The government has bulldozed its way into a corporate boardroom, citing public interest. The big question is if its plan to forcibly merge National Spot Exchange Ltd (NSEL) with Financial Technologies (India) Ltd will stand the scrutiny of the courts.
This column has argued before that forced mergers are bad in policy—they fly in the face of the concept of limited liability, a bedrock of corporate law. To be sure, this has never been done before. As such, one would have expected that the ministry of corporate affairs (MCA) would have taken great pains to explain its rationale for forcibly merging the two companies. It has failed to do so.
Its draft merger order, issued in October 2014, was a slipshod job. But then, in MCA’s own words, the draft order was based on a view that there was a prima facie case for invoking the never-used forced merger rule. Its final order was issued last Friday, more than 15 months later, and hence there are hardly any excuses for the fairly weak arguments that the order brings to the table.
