Corporate lawyer: Order of compulsory amalgamation of the central government in respect of NSEL and FTIL was held to be illegal; SC.

Supreme Court of India

Justice RF Nariman

The order of compulsory amalgamation of companies dealing with future commodities and metal, that is, FTIL and NSEL, of the central government, was assailed befor the Supreme Court of India in the matter titled as "Moons Technologies Limited versus Union of India".

The bench headed by Justice Nariman in its distinguished style of writing, quashed the order, issued of compulsory amalgamation, under Section 396 by the Central Government under the Companies Act, as ultra vires to section 396 of the Companies Act and also to Article 14 of the Constitution of India.

It was held that the compensation was not granted to the shareholders / creditors, therefore, the order was not sustainable.

It was also held that two Grounds of impugned  amalgamation order were not contained in draft order, therefore, there was no opportunity for the appellants to raise objection before the central government, to the said two grounds, therefore, the said two grounds cannot be considered, and cannot be the basis, while passing the impugned order of amalgamation as one of the grounds, therefore, on this ground also the order of amalgamation is not sustainable.

It was also held that - as one of the argument raised by the respondent / Central Government is -  even the grounds which are outside the impugned order of amalgamation, may also be considered, if they show that order has been made in Public Interest. The said argument was also rejected by the Supreme Court holding that anything outside the grounds contained in amalgamation order, cannot be considered as ground for passing the impugned order of amalgamation.

It was held that there has to be Public Interest, which is essential, for passing the amalgamation order, and the said test has not been satisfied in the present case, therefore, the amalgamation order is Ultra Vires.

It was held that from the amalgamation order, it is also not discernible - the satisfaction of the central government is objective, therefore, the amalgamation order is Ultra Vires, as it is Sine Qua Non for passing the order. Also held that no facts subsequent to the impugned order of amalgamation, can be looked into in the larger Public Interest, while testing the validity of order.

In the said case the order of compulsory amalgamation was passed in respect of FTIL and NSEL on 20 February 2016, where by, all the Assets and liabilities of NSEL would become the Assets and liabilities of FTIL, by the amalgamation order of the central government. The said order was set aside by the Supreme Court.

The NSEL permitted future transaction contracts dehors the rules without keeping a physical stock and defaulted in payment of obligation amounting to INR 5600 crores in July 2013, which led to passing of order of compulsory amalgamation, which was assailed before the SC as the Bombay High Court did not quash the order and dismissed petition of the appellants.