Violative of right to equality, says court

The Supreme Court on Tuesday declared the government’s amalgamation of the over ₹5,600 crore scam-hit National Spot Exchange Ltd. (NSEL) with Financial Technologies India Ltd. (FTIL), now known as 63 Moons Technologies Ltd., as a violation of both the Constitution and the Companies Act.

A Bench of Justices Rohinton Nariman and Vineet Saran held that the Centre’s amalgamation order of February 12, 2016 was ultra vires Section 396 of the Companies Act and contrary to Article 14 (right to equality) of the Constitution. Section 396 of the Companies Act, 1956, deals with compulsory amalgamation of companies by a Central Government order when it becomes essential in the public interest.

In this case, Justice Nariman, who wrote the 133-page judgment for the Bench, observed that there was “complete non-application of mind by the authority assessing compensation to the rights and interests of the shareholders and creditors of FTIL under Section 396(3) of the Companies Act”. The order said the rights and interests of shareholders and creditors were substantive ones by nature. The economic loss caused to them through an amalgamation would require assessment and payment of compensation to them.

“Given the fact that 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 is clear that an important condition precedent to the passing of the final amalgamation order was not met. On this ground also, therefore, the final amalgamation order has to be held to be ultra vires Section 396 of the Companies Act, and, being arbitrary and unreasonable, violative of Article 14 of the Constitution,” the court held. The “public interest” cited consists of the interests of 63,000 shareholders of FTIL, who were compelled by the merger to bear a huge liability, which would reduce the market value of their shares to nil.

The verdict is a relief to Jignesh Shah, who controlled NSEL through FTIL. He was also arrested and faced criminal proceedings related to the scam, separately. Mr. Shah controlled FTIL owned 99.99% of NSEL wherein trading was suspended in July, 2013 after payments crisis to the tune of ₹5,574.35 crore surfaced over there.