Supreme Court Sets Aside Merger Of 63 Moon Technologies With NSEL

The Supreme Court today set aside the merger of 63 Moons Technologies Ltd. with National Spot Exchange Ltd., a first-of-its kind amalgamation ordered by the government in public interest after the Rs 5,600-crore payment scam at exchange.

The top court bench headed by Justice Rohinton Nariman allowed the appeals filed against the Bombay High Court's December 2017 order which had upheld the merger.

The central government had in February 2016 passed the order to merge NSEL with 63 Moons, earlier called Financial Technologies India Ltd. Section 396 of the Companies Act, 1956 gives it the power to order such a merger if it is satisfied that doing so is essential in public interest.

The counsel, representing FTIL, argued that various conditions to apply Section 396 were absent. The government, however, argued that its order was in public interest as it reflected the government's reaction to the 2013 scam.

The Supreme Court said that while such an order of the government cannot be challenged on grounds of violation of Article 14 (Right to Equality) or Article 19 (Freedom of Speech and Expression), that does not mean that it can't be challenged if it leads to arbitrary or unreasonable results.

The top court said that “it is clear that the essentially test, which is the condition precedent to the applicable to Section 396, cannot be said to have been satisfied”.' The reasons cited as public interest “have relation only to the businesses of the two companies that are sought to be amalgamated”.

“So far as achieving economy of scale and efficient administration is concerned, it is difficult to see how this would apply to the fact situation in this case where NSEL is admittedly a company which has stopped functioning as a commodities exchange at least with effect from July, 2013 with no hope of any revival,” the Supreme Court ruled. “Thus, the consolidation of businesses spoken about does not exist as a matter of fact, as NSEL's business has come to a grinding halt, as has been observed by the FMC and the central government itself.”

The judgment said that “each one of these expressions, when read with the rest of the order, therefore, only shows that the sole object of the amalgamation order is very far from the high-sounding phrases used in the opening” and is really for speedy recovery Rs 5,600 crore.