Summary
The compulsory amalgamation of NSEL with 63 Moons/FTIL was held ultra vires Section 396 and violative of Article 14. The company-specific order was administrative and lacked Article 31A immunity. Essentiality and public-interest conditions were not established, and economic loss to FTIL shareholders and creditors had not been assessed for compensation. New grounds absent from the draft could not support the order. The Court preserved FTIL’s undertaking to fund NSEL’s recovery efforts.
Issues
- Whether the amalgamation order enjoyed Article 31A immunity as legislation.
- Whether compulsory amalgamation was essential in public interest on the recorded grounds.
- Whether draft-stage participation and compensation requirements were met.
- Whether failure to appeal an unmade compensation assessment barred judicial review.
Provisions considered
- Section 396(1)–(5), Companies Act, 1956Compulsory amalgamation required demonstrated essentiality in public interest, consideration of objections on the proposed grounds, and prior assessment of diminished substantive interests with the statutory appeal opportunity. (¶¶ 22, 34–36, 42–54, 56–59.5, 65–76)
- Article 31A(1)(c), read with Article 13(3)(a), Constitution of IndiaImmunity protected the legislative provision but not this particular administrative amalgamation order. (¶¶ 21, 24–33)
Held
- The order applied statutory policy to two particular companies and directly altered their rights and liabilities, without laying down a general rule. Gazette notification, statutory force and parliamentary laying did not make it legislative or confer derivative Article 31A immunity. (¶ 27–33)
- Government satisfaction had to rest on relevant objective facts establishing the statutory preconditions. Essentiality was a distinct requirement of indispensable necessity, and could not be conflated with the phrase public interest. (¶¶ 34–44, 56.2)
- By the final order, recovery decrees, attachments and ongoing proceedings had substantially addressed the earlier emergency. The order did not apply its mind to why amalgamation remained essential. FTIL was held to its separate undertaking to continue funding NSEL’s recovery efforts. (¶ 56–58)
- The recorded purpose chiefly facilitated recovery for a private group of traders; vague references to consolidated business and efficiency did not establish community-wide public interest where NSEL’s business had stopped. The banking-amalgamation precedent involved materially different statutory grounds and circumstances. (¶¶ 54, 59–62)
- Public-confidence and alter-ego grounds absent from the draft denied stakeholders the prescribed opportunity to object. The High Court’s expanded reasons and later advocacy could not supply the Government’s own missing satisfaction. (¶¶ 59.1–59.5, 63–64)
- Protected interests were substantive and economic, not simply unchanged numbers of shares. Likely reductions in dividends, share value and debt recovery mattered for shareholders and creditors of both companies. (¶ 65–74)
- No compensation assessment for FTIL stakeholders had been made; this was not a reasoned nil assessment left unappealed. Judicial review of non-assessment preserved the statutory first assessment and subsequent appeal rights. The prerequisite was unmet. (¶ 75)
- The order was ultra vires Section 396 and arbitrary under Article 14. Other wide-ranging challenges were unnecessary to decide. (¶ 74–76)
Result
Appeals allowed; Bombay High Court judgment set aside. Central Government’s 12 February 2016 amalgamation order held ultra vires Section 396 and violative of Article 14. Connected writ petition disposed of in light of the judgment. FTIL held to its undertaking to continue funding recovery efforts.