Ten issues addressed in FTIL-NSEL merger case

Last week, the Bombay High Court passed a landmark judgment. It dismissed the petition challenging a central government move to merge the payment crisis-hit National Spot Exchange (NSEL) with its parent entity, earlier named Financial Technologies (FTIL) and since renamed 63 Moons’ Technologies.

Initially, the 2014 draft order under Section 396 of the Companies Act was stayed. Then, it was lifted, allowing the final order in February 2016. Operation of this order was kept in abeyance, pending the Bombay HC decision. This decision itself will not operate for another 12 weeks, allowing the petitioners — 63 Moons and others — to move the Supreme Court. 

In a case that saw senior advocates such as Harish Salve (FTIL), Darius Khambatta (government) and Iqbal Chagla (Securities and Exchange Board of India or Sebi) put forth arguments and counters, the court examined 10 key questions. In the 222-page order, the bench of Chief Justice Manjula Chellur and M S Sonak discussed each of these before arriving at the decision that there was no need to interfere with the government decision. These are the 10 issues:

1) Whether the impugned order breached the principles of natural justice and fair play;

2) Whether, considering Section 396(3) of the Companies Act, the central government was at all empowered to order compulsory amalgamation of a loss-making and wholly owned subsidiary (NSEL) with its profit-making holding company (FTIL); 

3) Whether the impugned order runs counter to Sections 396 (3) and 396(4) of the said Act, since, according to petitions filed in 2015 and 2016, the central government made no order assessing compensation to shareholders of FTIL; 

4) Whether the central government, in making the impugned order, has practised hostile and invidious discrimination, thereby infringing Article 14 of the Constitution of India; 

5) Whether the impugned order runs afoul of Section 396 of the Companies Act because the Centre has failed to address the issue of national interest; 

6) Whether the impugned order is also invalid under Section 396 because there was no public interest involved in ordering amalgamation of NSEL with FTIL; 

7) Whether the impugned order is based on only one ground or reason, i.e facilitating NSEL in recovering dues from defaulters and, therefore, applying an earlier laid-down principle, the Centre is barred from adding or supplementing reasons by way of affidavits; 

8) Whether the impugned order stands vitiated because there is no material on record in support of the aforesaid solitary ground or reason; 

9) Whether the impugned order can be said to be unreasonable; 

10) Whether the impugned order defies the judicial doctrine of proportionality.

The HC gave a detailed rationale for its decision on each of these; is difficult to accommodate all these in this column. The court’s view on point number 6, public interest, could have a wider implication in the coming days, as more companies seem headed this way. 

The judgment said on this: “The concept of public interest takes the company outside the conventional sphere of being a concern in which the shareholders alone are interested. It emphasises the idea of a company functioning for the public good or general welfare and, at any rate, not in a manner detrimental to the public good. The expression ‘public interest’ constitutes a positive check on unhindered exercise of private right, whether by management or by stockholders.”  Over to the Supreme Court.