In a big relief to the Jignesh Shah-promoted 63 Moons Technologies, erstwhile Financial Technologies of India (FTIL), the Supreme Court on Tuesday set aside its merger with National Spot Exchange (NSEL).
A bench led by justice RF Nariman allowed a batch of appeals filed against the Bombay High Court’s December 2017 order that upheld the central government’s merger order.
The proposed merger did not satisfy the criteria of public interest, it said, adding that the amalgamation order contradicted itself by stating that “NSEL is the alter ego of FTIL, and thus, the two companies are practically one entity. In any event, it does not indicate as to how the ‘alter ego’ argument impacts public interest”.
“We are of the view that it is the central government that has to be ‘satisfied’ that its order is in public interest and such ‘satisfaction’ must, therefore, be of the central government itself and must, therefore, appear from the order itself… it is clear that no reasonable body of persons properly instructed in law could possibly hold, on the facts of this case, that compulsory amalgamation between FTIL and NSEL would be in public interest,” the apex court said.
“Given the fact that the assessment order of April 1, 2015, did not provide any compensation to either the shareholders or creditors of FTIL for the economic loss caused by the amalgamation in breach of Section 396(3), it is clear that an important condition precedent to the passing of the final amalgamation order was not met. On this ground also, therefore, the final amalgamation order has to be held to be ultra vires Section 396 of the Companies Act, and, being arbitrary and unreasonable, violative of Article 14 of the Constitution of India,” the apex court said.
According to it, Section 396(3) speaks of a shareholder’s or a creditor’s interest in or rights against the company resulting from an amalgamation order.
“Such ‘interest in’ or ‘rights against’ obviously refers to real and substantive rights, as opposed to rights that are only in form… every shareholder or a creditor of a company is concerned only with the ‘economic value’ of his share or the loan granted to a company. The moment the share value, in real terms, is likely to dip, and/or loans granted are likely not to be repaid in time or at all as a result of an amalgamation, such members or creditors of the amalgamating company are equally entitled to be compensated for this economic loss. A reasonable construction must be given to Section 396… It is clear that Section 396(3) refers to the economic loss that is to be borne by shareholders and members of both companies,” Justice Nariman said in a 133-page judgment. —FE