TaxTMI 
TaxTMI 
2019 (5) TMI 522
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....rder when this becomes essential in the public interest. The appellant, 63 Moons Technologies Ltd. (hereinafter referred to as "FTIL", which name was changed to 63 Moons Technologies Ltd. on 27.05.2016), is a 99.99% shareholder of the National Spot Exchange Ltd. (hereinafter referred to as "NSEL"), and is a listed company. About 45% of the shareholding of FTIL is held by Shri Jignesh Shah and family, and about 43% of the shareholding is held by members of the Indian public. Approximately 5% of the shareholding is held by institutional investors. FTIL is a profitable company, having a positive net worth of over INR 2500 crore, and is in the business of providing software which is used for trading by brokers and exchanges across the country. FTIL has about 900 employees, and a Board of Directors which is different from the Board of Directors of its wholly owned subsidiary, i.e., NSEL. On the other hand, NSEL was incorporated in 2005 by Multi Commodities Exchanges ["MCX"] and its nominees. NSEL provided an electronic platform for trading of commodities between willing buyers and sellers through brokers representing them. On 05.06.2007, the Union of India issued an exemption notificati....
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....9A of the Companies Act. On the same day, the Economic Offences Wing ["EOW"] registered cases against Directors and key management personnel of the NSEL and FTIL, trading members of NSEL, and brokers of NSEL under various provisions of the Indian Penal Code and the Maharashtra Protection of Interest of Depositors Act, 1999 ["MPID Act"]. Several suits were filed by the traders who allegedly have been duped, the most important of which is Suit No.173 of 2014 pending in the Bombay High Court, which is a representative suit filed under Order I Rule 8 of the Code of Civil Procedure, 1908 ["CPC"]. NSEL also filed third-party notices in the said suit for recovery of INR 5600 crore against 24 defaulter traders. It has also filed various arbitration proceedings against them, and is in the process of recovery of INR 3365 crore out of INR 5600 crore, which are in the form of court decrees and arbitration awards. 4. On 17.12.2013, based on the Grant Thornton report dated 21.09.2013, the FMC passed an order declaring that FTIL was not "fit and proper" to hold equity in any commodity exchanges, and must dilute its shareholding to not more than 2% of the paid-up equity capital of MCX. The said....
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.... result, there is a need to lift the corporate veil in order to unearth the fraud, as a result of which, amalgamation of two companies, where one has defrauded market participants and the other company is cash-rich and capable of addressing the payment crisis more effectively. It was therefore proposed to merge FTIL and NSEL under Section 396 of the Companies Act. On 21.10.2014, a draft order of amalgamation, made in accordance with Section 396(3) of the Companies Act, was circulated to the relevant stakeholders. As a result, FTIL filed Writ Petition No. 2743 of 2014 on 10.11.2014, in which it challenged the impugned draft order. On 27.11.2014, the Bombay High Court directed the parties to maintain status quo. On 16.12.2014, the Union of India filed an affidavit in reply, categorically confirming that the impugned draft order has been made by the Central Government on the basis of the FMC's proposal dated 18.08.2014. On 04.02.2015, the Bombay High Court vacated the status quo order, and passed an order allowing FTIL, NSEL, and their shareholders to file their objections to the draft amalgamation order. Meanwhile, under Section 396(3), a compensation order was made on 01.04.2015, wh....
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....rrently, the business of NSEL is closed, whereas, on the other hand, the business of FTIL is flourishing. A compulsory amalgamation order would be ultra vires Section 396 if the only object is to foist unadjudicated liability of NSEL on FTIL. It was also pointed out that the basis of the amalgamation order was a letter by the FMC, which in turn was based on a "forensic" audit report of 2013 by Grant Thornton. The so-called report itself stated that there is no independent verification of information provided, and consequently, would not constitute an audit, let alone a forensic audit. It also stated that should additional information become available, which impacts upon conclusions reached in the report, Grant Thornton reserved the right to amend their findings, which are not intended to be interpreted to be either legal advice or opinion; in short, that the findings themselves were inconclusive. 11. Learned counsel have argued that the impugned order is ultra vires Section 396 for many reasons. First and foremost, the condition precedent to passing an amalgamation order is that compensation be assessed under Section 396(3) of the Act. Compensation has to be assessed qua both th....
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....part of the Indian economy and financial system, by consolidating the businesses of NSEL and FTIL; B. Giving effect to the business realities of the case by consolidating the businesses of FTIL and NSEL and preventing FTIL from distancing itself from NSEL, which is even otherwise its alter ego; and C. Facilitating NSEL in recovering dues from the defaulters by pooling human and financial resources of FTIL and NSEL Admittedly, reasons A and B are not in the draft order. This being so, obviously, no objections or suggestions could be made qua reasons A and B, as a result of which the final order would, therefore, be ultra vires Section 396(3) of the Companies Act. 13. All the stated objectives at page 1 of the amalgamation order itself - (a) to leverage combined assets, capital and reserves; (b) to achieve economy of scale; (c) efficient administration; (d) gainful settlement of rights and liabilities of stakeholders and creditors; (e) to consolidate businesses; and (f) to ensure coordination and policy - are totally vague and do not lead to any application of mind to such amalgamation order being essential in public interest. Article 31A of the Constitution o....
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.... to be an integral and essential part of the Indian economy. Reason B, which is that NSEL is an alter ego of FTIL, is pending adjudication in the suits filed in the Bombay High Court. To come to a conclusion that one is the alter ego of the other is not only contrary to the facts pointed out hereinabove, namely, that the businesses of the two companies are entirely different and the management of both companies is by completely different and distinct Boards of Directors. Thus, to arrive at the conclusion that one company is the alter ego of the other, without adjudication, would itself be arbitrary and violative of Article 14 of the Constitution of India. The only reason which would remain, therefore, would be reason C, which is that the real object of the entire exercise to recover alleged dues from alleged defaulters pre-adjudication and pending adjudication, which would be looking at the problem in a wholly one-sided way, and would be an excessive invasion of the rights of the shareholders and creditors of FTIL, all of whom have overwhelmingly voted against amalgamation. In fact, it is pointed out that there is no question of "public interest" and Section 396 is actually used in....
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....t they deal only with commodities and spot delivery of the same. It is only in 2012 that the FMC, being apprised of the real activities of NSEL, wrote to the DCA, indicating that its business was in complete breach of the FCRA. What is extremely important is that Shri Jignesh Shah made representations to the DCA and the FMC on 10.07.2013, in which he stated that NSEL had full stock of commodities as collateral and had 10-20% of open position as margin money. He also stated that the stock currently held in NSEL's 120 warehouses was valued at around INR 6000 crore. It is in July, 2013 that the payment crisis of INR 5600 crore arose on NSEL, FTIL admitting that this was the result of a fraud. On 14.08.2013, NSEL wrote to the FMC, setting out a detailed settlement plan. The plan indicated the period within which the entire dues would be paid, with simple interest at 8% to 16% per annum. This plan was an abject failure. As a result, a forensic audit was conducted by Grant Thornton, which in its report dated 21.09.2013, came out with damning facts and figures as to the real operations of NSEL, namely, that they are not a commodity exchange, but a finance exchange, and that no commodities....
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....Shri Divan. According to him, nowhere does the Central Government order direct any payment to be made by the amalgamated company. The amalgamation is only so that the finances of FTIL can be used to pursue on-going litigation as NSEL does not have the wherewithal to do so. Thus, it is wholly incorrect for the appellants to say that FTIL will become mulcted with the liabilities of NSEL, as a result of which the shareholders of FTIL will suffer. He added that the overwhelming majority of shares in FTIL are owned by Shri Jignesh Shah and his family (45%) and by Shri Ravi Sheth and Shri Bharat Sheth (8%). Thus, the majority shares held in FTIL are by two masterminds of the scam. That apart, after the scam, 24% of the shares have been purchased by speculators, taking advantage of the low price at which such shares were offered. Such persons, therefore, are purely speculative investors who do not need to be compensated under Section 396 of the Act. Also, the economic value of shares, if at all it is to be taken into account, is an uncertain and fluctuating phenomenon. As examples, he stated that the book value of a share of FTIL, after the scam broke out, was only INR 2/-, whereas the li....
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....lic interest is involved, the ratio of that judgment will not apply. He cited two judgments in support of this proposition. He also went on to cite certain judgments which distinguished K.I. Shephard v. Union of India, (1987) 4 SCC 431 ["K.I. Shephard"], and therefore, argued that the Central Government order passed under Section 396 is really in the nature of delegated legislation and need not conform to any natural justice outside what is provided for in the Section itself. He then cited certain judgments on lifting of the corporate veil, and ended by saying that as was held in J.K. (Bombay) (P) Ltd. v. New Kaiser-i-Hind Spinning and Weaving Co. Ltd., [1969] 2 SCR 866 ["J.K. (Bombay) (P) Ltd."], the Central Government order would have statutory force, and therefore, cannot be said to be a mere administrative order. 17. Shri Arvind Datar, learned Senior Advocate appearing on behalf of SEBI, fully supported the impugned judgment and took us through various portions of it. He was at pains to point out that the Grant Thornton report was a report of a forensic auditor chosen by NSEL itself, though required to do so by the FMC. He took us through the FMC order dated 17.12.2013 metic....
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....er spot exchanges that existed, were withdrawn. However, the Bombay Stock Exchange Ltd. (BSE), the National Stock Exchange of India Ltd. (NSE), and MCX continued with commodity trading, but not on a spot basis. She also referred us to a subsequent event, that is an event subsequent even to the impugned judgment, namely, to a serious fraud investigation report dated 31.08.2018 which, according to her, corroborated all the findings made by Grant Thornton, the FMC, and the Central Government by its final order. She then argued that Section 396 of the Companies Act is a special, self-contained, standalone code by itself and must be read as such, and that all procedural aspects of Section 396 have been complied with on the facts of the present case. The satisfaction of the Central Government that it is essential in public interest to act under Section 396 is purely subjective satisfaction. She referred to and relied upon Bacha F. Guzdar v. Commissioner of Income Tax, [1955] 1 SCR 876 ["Bacha F. Guzdar"], to support the reasoning of the High Court on the compensation order. She also referred to and relied upon the share market prices to show that market fluctuations took place on their o....
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....sponsive government, and it is only when such choice is so unfair or unreasonable that no reasonable person would have taken such action, that the Court can intervene. For this purpose, he cited Haryana Financial Corporation v. Jagdamba Oil Mills, (2002) 3 SCC 496. According to him, essentiality is not reviewable except by the Wednesbury test, and the Court should ask itself the question as to whether no reasonable person could have concluded that the impugned order was essential in the public interest. He reiterated that the order dated 12.02.2016 is not ultra vires Section 396 as several findings which show that amalgamation is essential in public interest has been arrived at on the basis of undisputed facts, and that therefore, the said order should be upheld. He also argued that such order, if passed, is in the nature of delegated legislation, and therefore, does not have to satisfy any rules of natural justice outside what is prescribed by Section 396 itself which, according to him, has been procedurally and substantively complied with, as reflected in the order dated 12.02.2016. 20. Shri Neeraj Kishan Kaul, learned Senior Advocate, also appearing on behalf of some of the a....
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....under: "396. Power of Central Government to provide for amalgamation of companies in public interest.-(1) Where the Central Government is satisfied that it is essential in the public interest that two or more companies should amalgamate, then, notwithstanding anything contained in Sections 394 and 395 but subject to the provisions of this section, the Central Government may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution; with such property, powers, rights, interests, authorities and privileges; and with such liabilities, duties, and obligations; as may be specified in the order. (2) The order aforesaid may provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and may also contain such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation. (3) Every member or creditor (including a debenture holder) of each of the companies before the amalgamation shall have, as nearly as may be, the same int....
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....lgamation of companies. INTERPRETATION OF SECTION 396 23. There is no doubt whatsoever that Section 396 cannot be challenged on the ground of Article 14 or Article 19, given Article 31A of the Constitution of India. However, this does not mean that Section 396 must be construed in such a fashion that it would lead to arbitrary or unreasonable results. In Prem Nath Raina v. State of Jammu & Kashmir and Ors., (1983) 4 SCC 616, this Court, in dealing with a challenge to the J&K Agrarian Reforms Act, 1976, which was protected by Article 31A, held: "9. ......The exclusion of a constitutional challenge under Articles 14, 19 and 31 which is provided for by Article 31A does not justify in equity the irrational violation of these articles. This Court did observe in Waman Rao [Waman Rao v. Union of India, (1981) 2 SCC 362 : AIR 1981 SC 271 : (1981) 2 SCR 1] that: "It may happen that while existing inequalities are being removed, new inequalities may arise marginally and incidentally" but the legislature has to take care to see that even marginal and incidental inequalities are not created without rhyme or reason. The Government of J&K would do well to give fresh consideration ....
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....e 13 of the Constitution. Article 31B which was introduced by the Constitution (First Amendment) Act, 1951, validates certain Acts and Regulations by providing that without prejudice to the generality of the provisions contained in Article 31A, "none of the Acts and Regulations specified in the Ninth Schedule nor any of the provisions thereof" shall be deemed to be void, or ever to have become void, on the ground that such Act, Regulation or provision is inconsistent with, or takes away or abridges any of the rights conferred by, any provisions of Part III. On a plain reading of this article it seems to us impossible to accept that the protective umbrella of the Ninth Schedule takes in its everwidening wings not only the Acts and Regulations specified therein but also Orders and Notifications issued under those Acts and Regulations. Article 31B constitutes a grave encroachment on fundamental rights and doubtless as it may seem that it is inspired by a radiant social philosophy, it must be construed as strictly as one may, for the simple reason that the guarantee of fundamental rights cannot be permitted to be diluted by implications and inferences. An express provision of the Const....
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.... having the force of law refers to general rules of conduct, as opposed to administrative orders passed on the facts of a given case. Construing Article 31A in the light of Article 13(3)(a), it is clear that the "order" referred to, can therefore, only be a legislative order. Examples of legislative orders are of the kind dealt with in Prag Ice & Oil Mills (supra) and Union of India and Anr. v. Cynamide India Ltd. and Anr., (1987) 2 SCC 720 ["Cynamide India"], namely, orders passed under statutes which are in the nature of subordinate legislation, which deal generally with a whole class of persons who are governed by the same in which general rules of conduct are laid down. WHETHER THE CENTRAL GOVERNMENT ORDER IS ADMINISTRATIVE IN NATURE 28. This brings us to what is the nature of the order of the Central Government that is passed under Section 396. It has been argued on behalf of the Union of India, relying upon a number of judgments, that the nature of the order passed under Section 396 is that of delegated legislation. This being the case, it would, therefore, get immunity from challenge on the ground of Articles 14 and 19 of the Constitution of India, as it would then amo....
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....on Act. It was urged that the order passed by the Reserve Bank of India amalgamating these banks was legislative in nature, as a result of which the principle of natural justice will not apply. In turning down this contention, this Court held: "9. ...... Learned counsel for RBI and the transferee banks have taken the stand that the scheme-making process under Section 45 is legislative in character and, therefore, outside the purview of the ambit of natural justice under the protective umbrella whereof the need to put the excluded employees to notice or enquiry arose. It is well settled that natural justice will not be employed in the exercise of legislative power and Mr Salve has rightly relied upon a recent decision of this Court being Union of India v. Cynamide India Ltd. [(1987) 2 SCC 720] in support of such a position. But is the scheme-making process legislative? Power has been conferred on the RBI in certain situations to take steps for applying to the Central Government for an order of moratorium and during the period of moratorium to propose either reconstruction or amalgamation of the banking company. A scheme for the purposes contemplated has to be framed by RBI ....
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....g difficulties as contemplated under sub-clause (10) are also to be placed before the two Houses of Parliament makes it abundantly clear that the placing of the scheme before the two Houses is not a relevant test for making the scheme-framing process legislative. We accordingly hold that there is no force in the contention of Mr Salve that the process being legislative, rules of natural justice were not applicable." The fact that, under Section 396(5), the Central Government order has to be laid before the Houses of Parliament also does not detract from the fact that this order is administrative and not legislative in character. Applying these judgments to the Central Government's order passed under Section 396, it is clear that the order directly impacts the rights and liabilities of the companies, their shareholders and creditors, sought to be amalgamated under the order. Such order is not an order in general which applies to all such companies, but only to the particular companies sought to be amalgamated. There is no general rule of conduct, without reference to the particular case that is laid down by such an order. The Central Government order, ultimately, makes a specific....
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....tion 45(11) of the Banking Regulation Act, 1949 came to hold that merely because a scheme framed is required to be laid before both the Houses of Parliament after the same has been sanctioned by the Central Government the scheme cannot be held to be legislative in nature. But in our considered opinion the High Court has failed to notice the fundamental distinction between the provisions of Section 45 of the Banking Regulation Act, 1949 and Section 9 of the Acquisition Act. Under Section 9 of the Acquisition Act under which Act the impugned scheme has been framed, every scheme framed by the Central Government has to be laid before each House of Parliament for a total period of 30 days and Parliament has the power to agree to the scheme and making any modification or in giving to a decision that the scheme should not be made and it is only thereafter the scheme has the effect either in the modified form or does not agree (sic). The essential distinction between the two provisions therefore, is that whereas under the Banking Regulation Act, 1949 the scheme framed has merely to be placed before Parliament and nothing further but under the Acquisition Act the scheme becomes effective on....
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.... to the fundamental rights guaranteed by Articles 14 and 19(1)(g) of the Constitution of India. This Court has held in a catena of decisions that it is the substance of what is effected that counts when it comes to infraction of a fundamental right, and not the form. Thus, in Thomas Dana v. State of Punjab, [1959] Supp (1) SCR 274, Subba Rao, J., in his dissenting opinion, stated: "A fundamental right is transcendental in nature and it controls both the legislative and the executive acts. Article 13 explicitly prohibits the State from making any law which takes away or abridges any fundamental right and declares the law to the extent of the contravention as void. The law therefore must be carefully scrutinized to ascertain whether a fundamental right is infringed. It is not the form but the substance that matters. If the legislature in effect constitutes a judicial tribunal, but calls it an authority, the tribunal does not become any the less a judicial tribunal. Therefore, the correct approach is first to ascertain with exactitude the content and scope of the fundamental right and then to scrutinize the provisions of the Act to decide whether in effect and substance, thou....
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....ght to freedom of speech and expression carries with it the right to publish and circulate one's ideas, opinions and views with complete freedom and by resorting to any available means of publication, subject again to such restrictions as could be legitimately imposed under clause (2) of Article 19. ......... In Dwarkadas Shrinivas v. Sholapur Spinning & Weaving Co. Ltd. [(1954) SCR 674] this Court has pointed out that in construing the Constitution it is the substance and the practical result of the act of the State that should be considered rather than its purely legal aspect. The correct approach in such cases should be to enquire as to what in substance is the loss or injury caused to the citizen and not merely what manner and method has been adopted by the State in placing the restriction." (at pp. 857-858) A Constitution Bench in Ajay Hasia and Ors. v. Khalid Mujib Sehravardi and Ors., (1981) 1 SCC 722 also stated: "7. While considering this question it is necessary to bear in mind that an authority falling within the expression "other authorities" is, by reason of its inclusion within the definition of 'State' in Article 12, subject to the same constitut....
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....e writ petition and these issues could not be said to arise on the writ petition. Mr Divan conceded that the escape of oleum gas took place subsequent to the filing of the writ petition but his argument was that the petitioner could have applied for amendment of the writ petition so as to include a claim for compensation for the victims of oleum gas but no such application for amendment was made and hence on the writ petition as it stood, these constitutional issues did not arise for consideration. We do not think this preliminary objection raised by Mr Divan is sustainable. It is undoubtedly true that the petitioner could have applied for amendment of the writ petition so as to include a claim for compensation but merely because he did not do so, the applications for compensation made by the Delhi Legal Aid and Advice Board and the Delhi Bar Association cannot be thrown out. These applications for compensation are for enforcement of the fundamental right to life enshrined in Article 21 of the Constitution and while dealing with such applications, we cannot adopt a hyper-technical approach which would defeat the ends of justice. This Court has on numerous occasions pointed out that....
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...., and the old debenture holders and other creditors, having the same interest in the company resulting from the amalgamation as they had in the original companies. Any order made by the Government under this clause will be laid on the table of both Houses of Parliament and will therefore be subject to the Parliamentary scrutiny." What is important from the Notes on Clauses is the fact that it is only "occasionally" that cases arise where an amalgamation in national interest is "clearly a necessity". It is made clear that the reason for Section 396 is that the observance of the usual procedure prescribed by the existing Act (namely, that contained in Sections 391 to 394) in such cases will lead to prolonged delays, which will be detrimental to national interest. The fact that the procedure contained in Sections 394 and 395 need not be carried out is made clear in the non-obstante clause contained in Section 396(1). 36. Section 396(3), (3A), and (4) are also important. A condition precedent to the passing of an order by the Central Government under this Section is that every member or creditor of each of the companies before amalgamation shall have, as nearly as may be, the sam....
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.... towards the company or towards any of its members. From the facts placed before us, it is clear that the Government had not bestowed sufficient attention to the material before it before passing the impugned order. It seems to have been oppressed by the opinion that it had formed about Shri S.P. Jain. From the arguments advanced by Mr Attorney, it is clear that but for the association of Mr S.P. Jain with the appellant-company, the investigation in question, in all probabilities would not have been ordered. Hence, it is clear that in making the impugned order irrelevant considerations have played an important part. The power under Sections 235 to 237 has been conferred on the Central Government on the faith that it will be exercised in a reasonable manner. The department of the Central Government which deals with companies is presumed to be an expert body in company law matters. Therefore, the standard that is prescribed under Section 237(b) is not the standard required of an ordinary citizen but that of an expert. The learned Attorney did not dispute the position that if we come to the conclusion that no reasonable authority would have passed the impugned order ....
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....st an intent to defraud or a fraudulent or unlawful purpose. On the other hand Sarkar, C.J. and Mudholkar, J. held that the power conferred on the Central Government under Section 237(b) is a discretionary power and no facet of that power is open to judicial review. Our Brother Bachawat, J., the other learned Judge in that Bench did not express any opinion on this aspect of the case. Under these circumstances it has become necessary for us to sort out the requirements of Section 237(b) and to see which of the two contradictory conclusions reached in Barium Chemicals case is in our judgment, according to law. But before proceeding to analyse Section 237(b) we should like to refer to certain decisions cited at the bar bearing on the question under consideration. (at pp. 120-121) xxx xxx xxx "Coming back to Section 237(b), in finding out its true scope we have to bear in mind that that section is a part of the scheme referred to earlier and therefore the said provision takes its colour from Sections 235 and 236. In finding out the legislative intent we cannot ignore the requirements of those sections. In interpreting Section 237(b) we cannot ignore ....
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....urt's view, held: "11. We are unable to agree with that view. By Section 3(2)(e) as amended by the U.P. Act 30 of 1961, the Government is authorised to supply energy to consumers within the area of the licensee in certain conditions: exercise of the power is conditioned by the Government deeming it necessary in public interest to make such supply. If challenged, the Government must show that exercise of the power was necessary in public interest. The Court is thereby not intended to sit in appeal over the satisfaction of the Government. If there be prima facie evidence on which a reasonable body of persons may hold that it is in the public interest to supply energy directly to the consumers, the requirements of the statute are fulfilled. Normally a licensee of electrical energy, though he has no monopoly, is the person through whom electrical energy would be distributed within the area of supply, since the licensee has to lay down electric supply-lines for transmission of energy and to maintain its establishment. An inroad may be made in that right in the conditions which are statutorily prescribed. In our judgment, the satisfaction of the Government that the supply is nec....
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....not be challenged except probably on the ground that the authority acted mala fide. But if in reaching its satisfaction the Central Government misapprehended the nature of the conditions, or proceeded upon irrelevant materials, or ignores relevant materials, the jurisdiction of the Courts to examine the satisfaction is not excluded. ......" (at p. 183) In M.A. Rasheed and Ors. v. State of Kerala, [1975] 2 SCR 93, after following Rohtas Industries (supra), the test for judicial review of administrative decisions was stated most felicitously by Ray, C.J. thus: "Administrative decisions in exercise of powers even if conferred in subjective terms are to be made in good faith on relevant consideration. The courts inquire whether a reasonable man could have come to the decision in question without misdirecting himself on the law or the facts in a material respect. The standard of reasonableness to which the administrative body is required to conform may range from the courts' own opinion of what is reasonable to the criterion of what a reasonable body might have decided. The courts will find out whether conditions precedent to the formation of the opinion have a fact....
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....f from applying its mind to the facts of each individual case by self-created rules of policy or in any other manner. The satisfaction said to have been arrived at by the authority would also be bad where it is based on the application of a wrong test or the misconstruction of a statute. Where this happens, the satisfaction of the authority would not be in respect of the thing in regard to which it is required to be satisfied. Then again, the satisfaction must be grounded "on materials which are of rationally probative value". Machindar v. King [AIR 1950 FC 129 : 51 Cri LJ 1480 : 1949 FCR 827]. The grounds on which the satisfaction is based must be such as a rational human being can consider connected with the fact in respect of which the satisfaction is to be reached. They must be relevant to the subject-matter of the inquiry and must not be extraneous to the scope and purpose of the statute. If the authority has taken into account, it may even be with the best of intention, as a relevant factor something which it could not properly take into account in deciding whether or not to exercise the power or the manner or extent to which it should be exercised, the exercise of the power ....
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....f the State Government is of opinion that substantial modifications in the draft development plan are necessary, it may publish such modifications. This Court held: "20. The State Government is entitled to publish the modifications provided it is of opinion that substantial modifications in the draft development plan are necessary. The expression "'is of opinion' that substantial modifications in the draft development plan are necessary" is of crucial importance. Is there any material available on record which enabled the State Government to form its opinion that substantial modifications in the draft development plan were necessary? The State Government's jurisdiction to make substantial modifications in the draft development plan is intertwined with the formation of its opinion that such substantial modifications are necessary in the draft development plan. The State Government without forming any such opinion cannot publish the modifications considered necessary along with notice inviting suggestions or objections. We have already noticed that as on the day when the Minister concerned took the decision proposing to designate the land for educational use the material ava....
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....ve of the satisfaction being subjective one but there must exist circumstances stated in the proviso which are conditions precedent for the formation of the opinion. Opinion to be formed by the State Government cannot be on imaginary grounds, wishful thinking, however laudable that may be. Such a course is impermissible in law. The formation of the opinion, though subjective, must be based on the material disclosing that a necessity had arisen to make substantial modifications in the draft development plan. 25. The formation of the opinion by the State Government is with reference to the necessity that may have had arisen to make substantial modifications in the draft development plan. The expression: "as considered necessary" is again of crucial importance. The term "consider" means to think over; it connotes that there should be active application of the mind. In other words, the term "consider" postulates consideration of all the relevant aspects of the matter. A plain reading of the relevant provision suggests that the State Government may publish the modifications only after consideration that such modifications have become necessary. The word "necessary" means indisp....
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....l Government is made. There must be facts on which a reasonable body of persons properly instructed in law may hold that it is essential in public interest to amalgamate two or more companies. The formation of satisfaction cannot be on irrelevant or imaginary grounds, as that would vitiate the exercise of power. "ESSENTIAL" 43. The expression "essential" has been defined in P. Ramanath Aiyer's Law Lexicon (4th Edn.) as follows: "Essential. Indispensably necessary; important in the highest degree: requisite that which is required for the continued existence of a thing." Black's Law Dictionary (10th Edn.) defines "essential" as follows: "essential, adj. (14c) 1. Of, relating to, or involving the essence or intrinsic nature of something. 2. Of the utmost importance; basic and necessary. 3. Having real existence; actual." 44. In J. Jayalalitha v. Union of India, (1999) 5 SCC 138, this Court dealt with an argument that there is no guideline contained in Section 3(1) of the Prevention of Corruption Act, 1988, when the Section empowers the Government to appoint as many Special Judges "as may be necessary". It was stated that this word has a precise meaning an....
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....sue such directions of a general character as it may consider necessary in the public interest. What is the meaning of the term "public interest"? In the context of the Act, it takes within its fold several factors such as, the maximum number of permits that may be issued on a route or in any area having regard to the needs and convenience of the travelling public, the non-availability of sufficient number of stage carriage services in other routes or areas which may be in need of running of additional services, the problems of law and order, availability of fuel, problems arising out of atmospheric pollution caused by a large number of motor vehicles operating in any route or area, the condition of roads and bridges on the routes, uneconomic running of stage carriage services leading to elimination of small operators and employment of more capital than necessary in any sector leading to starvation of capital investment in other sectors etc. Public interest under the Act does not mean the interest of the operators or of the passengers only. We have to bear in mind that like every other economic activity the running of stage carriage service is an activity which involves use of scar....
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....liabilities are affected." (Per Cambel C.J., in R. v. Bedfordshire [24 LJ QB 84] ). 52. In Black's Law Dictionary (6th edn.), 'public interest' is defined as follows: "Public Interest - Something in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. It does not mean anything so narrow as mere curiosity, or as the interests of the particular localities, which may be affected by the matters in question. Interest shared by citizens generally in affairs of local, state or national government ......" 49. In Municipal Corporation of the City of Ahmedabad and Ors. v. Jan Mohd. Usmanbhai and Anr., (1986) 3 SCC 20, this Court stated that the expression "in the interest of the general public" is of wide import comprehending public order, public health, public security, morals, economic welfare of the community, and the objects mentioned in Part IV of the Constitution of India [see paragraph 19]. 50. Likewise, in B.P. Sharma v. Union of India and Ors., (2003) 7 SCC 309, this Court held: "15. ...... The phrase "in the interest of the general public" has come to be cons....
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....sts an obligation on the court to be satisfied that the scheme for amalgamation or merger was not contrary to public interest. The basic principle of such satisfaction is none other than the broad and general principles inherent in any compromise or settlement entered between parties that it should not be unfair or contrary to public policy or unconscionable. In amalgamation of companies, the courts have evolved, the principle of "prudent business management test" or that the scheme should not be a device to evade law. But when the court is concerned with a scheme of merger with a subsidiary of a foreign company then the test is not only whether the scheme shall result in maximising profits of the shareholders or whether the interest of employees was protected but it has to ensure that merger shall not result in impeding promotion of industry or shall obstruct growth of national economy. Liberalised economic policy is to achieve this goal. The merger, therefore, should not be contrary to this objective. Reliance on English decisions Hoare & Co. Ltd., Re [1933 All ER Rep 105, Ch D] and Bugle Press Ltd., Re [1961 Ch 270 : (1960) 1 All ER 768 : (1960) 2 WLR 658] that the power of the ....
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....he interest of society as a whole, as contrasted with the "selfish" interest of a group of private individuals. Thus, "public interest" may have regard to the interest of production of goods or services essential to the nation so that they may contribute to the nation's welfare and progress, and in so doing, may also provide much needed employment. "Public interest" in this context would, therefore, mean the combining of resources of two or more companies so as to impact production and consumption of goods and services and employment of persons relatable thereto for the general benefit of the community. Conversely, any action that impedes promotion of industry or obstructs growth which is in national or public interest would run counter to public interest as mentioned in this Section. 55. At this juncture, we must first see whether each of the conditions precedent to the applicability of Section 396 applies to the facts of the present case. Insofar as the Central Government being "satisfied" is concerned, the following facts which the Central Government has taken into account, based upon the Grant Thornton report and the FMC order dated 17.12.2013, are as follows: 55.1. The G....
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....tlement) and a long-term sell contract (e.g. T+25- i.e. 25 day settlement). The contracts were taken by the same parties at a pre-determined price and always registering a profit on the long-term positions as illustrated below: Trade Date Deal No Buy /Sell Member ID Name of Member Contract Code Sub Broker No. Terminal ID Trade Price Trade Value 02 April 2012 87 S 13790 PD AGROPROCESSOR S PVT. LTD. DLF002 PDY1121 HR2 474 13791 2400.00 360,000 02 April 2012 87 B 10570 ANAND RATHI COMMODITIES LTD. HNR320 PDY1121 HR2 232 10575 2400.00 360,000 02 April 2012 88 S 10570 ANAND RATHI COMMODITIES LTD. HNR320 PY1121H R25 232 10575 2450.70 367,605 02 April 2012 88 B 13790 PD AGROPROCESSOR S PVT. LTD. DLC001 PY1121H R25 474 13791 2450.70 367,605 1.3 These long-term contracts (e.g. T+25) were first traded on the NSEL exchange in September 2009. The Board of NSEL ratified the circulars introducing such long-term contracts over a period beginning November 2009. 1.4 Further evidence was obtained w....
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....D of NSEL as well as IBMA). Grant Thornton found evidence of a large volume of trades executed on the MCX exchange on behalf of SNP, through Karvy Comtrade Limited. Since April 2012 the total nominal value/volume traded on MCX is approximately Rs. 40,000 crore. In spite of heavy losses over the period, trading on behalf of SNP was allowed to continue. No margin money was ever taken from SNP. As at 20 September 2013, IBMA is due to receive Rs. 77 crore on account of losses arising from trades executed on behalf of SNP. No monies have been received from SNP despite substantial amounts due. Further, evidence was obtained that Rs. 10 crore was received from Mohan India which was credited to an IBMA Bank account. This was to be adjusted against the SNP receivable balance as per an instruction made by Mr. Anjani Sinha. 1.7. IBMA is a subsidiary of NSEL and has received funding for operational needs on several occasions (including a loan of Rs. 5 crore on 5 August 2013). IBMA is also a member on the NSEL exchange and executes trades on behalf of clients. Margin limit exemptions have been granted to IBMA on a daily basis since February 2010. ....
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....view. These points collectively indicate significant gaps in IT, Risk & Corporate Governance. Misutilisation of client monies 1.12 Misutilisation of client monies/settlement fund: As per the rules and bye-laws of the NSEL exchange "Margin deposits received by clearing members from their constituent members and clients in any forms shall be accounted for and maintained separately in segregated accounts and shall be used solely for the benefit of the respective constituent members' and client position." Grant Thornton found evidence (including e-mails) that client monies/settlement fund, was used regularly for fulfilling the obligations of defaulting members. Further, NSEL utilised client monies/settlement fund for its own business purposes on a regular basis. For example, on 28 March, 2013, Rs. 236.5 crore was withdrawn from the Settlement Fund in order to fund NSEL's own business overdraft account. There was a running deficit in the client monies/settlement fund balance from April 2012 to June 2013. The finance team of FTIL had raised this as an area of concern on several occasions. Misrepresentations to the Regulator ....
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....ections and arguments raised by the noticees vide their written submission as well as oral presentations through their counsel, we now proceed to conclude our observations by taking a final view on the status of the four noticees as 'fit and proper persons' in the succeeding paragraphs. 15.1. Noticee No. 1:- Financial Technologies (India) Limited (FTIL): We have discussed the equity structure of NSEL, which is wholly owned by FTIL. We have also pointed out that Shri Jignesh Shah, Chairman-cum- Managing Director of FTIL has been a Director on the Board and also functioning as Vice-Chairman and a key management person of NSEL since its inception. Similarly, Shri Joseph Massey and Shri Shreekant Javalgekar have been Directors of the said company from its very beginning till the settlement crisis at NSEL first came to light in July, 2013. The facts establishing the fraud involving a settlement default over Rs. 5,500 crores at NSEL have been discussed at length in the SCNs issued to the noticees as well as reiterated, albeit illustratively by us at Para No. 14.7 of this Order. The responsibility of FTIL as the holding company possessing absolute control over the governance of N....
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....corporated to provide a trading platform of commodity spot exchange on a pan-India basis for the purpose of which apparently it sought and was granted exemption from the operation of the FCRA, 1952. Since the objective of the NSEL was promoting spot trading in commodities on an electronic platform, its business model did not contemplate venturing into trading in forward contracts. FTIL had already promoted MCX, a regulated exchange under FCRA, 1952, for the purpose of trading in forward contracts. Therefore, having secured an exemption from the purview of FCRA, 1952 on the ground that it was intended to promote spot trading, NSEL was not authorised to allow trading in forward contracts through the scheme of paired contracts, thereby defying conditions stipulated in the exemption notification granted to it. The motive behind allowing trading in forward contracts on the NSEL platform in a circuitous manner on NSEL which was neither recognized nor registered under FCRA, 1952 indicates mala fide intention on the part of the promoter of FTIL to use the trading platform of its subsidiary company for illicit gains away from the eyes of Regulator. The fact that FTIL promoted NSEL sought ex....
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....mmodities were going on, and by April to July, 2013, 99% (and excluding E-series contracts), at least 46% of the turnover of NSEL was made up of such paired contracts. There is no doubt that such paired contracts were, in fact, financing transactions which were distinct from sale and purchase transactions in commodities and were, thus, in breach of both the exemptions granted to NSEL, and the FCRA. We have also seen that NSEL throughout kept representing that it was, in fact, a commodity exchange dealing with spot deliveries. Apart from the Grant Thornton report and the FMC order, we have also seen that Shri Jignesh Shah, on 10.07.2013, made representations to the DCA and the FMC, in which he stated that NSEL had full stock as collateral; 10-20% of open position as margin money; and that the stock currently held in NSEL's 120 warehouses was valued at INR 6000 crore, all of which turned out to be incorrect. Further, there is no doubt whatsoever that in July, 2013, as a result of NSEL stopping trading on its exchange, a payment crisis of approximately INR 5600 crore arose. The further question that remains is whether, given these facts, the conditions precedent for the applicability ....
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.... only Rs. 538.56 crores to its members as against the payment dues of approximately Rs. 5500 crores. This amount also includes an amount of Rs. 179.26 crores borrowed by NSEL from its holding company, FTIL which was distributed to small participants. The representatives of members associations and investor bodies on the MAC in their meeting with the Commission have represented the NSEL has lost its credibility as an institution. Further the employee attrition in NSEL in the recent months has been extremely high and it is learnt that the staff strength of NSEL has come down considerably, adversely affecting the recovery process. As per the information received from NSEL, the total employee count on NSEL rolls was 193 as on 31.07.2013 (when NSEL had suspended trading in one day forward contracts) which came down to 33 on 31.07.2014. The morale of the employees at NSEL is also very low. NSEL is also confronted with a number of cases against it, which are pending in the High Courts and MPID Court relating to its failure to make payment to the investors. The company is hardly left with any financial resources to meet even legal expenses apart from meeting staff salaries and other expens....
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....TIL kept itself apprised about the affairs of NSEL and also approved/ratified the actions of NSEL in its Board meetings on a regular basis; (iv) In para 14.9.1 of the order it is inter-alia mentioned that it is undisputed that NSEL was an Exchange in which FTIL had ownership interest to the extent of 99.9998% leaving a negligible 0.0002% stake to NAFED. The Articles of Association of NSEL confers authority to its shareholders to appoint Directors. As the single largest shareholder, it is FTIL which has nominated all the directors on the NSEL board. As a wholly-owned subsidiary, NSEL is completely under the control of FTIL, including financial control over the affairs of NSEL. FTIL, which had the responsibility of managing the affairs of NSEL, cannot claim to be unaware of the wrong-doing and fraud committed by the management of NSEL. (v) In para 14.10.06 of the order it is inter- alia mentioned that FTIL cannot shy away from its role and duty as a parent company to take reasonable care and exercise prudence in management and governance of the subsidiary company. (vi) In para 14.10.8 of the order it is inter-alia mentioned that FTIL has not furnished any e....
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....he Working Group constituted by the Central Government under the Chairmanship of Deputy Governor, Reserve Bank of India to examine into the systematic risk arising in consequence of the NSEL settlement debacle, have inter alia recommended that the ownership, governance and management structure at FTIL and the exchanges promoted by FTIL need to be assessed and the possibility of bringing in an institutionalized framework and approach to these aspects explored. 7. It may also be noted here that pursuant to the criminal proceedings and arrest of Shri Jignesh Shah, Chairman-cum-Managing Director of FTIL who was also the Vice-Chairman of NSEL, the EOW of Mumbai Police, has since filed a chargesheet against Shri Jignesh Shah under various sections of Indian Penal Code and also the Maharashtra Protection of Interest of Depositors (MPID) Act, 1999, before the Hon'ble Sessions Judge, Special Court under MPID Act, Mumbai which vindicates the stand already taken by the Commission in its order dated 17th December, 2013 pertaining to the role and responsibility of FTIL as a parent company in the affairs of its wholly owned subsidiary i.e. NSEL. 8. The aforesaid submissions wou....
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.... worth Rs. 4400.10 crore have been obtained. Decrees worth Rs. 1233.02 crore have been obtained against 5 defaulters. Assets worth Rs. 5444.31 crore belonging to the defaulters have been attached of which assets worth Rs. 4654.62 crore have been published in Gazette under the MPID Act for liquidation under the supervision of MPID Court and balance assets worth Rs. 789.69 crore have been attached/secured for attachment by the EOW: Assets worth Rs. 885.32 crore belonging to the directors and employees of NSEL have been attached out of which assets worth Rs. 882.32 crores have already been published in Gazette under MPID Act for liquidation under the supervision of MPID Court and balance assets worth Rs. 3 crore have been attached/secured for attachment by the EOW; MPID Court has already issued notices u/s 4 & 5 of the MPID Act to the persons whose assets have been attached as above. Thus, the process of liquidation of the attached assets has started. Bombay High Court has appointed a 3-member committee headed by Mr. Justice (Retd.) V.C. Daga and 2 experts in finance and law to recover and monetize the assets of the defaulters. Rs.....
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....years 2016-2017 to 2018- 2019 to support NSEL to recover dues from defaulters, defend various cases, and continue taking necessary legal action against various parties to recover amounts from defaulters. The Division Bench refers to this affidavit as follows: "293] At the stage, when the final hearing in these petitions had considerably advanced, FTIL, tendered an affidavit dated 4th July 2017 to place on record its resolution dated 28th March 2016 to infuse a sum up to Rs. 50 crores for each of the financial years, i.e., FY 2016-17 to FY 2018-19, to support NSEL to recover dues from defaulters; to defend various legal cases; to continue taking necessary legal actions against various parties to recover amounts from defaulters; and for working capital. The affidavit states that such resolution was passed and such finances are proposed to be infused at the request of NSEL. 294] The affidavit dated 4th July 2017 also confirms that the activities of NSEL have come to a grinding halt, though, the affidavit purports to blame the FMC for such a situation. The affidavit also states that up to now FTIL has infused approximately Rs. 109 crores with NSEL, mainly to prosecute....
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....bined assets, capital and reserves, achieve economy of scale, efficient administration, gainful settlement of rights and liabilities of stakeholders and creditors and to consolidate businesses, ensure coordination in policy, it is essential in the public interest......." What is stated in the opening is repeated in paragraph 2.14.2 as follows: "2.14.2 The Central Government also carefully considered the proposal received from FMC and DEA and was of the considered opinion that to leverage combined assets, capital and reserves for efficient administration and satisfactory settlement of rights and liabilities of stakeholders and creditors of NSEL, it would be in essential public interest to amalgamate NSEL with FTIL." It will be seen that all the expressions used in relation to "public interest" have relation only to the businesses of the two companies that are sought to be amalgamated. What is important to note is that there is no interest of the general public as opposed to the businesses of the two companies that are referred to. It is important to notice that the leveraging of combined assets, capital, and reserves is only to settle liabilities of certain stakeholde....
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....ed judgment. The three grounds as stated by the impugned judgment are as follows: "269. ...... (a) Restoring/safeguarding public confidence in forward contracts and exchanges which are an integral and essential part of Indian economy and financial system, by consolidating the businesses of NSEL and FTIL; (b) Giving effect to business realities of the case by consolidating the businesses of FTIL and NSEL and preventing FTIL from distancing itself from NSEL, which is, even otherwise, its alter ego; and (c) Facilitating NSEL in recovering dues from defaulters by pooling human and financial resources of FTIL and NSEL. Further, we are also satisfied that each of these three grounds constitute a facet of public interest in the context of the provisions in Section 396. ......" 59.2. It is important to note that the first and second grounds mentioned by the High Court are not contained in the draft order of amalgamation. Had they been so contained, objections and suggestions would have been made by all stakeholders, which the Central Government would then have been bound to consider before passing the final order. However, it was argued on behalf of the respondents that the fir....
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....had not acted with an independent mind to collect information and put the system under a robust technology is borne out of the simple fact that the Show Cause Notice dated 27-04-2012 issued by the Department of Consumer Affairs based on analysis of trade data by the then Forward Market Commission had given an alarming picture of the state of affairs of NSEL. The public interest driving the merger are set out in the business realities of the case, it is noted from the facts of the case and the recommendations of FMC as well as its order dated 17-12-2013 which throw ample light to the grave shattering of the public confidence and the purpose of establishing commodity exchange has been defeated." xxx xxx xxx "7.2.6. FTIL and NSEL have distinct and separate objects and nature of operations and completely disparate and unconnected objects, and hence there is no synergy, efficient administration, consolidation of business or co-ordination in policy to be gained by the forced amalgamation; the argument runs contrary to the concept of merger which essentially means that two or more separate entities are getting merged to achieve the objectives of amalgamation. In the inst....
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....ated 17.12.2013. If this were so, one would have expected a resuscitation or revival of the commodities exchange of NSEL, which could have been achieved by takeover of its management. It is difficult to imagine that grave shattering of public confidence by the permanent shutting down of the commodities exchange of the NSEL would be remedied only by facilitating the paying of dues to certain allegedly duped investors/traders, which fact will be proved or disproved in suits filed by them which are pending adjudication in the Bombay High Court. In any case, this reason is wholly irrelevant as an answer to the objection raised by FTIL which, as we have seen, is an objection stating that the Section applies to Government companies alone. Also, had FTIL made no such objection, no such answer would have been forthcoming. As far as paragraphs 7.2.6 and 7.2.8 of the order are concerned, what is admitted in the order itself, is that there is no "adjudication" on the "fraud" in the facts of the present case, and thus, not an exercise of lifting of the corporate veil of the pre-amalgamation companies. The amalgamation order contradicts itself by then stating that NSEL is the alter ego of FTIL,....
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....on the order dated 21- 10-2014 in Draft form issued by the Central Government. The said objections, suggestions and submissions were made during the course of hearing and written submissions (physically and electronically) received by the Central Government on various dates. The said objections, suggestions and submissions made by each of the parties are dealt in the manner herein under." 59.5. So far, we have gone by the Central Government order as it stands. The Bombay High Court, in stating reasons (a), (b), and (c) as grounds of public interest, has gone much further than even the answer given to the objections that are contained in the order itself. "Restoring/safeguarding public confidence in forward contracts and exchanges, which are an integral and essential part of the Indian economy and financial system, by consolidating the businesses of NSEL and FTIL," is not contained in the answer given to objections in the order. First and foremost, restoring public confidence is no part of the order. What is mentioned is only the fact that public confidence has been shattered, as is reflected by the FMC order dated 17.12.2013. Secondly, the entire expression, "which are an integr....
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....ment for an order of moratorium in respect of a banking company. xxx xxx xxx (4) During the period of moratorium, if the Reserve Bank is satisfied that- (a) in the public interest; or (b) in the interests of the depositors; or (c) in order to secure the proper management of the banking company; or (d) in the interests of the banking system of the country as a whole,- it is necessary so to do, the Reserve Bank may prepare a scheme- (i) for the reconstruction of the banking company, or (ii) for the amalgamation of the banking company with any other banking institution (in this section referred to as "the transferee bank"). xxx xxx xxx" It is important to note that unlike Section 396 of the Companies Act, the satisfaction of the Reserve Bank of India can be on any one of four grounds. Such satisfaction may be in the public interest or in the interest of depositors. This point is, in fact, highlighted in paragraph 34 of the judgment as follows: "34. The phrase "good reasons" in sub-section (1) of Section 45 is a term of wide amplitude and it will not be correct to restrict it only to t....
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....f the present case. First, that under Section 45 of the Banking Regulation Act, the interest of the depositors is to be looked at; and it was this reason that led to the amalgamation. Secondly, this Court found that after exploring other options, the only option left was that of amalgamation. 62. In point of fact, the contrast between Section 45(4) of the Banking Regulation Act and Section 396 of the Companies Act becomes important. Under Section 45(4)(b) and (c) of the Banking Regulation Act, the satisfaction of the Reserve Bank of India for preparing a scheme of amalgamation can be in the interest of the depositors of a particular bank or in order to secure the proper management of a particular banking company. This must be contrasted with clauses (a) and (d) of Section 45(4), which speak of public interest and the interest of the banking system of the country as a whole. This judgment, on facts, merged a financially weak bank with a financially strong bank in the interest of the depositors of the financially weak bank. It is important to note that the business of the two merged entities is the same, as also Federal Bank's (i.e., the strong bank's) willingness to merge, being ....
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....duct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself." Orders are not like old wine becoming better as they grow older." 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. All these valiant attempts made to sustain such order must be rejected. 64. However, learned Senior Advocates on behalf of the respondents have cited Chairman, All India Railway Recruitment Board and Anr. v. K. Shyam Kumar and Ors., (2010) 6 SCC 614, which, according to them, renders the judgment in Mohinder Singh Gill (supra) inapplicable where larger public interest is involved. In this judgment, Mohinder Singh Gill (supra) was distinguished thus: "44. We are also of the view that the High Court has committed a grave error in taking the view that the order of the Board could be judged only on the basis of the reasons stated in the impugned order based on the report of Vigilance and not on the subsequent materials furnish....
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....alue of his share gets depleted as a result of the amalgamation and if dividends that have been paid to him are likely to come down as a result of the amalgamation. Likewise, a creditor of a solvent company is directly effected by an amalgamation by which the amount loaned by such creditor becomes, as a result of the amalgamation, less likely to be paid back in time, than if the amalgamation did not take place. Such rights and interests of members and creditors are substantive rights which, when effected by the amalgamation, lead to compensation having to be paid. Every shareholder of a company and indeed, every creditor of a company, is concerned only with the "economic value" of his share or the loan granted to a company, as the case may be. 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 as are the members and creditors of the amalgamated company, depending on the facts of each case. A reasonable construction must be given to Section 396. Also, the sugges....
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....t matters not whether their share values plummet post amalgamation. 68. In Bacha F. Guzdar (supra), this Court held that though a shareholder acquires no right in the assets of a company as the company itself is the owner of such assets, yet a shareholder certainly has the right to dividends and the right to participate in the assets of the company which would be left over after winding up. The Court held: "The true position of a shareholder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole as Lord Anderson puts it." (at p. 882) (emphasis in original) 69. In Life Insurance Corporation of India v. Escorts Ltd. and Ors., (1986) 1 SCC 264, this Court dealt generally with the rights of shareholders as follows: "84. On an overall view of the....
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....pacity, and (4) Marketability. For arriving at the fair value of share, three well-known methods are applied: (1) The manageable profit-basis method (the Earning Per Share Method) (2) The networth method or the break value method, and (3) The market value method." What is clear from the various methods of valuation of shares, when it comes to such valuation qua the transferor and transferee company, is that the market value method is one method in which shares can be valued so that their equivalent can then be provided for in the amalgamated company. This would be nothing other than what those shares were worth in the market on a particular day or an average taken within a certain period. What is important to note is that the market value of shares is market value of shares reflective of their economic value, being an interest measured by a sum of money, is not something that is completely alien to determining the rights of or interest of a shareholder in the transferor or transferee company, as the case may be. 72. In fact, the Government order dated 12.02.2016 itself reflects the net worth of NSEL as INR 8.86 crore from its balan....
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....ring the extent of alleged irregularities and any breach of law. The matters are also sub judice before various forums including the Hon'ble Mumbai High Court. The Company may be exposed to liabilities in case of any adverse outcome of these investigations or any other investigations which may arise at a later date." From the Director's Report and consolidated financial statements of NSEL, it becomes clear that the company may be exposed to liabilities in case of any adverse outcome in any of the proceedings that may be pending, as a result of which, it may have to pay back the whole or some part of the INR 5600 crore owed to the alleged investors/traders by the 24 defaulters who are members of NSEL. This would certainly impact the 'economic value' of shares held in FTIL as this is one factor that would, post amalgamation, depress the market value of shares held by such shareholder, and would also impact the dividend payable on such shares post amalgamation. 74. The impugned judgment has also held that no material was produced before the Court to show that share prices would in fact plummet post-amalgamation. This is despite the fact that the impugned judgment itself refers t....
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.... has not been fulfilled. It will be noticed that the language used in the appeal provision, i.e. Section 396(3A), is "any person aggrieved by any assessment of compensation made by the prescribed authority under sub-section (3) may...... appeal to the Tribunal, and thereupon the assessment of the compensation shall be made by the Tribunal." The pre-requisites for the application of sub- section (3A) are that a person first be aggrieved by an "assessment of compensation" "made" by the prescribed authority. Where no assessment of compensation whatsoever is made by the prescribed authority (and on the facts here, the prescribed authority has not, in fact, stated that for the reasons given by it, compensation awarded to FTIL, its shareholders and creditors is nil), no person can be aggrieved by an order which does not assess any compensation, which may be interfered with by the Appellate Tribunal which must then assess the compensation for itself. The statute clearly entitles such shareholders and creditors to have compensation assessed first by the prescribed authority and then by the appellate authority. This Court, in Institute of Chartered Accountants of India v. L.K. Ratna and Ors....
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.... stripped of his right to appeal to another body from the effective decision to expel him. I cannot think that natural justice is satisfied by a process whereby an unfair trial, though not resulting in a valid expulsion, will nevertheless have the effect of depriving the member of his right of appeal when a valid decision to expel him is subsequently made. Such a deprivation would be a powerful result to be achieved by what in law is a mere nullity; and it is no mere triviality that might be justified on the ground that natural justice does not mean perfect justice. As a general rule, at all events, I hold that a failure of natural justice in the trial body cannot be cured by a sufficiency of natural justice in an appellate body." The view taken by Megarry, J. was followed by the Ontario High Court in Canada in Re Cardinal and Board of Commissioners of Police of City of Cornwall, [(1974) 42 D.L.R. (3d) 323]. The Supreme Court of New Zealand was similarly inclined in Wislang v. Medical Practitioners Disciplinary Committee, [(1974) 1 N.Z.L.R. 29] and so was the Court of Appeal of New Zealand in Reid v. Rowley [(1977) 2 N.Z.L.R. 472]." (at pp. 1065-1066) This judgment w....