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TMI Blog2017 (12) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... order on the ground of non compliance with the principles of natural justice and fair play or on the ground of any breach of our directions in order dated 4th February 2015. In this case, since FTIL, NSEL and in particular their shareholders have failed to demonstrate that they have been deprived of their property, there is no question of any infringement of Article 300A of the Constitution. The shareholders cannot confuse between the property of the companies and the interest which they hold by virtue of their shareholding. Further, none of the petitioners have demonstrated any infringement of their rights under Articles 14 and 19 of the Constitution. Accordingly, there is no necessity to go into the issue of any derivative immunity, which might or might not attach to the impugned order made under Section 396. Only if the petitioners had made out a case that the impugned order infringes the rights guaranteed to them under Articles 14, 19 or 300A of the Constitution, could the issue of derivative immunity have assumed importance. Since, this is not the case, we do not deem it necessary to go into the issue of derivative immunity. Therefore, upon cumulative consideration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the impugned order made by the Central Government is in violation of Article 14 of the Constitution, there is really no reason to go into the issue as to whether the impugned order enjoys any derivative immunity under Article 31A (1)(c) of the Constitution. The issue of immunity, whether derivative or otherwise would have arisen, had, the petitioners been able to establish that the impugned order was in violation of Articles 14 of 19 of the Constitution. Since, the petitioners have failed to establish any violation of Article 14 or 19 of the Constitution, there is no necessity to go into the issue of immunity, whether derivative or otherwise.Accordingly, we are unable to fault the impugned order on the ground of violation of Article 14 of the Constitution or on the basis of the petitioners' reading of the Central Government's circular dated 20th April 2011. Taking into consideration the importance of stock and commodity exchanges to the national economy and the unprecedented situation which the Central Government was required to deal with in the wake of collapse of the entire commodities exchange, we are unable to hold that the impugned order was not made in “national inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tock and commodity exchanges is of vital importance to the national economy. Stock and commodity exchanges provide vital hubs for investors and traders to trade in share and commodities. Commerce in modern economy is inconceivable without them. The perception of Indian economy, both locally and abroad, depends to a large extent on the functioning and the health of its stock and commodity exchanges. The failure of a national level commodity exchange under circumstances as stated in the impugned order, is clearly, a matter of serious concern. It is reported that almost 99.99% of the ostensible spot trading in commodities in the entire country was taking place on the NSEL spot exchange. The paired contracts offered by NSEL, which were in breach of the conditions of exemption notification, alone accounted for a turn over of ₹ 1,34,000 crores between the years 2009 to 2013. If exchanges such as these are permitted to be subverted or fail without honouring their obligations and commitments, the confidence in national economic institutions is bound to suffer and the repercussion to the national economy will be severe. In such situations, a negative perception about the business e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bin Behramkamdin with Mr. Murari Madekar i/b. Madekar Co. for the intervening employees in WP 2743 of 2014. Ms Namrata Vinod i/b. M/s. Federal Rashmikant for Intervenors (Modern India Ltd. Ors.) Mr. M. P. S. Rao - Senior Advocate with Mr. Sandeep Parikh, Ms Bijal Mehta i/b. Deven Dwarkadas Partners for Respondent No. 6 (NAARA) in WP No. 2743 of 2014.4 of 222 Mr. Gaurav Joshi Senior Advocate with Mr. Piyush Raheja, Ms Tanvi Gandhi and Mr. Nupur Desai i/b. M/s. Markand Gandhi Co. for Respondent No.4 in WP No. 2743 of 2014. JUDGMENT: (PER M.S. SONAK, J.) ABOUT THE PETITIONS AND THE PARTIES: 1] The main challenge in all these petitions is to the final amalgamation order dated 12th February 2016 (impugned order) made by the Central Government under Section 396 of the Companies Act, 1956 (Companies Act), amalgamating the National Spot Exchange Limited (NSEL) and 63 Moons Technologies Limited, formerly known as Financial Technologies (India) Limited (FTIL). 2] The lead petition in this batch is Writ Petition No. 2743 of 2014 instituted by FTIL and its 3 shareholders. Jignesh Shah, who, directly or indirectly has stake of almost 46% in FTIL and who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions in commodities. All this was, at least prima facie, in breach of the conditions subject to which NSEL had been granted exemption from the applicability of FCRA. 6] In 2012, the Regulatory Authorities, including FMC issued notices to NSEL to explain its position. Since the explanation was not found to be satisfactory, NSEL on 12th July 2013, was directed to furnish undertakings that no further/fresh contracts would be launched by exchange until further instructions and all existing contracts would be settled on the due dates. NSEL did furnish undertakings on 22nd July 2013, though not in the precise terms in which they were sought. On 31st July 2013, however, NSEL, notified its members that trading in all contracts (except E-series) stood suspended until further notice. As a result, all the trading/activities at the NSEL exchange, came to a grinding halt on 31st July 2013. 7] As on the said date, around 24 identified commodity sellers who were due and payable an amount estimated at ₹ 5600 crores to around 13000 commodity purchasers (investors), defaulted in making payments. NSEL, which had otherwise held itself out as a counter party for such payments, backed out c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] Section 396 of the Companies Act empowers the Central Government to order compulsory amalgamation of two or more companies where it is satisfied that it is essential in public interest to do so. No order can be made under this section unless a copy of the proposed order has been sent in draft to each of the companies concerned; the Central Government or the prescribed authority has determined whether every member or creditor (including the debenture holder) of each of the companies before amalgamation shall have, as nearly as may be, the same interest in or the rights against the company resulting from the amalgamation as he had in the company of which he was originally a member or a creditor; and to the extent to which the interest or rights of such member or creditor in or against the resultant company are less than his rights or interests in the original company, compensation is assessed as payable by the resultant company; the time for preferring an appeal or where any such appeal has been preferred, has been finally disposed of; and the Central Government has considered and made such modifications, if any, in the draft order as may seem to it desirable in the light of any su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government has relied upon adverse material in the form of proposals inter alia from FMC, without granting the affected parties any opportunity to explain why such proposals were flawed. Fourthly, they submit that there is a variation between the grounds stated in the draft order and the final order. They submit that considering the drastic nature of the impugned order, prejudice is inherent, particularly to NSEL whose corporate existence stands wiped out and to the shareholders of FTIL the economic value of whose shares, stands drastically diminished. They submit that any action which visits the parties with such serious civil consequences, if taken in violation of principle of natural justice and fair play, is a nullity and must be declared as such. They rely on Swadeshi Cotton Mills vs. Union of India (1981) 1 SCC 664, Nawabkhan Abbaskhan vs. State of Gujarat 1974 (2) SCC 121, Yashwant Gajanan Joshi Ors. vs. The Hindustan Petroleum Corporation Ltd. Anr. 1998 Mah.L.J. 455 and State of Orrisa vs. Binapani Dei(1967) 2 SCR 625 , in support of such propositions. 14] Mr. Salve and most of the other learned counsel for the petitioners and intervenors submit that Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 5600 crores is bound to drastically reduce the book value of FTIL's shares. The resultant company will never be in a position to compensate shareholders of FTIL for such losses. Therefore, the only reasonable construction of Section 396 is to permit compulsory amalgamation of two or more healthy companies. To explain the scope of the expression 'interests of member' in Section 396, they rely on Life Insurance Corporation of India vs. Escorts Ors. (1986) 1 SCC 264, Hindustan Lever Employee's Union vs. Hindustan Lever Ltd. Ors. 1995 Supp (1) SCC 499 and Dwarkadas Shrinivas vs. The Sholapur Spinning and Weaving Co Ltd. AIR 1954 SC 119 16] Mr. Seervai, who appears for SHAFT, submits that the Central Government has failed to assess compensation payable to shareholders or creditors of FTIL. He submits that this constitutes non-compliance of a mandatory pre-condition to the making of an order of compulsory amalgamation under Section 396. He submits that the Central Government by misconstruing Section 396(3) has proceeded on the basis that no compensation is payable to shareholders of FTIL. He submits that even in such a case, the Central Government was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporate Affairs to suggest that the Section 396 applies only to amalgamation of Government companies. They also rely upon the very same circular to submit that even in matters of amalgamation of Government companies by resort to Section 396, the procedure prescribed in Section 391 is required to be followed and is invariably followed. They point out that this procedure, ensures that amalgamation is by and large consensual and not compulsory or forced. They submit that the Central Government, by not following its own Circular dated 20th April 2011 when it comes to amalgamation oftwo or more non-government companies, is arbitrarily deviating from its own policy and in any case, practising hostile and invidious discrimination against NSEL, FTIL and its shareholders, creditors and employees. This, they submit, constitutes arbitrariness which is antithetic to Article 14 of the Constitution. They rely on E. P. Royappa vs. State of Tamil Nadu (1974) 4 SCC 3, Maneka Gandhi vs. Union of India 1978 (1) SCC 248, Secretary, Ministry of Chemicals and Fertilizers, Government of India vs. Cipla Ltd. Ors. (2003) 7 SCC 1 , in support of these propositions. 19] Mr. Seervai, Mr. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support of their submissions. 21] Mr. Salve and most of the other counsel for the petitioners and intervenors submit that there was no public interest involved in the matter without which the power under Section 396 can never be legitimately exercised. They submit that in this case, the interests of 781 high net worth individuals has been equated with public interest. Alternatively, they submit that even the interests of almost 70000 shareholders of FTIL and the creditors or employees of FTIL also constitutes public interest, and since the Central Government has totally ignored the same, the impugned order is contrary to public interest. They rely on Wood Polymer Limited (supra) and Ambalal Sarabhai Enterprises Ltd. (supra) to explain the concept of public interest in such matters. 22] Mr. Chinoy, both at the stage of reply as well as rejoinder, submits that the only reason discernible from the impugned order is that such forced amalgamation will facilitate the speedy recovery of dues from the defaulters at NSEL. He submits that this is upon the premise that NSEL lacks necessary finances and wherewithal to effect recoveries from the defaulters. He submits that there is no mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely on suspicion of fraud as against proven fraud. They point out that even in civil proceedings, allegations of fraud are required to be proved beyond reasonable doubt and not merely by applying the test of preponderance of probabilities. They submit that the Central Government is aware of this legal position, but has sidelined the issue by merely observing in the impugned order that the allegations of fraud or liability are not being gone into. They submit that this is a clear instance of legal mala fides. They rely on ALN Narayanan Chettyar Vs. Official Assignee AIR 1941 PC 93; Union of India Vs. Chaturbhai M. Patel and Co. (1976) 1 SCC 747 and Svenska Handelsbanken vs. M/s. Indian Charge Chrome Ors. (1994) 1 SCC 502 , in support of such contentions. 25] Mr. Salve and most of other counsel for the petitioners and intervenors submit that the Central Government, in making the impugned order, has ignored the corporate identity and lifted the corporate veil of NSEL and FTIL. They submit that the Central Government is well aware that none of the circumstances requisite for lifting the corporate veil even remotely exist in the facts and circumstances of the present cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned order must be judicially reviewed applying the test in Associated Provincial Picture Houses Limited vs. Wednesbury Corporation 1947 (2) ALL E.R. 682 . They submitted that the Central Government has ignored the relevant considerations but taken into account the irrelevant considerations. They submitted that the impugned order proceeds on basis of certain assumptions, which are themselves, entirely misplaced and misconceived. They submitted that the impugned order proceeds on the basis that the NSEL is liable to make good the alleged losses incurred by the alleged investors who may have traded on the NSEL exchange. They however, pointed out that in terms of bye-laws of the exchange, no liability can ever be foisted on NSEL. They submitted that the impugned order proceeds on the basis of legal misconception that the liabilities of a subsidiary attach to a holding company by vicarious liability. They submitted that the impugned order has relied on FMC's order dated 17th December 2013 declaring FTIL and others as not fit and proper persons, which order is itself, sub-judice. They submitted that the Central Government by relying upon such extraneous and irrelevant material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been completely ignored by the Central Government in making the impugned order. She submits that as a result of the impugned order, the capacity of FTIL to service the loans extended by the bank might be severely affected. This is a relevant consideration which ought to have been addressed by the Central Government. Failure, to do so vitiates subjective satisfaction and consequently the impugned order itself. Mr. Zubin Behramkamdin submits that the interest of employees of FTIL have been completely ignored by the Central Government. He submits that this is a clear case where the Central Government has ignored the relevant considerations but taken into account irrelevant considerations. He submits that the Central Government had not applied its mind to the range of options available to it to deal with the situation. For all these reasons, learned counsel submit that the impugned order is required to the struck down as unreasonable. 30] In the course of the rejoinder, Mr. Salve and most of other counsel for the petitioners however, sought to rely on the doctrine of proportionality to attack the impugned order. They submitted that the Wednesbury test is now substantially repla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate legislation. They rely on Prentis vs. Atlantic Coast Line Co. Ltd. 211 US 210, Page 226, Australian Boot Trade Employee's Federation vs. Whybrow Co., (1910) 10 CLR 266, Page 318 Express Newspaper (Private) Ltd. vs. Union of India AIR 1958 SC 578, Paras 96, 103, 105 and 111, Union of India vs. Cynamide India Ltd. (1987) 2 SCC 720, Para 7 and Dhariwal Industries Ltd. vs. State of Maharashtra 2013 (1) Mh.L.J. 461, Para 48 in support of their submission that the impugned order partakes the character of delegated legislation / subordinate legislation. 33] Mr. Khambata and Mr. Sen submit that in the present case, both NSEL and FTIL were furnished with the copy of proposed order of amalgamation, the objections and suggestions made by NSEL, FTIL, their shareholders, creditors, employees were duly considered by the Central Government before the impugned order was made. In addition, personal hearing was granted to NSEL and FTIL. They submit that no adverse material was relied upon of which the affected parties had no notice or opportunity to explain. They submit that there was no requirement of hearing before FMC made proposal for exercise of powers under Section 396. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submits that the provisions of Section 396 constitute a complete Code empowering the Central Government to amalgamate two or more companies where it is satisfied that it is essential in public interest to do so. He submits that Section 396 is a social welfare legislation. He refers to legislative history and relies on Nelson Motis vs. Union of India (1992) 4 SCC 711 and Hutti Gold Mines Co.Ltd. vs. H.G.M.L. Copper Units Officers Association (2012) 1 Kant LJ 679 (DB), in support of such submissions. 35] Mr. Khambata submits that in the present case, neither the interest nor the rights of the shareholders of FTIL have been affected by the impugned order. He submits that the expression 'interest in or rights against' in Section 396(3) should be construed in the light of the statutory provisions in the Companies Act as explained by the Supreme Court in several cases. He submits that the expression does not include the economic value of the shares. He submits that in the present case, neither the interest of the shareholders of FTIL in or their rights against the company resulting from amalgamation were to be affected, there was no question of payment of any compensat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisfied that it was essential in public interest to do so, the provisions of Section 396 were invoked. He submits that there is no question of any hostile or invidious discrimination involved merely because the power may have been exercised perhaps for the first time to compulsorily amalgamate two non-government companies. He submits that there is no comparison between the instances cited by the petitioners and the present case. He submits that the example in case of UTI is also misconceived and in any case, no party can claim negative equality. 39] Mr. Khambata submits that the circular dated 20th April 2011 neither spells out any policy of the Central Government nor can the same supplant the statutory provisions of Section 396. He submits that the circular itself states that the same is to be applied without prejudice to the generality of Section 396 . . . He submits that Section 396 was enacted to avoid prolonged delay and cumbersome procedures, where, public interest was in issue. He therefore, submits that there is no merit in the contention based upon hostile or invidious discrimination raised by some of the petitioners. 40] Mr. Khambata submits that that there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, reiterates that the impugned order is based on at least three distinct grounds which are discernible from the impugned order. He relies on Chairman, All India Railway Recruitment Board (supra), and PRP Exports vs. State of Tamil Nadu 2014 (13) SCC 692 , in support of his submissions. 44] Mr. Khambata submits that the impugned order does not adjudicate on the issue of fraud or liability. He submits that the impugned order, no doubt, refers to the FMC's fit and proper order dated 17th December 2013 or to the proposals forwarded by FMC on 18th August 2014 and 17th October 2014. However, this does not mean that the impugned order is entirely based only upon the said material or that the Central Government has abdicated its functions to the dictates of FMC or any other authority. He submits that in the present case circumstances justifying the lifting of corporate veil very much exist. However, the Central Government, far from lifting the corporate veil has, in deference to the corporate veil amalgamated the two companies. 45] Mr. Khambata submits that there is no difference between opinion cases and satisfaction cases as contended. Mr. Khambata submits that the Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 5,000 crores have already been attached and the financial position of NSEL is such as would enable it to satisfy any decrees, if made against it. No doubt, they submit that NSEL is not at all liable and therefore there is no possibility of any decrees being made against NSEL. On the other hand, some shareholders of FTIL represented by Mr. Seervai contend that the amalgamation of FTIL which has net worth of ₹ 2,800 crores with NSEL which has putative liabilities of ₹ 5,600 crores will completely wipe out the net worth of FTIL. Mr. Khambata submits that there is no consistency in the contentions of the petitioners. He submits that if FTIL and its major shareholders are to be taken at the face value, then, on their own say, the possibility of obtaining decrees against NSEL is remote and further, even if such decrees are, obtained, NSEL, is very much in a position to honour the same. He submits that the apprehensions expressed by other shareholders are quite irrelevant and in any case, lack legal basis. Mr. Khambata submits that in such a situation, FTIL, cannot be permitted to distance itself from NSEL. 48] Mr. Khambata submits that in the present case, the Central Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecure permissions to set up a spot exchange. Based upon the same, DCA issued exemption notification dated 5th June 2007, which was conditional. The condition stipulated that no short sale would be permitted and all outstanding position at the end of the day must result in delivery. 52] Mr. Rustomjee submits that after securing exemption from the applicability of FCRA, however, the NSEL, undertook operations in breach of conditions subject to which exemption was secured. He submits that NSEL offered T+18, T+25 and T+36 contracts, which were in clear breach of the conditions. Further, from 2009 onwards NSEL launched paired contracts comprising short term buy and long term sell contracts. By adoption of such modus operandi, the entire complexion of the exchange was converted from a spot exchange, which it was meant to be, to a platform for undertaking financing transactions, unconnected with sale and purchase of commodities. He points out that by the year 2013, almost 99% of the turn over of the exchange comprised such paired contracts and financial transactions underlying the same. He points out that this was obviously, in gross breach of the conditions subject to which NSEL was e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a settlement plan extending over 30 weeks, within, which, NSEL proposed to settle all pending obligation, assessed conservatively at ₹ 5600 crores. Even a payment/settlement schedule was proposed. However, NSEL, defaulted from the stage of first week itself. 56] Mr. Rustomjee submits that Grant Thornton and SGS India (Limited), both agencies, proposed by NSEL itself were appointed to audit the affairs of NSEL and FTIL, in the context of operations on the exchange. Based upon report submitted by these two agencies and after due compliance with principles of natural justice and fair play orders were made to declare FTIL, Jignesh Shah and others to be not fit and proper persons to be shareholders or directors in exchanges. FMC, also made recommendations to salvage the situation, including, amalgamation of FTIL and NSEL, so that, the investors, are not left in a total lurch. Mr. Rustomjee submits that the Central Government, upon due compliance with the procedure prescribed under Section 396 and upon taking into consideration the overwhelming material on record has made the impugned order. He submits that there is absolutely no unreasonableness or arbitrariness or dis-proport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 396(3) of the Companies Act, the Central Government was at all empowered to order compulsory amalgamation of loss making wholly owned subsidiary (NSEL) with its profit making holding company (FTIL) under Section 396 of the Companies Act? (C) Whether the impugned order is ultra vires Section 396 (3) and Section 396(4) of the Companies Act, since, according to the petitioners in Writ Petition No.1922 of 2016 and Writ Petition No. 387 of 2015, the Central Government has failed to make any order assessing compensation to shareholders of FTIL? (D) Whether the Central Government, in making the impugned order, has practised hostile and invidious discrimination, thereby infringing Article 14 of the Constitution of India? (E) Whether the impugned order is ultra vires Section 396 of the Companies Act because the Central Government has failed to address itself to the issue of national interest ? (F) Whether the impugned order is ultra vires Section 396 of the Companies Act because there was no public interest whatsoever involved in ordering amalgamation of NSEL with FTIL ? (G)(i) Whether, as contended by Mr. Chinoy, the impugned order is based on only one ground or reason, i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is necessary because in some cases the written submissions submitted later travel beyond the arguments made before us. OBJECTIVE FACTS CIRCUMSTANCES, FCRA REGIME 65] FTIL, which was incorporated in 1988 is a Public Limited and Listed Company. It carries on business of developing technology products to facilitate trading on exchanges, such as stock exchanges or commodity exchanges. Jignesh Shah, the petitioner in Writ Petition No. 387 of 2015, either directly or indirectly holds and controls almost 46% of its shareholding. Ravi Sheth and another, petitioners in Writ Petition No. 2985 of 2014 together hold 8.10% of its shareholding. Foreign Institutional Investors (FIIs) hold about 17.90% of its shareholding. The balance shareholding is held by retail shareholders. 66] In May 2005, Multi Commodities Exchange (MCX) promoted and founded by FTIL, incorporated NSEL for carrying on, inter alia, the business of a spot trading exchange for commodities. Jignesh Shah was one of the promoters. Initially FTIL held 26% stake. By September 2005, 99.9998% of the shareholding of NSEL was transferred by MCX to FTIL. Accordingly, there is no dispute that FTIL holds 99.9998% shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The object of the Amendment Act was therefore stated to be the removal of these and other difficulties and to enable the Central Government and the FMC to exercise a stricter control over forward trading activities. 70] The FCRA was once again amended in 1971. The Statement of Objects and Reasons to Amendment Act 53 of 1971 is very important for the present matters and is therefore reproduced verbatim for reference of convenience: Amendment Act 53 of 1971-Statement of objects and Reasons. The Forward Contracts (Regulation) Act, 1952 was enacted with a view to regulate matters relating to forward contracts, the prohibition of options in goods and matters connected therewith. Under this Act, Government have regulated or banned forward trading in several commodities in order to check undue speculations in the prices of those commodities. Lately, it has been observed that the speculative elements have taken resort to the ready market itself and conducted their business in forward contracts in banned and regulated commodities under the guise of ready delivery contract. A ready delivery contract is intended to result in actual delivery of goods and payment of full price th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, which have to operate within the regime of FCRA. There are provisions empowering the Central Government to call for returns, annual reports and direct enquiries, framing of rules, byelaws, suspension of members or prohibiting them from trading, supercede governing bodies of associations or even to suspend businesses of recognized associations. Chapter III-A is concerned with registered associations and matters connected therewith. Chapter IV of the FCRA is concerned with forward contracts and options in goods. Section 15 of FCRA declares that forward contracts in notified goods shall be illegal or void in notified cases shall be illegal or void in certain circumstances. Section 16 provides for the consequences of notification under Section 15. Section 17 empowers the Central Government to prohibit forward contracts in certain cases. Section 18 is concerned with special provisions respecting certain kinds of forward contracts and Section 19 prohibits options in goods. Chapter V of the FCRA provides for penalties and procedures. 72] Chapter VI of FCRA makes miscellaneous provisions, including Section 27 entitled Power to Exempt . The same reads as follows : 27. Power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent or a bank) who has acquired ownership of the said documents by purchase, exchange or otherwise, to any other person (including a commission agent but not including a bank); or (2) by the realisation of any sum of money, being the difference between the contract rate and the settlement rate or clearing rate or the rate of any offsetting contract; or (3) by any other means whatsoever, and as a result of which the actual tendering of the goods covered by the contract or the payment of the full price therefor is dispensed with, then, such contract shall not be deemed to be a ready delivery contract. Explanation .-For the purposes of this clause,- (i) bank includes any banking company as defined in the Banking Regulation Act, 1949 (10 of 1949), a co-oporative bank as defined in the Reserve Bank of India Act, 1934 (2 of 1934) the State Bank of India and any of its subsidiaries and any corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970); (ii) commission agent means a person who, in the ordinary course of business, makes contract for the sale or purchase of goods f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'ready delivery contract' in Section 2(i) of the FCRA, even a contract which complies with the main ingredients of a ready delivery contract as specified in Section 2(i) but if the performance of such contract involves realization of any sum of money, being the difference between the contract rate and the settlement rate or the clearing rate or the rate of any offsetting contract, then, such contract shall not be deemed to be a ready delivery contract. Since the module proposed by NSEL was to involve netting or setting of transactions at the end of the trading day, and in order that the transactions, as per the amended definition are not classified as 'forward contract' as per amended definitions, as matter of abundant caution, exemption from the very applicability of FCRA and consequently, the regulatory regime of FCRA, was applied for. 80] The Central Government, taking into consideration the representations held out by NSEL and in exercise of its powers under Section 27 of FCRA, by Notification No. S.O. 906(E) dated 5th June 2007, exempted all forward contracts of one day's duration for the sale and purchase of commodities traded on NSEL exchange from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h time the transaction was required to be settled by payment against delivery of documents of title to the commodities traded; vii. When the commodities were sold on the Exchange, a Delivery Allocation Report was issued to the Trading Client's Broker for the benefit of the Trading Client which represented the allocation of commodities to the Trading Client. These Delivery Allocation Reports also referred to the Warehouse Receipts and were conclusive proof of ownership of Trading Client's goods; viii. The Trading Client could then sell the same commodities on the Exchange on the basis of these Delivery Allocation Reports; ix. NSEL's Warehouse team was required to look into the Delivery Allocation Reports tendered by the person intending to sell the commodities and to reallocate the commodities accordingly. 82] The respondents have joined issue with the aforesaid by submitting that the exemption applied only in respect of contracts of one day's duration and therefore the spot delivery contracts or the ready delivery contracts at the NSEL exchange ought to have resulted in actual delivery of commodities and payment of full price thereof within a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent received a Delivery Allocation Report from NSEL, indicating that the commodities were deposited in the warehouse (under a Warehouse Receipt), and the Commodity Seller received the purchase consideration; c) the T+25 Contract (i.e. where the Commodity Seller bought back the commodities earlier purchased by the Trading Client), was thereafter settled by the Trading Client delivering the Delivery Allocation Report to NSEL so that the Warehouse Receipt representing the underlying commodities, could be handed over to the Commodity Seller, and the Commodity Seller paid the T+25 purchase consideration for the commodities purchased. iii. The entering into the paired contracts / structured trades as aforesaid, was a breach by certain Trading Clients, Commodity Sellers and their Brokers, of the conditions of NSEL's bye-laws and circulars (including NSEL's Circular of February 7, 2012), which prohibited paired trades / structured contracts and also any promise or guarantee of an assured return. The aforesaid mechanism itself would not have resulted in any default and there would have been no problem if the commodities were available to discharge the Commodity Sellers' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certain conditions. Note: The effect of this Exemption Notification according to NSEL is that although buy and sale orders in respect of commodities traded on the exchange could take place in the course of the day, the settlement of the transactions by delivery of goods or documents of title against payment could not take place beyond 11 days, which period i.e. 11 days was regarded as 'ready delivery' or 'spot delivery'. 86] Further, apart from the note against entry 8 (November 2011 onwards) in the list of dates and events of FTIL, there is ample material on record which establishes that NSEL offered 'paired contracts' at its exchange from 2009 itself. Further, the record indicates and it has not been disputed that by the year 2013 the volume of paired contracts constituted almost 99% of the turn over at the NSEL exchange. In monetary terms, this turn over from 2009 to 2013 was in the region of ₹ 1,34,000/- crores. Therefore, to say that all this was without the involvement or even knowledge of FTIL and NSEL and to attempt to blame 'certain trading clients, commodities sellers or brokers' is just not prima facie acceptable. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute the manner in which the operations were held at the NSEL Exchange. The NSEL itself has not even instituted any petition to question the impugned order, which takes cognizance of such facts. The learned counsel for NSEL when requested to comment on the operations at NSEL Exchange simply chose to submit that since the impugned order is based only on one ground or reason, namely, facilitating NSEL in recovering dues from the defaulters, there is no point in offering any comments or explanations about the operations at the NSEL Exchange. Even otherwise, there is extensive material on record in the form of Grant Thornton Report etc. which establishes that the operations at the NSEL Exchange were inconsistent with the conditions of the exemption notification dated 5th June 2007 and consequently the FCRA itself. 91] The FTIL as noted earlier, whilst not disputing the factual position of the operations at NSEL Exchange chooses to vaguely blame certain trading clients who are stated to have abused the trading mechanism and platform provided by the Exchange which ultimately resulted in a 'payment fraud to the extent of approximately of ₹ 5,600 crores' (this is the expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to DCA and FMC, in terms, holding out the following : (i) NSEL has 120 warehouses, holding inventory valued at ₹ 6,000 crores approximately which are good for delivery for processors' consumption upto next 1 to 1.5 years. (ii) NSEL strictly prohibits short sales through its circulars, notifications, practices in letter and spirit. (iii) In agricultural commodities, more than 99% trades result into delivery on daily basis. (iv) As per empirical data, short delivery has not happened even in 0.0001% cases during last 5 years. (v) NSEL model has full stock as collateral, 10-20% of open position as margin fee with complete purchase commitment of the processors. (vi) This is full proof risk management system compared to any other financial market structure. (vii) The value of stocks held by NSEL is around ₹ 6,000 crores. 97] On 12th July 2013, the DCA, not totally satisfied with the NSEL's response, directed NSEL to furnish undertakings to the following effect: (i) No further or fresh contracts will be launched by NSEL until further instructions from the concerned authorities; (ii) All existing contracts will be se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, that short sales may have resulted from misinterpretation, that amends will be made to ensure that contracts shall be T+10 or less and most importantly NSEL will ensure that every sale order results into 100% delivery only. To back this, NSEL once again asserted that as per its empirical data, 99.9999% of outstanding position at end of the day has resulted into delivery. 101] On 31st July 2013, without there being any order or direction from any of the regulatory authorities either withdrawing the exemption notification dated 5th June 2007 or otherwise directing NSEL to suspend operations at its exchange, the NSEL issued a circular by which it suspended trading in all contracts (except E series contracts) and merged the delivery and settlement of all pending contracts asking its members to settle them by way of delivery and payment after a period of 15 days. 102] FTIL, NSEL, their shareholders, employees project that it is the regulatory authorities like FMC and DCA which ordered the suspension of operations at the NSEL Exchange or at least that it is these regulatory authorities which 'forced' NSEL to suspend the operations at the NSEL Exchange. In the pleadings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operations on its exchange, when, hardly 20 days earlier, there was no serious problem regards the functioning of the exchange, the position of inventory in the warehouses, the position of margin monies and the position of settlement guarantee fund. No such explanation was forthcoming. 105] The only explanation attempted by FTIL was to state that some trading clients abused the trading mechanism at the exchange and entered into paired contracts and some of the trading clients, in collusion with the warehouse keepers stopped depositing the physical stocks in the warehouses either fully or partially and nevertheless obtained warehouse receipts. At another stage, FTIL casually states that there was some fraud at the warehouse level. The material on record establishes that it was NSEL, with full knowledge of FTIL which offered the paired contracts on its exchange. In any case, in 2013, almost 99% of the turn over of the exchange comprised such paired contracts. In monetary terms, the turn over of the paired contracts between 2009 and 2013, was not some negligible figure, which might have legitimately escaped the attention of FTIL, but, this figure was ₹ 1,34,000 crores. The sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-20% of open position as margin fee. However, on 31st July 2013, there was no significant margin fee available with NSEL in order to make at least partial payments to the trading clients; (v) The settlement guarantee fund maintained by NSEL, which was supposed to have ₹ 700/- to ₹ 800 cores , was again, found to have no significant amounts, for payment to the trading clients; (vi) Thus, trading clients with dues of approximately s.5600 crores or thereabouts were left in a complete lurch. They neither received the amounts due to them nor were they given deliveries of the commodities. 108] On the very next day, i.e. on 1st August 2013, the Managing Director and CEO of NSEL, in a meeting with the FMC, solemnly stated that settlement guarantee fund of ₹ 850 crores is in place. This was followed by email communication on the same date i.e. 1 st August 2013, in which, NSEL stated that amount of ₹ 738.55 crores is available in the settlement guarantee fund. However, on 4th August 2013, the very same MD and CEO of NSEL went on to state that the amount available in the settlement guarantee fund is only ₹ 62 crores. 109] The FTIL in its petition a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indicated. However, this was to be subject to realization of funds from the payable members. In reality, NSEL defaulted from the first week itself, no doubt on the specious plea that funds could not be recovered from the payable members. 113] Faced with such an unprecedented payment crisis and the manner in which a National Level Commodities Exchange just collapsed, FMC directed forensic audit and approved the names of Grant Thornton and SGS India Pvt. Ltd. as proposed by NSEL itself. FTIL, in its petition and list of dates seeks to down play the Grant Thornton Forensic Audit Report by stating that 'The report found various lapses. There is no suggestion in the report that any part of the funds that were mislaid found their way either to FTIL or its shareholders.' 114] On 21st September 2013, Grant Thornton, the Forensic Auditor proposed by NSEL itself submitted its report. The executive summary reads as follows : B. Executive Summary This executive summary is to be read in conjunction with the whole report and should not be teated as a standalone document. Financing Business 1.1 The NSEL exchange platform was being used to conduct a financing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... term contracts over a period beginning November 2009. 1.4 Further evidence was obtained with regards the existence of a financing business, such as presentations which stated that a fixed rate of return was guaranteed on investing in certain products on the NSEL exchange. Several internal (NSEL) presentations were found, upon a review of e-mail databases, setting out a yield (e.g. 16%) as an opportunity for investors for trading in certain products on the NSEL exchange. An external presentation was also obtained which had been made by a brokerage house (Geojit Comtrade Ltd.) for their clients claiming a fixed return on investments made on the NSEL exchange. Further, this presentation, declared that actual delivery of stocks in such transactions would not be required. 1.5 Grant Thornton also obtained evidence of repeated contraventions of NSEL exchange rules and bye-laws which facilitated such financing transactions to continue and grow in size as below : Repeated Defaults : As per the NSEL exchange rules a member who does not have sufficient collateral/monies etc to discharge his obligations would be allowed to trade further. This rule was overridden on a recurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Corporate Governance Risk Management 1.8 While the Bye-laws and Rules of the Exchange mandated the formation of various Committees to effectively manage the operations of the Exchange; the Board failed to constitute 9 out of the 10 such committees. Further, there is no documentary evidence to demonstrate whether the only committee formed (Membership Committee) was ever convened and hence, met its objectives. 1.9 The Board Meeting minutes regularly (eg. 11 June 2008, 15 June 2009, 25 May 2011) stated that the audit committee had detailed discussions on the Annual Financial Statements, the Internal Control Systems, reviewing the scope of Internal Audit functions, the performance of the statutory and internal auditors, the scope of work for the internal auditors, the planning of the statutory audit for the current financial year, the payment of audit fees, the observations by the auditors in the draft Auditor Report etc. Upon review of the corresponding Audit Committee minutes we noted no reference to discussions on Internal Control Systems, reviewing the scope of Internal Audit Functions, performance of internal auditors and scope of work for the internal auditors. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion issued on 5 June 2007 by the Ministry of Consumer Affairs, the Government of India under Section 27 of the Forward Contracts (Regulation) Act, 1951( FCRA ) exempted all forward contracts of one day duration for the sale and purchase of commodities traded on NSEL from the operations of the said Act. Grant Thornton's review of the type of trades executed on the NSEL, exchange indicates contravention to the exemption conditions granted. During the period January 2011 to July 2013, FMC sought several clarifications from NSEL on a number of complaints received from the public alleging forward trading and running a financing scheme. All these allegations were refuted by NSEL. Our analysis of such trades indicates misrepresentation by NSEL to FMC on several occasions. 115] The Grant Thornton Report makes observations on the position of commodities in the warehouses. These observations are important, since, Jignesh Shah, in his detailed presentation dated 10th July 2013 to FMC and DCA had stated that NSEL has 120 warehouses, holding inventory valued at ₹ 6,000 crores approximately which are good for delivery for processors' consumption upto next 1 to 1.5 years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 20th September 2013, IBMA is due to receive ₹ 77 crores on account of trades executed on behalf of SNP. No substantial recoveries have been made from SNP. IBMA is a subsidiary of NSEL and has received funding for operational needs on several occasion. IBMA is also a member on NSEL exchange and beneficiary of margin limit exemptions on daily basis since February 2010. 118] Grant Thornton quotes the NSEL Rules and Bye-laws in the context of maintenance of adequate margin by members who wish to trade at the exchange. Thereafter, the report points out 1800 waiver notes between April 2009 to July 2013 condoning the requirement for maintenance of adequate margins. Maximum waiver notes were favouring five of the 24 identified defaulters, who are due and payable amounts in excess of ₹ 5600 crores to the trading clients. This includes N.K. Proteins Limited, which is due and payable an amount of ₹ 950 crores. In the past, N.K. Proteins Limited committed several defaults. However, in breach of its own bye-laws and rules, NSEL permitted such repeated defaulter to continue trading and retain membership. Similarly, Lotus Refinery Private Limited is stated to have commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Joseph Massey and other officers of FTIL reviewed forensic audit report. One of the findings recorded is that the FTIL which has promoted NSEL, sought exemption from the said Act of 1952 even before it had not started any trading or operation. It is held that it misinterpreted the conditions stipulated in exemption notification in collusion with handful of members, which ultimately culminated in a massive fraud involving ₹ 5,500 Crores. As regards the grievance of the Petitioners regarding failure to grant opportunity to cross-examine the auditors, the said aspect has been dealt with by the Commission in the impugned order. In paragraphs 14.6 and its subparagraphs, this aspect has been dealt with. After discussing the manner in which the enquiry before the Commissioner proceeded, a finding of fact has been recorded by the Tribunal in paragraphs 14.6.9 that despite the Commission granting opportunity to the Petitioners in the present Petitions to question the auditors in the manner they liked, except for Shri Joseph Massey, no other notice remained present when entire team of auditors was available for questioning. After having perused the impugned order, we find th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment that powers under be invoked in public interest to amalgamate NSEL with FTIL. This was followed by further communication dated 17th October 2014 on the matter of proposed amalgamation of NSEL with FTIL. Along with this communication, FMC forwarded representations received from the investors groups. 125] On 21st October 2014, the Central Government, issued draft order proposing amalgamation of NSEL with FTIL in public interest by invoking the provisions of Section 396. 126] In November 2014, FTIL filed the present petition challenging the draft order dated 21st October 2014 itself. Initially, status quo order was granted by this Court. However, by order dated 4th February 2015, the status quo was lifted and the Central Government was permitted to take further proceedings in the matter. Certain directions were also issued in the matter of hearing the affected parties. NSEL and FTIL were granted personal hearing. Objections, no less than 50389 made by shareholders of the companies, creditors and employees were considered. On 1st April 2015, an order assessing compensation as contemplated by Section 396(3) of the Companies Act was made and published in the official gazette. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the very nature of the principles upon which reliance is placed. 132] Section 396 enables the Central Government to amalgamate two or more companies, where it is satisfied that it is essential in public interest to do so. The provision broadly comprises a substantive element and a procedural element. The substantive element is the subjective satisfaction of the Central Government that such amalgamation is essential in public interest. The procedural element deals with the procedure to be adopted by the Central Government in making an order under Section 396. The extent to which the principles of natural justice apply, have been set out in the provision itself. 133] Section 396 of the Companies Act reads as follows: 396. Power of Central Government to provide for amalgamation of companies in public interest. - (1) Where the Central Government is satisfied that it is essential in the public interest that two or more companies should amalgamate, then, notwithstanding anything contained in sections 394 and 395 but subject to the provisions of this section, the Central Government may, by order notified in the Official Gazette, provide for the amalgamation of those compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid is received by that company, or from any class of shareholders therein, or from any creditors or any class of creditors thereof. (5) Copies of every order made under this section shall, as soon as may be after it has been made, be laid before both Houses of Parliament. 134] From the analysis of the provision in Section 396 it is clear that the Central Government is not empowered to make an order of compulsory amalgamation unless a copy of the proposed order in draft has been sent to each of the companies concerned. The draft order is naturally expected to contain the gist of the objective facts and the prima facie reasons or grounds on which the final order is proposed to be made. The Central Government is then required to consider and make such modifications, if any, in the draft order as may seem to it desirable in the light of any suggestions or objections which may be received by it from such company, or any class of shareholders therein or any creditors or class of creditors thereof. The period of not less than two months is required to be offered for making suggestions and objections. This is the extent to which the principles of natural justice have been incorp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Senior Counsel appearing on behalf of Forward Market Commission, the Central Government may consider passing a final order after hearing contentions of Petitioners and Respondent National Spot Exchange Limited and all other interested parties. Petitioners and all other interested parties may file their objections within thirty days and within four weeks thereafter Central Government may pass appropriate order after giving brief hearing to all the interested parties. It is, however, clarified that all contentions raised by the Petitioners Financial Technologies ((India) Limited in this Petition and by the shareholders of NSEL and all other parties regarding jurisdiction of the Central Government to issue the said order as also regarding challenge to the validity of the said sections are kept open and, therefore, we propose to keep these Petitions pending. It is further clarified that if any adverse order is passed, the same shall not be notified for a period of two weeks after the order is communicated to the Petitioner. It is clarified that Central Government may give brief hearing to the parties mentioned in section 396 of the Companies Act. 138] No doubt, the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le principles. They cannot be applied in any straitjacket formula. It all depends upon the kind of functions performed and to the extent to which a person is likely to be affected. For this reason, certain exceptions to the aforesaid principles have been invoked under certain circumstances. For example, the courts have held that it would be sufficient to allow a person to make a representation and oral hearing may not be necessary in all cases, though in some matters, depending upon the nature of the case, not only full fledged oral hearing but even cross-examination of witnesses is treated as a necessary concomitant of the principles of natural justice. In some cases, even affording post decisional hearing is held to be sufficient compliance with principles of natural justice. 141] In Board of Mining Examination vs. Ramjee (1977) 2 SCC 256, the Supreme Court has observed that natural justice is not an unruly horse, no lurking landmine, nor a judicial cure-all. If fairness is shown by the decision-maker to the man proceeded against, the form, features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of these 50389 objections or suggestions were stereotyped. The impugned order also correctly notes that most of these objections and suggestions appeared to have originated from FTIL e-mail ID [email protected].. From out of 50389 objectors, 1203 claim to be employees of FTIL and about 48422, shareholders of FTIL. All these objections stand suitably addressed in the impugned order. All this constitutes not only substantial compliance with the principles of natural justice and fair play but also of our directions in the order dated 4th February 2015. 144] The petitioners seem to allege some technical breach in compliance with principles of natural justice. On such basis, the impugned order cannot be set aside, particularly when none of the petitioners before us have pointed out that any particular or significant objection of theirs, escaped consideration. None of the petitioners even attempted to point out any significant prejudice because no personal hearing was afforded to the 50389 objectors. None of the petitioners have pleaded and established any prejudice because the 50389 objectors were not afforded opportunity of personal hearing. Merely, submitting that the imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inistrative Law, Fifth Edition (at pages 472 to 475), when he says that it is not possible to lay down rigid rules as to when the principles of natural justice are to apply, nor as to their scope and extent. Everything depends on the subject matter, the application of principles of natural justice, resting as it does upon statutory implication, must always be in conformity with the scheme of the Act and with the subject matter of the case. In the application of the concept of fair play there must be real flexibility. There must also have been some real prejudice to the complainant; there is no such thing as merely technical infringement of natural justice. The requirements of natural justice must depend on the facts and circumstances of the case, the nature of the inquiry, the rules under which the tribunal is acting, the subject matter to be dealt with, and so forth. 148] From the nature of the objections and suggestions, it is apparent that the same were not significantly different from those made by NSEL and FTIL. No prejudice has been pleaded or demonstrated. The petitioners, it appears, allege technical breach in compliance with directions in the order dated 4th February 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors are almost ditto . 151] The impugned order further records that most of the objections have originated from one and the same e-mail Id, seemingly created by FTIL [email protected]. The impugned order records that the e-mails were sent in bulk resulting in bouncing back of few e-mail. Later the physical copies have received and the same were also considered. The impugned order, quite rightly records at least prima facie most of such bulk objections were orchestrated and concerted . About 1203 objections, i.e., about 2.38% of the objections were from the employees of FTIL. Again, the same were repetitive and the impugned order records that prima facie even these objections were orchestrated and concerted . 81 representations were received from the creditors of FTIL opposing the proposed amalgamation. 484 suggestions were received from investors of NSEL, out of which, 479 supported the proposed amalgamation and 5 opposed the same. Similarly, 40 suggestions were received from the creditors of NSEL, out of which 39 supported the proposal for amalgamation and only one opposed the same. About 141 representations were received from others, out of which about 66 supported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed before FMC or other regulatory agencies recommended action under Section 396. This complaint, is quite misconceived. There is no requirement of compliance with principles of natural justice before FMC or any other regulatory authority proposes or recommends action under Section 396. In this case, the record bears out that such proposals/recommendations were made known to the parties likely to be affected and such parties made their detailed submissions why such proposals and recommendations be not acted upon. As noted earlier, the principles of natural justice cannot be placed in some straitjacket formula. Upon consideration of totality of circumstances, it is quite clear that the affected parties were treated fairly and consistent with the principles of natural justice. 155] This is also not a case of there being any variation between the grounds set out in the proposed order and in the impugned order. Such a ground was therefore rightly not raised in the pleadings or argued in the first instance. The petitioners themselves contend that the impugned order is quasi judicial in nature. The impugned order does address objections and suggestions made by the petitioners themselv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no provision similar to Section 396 of the Companies Act, 1956. Similarly, in the Constitution of India as originally enacted there was no provision for saving of laws providing for acquisition by the State of any estate or of any rights therein or for the extinguishment or modification of any such rights on the ground that such laws may be inconsistent with or take away or abridge any of the rights conferred by the provisions of Part - III of the Constitution of India (fundamental rights). However, by the Constitution (First Amendment) Act, 1951, Article 31A of the Constitution of India was introduced so as to confer immunity upon such laws. 160] Article 31A of the Constitution, as originally introduced by the Constitution (First Amendment) Act, 1951 conferred immunity on law providing for acquisition by the State of any estate or any rights therein or for the extinguishment of modification of any such rights from challenge on the ground that such law may be inconsistent with, or takes away or abridges any of the rights conferred by Part-III of the Constitution. 161] Thereafter, by the Constitution (Fourth Amendment) Act, 1955, Article 31A of the Constitution was amended b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st was regarded as a social welfare or essential welfare legislation. It is on this basis that Article 31A(1)(c) of the Constitution affords immunity to such provision from challenge on the ground that it might infringe the rights guaranteed by Articles 14 or 19 of the Constitution. 165] In all these petitions, the learned counsel for the petitioners have made it clear that they do not challenge the constitutional validity of Section 396. In fact, since the written submissions on behalf of the petitioners in Writ Petition No. 2985 of 2014 contained reference to challenge to the constitutional validity of Section 396, we made a specific query as to whether such challenge was being pressed, since, no oral submissions were ever made on this aspect. 166] Mr. Rohan Shah, the learned counsel for the petitioners then clarified that no such challenge was being pressed and further, on 21st March 2017, tendered a praecipe specifically omitting the contents of paragraph 21(ii) of the written submissions dated 8 th March 2017, which contained some challenges to the constitutional validity. Similarly, by the same praecipe dated 21st March 2017, it was clarified that Chamber Summons No.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st co-related to the profit or loss that a shareholder would suffer based on the listed value of the shares. It is submitted that in the facts of the present case, the amalgamation that has been made to facilitate the payment of liability of ₹ 5,600/- Crores would effectively (a) wipe out the cash reserves of FTIL of ₹ 2,800/- Crores; (b) the book value of the shares which was at ₹ 600/- per share would also as a result of the company being foisted with a potential liability of ₹ 5,600 Crore, come to zero; (c) the proposed amalgamation order which has now culminated into the impugned Final Order dated 12.02.2016 has also seen that the listed share value of the shares of FTIL has decreased by 75% from ₹ 211.10 per share on 21.10.2014 to ₹ 79.29 per share as today. Given the very significant changes in the economic strength and potential of the company it would be fallacious to say that if you have the same numbers of shares in a company with a net worth of ₹ 2,800/- Crores and in a company with a net worth of Zero the interest that you have as a shareholder, is the same interest. 170] In so far as the first part of the written s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h all incidence of such property attached to it. Ordinarily, the shareholder is entitled to enjoy the income arising from the share in shape of dividends. The share like any other marketable commodity can be sold or transferred by way of mortgage or pledge. The holding of the share in his name, gives the shareholder right to vote at the election of the directors and thereby take a part, though indirectly, in the management of the company's affairs. If the majority of the shareholders side with him, he can have a resolution passed which would bind the company. Lastly, he can institute proceedings for winding up of the company which may result in a distribution of the net assets among the shareholders. All these observations were made in the context of a petition by Charanjit Lal Chowdhury, holder of one ordinary share in Sholapur Spinning and Weaving Co. Ltd. To challenge the constitutional validity of an Ordinance which purported to make special provisions for the proper management and administration of the said company. 174] The Supreme Court, after explaining the nature of a share in a company and the consequent interests of a shareholder in a company and rights against a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits of the company in which he holds the shares if and when the company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of dividends among the shareholders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole. 176] Then, in R. C. Cooper (supra) the Constitution Bench of the Supreme Court, in the context of nationalization of banks explained the nature of a share and the rights and interests of a shareholder in a company. The Supreme Court held that a company registered under the Companies Act is a legal person, separate and distinct from its individual members. Property of the Company is not the property of the shareholders. A shareholder has merely an interest in the Company arising under its Articles of Association measured by a sum of money for the purpose of liability, and by a share in the profit. 177] Most of the petitioners have correctly relied upon LIC vs. Escorts Ltd. (supra), where in paragraph 84, the Supreme Court has spelt out the rights and interests of a shareholder in a company, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffairs. He has right to apply for appropriate relief in case of oppression or mismanagement. He has a right to institute a petition for winding up a company which may result in the distribution of net assets amongst the shareholders. The shareholder has no right in the property of the company which is a juristic person entirely distinct from its shareholders. The property of the company is not the property of the shareholders. A shareholder has merely an interest in the company arising out of the article of association measured by a sum of money for purpose of liability and by a share, for the profit. A shareholder may not even be entitled to move a petition for infringement of rights of the company, unless by the action impugned by him, his rights are also infringed. The precedents, do not therefore support the contention of the petitioners. 180] Mr. Salve, in his rejoinder, did rely upon the Accounting Standard (AS) 23 which concerns accounting for investments in associates in consolidated financial statements, to submit that the aforesaid expression will also include the economic value of the shares held by a shareholder in the companies proposed to be amalgamated. He made r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently, it is decided to dispose off the investment, such an investment is not excluded form application of the equity method, until the investment is actually disposed off. Conversely, if the relevant investment is acquired with an intention to its subsequent disposal in near future, however, due to some valid reasons, it could not be disposed of within that period, the same will continue to be excluded from application of the equity method, provided there is no change in the intention. 183] The aforesaid clauses of AS 23 inter alia provide that if an investor holds directly or indirectly through subsidiary (ies), 20% or more of the voting power of the investee, it is to be presumed that such investors had significant influence unless it can be clearly demonstrated that this is not the case. Clause (7), again, is concerned with accounting for investments (equity method). In the first place, it is not at all clear as to how these accounting standards lead to any inference that the interests of a shareholder in a company or his rights against a company will extend to the economic value of such shareholding. Secondly, the Companies Act itself determines the interests and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion suggested by the petitioners expressed by them. The amalgamation does not impair the interest of the shareholders in or the right against the resultant company to receive dividends or receive a share in the surplus on winding up. The petitioners were unable to point out any provision in the Companies Act or any precedent which entitles a shareholder to any specific quantum of dividend or surplus on winding up. 187] Section 396, neither makes any reference to the market value or the economic value of the shares when it comes to the determination of the interests of a shareholder in or rights of a shareholder against a company. The provision also suggests no statutory prohibition to the amalgamation of a wholly owned loss making subsidiary with its profit making holding company, provided of course, the test of public interest is satisfied. If, as suggested by the petitioners, Section 396 were to contemplate only the amalgamation of two or more healthy companies, the legislature, could have said so in clear terms. Further, if this is what was in contemplation, then, there was perhaps no necessity for the immunity in Article 31A(1)(c) of the Constitution to any law providing fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wnbridge Overseers (1884) 13 QBD 339 Even the absurdity warranting departure according to WILLES, J., should be understood in the same sense as repugnance that is to say something which would be so absurd with reference to other words of the statute as to amount to a repugnance . Christopherson v. Lotinga (1864) 33 LJ CP 121 Therefore, the argument of ab inconvenienti must not be used to re-write the language in a way different from that in which it was originally framed. Grundt v. Great Boulder Proprietary Gold Mines Ltd. (1948) 1 ALL ER 21 The alternative construction must be such which does not put undue strain on the words used and does not require recasting of the Act or any part of it. 191] Not that it would seriously matter, but the learned counsel for the petitioners are not right in submitting that there is no instance where Section 396 has been invoked to amalgamate loss making companies with profit making companies or unhealthy companies with healthy companies. The Hutti Gold Mines Co. Ltd. (supra), is an instance where the Central Government by invoking the provisions of Section 396 ordered the amalgamation of Chitradurga Copper Co. Ltd. and Karnataka Copp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of purchase of the shares, the number of shares hel and such other relevant details. This was relevant for at least two reasons. Firstly, Mr. Gaurav Joshi and Mr. M. P. S. Rao, the learned senior counsel representing the investors contended that most of such shareholders have purchased shares even after the publication of draft order proposing amalgamation. Secondly, they contend that most of the retail shareholders of FTIL, whom SHAFT purports to represent hold shares valued at less than ₹ 5,000/- per shareholder. 195] As regards the first contention, we do not have before us any credible material and therefore, we do not propose to proceed on the said basis. However, as regards the second contention, reference may be appropriate to the pleadings in paragraph 83 of Writ Petition No. 387 of 2015 instituted by none other than Jignesh Shah, in which he has stated that the bulk of shareholders i.e. 63,300 from out of the total of 63,873 are small investors holding shares valued at less than ₹ 5,000/- per shareholder. 196] There are no pleadings in any petitions to demonstrate the diminution of economic value of shares as a result of the impugned order or even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenging the impugned order, unconditionally. The Standard Chartered Bank, apart from contending that the repayment of its loans by the resultant company might be compromised, neither explained this by placing any cogent material on record nor explained how this can be a ground to interfere with the impugned order. The rights of the creditors in such a situation are mainly contractual. The impugned order takes care of such rights. There is in fact, nothing in the impugned order which suggests that any contractual or statutory rights available to the creditors have been taken away or extinguished. Quite rightly, therefore, none of the creditors have even bothered to appeal against the assessment order, which has not awarded any compensation to them. 200] In this case, since FTIL, NSEL and in particular their shareholders have failed to demonstrate that they have been deprived of their property, there is no question of any infringement of Article 300A of the Constitution. The shareholders cannot confuse between the property of the companies and the interest which they hold by virtue of their shareholding. Further, none of the petitioners have demonstrated any infringement of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the provisions of Section 396 (3). FTIL may not even be the proper relator to raise the grievance that there is no assessment of compensation to its shareholders. 204] There is no material difference in the pleadings in FTIL petition and Writ Petition No. 387 of 2015 instituted by its shareholders Jignesh Shah and others insofar as the issue of assessment order is concerned. After the assessment order dated 1 st April 2015 was published in the Official Gazette, Writ Petition No. 387 of 2015 was specifically amended to challenge the assessment order on various grounds. It was pleaded that the very making and publication of the assessment order constituted contempt of this Court's order dated 4th February 2015. It was pleaded that assessment order can never precede final order of amalgamation since this would amount to prejudging the issue. The assessment order was even challenged on merits. In any case, liberty was applied to challenge the assessment order on merits in case the challenge to the impugned order of amalgamation fails. Significantly, there are neither any pleadings nor any ground to suggest that there was no assessment order ever made or that the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out application of mind and is contrary to the principles of law and rule of natural justice in as much as the order and notification in relation to Assessment merely refer to the expert reports on valuation and adopts the same mechanically. 208] Realising that the aforesaid pleadings fall woefully short in supporting the ground now projected, in the written submissions in rejoinder, reference is made to paragraph 10 in Writ Petition No. 1922 of 2016, which reads as follows: 10. The Petitioner further submits that section 396 provides for certain procedure which is not followed by the Respondent No. 1, which is also contrary to the settled law and judgments wherein if a procedure is stipulated the same must be followed strictly and any action done without following the same would be void-abinitio. 209] Even the most liberal construction of the aforesaid pleadings cannot lead to the inference that no assessment order as contemplated by Section 396(3) was made and in the absence of the same the Central Government could not have proceeded to make the impugned order. Rather, the pleadings seem to object to the assessment order made on the ground that 'same was passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of his property under Article 300-A is a pre-condition, but no compensation or nil compensation or its illusiveness has to be justified by the State on judicially justiciable standards. Measures designed to achieve greater social justice may call for lesser compensation and such a limitation by itself, will not make the legislation invalid, unconstitutional or confiscatory. In other words, the right to claim compensation or the obligation to pay, though not expressly included in Article 300-A , it can be inferred in that article and it is for the State to justify on its stand on justifiable ground which may depend upon legislative policy, object, purpose of the statute and host of other factors. It is in this context that the Supreme Court, at paragraph 192 clarified that there is a difference between no compensation and nil compensation . A law seeking to acquire private property for a public purpose cannot say that no compensation shall be paid . However, there could be a law awarding nil compensation in cases where the State undertakes to discharge the liabilities charged on the property under acquisition and the onus is on the Government to establish the validity of suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shareholders of FTIL. This cannot be said to be a case where the Central Government or the prescribed authority has not at all made any assessment order as contemplated by Section 396 (3). At least in the pleadings , this is not even the case of the petitioners. Their case, however, is that the assessment order dated 1st April 2015 is illegal or even void on the several grounds which they have pleaded in their petitions. In such circumstances, therefore, the principle in Nazir Ahmed (supra) cannot come to the aid of such petitioners. 215] The submission, again, backed by no pleadings whatsoever that the petitioners were deprived opportunity of instituting an appeal under Section 396 (3A), because the assessment order dated 1st April 2015 makes no reference to the shareholders of FTIL and therefore, they could not have been held to be covered under the expression any person aggrieved in Section 396(3A), in the facts of the present case, is untenable. The circumstance that the assessment order dated 1st April 2015 made no specific reference to the shareholders of FTIL did not preclude or deter the petitioners from attacking the assessment order dated 1st April 2015 inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again, is not at all backed by any pleadings, is some hyper technical objection based upon the form of assessment order dated 1st April 2015. In the facts and circumstances of the present case, we are not inclined to exercise our extra-ordinary and equitable jurisdiction under Articles 226 and 227 of the Constitution and upset the impugned order on the ground urged. 219] For all the aforesaid reasons, we are satisfied that this is not a case where the Central Government or the prescribed authority has failed to make any order as contemplated by Section 396(3) or that the shareholders or creditors of FTIL were deprived of opportunity of appeal under Section 396(3A) and therefore there is any breach of the procedure prescribed in Section 396(4) in making the impugned order. Accordingly, we see no merit in the contention that the impugned order is ultra vires Section 396. ISSUE - D (D) Whether the Central Government, in making the impugned order, has practised hostile and invidious discrimination, thereby infringing Article 14 of the Constitution of India ? 220] Mr. Seervai, Mr. Shah and Mr. Behramkamdin forcefully contended that the Central Government, by first ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pleadings in any of the petitions in support of the plea that the UTI Payment Crisis (this is the expression used by the petitioners) was similar to or comparable with the situation which has arisen at the NSEL Exchange. Similarly, there are no pleadings to draw a comparison between some group of companies who are said to have been let off by the Central Government or its agencies even though they are alleged to have defaulted in repaying their loans and the position of FTIL and NSEL. Equality, which is no doubt, a dynamic concept, is to be evaluated necessarily amongst equals. In the absence of any proper pleadings or particulars and merely on the basis of arguments or notes of arguments, it is not possible to accept the challenge based upon any hostile or invidious discrimination infringing Article 14 of the Constitution. The challenge, it appears, has been raised in quite a casual and cavalier manner. 225] The challenge, in any case, seems to proceed on the basis that the Central Government, in invoking the provisions of Section 396 in this particular situation has acted quite sternly but the very same Central Government failed to take stern measures to deal with 'scam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y however pointed out that the circular, even when it comes to amalgamation of government companies provides that the procedure as contemplated by Section 391 be followed, not by applying to the court but by securing resolutions from the shareholders and the creditors in support of the proposed amalgamation. They submit that since this procedure was never followed by the Central Government before it proposed amalgamation of NSEL and FTIL, issue of hostile and invidious discrimination was involved. They submit that the circular dated 20th April 2011 embodies a policy of the Central Government in such matters and since such policy has been deviated from, quite arbitrarily, there is infringement of Article 14 of the Constitution. They rely on E. P. Royappa (supra), Maneka Gandhi (supra) and Cipla Ltd. (supra) in support of all these contentions. 228] There is nothing either in the text or in the context of Section 396 to suggest that the same is restricted in its applicability only to government companies. The circular dated 20th April 2011 cannot, obviously, add or detract from the statutory provision in Section 396. Besides, the circular itself states that the same is &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en, the same will perhaps frustrate the very purpose for enactment of Section 396, leave alone the immunity granted to the said provision by Article 31A (1) (c) of the Constitution of India. The notes on clauses to the Companies Bill 1953, which was a precursor to the Companies Act 1956 suggests that one of the objectives for enactment of Section 396 was to obviate the observance of the usual procedures, which lead to prolonged delays and which would be detrimental to national interest, when, amalgamation was proposed, in national interest. 233] The relevant note to the Companies Bill 1953, reads as follows: Clause 366 This is a new provision and it is intended to provide, at the instance of the Government, for the amalgamation of two or more companies in the national interest. Occasionally, cases arise where such an amalgamation in the national interest is clearly a necessity. The observance of the usual procedure prescribed by the existing Act in such cases will lead to prolonged delays which will be detrimental to the national interest. It has been made clear that any order made by the Government should provide for the old share holders, and the old debenture hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not exclude Section 391, the procedures in Section 391 have to be followed. Mr. Shah submitted that the circular dated 20th April 2011 supports this construction of Section 396. The plain reading of the provision in Section 396 is sufficient to reject this contention. Section 391, inter alia, provides that where a compromise or arrangement is proposed between a company and its creditors or any class of them or between a company and its members or any class of them, the Court or the Tribunal may, on the application of the company or of any creditor or member of the company order a meeting of creditors, class of creditors or of members or class of members as the case may be called for the purposes of ascertaining their wishes. Action under Section 396, admittedly, does not contemplate any involvement of the Court or the Tribunal. Even the circular dated 20th April 2011, does not contemplate any involvement of the Court or the Tribunal. Besides, as noted earlier, circulars can obviously not operate to amend or vary the statutory provisions and the statutory scheme in Section 396. 237] Section 396 provides that where the Central Government is satisfied that it is essential in publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners' reading of the Central Government's circular dated 20th April 2011. ISSUE -E (E) Whether the impugned order is ultra vires Section 396 of the Companies Act because the Central Government has failed to address itself to the issue of national interest ? 242] The contention that the Central Government before making the impugned order, was required to address itself to the issue of national interest and not merely public interest is not borne out by the text of Section 396. 243] No doubt, Section 396, as originally enacted, did make reference to 'national interest'. However, the Parliament by Companies (Amendment) Bill, 1959, Section 396 was amended and the expression 'national interest' was substituted with the expression 'public interest'. In such a situation, it would be too far fetched to urge that the Parliament, nevertheless intended to retain national interest as the only ground on which the Central Government could order compulsory amalgamation of two or more companies. When an Amending Act alters the language of the principal statute, the alteration must be taken to have been made deliberately. Despite the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more corporations either in the public interest or in order to secure the proper management of any of the corporations from the challenge that such law is inconsistent with, or takes away or abridges any of the rights conferred by Article 14 and 19 of the Constitution. The expression used in the Article is 'public interest'. However, in the Statement of Objects and Reasons to the Constitution (Fourth Amendment) Act, 1955 by which Article 31A(1)(c) was introduced in the Constitution, the reference is to 'national interest'. 250] Similarly, Section 396, as originally introduced in the Companies Act, 1956 used the expression national interest consistent with Notes on Clauses incorporated in Statement of Objects and Reasons to the Companies Bill, 1953. However, Companies (Amendment) Bill, 1959, which preceded the Companies (Amendment) Act, 1960 provided for the following : 150. Amendment of section 396 :- In section 396, in sub section (1), for the words national interest , the words public interest shall be substituted. 251] The Notes on Clauses to the Companies (Amendment) Bill, 1959, with reference to the aforesaid proposed amendment, provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slative intendment within which it is used and the mischief it seeks to suppress, all these factors will enter into the verdict in deciding what constitutes 'public interest' in the context of the legislation in which it is used. In the very nature of the case, modern conditions and the increasing inter-dependence of the different human factors in the progressive complexity of a community make it necessary for the Government to touch upon and limit individual activities at more points than formerly. (Vide State of Bihar v. Maharajdhiraj Sir Kameshwar Singh of Darbhanga (1952) AIR1952 SC 252) . 255] In any case, taking into consideration the importance of stock and commodity exchanges to the national economy and the unprecedented situation which the Central Government was required to deal with in the wake of collapse of the entire commodities exchange, we are unable to hold that the impugned order was not made in national interest . 256] The decisions in MCX Stock Exchange (supra) and Coimbatore Stock exchange (supra), highlight on the importance of stock and commodity exchanges to the national economy. These decisions hold that the perception of the Indian econom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Hindustan Lever Employees Union (supra), the Supreme Court has held that concept of public interest in matters of amalgamation of companies, cannot be put in a straitjacket. It is a dynamic concept which keeps on changing. It has been explained in Black's Law Dictionary as, something in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected. It does not mean anything so narrow as mere curiosity whereas the interest of the particular locality which may be affected by the letters in question. Interest shared by citizens generally in affairs of local, State or National Government. It is an expression of wide amplitude. It may have different connotation and understanding when used in service law and yet a different meaning in criminal law than civil law and its shade may be entirely different in Company Law. Its perspective may change when merger is of two Indian companies. But when it is with subsidiary of foreign company the consideration may be entirely different. It is not the interest of the shareholders or the employees only but the interest of society which may have to be examined. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding up of were carried on in a manner prejudicial to its member or public interest . This is the recommendation which finds echo in the second proviso to section 394(1). 264] Wood Polymer (supra), proceeds to hold that the expression public interest must take its colour and content from the context in which it is used. The context in which the expression public interest is used, should permit the Court to find out why the transferor-company came into existence, for what purpose it was set up, who were its promoters, who were controlling it, what object was sought to be achieved through creation of the transferor-company and why it is now being dissolved by merging it with another company. All these aspects require examination in the context of satisfaction of the Court as to whether its affairs have or have not been carried out in a manner prejudicial to public interest . There is really no reason to construe the expression public interest in any different manner when it comes to Section 396. 265] Union of India and ors. vs. Ambalal Sarabhai Enterprises Ltd. (supra), again relied on by Mr. Mookherjee, the Division Bench of the Gujarat High Court has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an ethic measured rather in terms of results or consequences than of interest or motive. Any decision as to public interest should be based on the results or consequences that will follow. 268] In N.R. Murty v. Industrial Development Corporation of Orissa 1977 (47) Com. Cas. 389 , it is held that in case of a company, the concept of public interest takes the company outside the conventional sphere of being a concern in which the shareholders alone are interested. It emphasizes the idea of the company functioning for the public good or general welfare of the company at any rate not in a manner detrimental to the public good. 269] In the facts and circumstances of the present case, we are not prepared to accept that the impugned order has been made looking only to the interest of the investors or 781 high net worth individuals as claimed by the petitioners. We are satisfied from the material on record that the impugned order has been made on at least three distinct and discernible grounds or reasons namely; (a) Restoring / safeguarding public confidence in forward contracts and exchanges which are an integral and essential part of Indian economy and financial system, by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company outside the conventional sphere of being concerned in which the shareholders alone are interested. It emphasizes the idea of the company functioning for the public good or general welfare of the company at any rate not in a manner detrimental to the public good (N.R. Murty). 271] In the facts of the present case, NSEL, on basis of certain representations secured exemption from application of FCRA. One of the representation was that the NSEL was a part of the FTIL group controlled by Jignesh Shah and the FTIL group operates and has experience in operating several exchanges at the national and international level. Representations were held out that NSEL would never engage in forward trading but restrict itself to spot trading or ready delivery contracts. Representations were held out that secure warehousing facility will be maintained by NSEL in which commodities will be checked, verified and stored so that the transactions at the spot exchange will invariably result in delivery of goods or payment of price therefor. Representations were held out that transactions would be counter guaranteed by NSEL and a settlement guarantee fund will be in place. On basis of such rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensuring stability of financial and economic system of India. Conversely, loss of trust and confidence in exchanges and financial markets is bound to have a negative impact on the economy and financial stability of the country as a whole. One of the grounds for making the impugned order is restoring / safeguarding public confidence in forward contracts and exchanges which are an integral and essential part of an Indian economy and financial system by consolidating the businesses of NSEL and FTIL. There is material on record to suggest that NSEL is not only a fully owned subsidiary of FTIL which holds 99.9998% stake therein, but further, FTIL, was quite intricately concerned with the operations and the functioning of NSEL and its spot exchange. If therefore, the Central Government by consolidating the businesses of NSEL and FTIL to restore confidence in commodity exchanges by sending a clear signal to all investors, current or potential, that in case of defaults of such magnitude at exchanges operated by subsidiaries, holding companies may have to take responsibility for the exchange or at least not take shelter behind its wholly owned subsidiaries, we can, in the exercise of judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision is not in public interest. 278] There is sufficient material on record on basis of which the Central Government has subjectively satisfied itself that the amalgamation is essential in public interest to facilitate recoveries of dues from defaulters from pooling human and financial resources of FTIL and NSEL. Despite claims by NSEL that it has the means to and it has been rigorously pursuing recoveries, the fact remains that the position of recoveries is not very promising and may further deteriorate if only NSEL has to fend for itself. In such matters, it is not sufficient that some decrees or attachment orders are obtained. This is also not an issue of mere recoveries but this is an issue of investor confidence in the very functioning of stock and commodity exchanges. If the Central Government, were not to act in a situation of this nature, investor confidence would certainly be a casualty. Such a situation then, has a cascading effect, which is by no means conducive to the national economy. 279] The Central Government, in making the impugned order has balanced the interests of the two companies, its shareholders, creditors and employees on one hand and the interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of impugned order which seek to answer or deal with the objections and suggestions must be excluded from consideration. He also seemed to suggest that the portions of the impugned order which deal with the proposals from FMC or FMC's fit and proper order dated 17th December 2013, must also be excluded from consideration. This will be a quite peculiar manner of reading an administrative or quasi judicial order. The impugned order will have to be read in its entirety and there is no scope to read a sentence or two or a paragraph or two in the impugned order and then to urge that the same is based upon a solitary ground or reason. Upon careful and meaningful reading and analysis of the impugned order in its entirety, it is quite clear that the same is based upon at least three distinct grounds or reasons as aforesaid. 282] At this stage, it is necessary to note that none of the petitioners, including, in particular the FTIL , in whose petition NSEL is but one of the respondents, choose to read the impugned order in the manner in which Mr. Chinoy does. In fact, even Mr.Santosh Dhuri who has sworn the affidavit on behalf of NSEL does not choose to read the impugned order to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised by counsel for NSEL is directly contrary to even NSEL's understanding of the impugned order. None of the petitioners or the intervenors read the impugned order in the manner suggested by the counsel for NSEL. In any case, bare perusal of the impugned order indicates that the same is based upon three distinct and discernible grounds or reasons, each of which represents a facet of public interest which is sine qua non for exercise of powers under Section 396. 286] Mr. Khambata had in fact contended that the principle in Mohinder Singh Gill (supra) namely that the validity of a statutory order is required to be tested on the basis of reasons set out in the impugned order itself is applicable to an order which affects only private rights and therefore, such a rule is not applicable where action is taken in larger public interest, as in the present case. In support, of this propositions, he had placed reliance upon Chairman, All India Railway Recruitment Board and anr (supra) and PRP Exports vs. State of Tamil Nadu (supra). Since, in this case we are quite satisfied that the impugned order is not based on the solitary ground as stated by Mr. Chinoy, but rather, is based upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes hardly 6.7% of the total amount due. All this, has not even been seriously disputed by NSEL and yet, the NSEL contends that there is no material whatsoever on record to suggest that NSEL is in no position to or is not making any efforts to recover the amounts from the defaulters. 290] The FMC, in its proposal also stated that the employee attrition in NSEL has been extremely high and it is learnt that the staff strength of NSEL has reduced considerably, thereby affecting the recovery process. FMC has stated that as per the information received from NSEL itself, the employee strength which was 193 as on 31st July 2013, has come down to 33 as on 31st July 2014. NSEL is also confronted with number of cases in several Courts and is therefore, left with hardly any financial resources to defray staff salaries and legal costs. FMC has also stated that it has received feed back from representative of investors/member bodies on the erstwhile monitoring and auction committees constituted by it reporting loss of credibility, weak organisational structure, depletion of man power strength and lack of financial resources. 291] There is material on record, which indicates that post 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well as infrastructural, to effect recoveries from the defaulters, is to be accepted, then, there was no reason to rely upon contribution from FTIL, made or proposed to be made at a belated stage. The FTIL resolution dated 28th March 2016, far from affording any cause to interfere with the impugned order, in fact, lends support to the reasoning in the impugned order that the NSEL, on its own, lacks financial as well as infrastructural capacity to effect any recoveries from the defaulters. The affidavit dated 4th July 2017 and the resolution dated 28th March 2016 is also indicative of the business realities of the situation, which is incidentally yet another ground in the impugned order. 296] There is further material in the form of Grant Thornton report of which cognizance is taken in the impugned order. This is because the report has been relied upon by the FMC in its order dated 17th December 2013 and in the proposals the FMC submitted to the Central Government recommending action under Section 396. This report makes scathing observations on the functioning of NSEL. 297] The Grant Thornton report states that the NSEL exchange platform was used for conducting financing tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (India) Ltd. (supra), this Court has held that though, as a matter of law, the transferee companies are independent corporate entities, equally, as a matter of business reality, the Court cannot ignore the plea of the Transferee Company that the that the health and the well being of its wholly owned subsidiaries was a matter which was legitimately entitled to be taken into account by the Transferee Company in coming out with the decision to amalgamate its wholly owned subsidiaries with itself. In the circumstances, the plea that the scheme of Amalgamation is an attempt to reduce the business and operational losses, inclusive of manpower and machinery costs ought to be accepted. Similarly the foundation of the scheme for Amalgamation is that the amalgamation will enable the three Companies to pool together human, material and financial resources. This consideration particularly in a case where the two Transferor Companies are wholly owned subsidiaries cannot be regarded as extraneous or irrelevant. This Court, taking into consideration the business reality noted that the holding company seeks to emerge from the economic difficulty which face its subsidiaries which have become loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral Government before it orders amalgamation of two or more companies in public interest, must be 'satisfied' that it is essential in public interest to do so. On basis of such phraseology they submit that the Central Government cannot simply rest by stating some objective facts in the order, but further, when the action of the Central Government is challenged, the Central Government should satisfy the Court that there is at least prima facie proof in support of such objective facts. 304] As to the alleged difference between opinion cases and satisfaction cases, we find that the Supreme Court, in paragraph 63 of Barium Chemicals Ltd. (supra) has itself clarified that the concepts are not substantially different. In fact, in Bhikubhai Patel (supra) the Supreme Court, after quoting paragraph 63 of Barium Chemicals Ltd. (supra) has held that the construction placed on the expression 'reason to believe' will equally apply to the expression 'is of the opinion'. Even Peerless General Finance and Investment Co. Ltd. (supra) does not state anything substantially different than what is stated in Barium Chemicals Ltd. (supra) or Bhikubhai Patel (supra). All that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scretion. 307] In the present case, we have already noted that there are several objective facts on record, on basis of which the Central Government was quite justified in arriving at the satisfaction that it was essential in public interest to order the amalgamation of NSEL with FTIL. There is more than prima facie proof in support of such objective facts. In fact, most of such objective facts have not even been seriously disputed by FTIL or NSEL. At the highest, some dispute is attempted to be raised as to the interpretation of such objective facts or the inferences which can be legitimately drawn from such objective facts. 308] Mr. Khambata, in his written submissions has enumerated some of the objective facts and circumstances, which read as follows: (i) FTIL held 99.9998% of NSEL's share and the balance 0.0002% of NSEL's shares were held by NAFED [Petition Vol I Ex. A/Pg.97S] NSEL, was promoted by and is part of the FTIL Group. [FTIL Affidavit in Rejoinder to Respondent No.4 dated 23 rd September, 2016 Vol. 30, Paras 35 and 38/Pg.3030-3031] Since FTIL is effectively the only shareholder of NSEL, the constitution of the Board of Directors of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agarwal (of FTIL) dated 15th October, 2010 Ex. 23/Pg.285] FTIL exerted a dominant influence on the management of NSEL and directed, controlled and supervised its governance [Petition Para 2.11 (x)/Pg.97T] NSEL issued presentations to attract trading on its exchange, in which it made several representations regarding its warehousing facilities and safeguards, including that it guarantees all trades and maintains settlement guarantee fund for this purpose . [R1 Comp. - Part I Pg.3] NSEL circulated various presentations and return calculator worksheets for attracting investors to its platform. These presentations set out guaranteed fixed rates of return/yields of about 16% as an opportunity for investors for trading in the paired contracts. [GT Report R1 Comp. - Part III Paras 1.2-1.4/Pgs. 7-8, Paras 1.2-1.7/Pgs. 12-16, Ex.14A (NSEL Presentation)/Pgs. 120-122] By April July 2013, 99% of NSEL's turnover was made up of such paired contracts. (GT Report R1 Comp. - Part III Para 1.5/Pg.14] Sometime in 2013 NSEL instructed its Business Development Team not to officially commit to fixed returns but to communicate the daily trade rates and returns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned counsel for the petitioners contend that the objective facts have not been directly referred to in the impugned order and the reference to such facts in the FMC order cannot be construed as reference in the impugned order. Learned counsel for the petitioners contend that the portion of the impugned order which deals with the objections raised by the objectors, is to be excluded from consideration and reference to any objective facts therein, is not required to be treated as reference to objective facts in the impugned order. 312] Again, we are unable to read the impugned order in such a peculiar manner. We find that the impugned order makes reference to most of the objective facts directly. In any case, the impugned order makes reference to the FMC order, which in turn, makes reference to the objective facts. The objective facts in the FMC order, in turn, make reference to the Grant Thornton Audit Report. All this material was available before the Central Government and from the impugned order, there is nothing to infer that the Central Government has not independently applied its mind to all such material which was very much available on record. Above all, it is most ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the affairs at NSEL. FTIL, in its affidavit-in-rejoinder has accepted that NSEL's outward e-mails were routed through an outbox called 'FT Outbox' through which e-mails of all FTIL Group companies were routed. FTIL in its affidavit in rejoinder has admitted that Human Resources services were undertaken by FTIL Group for FTIL, MCX and NSEL. 315] The objective fact that FTIL's Finance and Accounts Team undertook detailed consideration of NSEL's finances and accounts on regular basis is borne out by the Grant Thornton report as also certain e-mails, which are part of the record. At a belated stage, to merely suggest some different interpretation to such material is not the same thing as seriously disputing the very existence of such material. In such circumstances, the Central Government cannot be faulted for observing that the FTIL exerted a dominant influence on the management of NSEL and and directed, controlled and supervised its governance. 316] In the presentations made on behalf of NSEL, including the presentations made by Jignesh Shah on behalf of NSEL on 10 th July 2013 hardly three weeks before the collapse of operations at the NSEL exchange, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peculiar interpretation as to the meaning of short sales. NSEL stated that there was no condition requiring that goods must be deposited in the warehouses prior to execution of sale transactions or prior to trade at the NSEL exchange. The interpretation runs counter to the definition provided by National Stock Exchange which states that short sales means selling of stock that the seller does not own at the time of trade. 320] The question today, is really not whether the interpretation suggested by NSEL is correct, though, we must say that we are at least prima facie inclined to go by the National Stock Exchange definition. The question is, despite such interpretation and despite the boast that in the last five years 99.99% of the trades in agricultural commodities have resulted in deliveries, on 31st July 2013, when the operations at NSEL collapsed, there were no commodities in the warehouses to make deliveries with. The stock or inventory which was stated to be valued at ₹ 6000 crores spread over 120 warehouses, was simply not to be found. The 10- 20% margin fees, were not to be found. The settlement guarantee fund, which was stated to be ₹ 738.55 crores on 1st Aug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust call his own attention to the matters which he is bound to consider. He must exclude from his consideration matters which are irrelevant to what he has to consider. If he does not obey those rules, he may truly be said, and often said, to be acting 'unreasonably'. Similarly, there may be something so abjured that no sensible person could ever dream that it lay within the powers of the authority. Warrington LJ in Short v. Poole Corporation gave the example of the red-haired teacher, dismissed because she had red hair. This is unreasonable in one sense. In another it is taking into consideration extraneous maters. It is so unreasonable that it might almost be described as being done in bad faith; and, in fact, all these things run into one another. 325] In Administrative Law (H.W.R. Wade and C.F. Forsyth, Tenth Edition), relying upon several English decisions, it is observed that the doctrine that powers must be exercised reasonably has to be reconciled with no less important doctrine that the Court must not usurp the discretion of the public authority which Parliament appointed to take the decision. Within the bounds of legal reasonableness is the area in which the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation. The Supreme Court has held that this is in essence, the 'Wednesbury unreasonableness'. The point to note, therefore, is that a decision is not unreasonable in the legal sense merely because the Court may think it unwise or that the Court may on the basis of objective facts, might not itself have arrived at. The test is whether the decision is of such nature that no person or no reasonable body of persons, instructed on law and facts might have arrived at. 329] This is not a case where the Central Government can be said to have excluded relevant considerations in making the impugned order. As the impugned order discloses the Central Government has considered various objections raised by no less than 50389 objectors. The Central Government has taken into consideration the circumstance that most of the objectors , most of the shareholders, most of the employees objected to the amalgamation. The Central Government has also taken into consideration the circumstance that decrees to the extent of ₹ 1233 crores or thereabouts have already been obtained against the defaulters or that the assets of the defaulters to the extent of ₹ 6000 crores or thereabouts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision maker. Therefore, in such a jurisdiction, we do not second guess the satisfaction recorded by the the decision maker, we do not normally go into the issue of sufficiency of material. In this particular case, in the context of plea of proportionality, we have subjected the impugned order to intense review in order to examine whether the response of the Central Government to the situation it was dealing with, was proportionate or not. 332] The impugned order, on the basis of objective facts, states that the same is required to be made to safeguard the interest of all the stakeholders and the public interest driving the merger are set out in business realities of the case. The impugned order, by reference to the recommendations of the FMC and FMC's order dated 17th December 2013 speaks about the grave shattering of public confidence and of the defeat of the very purpose of establishment of commodity stock exchange. The impugned order, by reference to FMC's order accepts that the probity and competence of the board officials of a nationwide commodity exchange are quite critical to achievement of the objectives of FCRA. The impugned order, quite correctly notes tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectable portion of the dues. Even the FTIL in its list of dates and events has made reference to 'Payment Fraud to the extent of ₹ 5600 crores' There is accordingly, no merit in the submission that the Central Government, in a matter of this nature, has determined the issue of fraud or was required to prove beyond reasonable doubt any issue of fraud before it could made the impugned order. 335] NSEL at the stage of seeking exemption from applicability of FCRA had itself highlighted the importance of spot exchange to the national economy. They had pointed out that spot exchanges ensure better prices to farmers as well as consumers in agricultural commodities. They had pointed out that spot exchange would reduce cartelization, assist price discovery and price risk management. Spot exchanges could usher best practices in commodity trading such as system for grading for quality, creation of network of warehouses with assaying facilities and so on. They pointed out that bank finance could be availed easily by farmers against goods in warehouses. They pointed out that all these factors will have a significant bearing on the nation's financial and economic system. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that NSEL's recovery efforts are presently depending upon ex gratia and without prejudice loans and payments from FTIL. Again, this is a case where the reason stated is not extraneous. The reason stated is backed by objective facts, in support of which there is more than prima facie evidence. 338] The inferences drawn by the Central Government from out of the objective facts on record cannot be said to be perverse or extraneous. In this case, the position of Jignesh Shah in relation to FTIL and NSEL is not in serious dispute. Jignesh Shah, directly or indirectly controls over 46% of the shareholding in FTIL. 99.9998% of the shareholding of NSEL is held by FTIL. Jignesh Shah is styled as Founder and CEO of FTIL Group Companies. Jignesh Shah is the Chairman cum Managing Director of FTIL. Jignesh Shah is also the Vice Chairman and Member of Audit Board of NSEL. Jignesh Shah made representations not only on behalf of FTIL but also on behalf of NSEL. In fact, on 10th July 2013, it was Jignesh Shah, who made a very detailed representation to the FMC and DCA on behalf of NSEL. On basis of such objective facts, the Central Government, cannot be faulted for treating Jignesh Shah as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company. That is made clear in Lord Haldane s speech in Lennard s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. (AC at pp. 713 714). So also in the criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the Directors or the managers will render the company themselves guilty. 341] In Sunil Mittal (supra), the Supreme Court has held that the aforesaid principle has been firmly established in England since the decision of the House of Lords in Tesco Supermarkets Ltd. v. Nattrass. 114(1971) 2 ALL ER 127 (HL) In stating the principle of corporate liability for criminal offences, Lord Reid made the following statement of law: (AC p. 170 E-G) I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other criminal process, although the criminal act is committed through its agents. 344] Finally, in Sunil Mittal (supra), the Supreme Court has held that it is abundantly clear from the above that the principle which is laid down is to the effect that the criminal intent of the alter ego of the company, that is the person or group of persons that guide the business of the company, would be imputed to the company/corporation. The legal proposition that is laid down in the aforesaid judgment in Iridium India case is that if the person or group of persons who control the affairs of the company commit an offence with a criminal intent, their criminality can be imputed to the company as well as they are alter ego of the company. 345] We are conscious that the observations in Sunil Mittal (supra) were in the context of the Special Judge summoning the two appellants, who were not named in the charge sheet concerning the 2G Spectrum Scam Case . The issues involved were whether the appellants were in control of the affairs of the respective companies alleged to be involved in the scam; whether because of their controlling position, they represent the directing mind and will o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r ground is conceived in public interest and the subjective satisfaction is based upon the objective facts, in support of which there is more than prima facie proof. The reason or ground is neither irrelevant nor extraneous so as to attract the Wednesbury principle. 348] There is no merit in the submission that the Central Government should have waited for adjudication of liability or fraud to make the impugned order. Time and again, the Central Government has clarified that it is not going into the issue of liability or fraud. The Central Government has addressed itself to the objective facts on record and may have drawn certain inference from such objective facts. The inference drawn cannot be said to be unreasonable in the facts and circumstances of the present case. 349] Quite recently, the Supreme Court, in the case of Gohil Hanubhai (supra), was concerned with the decision for cancellation of examination for recruitment to the post of Revenue Talathis on the ground of illegalities and malpractices in connection with the examination. The Supreme Court noted that there were allegations of large scale tampering with the examination process. The scrutiny of answersheet reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto account relevant considerations, ignored irrelevant considerations. The view taken by the Central Government is quite balanced and rational. We are unable to accept the petitioners contentions that the impugned decision is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it. This means that there is no irrationality involved in the impugned order. 353] On basis of the material on record, we are satisfied that the Central Government, in making the impugned order has not breached the principles of natural justice and fair play. The procedural requirements of Section 396 have been duly adhered to in making the impugned order. Thus, there is no case of any procedural impropriety made out. 354] Therefore, even applying the triple test formulated by Lord Diplock for judicial review, we are satisfied that there is no illegality involved in the making of the impugned order. So also, we are satisfied that there is no procedural impropriety since the impugned order was made after due compliance with principles of natural justice and fair play. The procedural ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strong reliance was placed on Anirudhsinhji Jadega (supra). 357] There is and there can be no dispute in so far as the principle is concerned. Where power is conferred upon one authority and in substance such power is exercised by some other authority, then, the decision may be assailed as ultra vires. In Administrative Law (H.W.R. Wade C. F. Forsyth, Tenth Edition) instances of surrender, abdication or dictation have been discussed. Clear cut cases of unlawful dictation take place where Ministers have attempted to interfere for political reasons and where the statutory authority has surrendered or abdicated its own discretion but acted on the dictates of Minister's Directives. In one of the cases, the Prime Minister of Quebec gave instructions for cancellation of a liquor license because the licensee was seen supporting an unpopular section of the community (Roncarelli vs. Duplessis (1959) 16 DLR (2d) 689). In another case, an Indian Minister was alleged to have procured the taking over by the State of the business belonging to his political opponent. (Rowjee vs. Andhra Pradesh AIR 1964 SC 962). If the Minister's intervention is in fact the effective cause, the actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of FMC since according to them the impugned order lays excessive emphasis upon the FMC's order. On the other hand, NSEL, as noted earlier, contends that the reasons or the grounds in the FMC order are not the basis for the impugned order. Such a situation, is sufficient to reject the contention based upon surrender, abdication or dictation. We however, do not propose to base our decision only on such contradictory contentions urged by FTIL and Jignesh Shah on one hand and NSEL on the other. This is because, upon the perusal and analysis of the impugned order, we are satisfied that the Central Government in making the impugned order has neither laid any excessive emphasis on the FMC's order nor can it be said that the Central Government has surrendered or abdicated its discretion or acted under dictation. The reference to the FMC's order cannot lead to any such inference. 361] Besides, in this case, it is necessary to note that both FMC as well as the Central Government have referred to Grant Thornton report and the objective facts which emanate from the audit report. Merely because some of the inferences flowing from the common objective facts are similar, that by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, NSEL offered and promoted paired contracts, which were found to be nothing but financing transactions distinct from genuine sale and purchase transactions in commodities. There is material on record which indicates that NSEL went to the extent of assuring fixed returns to the investors and by the year 2013, almost 99% of the turnover of the exchange comprised such paired contracts. Ultimately, on 31st July 2013, NSEL, suspended the operations at the exchange. At this stage, the commodities sellers defaulted on their outstanding payments obligations to the Trading Clients to the extent of almost ₹ 5600 crores. The NSEL also sought to wriggle itself out of its obligations by contending that the counter guarantee was to apply only in relation to specified commodities and since none had been specified, the counter guarantee was in effective. The settlement guarantee fund to be maintained by NSEL and which was stated to be ₹ 738.55 crores as on 1st August 2013, was, on 4th August 2013 found to be only ₹ 62 crores. Even though the transactions at the spot exchange were to be backed by commodities supposedly checked and stored in warehouses owned and controlled by N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own as arbitrary, as explained in E.P. Royappa (supra), it is a case of secondary review and the test of Wednesbury unreasonableness will apply in matters of judicial review. This position was reiterated in Gohil Vishwaraj Hanubhai and ors. (supra). 368] In the context of Issue - D, considering the reliance placed on E.P. Royappa (supra) and Maneka Gandhi (supra) what was alleged was arbitrariness and consequently the invitation was for exercise of secondary review. Therefore, applying Om Kumar (supra) and Gohil Vishvaraj Hanubhai Ors. (supra), the Wednesbury test will apply. We have, already considered this aspect in details and held that the impugned order passes the muster of Wednesbury test. 369] The contention at the stage of rejoinder that the Wednesbury test now stands replaced by the proportionality test came up for consideration in All India Railway Recruitment Board (supra). In this case, the Supreme Court explained the difference between Wednesbury unreasonableness and proportionality and pointed out that though the current trend seems to favour proportionality test, Wednesbury has not met with its judicial burial and the State burial, with full honours is surely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may similarly achieve that same purpose with a lesser degree of limitation; and finally (iv) there needs to be a proper relation ( proportionality stricto sensu or balancing ) between the importance of achieving the proper purpose and the social importance of preventing the limitation on the constitutional right. 373] The Supreme Court proceeds to observe that the exercise which, therefore, is to be taken is to find out as to whether the limitation of constitutional rights is for a purpose that is reasonable and necessary in a democratic society and such an exercise involves the weighing up of competitive values, and ultimately an assessment based on proportionality i.e. balancing of different interests. At the same time, reasonableness of a restriction has to be determined in an objective manner and from the standpoint of the interests of the general public and not from the point of view of the persons upon whom the restrictions are imposed or upon abstract considerations. In examining reasonableness, the Court has to keep in mind factors like the directive principles of State policy, prevailing social values and social needs which are intended to be satisfied by the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sparing a Bench of this Court to devote valuable judicial time to other pressing matters, then, surely, Mr. Khambata would add that the cause of public interest is further promoted, though, quite unwittingly. 376] In this case, we find that the Central Government has adopted quite a balanced approach in making the impugned order. The impugned order is certainly not comparable to using a sledge hammer to crack a nut, to borrow the phrase from Leyland and Anthony (Textbook on Administrative Law, 5th Edition). The Central Government in this case, advisedly refrained from making any determination of liability or going into the issue of any alleged fraud. This was in order not to prejudice NSEL or FTIL in the pending litigations. In fact, FTIL, in its petition, had expressed apprehensions that the Central Government might initiate action to supercede the Boards of the Companies thereby assuming full control over the management of the companies. At least, at the stage of making the impugned order, no such option was exercised by the Central Government. 377] In this case, the Central Government, amongst other factors was required to consider the competing interests of investors, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Government, which has to necessarily focus on public interest. The concept of public interest, specially in the context of amalgamation of companies includes not merely the interests of shareholders or employees of the company, but would also include the interests of the investing public, the general public and the national economy. The concept of public interest takes the company outside the conventional sphere of being a concern in which the shareholders alone are interested. It emphasizes 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. Where therefore, public interest is a relevant consideration, the same must override other considerations like freedom of management or the right of stockholders to carry on the business of the company as they desire. The Central Government, in the present case, has balanced the interests of all the stakeholders and there is nothing disproportionate in the exercise undertaken. 380] The petitioners, who now urge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no short sales would be permitted and all outstanding positions at the end of the day would result in delivery. Even the NSEL held out that all transactions at the spot exchange would be backed by commodities checked and stored at warehouses owned and controlled by NSEL. NSEL even held out that it would maintain a settlement guarantee fund, so as to eliminate any risk to the traders at the spot exchange. 382] The material on record further indicates that NSEL, in spite the aforesaid, offered and promoted contracts which were in breach of the conditions in exemption notification dated 5th June 2007, further, NSEL offered and promoted paired contracts, which were found to be nothing but financing transactions distinct from genuine sale and purchase transactions in commodities. There is material on record to indicate that NSEL went to the extent of assuring fixed returns to the investors and by the year 2013, almost 99% of the turnover of the exchange comprised such paired contracts. 383] Ultimately, on 31st July 2013, NSEL, suspended the operations at the exchange. At this stage, the commodities sellers defaulted on their outstanding payments obligations to the Trading Clients ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the market for securities is no longer a matter of a private concern, for those who transact on the market. The market for securities can be volatile. Transactions in the securities market and the transparency of institutional mechanisms have a significant bearing on the wealth of investors. Inflows and outflows of capital from the stock market have an immediate and, often serious, impact on financial stability in the country. The orderly functioning of stock exchanges as institutions through which transactions in securities take place is a matter of public interest. The regulatory powers which have been conferred upon SEBI to recognise stock exchanges must be understood in the context of ensuring the protection of investors on one hand and the public interest that is involved on the other. SEBI is an expert regulatory body which is vested with the power to direct and regulate the functioning of stock exchanges. SEBI, as a regulatory authority, is vested with wide powers to ensure the protection of the interest of investors and the orderly development of the securities market. Ensuring the proper management of stock exchanges is a matter which falls within the regulatory framewor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ired contracts offered by NSEL, which were in breach of the conditions of exemption notification, alone accounted for a turn over of ₹ 1,34,000 crores between the years 2009 to 2013. 390] If exchanges such as these are permitted to be subverted or fail without honouring their obligations and commitments, the confidence in national economic institutions is bound to suffer and the repercussion to the national economy will be severe. In such situations, a negative perception about the business environment of the country is created, which has grave repercussions on the national economy. The Central Government, quite conscious of all such factors, has taken a balanced decision in the facts and circumstances of the present case. 391] Therefore, in the facts and circumstances of the present case, even upon exercise of intensive review and the application of the test of proportionality, we see no reason to interfere with the impugned order. CONCLUSION: 392] For all the aforesaid reasons, we dismiss these petitions. There shall however be no order as to costs. The interim orders, are hereby vacated. (M.S. SONAK, J.) (CHIEF JUSTICE) 393] At this stage, learn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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