold commodity contracts.

Brokers had large legal and compliance departments and traded in commodities on NSEL on behalf of Trading Clients. The NSEL model had brokers buying the chosen contract/commodity from a specific seller and selling it back to them ( or its affiliate ) as per the designated warehouse details mentioned in the contracts and the invoices issued.

On July 31, 2013 NSEL declared its inability to pay approximately Rs 5,600 crore to investors, leading to a payment crisis. Therefore most of the leading brokerage houses with decades of experience in the securities and commodities markets knew that on NSEL the associated collateral / payment risk exposure was concentrated on a single entity against whom they are trading which were relatively unknown.

Brokers misused and paired independent contracts thus unethically flouting norms of the Exchange. Brokers, having large legal and compliance departments – consciously selected counter parties. Brokers of Trading Clients are in receipt of VAT invoices from sellers of commodities.

Some of these brokers besides acting as C&F agents also undertook inspections of designated warehouses starting from 2012 onwards as part of their due diligence to safeguard their own and client interests. None of the brokers expressed any concerns in deficiency of the warehouse or non-availability of stocks either to the Exchange or FMC. The brokers attracted HNIs who had large surplus funds and could stay invested for a longer period of time. The police found that in some instances the broking houses used their clients’ accounts, without their (clients) information and consent for doing purchases. The brokers altered the rules for their personal benefit.

Conclusion:- Brokers besides acting as C&F agents undertook inspections of designated warehouses starting from 2012 as part of their due diligence to safeguard their own and client interests. According to Media Reports, 13,000 trading clients awaiting their dues 781 Ultra High Net Worth individuals have yet to receive close to Rs 3,605 crores.