In a landmark ruling by the Supreme Court of India, the case of FTIL v/s NSEL has reached a pivotal decision with far-reaching consequences. This judgement will have significant implications for both FTIL and NSEL, setting a precedent for future legal matters in the realm of corporate amalgamations and public interest. Join us as we explore the details and implications of this crucial legal battle.
Facts
- MMTC Ltd. representatives found full commodity stock in warehouses in January 2013.
- FMC suggested FTIL and NSEL merger in August 2014.
- FMC declared FTIL ‘not fit and proper’ in December 2013.
- Ministry of Finance withdrew exemptions for NSEL in September 2014.
- EOW filed chargesheets against NSEL employees in January 2014.
- FTIL filed Writ Petition challenging amalgamation order and maintaining separate identities in November 2014.
- Final amalgamation order passed in February 2016 merging FTIL and NSEL.
- FMC recommended steps to verify commodities and ascertain liabilities of FTIL in August 2013.
- Forensic audit of NSEL ordered in August 2013.
- Union of India filed affidavit confirming draft order basis in December 2014.
- Various ongoing legal proceedings and recovery efforts against defaulters.
- On 04.02.2015, the Bombay High Court vacated the status quo order and allowed FTIL, NSEL, and their shareholders to file objections to the draft amalgamation order.
- FTIL and NSEL were granted a hearing on their objections by a committee consisting of Shri Pritam Singh and Shri H.P. Chaturvedi in October 2015.
- A three-member committee was appointed on 02.09.2014 to ascertain and crystallise the liability of defaulters and assist in debt recovery.
- A compensation order was made on 01.04.2015, involving compensation to a specific NSEL shareholder only.
- On 28.08.2015, the functions of FMC were merged with SEBI and the FCRA was repealed on the same day.
- SEBI was vested with the powers of FMC to be governed by the SEBI Act post-merger.
- The impugned judgement of the Bombay High Court was passed on 04.12.2017, dismissing the writ petition.
- The Division Bench of the Bombay High Court on 28.02.2014 refused a stay of the order citing serious findings of fraud amounting to INR 5500 crores.
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Arguments
- FTIL received only INR 84 crore from NSEL over a period of nine years, deposited in court.
- FTIL admitted the INR 5600 crore payment crisis on NSEL in July 2013 due to fraud.
- Compensation order could have been appealed by FTIL shareholders and creditors.
- Subjective satisfaction and judicial review discussed citing legal precedents.
- NSEL falsely claimed to own 120 warehouses affecting 63,000 FTIL shareholders.
- Grant Thornton’s key findings post-scam highlighted, with forensic audit details.
- Amalgamation order grounds challenged, deemed non-existent.
- Allegations of violation of natural justice and constitutional articles raised.
- NSEL’s settlement plan to FMC in August 2013 mentioned.
- FTIL’s control over NSEL’s Board highlighted as a point of contention.
- Mr. Chinoy contends that NSEL has no problems and can recover from defaulters without FTIL’s contribution
- FTIL’s contribution was questioned as unnecessary if NSEL is fully capable financially and infrastructurally
- Reliance on FTIL’s contribution was deemed unjustified if NSEL is self-sufficient
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Analysis
- Section 396 of the Companies Act allows for the compulsory amalgamation of companies in the public interest.
- Conditions precedent for making an order under this section include sending a proposed order draft to the companies concerned, considering suggestions and objections, and waiting for the appeal process to be completed.
- An appeal process is provided for in case of disagreement with the assessment of compensation determined by the prescribed authority.
- The Central Government can order the amalgamation of companies if it is essential in the public interest, with specific provisions and consequences outlined in the order.
- The idea behind Section 396 is to provide for the amalgamation of companies in the national interest.
- Every member or creditor of the companies involved in an amalgamation should have similar rights and interests in the new company post-amalgamation or be entitled to compensation if this is not the case.
- Section 396(5) of the Companies Act is a provision similar to the one in the case of K.I. Shephard.
- The ratio of K.I. Shephard applies directly to Section 396(5) in this case.
- The principles established in the K.I. Shephard case are relevant and applicable to the interpretation of Section 396(5).
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Case Title: 63 MOONS TECHNOLOGIES LTD (FORMERLY KNOWN AS FINANCIAL TECHNOLOGIES INDIA LTD) Vs. UNION OF INDIA
Case Number: C.A. No.-004476-004476 / 2019
