The Hindu Business Line : Finance Ministry forwards all legal options

With no clear legal provision or a precedent on the merger of a non-banking financial services company registered under the Companies Act with a public sector bank set up under the Banking Companies Act, the roadmap that the Government finally takes would have a major impact on all such future mergers.

New Delhi , June 11

THE legal tangle over the merger of IFCI Ltd with Punjab National Bank (PNB) has proved to be quite a handful for the Ministry of Finance. Faced with conflicting opinions on the legal route to be adopted for the merger, the Finance Ministry has now sought the help of the Ministry of Law to untangle the jumble.

"We have worked out all the possible legal options available and sent them to the Law Ministry. We would be guided by whatever opinion they provide to us on the issue," a highly placed Finance Ministry official said.

Among the options that have been forwarded to the Law Ministry are to either go ahead with the merger under the provisions of the Companies Act or to bring about an amendment to the existing laws to facilitate the process.

With no clear legal provision or a precedent on the merger of a non-banking financial services company registered under the Companies Act (IFCI in this instance) with a public sector bank set up under the Banking Companies (Acquisition of Transfer of Undertakings) Act, 1970 and 1980 (PNB), the roadmap that the Government finally takes would have a major impact on all such future mergers.

There has been considerable delay in the proposed merger on account of the uncertainty that has been prevalent among official circles during the past few months on the merger route to be adopted.

In fact, compounding the Finance Ministry's confusion was IFCI's legal department submitting two totally conflicting legal opinions to the Ministry in quick succession.

While in its first opinion, IFCI has suggested that there was no alternative but for the promulgation of an Ordinance, the second opinion said that the other possible route could be to issue a notification under the Companies Act.

"The two institutions fall in separate classes. 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 had said in its first opinion.

It had further said "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 its later opinion, IFCI had said that the merger could be facilitated through notifications under the Section 616 (e) of the Companies Act to allow the Act to be made applicable to any other body corporate and Section 396 permitting mergers in the national interest.

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