The Hindu Business Line : Legalspeak on IFCI merger with PNB

THE law is an ass, it is said. If that is so, you might choose to ride it or may be simply take it for a ride. Ask IFCI's legal department, they might have more such ideas on the utility of the law.

Strange it might seem, but IFCI has managed to provide two diametrically opposite legal opinions to the Government on the feasibility of its proposed merger with Punjab National Bank (PNB) under existing laws.

The legal route finally adopted is of vital importance for the financial sector as it could set a precedent for future mergers of entities providing non-banking financial services under the Companies Act, 1956, with a public sector bank established under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1970 and 1980.

With no precedent and lacking legal clarity, the Government has found it difficult to take concrete steps on the IFCI-PNB merger despite the passage of over a month and a half since the plans were made public.

In its first opinion, IFCI has argued that the merger can go through only by the promulgation of an Ordinance. In the second one, provided in quick succession to the first, the institution has cited the same legal provisions and case laws to build a case for a simpler merger through the issuance of notification under the Companies Act.

Consider some of the points in the first opinion: "The two institutions fall in separate class. We are, therefore, of the opinion that for the merger these two separate class of institutions, a fresh statute/Ordinance will have to be passed," IFCI has said.

Further, in one swoop, IFCI has argued that the "provisions of the Companies Act are not available for merging IFCI with a nationalised bank. These provisions can only be availed if a bank is to be merged with IFCI." In fact, it has said the under the Companies Act it should ideally be PNB that should be merged with IFCI, with the latter later seeking a banking licence.

"This may not be acceptable to a nationalised bank as it would lose not only its existence, but also its statutory status," it has said.

Section 396 of Companies Act allowing for merger in national interest has also been ruled out.

The section "cannot be resorted to for amalgamating IFCI in a nationalised bank."

The applicability of the provision of the Banking Regulation Act, the Banking Companies Act, 1970 for the merger have also been ruled out. Now for the second opinion purportedly prepared to facilitate an early merger obviating the need for an Ordinance. Wearing a new thinking cap IFCI has now said that all it required for the merger is a couple of notifications under the Companies Act - under Section 616 (e) (making the Companies Act applicable to any other body corporate) and Section 396 (merger in national interest).

"It is possible for PNB to acquire the business of IFCI as the same falls within the scope and activities covered under Section 6(1) (of the Banking Regulation Act)," IFCI has said taking a U-turn.

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