63 Moons Technologies Ltd. (Formerly Known as Financial Technologies India Ltd.) & Ors. v. UOI & Ors.

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The Tax Publishers 2019 TaxPub(CL) 0652 (SC) : (2019) 150 CLA 0209 63 Moons Technologies Ltd. (Formerly Known as Financial Technologies India Ltd.) & Ors. v. UOI & Ors. COMPANIES ACT, 1956, --Power of Central Government to provide for amalgamation of companies in public interest --Non-providing of compensation to either shareholders or creditors of transferee company by breaching of section 396(3) Amalgamation order being ultra vires----Though assessment order did not provide any compensation to either shareholders or creditors of transferee company for economic loss caused by amalgamation in breach of section 396(3), therefore, amalgamation order was ultra vires in terms of section 396 of the Companies Act and violative of Article 14 of the Constitution of India.--NSEL was subsidiary of FTIL. There was huge liability upon NSEL in respect of payment and its net worth was very low. Central Government passed order under section 396 in respect of compulsory amalgamation of NSEL with FTIL. Therefore, compensation had assessed for NSEL or its shareholder. FTIL filed petition against the amalgamation order on the ground that assessment order did not provide any compensation to either its shareholders or creditors for economic loss, which was in violation of section 396(3). Therefore, the amalgamation order was ultra vires and violative of Article 14 of the Constitution of India, but High Court rejected the petition and the amalgamation order was upheld. FTIL filed an appeal against judgment of High Court before Apex Court. *Held:* All expressions used in relation to 'public interest' had relation only to the businesses of the two companies that were sought to be amalgamated. There was no interest of the general public. The assessment order 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 was clear that an important condition precedent to the passing of the final amalgamation order was not met. Therefore, the amalgamation order was ultra vires in terms of section 396 of the Companies Act, and, being arbitrary and unreasonable, violative of Article 14 of the Constitution of India. Further that, the judgement of High Court was set aside. Companies Act, 1956, Section 396, Constitution of India, 1950, Article 14 *REFERRED :* Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405; K.I. Shephard v. Union of India, (1987) 4 SCC 431; J.K. (Bombay) (P) Ltd. v. New Kaiser-i-Hind Spinning and Weaving Co. Ltd., (1969) 2 SCR 866; Bihar Public Service Commission v. Saiyed Hussain Abbas Rizwi & Anr. in (Civil Appeal No. 9052 of 2012, dt. 13-12-2012) : 2013 TaxPub(CL) 479 (SC) FAVOUR : In favour of appellant A.Y. : IN THE SUPREME COURT OF INDIA R.F. NARIMAN & VINEET SARAN, JJ. 63 Moons Technologies Ltd. (Formerly Known as Financial Technologies India Ltd.) & Ors. v. UOI & Ors. Civil Appeal No. 4476 of 2019 (Arising out of Special Leave Petition (Civil) No. 4210 of 2018), Civil Appeal No. 4478 of 2019 (Arising out of Special Leave Petition (Civil) No. 4652 of 2018) Civil Appeal No. 4477 of 2019 (Arising out of Special Leave Petition (Civil) No. 4239 of 2018) Civil Appeal No. 4479 of 2019 (Arising out of Special Leave Petition (Civil) No. 4659 of 2018) Civil Appeal No. 4481 of 2019 (Arising out of Special Leave Petition (Civil) No. 4816 of 2018), Civil Appeal No. 4480 of 2019 (Arising out of Special Leave Petition (Civil) No. 4720 of 2018), Writ Petition (Civil) No. 368 of 2019 30 April, 2019 JUDGMENT *R.F. Nariman, J.* Leave granted. 2. This batch of appeals and writ petition raises questions as to the applicability and construction of section 396 of the Companies Act, 1956, which deals with compulsory amalgamation of companies by a Central Government order 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 27-5-2016), 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 5-6-2007, the Union of India issued an exemption notification under section 27 of the Forward Contracts (Regulation) Act, 1952 ('FCRA') exempting forward contracts of one-day duration for sale and purchase of commodities traded on NSEL from operation of the provisions of the FCRA. NSEL commenced operations in October 2008. On 27-4-2012, the Department of Consumer Affairs ('DCA') issued a show cause notice to NSEL as to why action should not be initiated against it for permitting transactions in alleged violation of the exemption granted to it under the FCRA. NSEL replied to the show cause notice on 29-5-2012 stating that it had not violated the exemption granted to it. Without adjudicating upon the show cause notice, on 12-7-2013, the DCA directed NSEL to give an undertaking that no further contracts shall be launched until further instructions, and that all existing contracts will be settled on due dates. This was effectively a 'freezing' order. On 22-7-2013, NSEL gave an undertaking to the DCA. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers 2019 TaxPub(CL) 0652 (SC) : (2019) 150 CLA 0209

63 Moons Technologies Ltd. (Formerly Known as Financial Technologies India Ltd.) & Ors. v. UOI & Ors.

COMPANIES ACT, 1956,

--Power of Central Government to provide for amalgamation of companies in public interest --Non-providing of compensation to either shareholders or creditors of transferee company by breaching of section 396(3) Amalgamation order being ultra vires----Though assessment order did not provide any compensation to either shareholders or creditors of transferee company for economic loss caused by amalgamation in breach of section 396(3), therefore, amalgamation order was ultra vires in terms of section 396 of the Companies Act and violative of Article 14 of the Constitution of India.--NSEL was subsidiary of FTIL. There was huge liability upon NSEL in respect of payment and its net worth was very low. Central Government passed order under section 396 in respect of compulsory amalgamation of NSEL with FTIL. Therefore, compensation had assessed for NSEL or its shareholder. FTIL filed petition against the amalgamation order on the ground that assessment order did not provide any compensation to either its shareholders or creditors for economic loss, which was in violation of section 396(3). Therefore, the amalgamation order was ultra vires and violative of Article 14 of the Constitution of India, but High Court rejected the petition and the amalgamation order was upheld. FTIL filed an appeal against judgment of High Court before Apex Court. Held: All expressions used in relation to 'public interest' had relation only to the businesses of the two companies that were sought to be amalgamated. There was no interest of the general public. The assessment order 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 was clear that an important condition precedent to the passing of the final amalgamation order was not met. Therefore, the amalgamation order was ultra vires in terms of section 396 of the Companies Act, and, being arbitrary and unreasonable, violative of Article 14 of the Constitution of India. Further that, the judgement of High Court was set aside.

Companies Act, 1956, Section 396,

Constitution of India, 1950, Article 14

REFERRED : Mohinder Singh Gill v. Chief Election Commissioner, (1978) 1 SCC 405; K.I. Shephard v. Union of India, (1987) 4 SCC 431; J.K. (Bombay) (P) Ltd. v. New Kaiser-i-Hind Spinning and Weaving Co. Ltd., (1969) 2 SCR 866; Bihar Public Service Commission v. Saiyed Hussain Abbas Rizwi & Anr. in (Civil Appeal No. 9052 of 2012, dt. 13-12-2012) : 2013 TaxPub(CL) 479 (SC)

FAVOUR : In favour of appellant

A.Y. :

IN THE SUPREME COURT OF INDIA

R.F. NARIMAN & VINEET SARAN, JJ.

63 Moons Technologies Ltd. (Formerly Known as Financial Technologies India Ltd.) & Ors. v. UOI & Ors.

Civil Appeal No. 4476 of 2019 (Arising out of Special Leave Petition (Civil) No. 4210 of 2018), Civil Appeal No. 4478 of 2019 (Arising out of Special Leave Petition (Civil) No. 4652 of 2018) Civil Appeal No. 4477 of 2019 (Arising out of Special Leave Petition (Civil) No. 4239 of 2018) Civil Appeal No. 4479 of 2019 (Arising out of Special Leave Petition (Civil) No. 4659 of 2018) Civil Appeal No. 4481 of 2019 (Arising out of Special Leave Petition (Civil) No. 4816 of 2018), Civil Appeal No. 4480 of 2019 (Arising out of Special Leave Petition (Civil) No. 4720 of 2018), Writ Petition (Civil) No. 368 of 2019

30 April, 2019

JUDGMENT

R.F. Nariman, J.

Leave granted.

2. This batch of appeals and writ petition raises questions as to the applicability and construction of section 396 of the Companies Act, 1956, which deals with compulsory amalgamation of companies by a Central Government order 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 27-5-2016), 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 5-6-2007, the Union of India issued an exemption notification under section 27 of the Forward Contracts (Regulation) Act, 1952 ('FCRA') exempting forward contracts of one-day duration for sale and purchase of commodities traded on NSEL from operation of the provisions of the FCRA. NSEL commenced operations in October 2008. On 27-4-2012, the Department of Consumer Affairs ('DCA') issued a show cause notice to NSEL as to why action should not be initiated against it for permitting transactions in alleged violation of the exemption granted to it under the FCRA. NSEL replied to the show cause notice on 29-5-2012 stating that it had not violated the exemption granted to it. Without adjudicating upon the show cause notice, on 12-7-2013, the DCA directed NSEL to give an undertaking that no further contracts shall be launched until further instructions, and that all existing contracts will be settled on due dates. This was effectively a 'freezing' order. On 22-7-2013, NSEL gave an undertaking to the DCA.