Moons Technologies Ltd. (Formerly Known As Financial Technologies India Ltd.) & Ors. vs Union of India

Companies Act, 1956: s.396 – Essentiality test – Held: The Central Government has to be “satisfied”, meaning thereby, that it must, on certain objective facts, come to a conclusion that amalgamation between two or more companies is necessary – This can only be done if the Central Government finds it “essential”, i.e., necessary to do so.

Companies Act, 1956: s.396 – Public interest – Meaning of – In the context of compulsory amalgamation of two or more companies, the expression “public interest” would mean the welfare of the public or the interest of society as a whole, as contrasted with the “selfish” interest of a group of private individuals – Thus, “public interest” may have regard to the interest of production of goods or services essential to the nation so that they may contribute to the nation’s welfare and progress, and in so doing, may also provide much needed employment – “Public interest” in this context would, therefore, mean the combining of resources of two or more companies so as to impact production and consumption of goods and services and employment of persons relatable thereto for the general benefit of the community – Conversely, any action that impedes promotion of industry or obstructs growth which is in national or public interest would run counter to public interest as mentioned in s.396 of the Act.

Companies Act, 1956: s.396(3) – Amalgamation order – Compensation – Right of shareholder or a creditor – s.396(3) speaks of a shareholder’s or a creditor’s interest in or rights against the company resulting from an amalgamation order – A shareholder or creditor gets effected by an amalgamation order if the value of his share gets depleted as a result of the amalgamation and if dividends that have been paid to him are likely to come down as a result of the amalgamation – Likewise, a creditor of a solvent company is directly effected by an amalgamation by which the amount loaned by such creditor becomes, as a result of the amalgamation, less likely to be paid back in time, than if the amalgamation did not take place – Every shareholder of a company and indeed, every creditor of a company, is concerned only with the “economic value” of his share or the loan granted to a company, as the case may be – The moment the share value, in real terms, is likely to dip, and/or loans granted are likely not to be repaid in time or at all as a result of an amalgamation, such members or creditors of the amalgamating company are equally entitled to be compensated for this economic loss as are the members and creditors of the amalgamated company, depending on the facts of each case – To the extent to which the interest or rights of such member or creditor are less than his interest or rights against the original company, post amalgamation, he shall be entitled to compensation which is to be assessed. Companies Act, 1956: ss.396(3), 396(3A) – Compensation to aggrieved person – The language used in the appeal provision, i.e. s.396(3A), is “any person aggrieved by any assessment of compensation made by the prescribed authority under sub-section

(3) may…… appeal to the Tribunal, and thereupon the assessment of the compensation shall be made by the Tribunal” – The prerequisites for the application of sub-section (3A) are that a person first be aggrieved by an “assessment of compensation” “made” by the prescribed authority – Where no assessment of compensation whatsoever is made by the prescribed authority, no person can be aggrieved by an order which does not assess any compensation, which may be interfered with by the Appellate Tribunal which must then assess the compensation for itself – The statute clearly entitles such shareholders and creditors to have compensation assessed first by the prescribed authority and then by the appellate authority – The orders of “non-assessment” by the prescribed authority can more appropriately be challenged in judicial review proceedings, in which the High Court, acting under Art.226 of the Constitution of India can, if an infraction of s.396(3) is found, send the matter back to the prescribed authority to determine compensation after which the right of appeal under sub-section (3A) of s.396 would then follow.

Companies Act, 1956: s.396 – Applicability of – Compulsory amalgamation of companies by a Central Government’s order in public interest – NSEL, a 99.99% subsidiary of FTIL, defaulted on nearly 5,600 crore payments to its 13,000 investors – Trading was suspended in NSEL after payments default – Order of compulsory amalgamation of NSEL with appellant (FTIL) under s.396 – Whether each of the conditions precedent for applicability of s.396 applied to the facts of the instant case – Held: There is no doubt that in July, 2013, as a result of NSEL stopping trading on its exchange, a payment crisis of Rs.5600 crore arose – The letter addressed by FMC to the Ministry of Corporate Affairs show that immediate reason for amalgamation, according to the FMC was that NSEL, as a corporate entity, was financially and physically incapable of effecting any substantial recovery from defaulting members – By the time final amalgamation order was passed, emergent situation of 2013 which required emergent step of compulsory amalgamation by the passage of time, disappeared – Decrees/awards worth Rs.3365 crore were obtained against the defaulters, with Rs. 88 crore crystallised by the committee set up by the High Court, pending acceptance by the High Court, even without using the financial resources of FTIL as an amalgamated company – What was emergent, and essential, even according to the FMC and the Government in 2013-2014, was, therefore, largely redressed in 2016, by the time the amalgamation order was made – Therefore, the essentiality test, which is the condition precedent to the applicable to s.396, was not satisfied – When it comes to public interest as opposed to the private interest of investors/traders who have not been paid, the amalgamation order at several places refers to “essential public interest” as if “essential” goes with “public interest” instead of being a separate and distinct condition precedent to the exercise of power under s.396 – All the expressions used in relation to “public interest” have relation only to the businesses of the two companies that are sought to be amalgamated – The leveraging of combined assets, capital, and reserves is for the purpose of only settling liabilities of certain stakeholders and creditors when the order is read as a whole, and given the fact that the businesses of the two companies were completely different – So far as achieving economy of scale and efficient administration is concerned, it is difficult to see how this would apply to the fact situation in this case where NSEL is admittedly a company which has stopped functioning as a commodities exchange with no hope of any revival – Government order itself reflects the net worth of NSEL as INR 8.86 crore despite its capital being INR 60 crore, inasmuch as the total reserve and surplus is a negative figure of INR 51.54 crore – As against this, FTIL’s balance sheet, as on 31.03.2015, discloses that for the same year, FTIL’s net worth is INR 2779.94 crore – Also, FTIL paid high dividends to its shareholders while NSEL never paid a single dividend ever since its inception – This would show that Post amalgamation dividend payable to the shareholders of FTIL is bound to come down – Correspondingly, the ‘marketable value’ of such shares will also fall – The ‘economic value’ of shares held in FTIL may, post amalgamation, depress the market value of shares held by such shareholder, and would also impact the dividend payable on such shares post amalgamation – Further no compensation is provided either to the shareholders or creditors of FTIL for the economic loss caused by the amalgamation which is breach of s.396(3) – This is a case where there is complete non-application of mind by the authority assessing compensation to the rights and interests which the shareholders and creditors of FTIL have and which are referred to in s.396(3) of the Act – This being the case, it is clear that s.396(3) was not followed either in letter or in spirit – The amalgamation order is, therefore, ultra vires s.396 and being arbitrary and unreasonable, violative of Art.14 of the Constitution of India. Disposing of the matters, the Court

HELD: 1. INTERPRETATION OF SECTION 396: There is no doubt whatsoever that Section 396 cannot be challenged on the ground of Article 14 or Article 19, given Article 31A of the Constitution of India. However, this does not mean that Section

396 must be construed in such a fashion that it would lead to arbitrary or unreasonable results. [Para 23] [61-A-B]

Prem Nath Raina v. State of Jammu & Kashmir and Ors. (1983) 4 SCC 616 : [1983] 3 SCR 536 ; Budhan Singh and Anr. v. Nabi Bux and Anr.[1970] 2 SCR 10

– relied on.

2. DERIVATIVE IMMUNITY OF THE CENTRAL

GOVERNMENT ORDER: The expression used in Article 31A is “law”, for which, one is to see the definition contained in Article 13(3). “Law” in Article 13(3) certainly includes “order”. The only question is whether this would include an administrative order as well. It is clear, on a reading of Article 13(3), that the expression “law”, as defined in Article 13(3)(a), includes an Ordinance, rule, regulation, notification, and custom or usage having in the territory of India the force of law. Obviously, therefore, when the expression “order” is used, it would take colour from Ordinance, rule, regulation, notification, which are all legislative in nature, and not administrative. Even custom or usage having the force of law refers to general rules of conduct, as opposed to administrative orders passed on the facts of a given case. Construing Article 31A in the light of Article 13(3)(a), it is clear that the “order” referred to, can therefore, only be a legislative order. [Paras 24, 26, 27] [62-C; 63-G; 64-A-C]

Union of India and Anr. v. Cynamide India Ltd. and Anr. (1987) 2 SCC 720 – relied on.

Prag Ice & Oil Mills v. Union of India (1978) 3 SCC

459 : [1978] 3 SCR 293 – Partly applicable.

3. WHETHER THE CENTRAL GOVERNMENT ORDER IS

ADMINISTRATIVE IN NATURE

3.1 The fact that, under Section 396(5), the Central Government order has to be laid before the Houses of Parliament does not detract from the fact that this order is administrative and not legislative in character. The Central Government’s order directly impacts the rights and liabilities of the companies, their shareholders and creditors, sought to be amalgamated under the order. Such order is not an order in general which applies to all such companies, but only to the particular companies sought to be amalgamated. Such an order is not in the nature of legislation or delegated legislation. The order passed under Section 396 is qua particular companies and does not lay down any general rule of conduct by itself, but in fact, follows the general rule of conduct laid down by Section 396. Thus, the Central Government order, made under Section 396, must conform to the fundamental rights guaranteed by Articles 14 and 19(1)(g) of the Constitution of India. [Paras 29, 33] [67-D-E; 70-B]

K.I. Shephard v. Union of India (1987) 4 SCC 431 : [1988] 1 SCR 188; Thomas Dana v. State of Punjab [1959] 1 Suppl. SCR 274 ; Hamdard Dawakhana

(Wakf) Lal Kuan, Delhi and Anr. v. Union of India and Ors. [1960] 2 SCR 671 ; Sakal Papers (P) Ltd. and Ors. v. Union of India [1962] 3 SCR 842 ; Ajay Hasia and Ors. v. Khalid Mujib Sehravardi and Ors. (1981)

1 SCC 722 : [1981] 2 SCR 79 ; M.C. Mehta and Anr. v. Union of India and Ors. (Shriram – Oleum Gas) (1987) 1 SCC 395 : [1987] 1 SCR 819 – relied on. New Bank of India Employees’ Union and Anr. v. Union of India and Ors. (1996) 8 SCC 407 : [1996] 3 SCR 322; Quarry Owners’ Association v. State of Bihar and Ors. (2000) 8 SCC 655 : [2000] 2 Suppl. SCR 211 ; J.K. (Bombay) (P) Ltd. v. New Kaiser-i-Hind Spinning and Weaving Co. Ltd. [1969] 2 SCR 866 –

held inapplicable.

3.2 Various pre-requisites contained in Section 396 must first be satisfied before the Section can be said to operate. First and foremost, the Central Government has to be “satisfied”, meaning thereby, that it must, on certain objective facts, come to a conclusion that amalgamation between two or more companies is necessary. This can only be done if the Central Government finds it “essential”, i.e., necessary to do so. Also, this can only be done in “public interest”. A condition precedent to the passing of an order by the Central Government under this Section is that every member or creditor of each of the companies before amalgamation shall have, as nearly as may be, the same interest in or rights against the company resulting from the amalgamation as he had in the erstwhile company either as a member or a creditor, and if this is not so, such member or creditor shall be entitled to compensation which is to be assessed by such authority as may be prescribed. Unless an order of compensation is first made under sub-section (3), and an appeal therefrom has either not been filed or has been disposed of, no order of amalgamation can be made. Another condition precedent is an inbuilt provision for natural justice, namely, that a proposed draft order has first been sent to each of the companies concerned. The companies may then send suggestions or objections to the Central Government, which the Central Government must first consider before passing the final order. Such objections and suggestions can also be sent from any class of shareholders of either of the companies, or from any creditors or class of creditors of either of the companies. [Paras 34, 36] [74-C-D; 75-C-F]

4. “WHERE THE CENTRAL GOVERNMENT IS

SATISFIED”: The Central Government’s satisfaction must be as to the conditions precedent mentioned in the Section as correctly understood in law, and must be based on facts that have been gathered by the Central Government to show that the conditions precedent exist when the order of the Central Government is made. [Para 42] [87-C-D]

Barium Chemicals Ltd. v. Company Law Board

[1967] 1 SCR 898 ; Rohtas Industries Ltd. v. S.D. Agarwal [1969] 3 SCR 108 ; Western U.P. Electric Power & Supply Co. Ltd. v. State of U.P. and Anr. (1969)

1 SCC 817 : [1969] 3 SCR 865 ; Rampur Distillery Co. Ltd. v. Company Law Board [1970] 2 SCR 177 ;

M .A. Rasheed and Ors. v. State of Kerala [1975] 2 SCR 93 ; Khudiram Das v. State of West Bengal (1975)

2 SCC 81 : [1975] 2 SCR 832 ; Tata Cellular v. Union of India (1994) 6 SCC 651 : [1994] 2 Suppl. SCR 122; Bhikhubhai Vithlabhai Patel v. State of Gujarat (2008) 4 SCC 144 ; M. Jhangir Bhatusha and Ors. v. Union of India and Ors. (1989) 2 Suppl. SCC 201 : [1989] 3 SCR 356 – referred to.

Haryana Financial Corporation v. Jagdamba Oil Mills (2002) 3 SCC 496 : [2002] 1 SCR 621 - cited.

5. “ESSENTIAL”: The Central Government’s mind has to be applied to whether a compulsory amalgamation u/s 396 is indispensably necessary, important in the highest degree, and whether such amalgamation is both basic and necessary. [Para 44] [88-B]

J. Jayalalitha v. Union of India (1999) 5 SCC 138 : [1999] 3 SCR 653 – referred to.

P. Ramanath Aiyer ’s Law Lexicon (4 th Edn.); Black’s Law Dictionary (10th Edn.) – referred to.

6.1 “PUBLIC INTEREST”: The third pre-requisite of Section 396 is that the Central Government must apply its mind when compulsorily amalgamating two or more companies in the public interest. “Public interest” is an expression which is wide and amorphous and takes colour from the context in which it is used. Public interest is the general interest of the community, as distinguished from the private interest of an individual. “Public interest” in the context of compulsory amalgamation of two or more companies would mean the combining of resources of two or more companies so as to impact production and consumption of goods and services and employment of persons relatable thereto for the general benefit of the community. [Paras 45, 54] [88-C; 94-D-E]

State of Bihar v. Maharajadhiraja Sir Kameshwar Singh of Darbhanga and Ors. [1952] 1 SCR 889;

Manimegalai v. Special Tehsildar (Land Acquisition Officer) Adi Dravidar Welfare (2018) 13 SCC 491: [2018] 3 SCR 1086; Rameshwar Prasad and Ors. v. State of U.P. and Ors. (1983) 2 SCC 195 : [1983] 2 SCR 418; Janata Dal v. H.S. Chowdhary and Ors. (1992) 4 SCC 305:[1992] 1 Suppl. SCR 226; Municipal Corporation of the City of Ahmedabad and Ors. v. Jan Mohd. Usmanbhai and Anr. (1986) 3 SCC 20 : [1986]

2 SCR 700; B.P. Sharma v. Union of India and Ors. (2003) 7 SCC 309: [2003] 2 Suppl. SCR 684;

Hindustan Lever Employees’ Union v. Hindustan Lever Ltd. and Ors. (1995) 1 Suppl. SCC 499 : [1994] 4 Suppl. SCR 723 ; Bihar Public Service Commission v. Saiyed Hussain Abbas Rizwi and Anr. (2012) 13 SCC 61; R.R. Tripathi v. Union of India (2010) 1 Bom CR 513 – relied on.

6.2 Applicability of Section 396 to the facts of the instant case. Neither FTIL nor NSEL has denied the fact that paired contracts in commodities were going on, and by April to July, 2013, 99% (and excluding E-series contracts), at least 46% of the turnover of NSEL was made up of such paired contracts. There is no doubt that such paired contracts were, in fact, financing transactions which were distinct from sale and purchase transactions in commodities and were, thus, in breach of both the exemptions granted to NSEL, and the FCRA. NSEL throughout kept representing that it was, in fact, a commodity exchange dealing with spot deliveries. Apart from the Grant Thornton report and the FMC order, Shri Jignesh Shah, on 10.07.2013, made representations to the DCA and the FMC, in which he stated that NSEL had full stock as collateral; 10-20% of open position as margin money; and that the stock currently held in NSEL’s 120 warehouses was valued at INR 6000 crore, all of which turned out to be incorrect. Further, there is no doubt whatsoever that in July, 2013, as a result of NSEL stopping trading on its exchange, a payment crisis of approximately INR 5600 crore arose. The further question that remains is whether, given these facts, the conditions precedent for the applicability of Section 396 were followed. When it comes to whether the Central Government’s satisfaction as to whether it was “essential” to amalgamate the two companies, what must be borne in mind is that NSEL had itself offered a settlement scheme to pay back the persons who have allegedly been duped. It was found that this scheme could not really take off, as a result of which, large amounts continued to be owed to such persons. [Paras 55 and 55.3, 56] [94-F; 105-C-G]

6.3 The raison d’être for applying Section 396 of the Companies Act has, by the passage of time, itself disappeared. In fact, as on today, decrees/awards worth INR 3365 crore have been obtained against the defaulters, with INR 835.88 crore crystallised by the committee set up by the High Court, pending acceptance by the High Court, even without using the financial resources of FTIL as an amalgamated company. What was emergent, and therefore, essential, even according to the FMC and the Government in 2013-2014, has been largely redressed in 2016, by the time the amalgamation order was made. Also, the Central Government order does not apply its mind to the essentiality aspect of Section 396 at all. In fact, in several places, it refers to “essential public interest” as if “essential” goes with “public interest” instead of being a separate and distinct condition precedent to the exercise of power under Section 396. On facts, therefore, it is clear that the essentiality test, which is the condition precedent to the applicable to Section 396, cannot be said to have been satisfied. [Para 56.2] [112-F-H; 113-A]

6.4 When it comes to “public interest” as opposed to the “private interest” of investors/traders, who have not been paid, the amalgamation order dated 12.02.2016 makes interesting reading. It will be seen that all the expressions used in relation to “public interest” have relation only to the businesses of the two companies that are sought to be amalgamated. There is no interest of the general public as opposed to the businesses of the two companies that are referred to. The leveraging of combined assets, capital, and reserves is only to settle liabilities of certain stakeholders and creditors when the order is read as a whole, and given the fact that the businesses of the two companies were completely different. So far as achieving economy of scale and efficient administration is concerned, it is difficult to see how this would apply to the fact situation in this case where NSEL is admittedly a company which has stopped functioning as a commodities exchange at least with effect from July, 2013 with no hope of any revival. The sole object of the amalgamation order is really only to effect speedy recovery of dues of INR 5600 crore, which has been referred to in the letter of the FMC to the Secretary, Ministry of Corporate Affairs, dated 18.08.2014. [Para 59] [114-E; 115-B-E]

7.1 The “recommendations of the FMC are in the form of a letter dated 18.08.2014, in which the “business reality” is the fact that dues of INR 5600 crore have to be paid, and that NSEL does not have the wherewithal to do so. Thus, its parent company’s financial resources ought to be used to effect such payment. This “business reality”, therefore, speaks only of the private interest of the investors/traders who have been allegedly duped (which fact will only be established in suits filed by them in 2014), and nothing beyond (which would show some vestige of public interest). Equally, the grave shattering of public confidence and purpose of establishing commodity exchanges having been defeated, according to the Central Government, is a gloss on the FMC order dated 17.12.2013. If this were so, one would have expected a resuscitation or revival of the commodities exchange of NSEL, which could have been achieved by takeover of its management. It is difficult to imagine that grave shattering of public confidence by the permanent shutting down of the commodities exchange of the NSEL would be remedied only by facilitating the paying of dues to certain allegedly duped investors/traders, which fact will be proved or disproved in suits filed by them which are pending adjudication in the Bombay High Court. In any case, this reason is wholly irrelevant as an answer to the objection raised by FTIL which is an objection stating that the Section applies to Government companies alone. Also, had FTIL made no such objection, no such answer would have been forthcoming. It is admitted in the order itself that there is no “adjudication” on the “fraud” in the facts of this case, and thus, not an exercise of lifting of the corporate veil of the preamalgamation companies. The amalgamation order contradicts itself by then stating that NSEL is the alter ego of FTIL, and thus, the two companies are practically one entity. In any event, these paragraphs do not indicate as to how the ‘alter ego’ argument impacts public interest. [Para 59.3] [118-F-H; 119-A-F]

7.2 Under Section 396(4)(b), the Central Government may, after considering suggestions and objections from the stakeholders mentioned, make modifications in the draft order as may seem to it desirable in the light of such suggestions and objections. No modification has been made in the body of the Central Government order as finally made. If the Central Government had actually considered that each of these three reasons impact public interest, it would have explicitly said so after suggestions and objections were made by the various stakeholders. [Para 59.4] [119-G-H; 120-A]

Ganesh Bank of Kurundwad Ltd. v. Union of India (2006) 10 SCC 645 : [2006] 5 Suppl. SCR 437 – distinguished.

Mohinder Singh Gill v. Chief Election Commissioner (1978) 1 SCC 405 : [1978] 2 SCR 272; Chairman, All India Railway Recruitment Board and Anr. v. K. Shyam Kumar and Ors. (2010) 6 SCC 614 ; PRP Exports and Ors. v. Chief Secretary, Government of Tamil Nadu and Ors. (2014) 13 SCC 692 – referred to.

8. Section 396(3) speaks of a shareholder’s or a creditor’s interest in or rights against the company resulting from an amalgamation order. A shareholder or creditor gets effected by an amalgamation order if the value of his share gets depleted as a result of the amalgamation and if dividends that have been paid to him are likely to come down as a result of the amalgamation. Likewise, a creditor of a solvent company is directly effected by an amalgamation by which the amount loaned by such creditor becomes, as a result of the amalgamation, less likely to be paid back in time, than if the amalgamation did not take place. Such rights and interests of members and creditors are substantive rights which, when effected by the amalgamation, lead to compensation having to be paid. Every shareholder of a company and indeed, every creditor of a company, is concerned only with the “economic value” of his share or the loan granted to a company, as the case may be. The moment the share value, in real terms, is likely to dip, and/or loans granted are likely not to be repaid in time or at all as a result of an amalgamation, such members or creditors of the amalgamating company are equally entitled to be compensated for this economic loss as are the members and creditors of the amalgamated company, depending on the facts of each case. To the extent to which the interest or rights of such member or creditor are less than his interest or rights against the original company, post amalgamation, he shall be entitled to compensation which is to be assessed. [Paras 65, 66] [126-G-H; 127-A-C, E]

Bacha F. Guzdar v. Commissioner of Income Tax [1955] 1 SCR 876 ; Life Insurance Corporation of India v. Escorts Ltd. and Ors. (1986) 1 SCC 264 : [1985] 3 Suppl. SCR 909; Commissioner of Income Tax (Central) Calcutta v. Standard Vacuum Oil Co.

[1966] 2 SCR 367 ; Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579 : [1996] 6 Suppl. SCR 1 – referred to.

9.1 Government order dated 12.02.2016 itself reflects the net worth of NSEL as INR 8.86 crore from its balance sheet dated 31.03.2015, despite its capital being INR 60 crore, inasmuch as the total reserve and surplus is a negative figure of INR 51.54 crore. As against this, FTIL’s balance sheet, as on 31.03.2015, discloses that for the same year, FTIL’s net worth is INR 2779.94 crore. Also, FTIL has been paying dividends to its shareholders ranging from 1000% to 250% for the years 2007-2008 till 2015-2016. On the other hand, NSEL has never paid a single dividend ever since its inception. Post amalgamation, therefore, dividend payable to the shareholders of FTIL is bound to come down. Correspondingly, the ‘marketable value’ of such shares will also fall. From the Director’s Report and consolidated financial statements of NSEL, it becomes clear that the company may be exposed to liabilities in case of any adverse outcome in any of the proceedings that may be pending, as a result of which, it may have to pay back the whole or some part of the INR 5600 crore owed to the alleged investors/traders by the 24 defaulters who are members of NSEL. This would certainly impact the ‘economic value’ of shares held in FTIL as this is one factor that would, post amalgamation, depress the market value of shares held by such shareholder, and would also impact the dividend payable on such shares post amalgamation. [Paras 72, 73] [130-E-G; 131-G-H; 132-A-B]

9.2 The impugned judgment has also held that no material was produced before the Court to show that share prices would in fact plummet post-amalgamation. This is despite the fact that the impugned judgment itself refers to the fact that since the publication of the draft order on 21.10.2014, the share value which was INR 211.10, dropped to INR 174.55 ten days later. It is well known that the stock market is extremely sensitive to the slightest event that may render a company less profitable. It is obvious that the publication of the draft order on 21.10.2014 had the impact of the share price reducing by a substantial amount, ten days later. The moment the final amalgamation order dated 12.02.2016 was publicised, the share price fell from INR 89.90 on 12.02.2016 to INR 73.90 on 24.02.2016 and further to INR

73.10 on 29.02.2016. Given the fact that the assessment order dated 01.04.2015 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 of India. [Para 74] [132-C-E, H; 133-A]

9.3 The language used in the appeal provision, i.e. Section 396(3A), is “any person aggrieved by any assessment of compensation made by the prescribed authority under sub-section (3) may…… appeal to the Tribunal, and thereupon the assessment of the compensation shall be made by the Tribunal.” The pre-requisites for the application of sub-section (3A) are that a person first be aggrieved by an “assessment of compensation” “made” by the prescribed authority. Where no assessment of compensation whatsoever is made by the prescribed authority (and on the facts here, the prescribed authority has not, in fact, stated that for the reasons given by it, compensation awarded to FTIL, its shareholders and creditors is nil), no person can be aggrieved by an order which does not assess any compensation, which may be interfered with by the Appellate Tribunal which must then assess the compensation for itself. [Para 75] [133-B-E]

Institute of Chartered Accountants of India v. L.K. Ratna and Ors. [1986] 3 SCR 1049 ; Union Carbide

Corporation v. Union of India [1991] 1 Suppl. SCR

251 ; Charan Lal Sahu v. Union of India (1990) 1 SCC

613 : [1989] 2 Suppl. SCR 597 - referred to.

Union of India v. G. Ganayutham (1997) 7 SCC 463 : [1997] 3 Suppl. SCR 549; Om Kumar v. Union of India (2001) 2 SCC 386 – cited.

Leary v. National Union of Vehicle Builders

[1971] Ch. 34 – referred to.