Mumbai: he Supreme Court on Tuesday set aside a three-year-old government order to merge 63 Moons Technologies Ltd with the scam-hit National Spot Exchange of India Ltd (NSEL), in a huge relief for the Jignesh Shah-founded company once known as Financial Technologies India Ltd (FTIL). The merger order did not satisfy the criteria of ‘public interest’ cited by the government for its decision, the court ruled.
The apex court was hearing a batch of petitions filed by 63 Moons and founder Shah challenging a Bombay high court order upholding the merger. The Supreme Court did not rule on liabilities of NSEL and alleged fraud as those are being adjudicated in various courts.
“No reasonable body of persons properly instructed in law could possibly hold, on the facts of this case, that compulsory amalgamation between FTIL and NSEL would be in public interest," said Justice Rohinton Nariman, in the order.
The court also held that the merger order did not offer any compensation to the shareholders and debtors of 63 Moons (FTIL), thereby, failing a prerequisite for passing such an order.
“Rights and interests of members and creditors are substantive rights which, when effected by the amalgamation, lead to compensation having to be paid," the Supreme Court said.
Shah, chairman emeritus of 63 Moons said in a statement, “We have always had full faith in the Indian judiciary and our courts. Finally, truth has prevailed." Venkat Chary, chairman, 63 Moons Technologies, said “Justice has finally prevailed in the reasoned and well-articulated judgment of the Hon. Supreme Court which has upheld the rule of law by laying down the elaborate criterion for what is public interest and due process."
A spokesperson for NSEL Aggrieved and Recovery Association (NAARA) said the group is “very seriously" planning to file a review petition.
Sandeep Parekh, managing partner, Finsec Law Advisors, said the magisterial order by Justice Nariman should be required reading for corporate lawyers. “It discusses constitutional principles and corporate law to come to a finding that merger order was not ‘public interest’. The ruling takes a deep dive into the law and finds no public interest involved which is relevant and in any case, the shareholders and creditors of a listed holding firm cannot be mulcted to satisfy debts of a subsidiary," Parekh said.
The order comes nearly six years after the scam surfaced on 31 July 2013 when NSEL, a 99.99% subsidiary of FTIL, defaulted on nearly ₹5,600 crore payments to its 13,000 investors. Trading was suspended in NSEL after the payments crisis erupted.
In February 2016, the ministry of corporate affairs (MCA) passed an order proposing the merger of the wholly owned subsidiary with its parent company citing ‘public interest’. The order was passed under Section 396 of Companies Act, which gives government power to merge companies in public interest.
63 Moons challenged the order in the Bombay high court. In December 2017, the court upheld the MCA order, after which the company filed an appeal in SC.
Earlier this month, SC, after concluding hearing on pleas against the merger, had reserved order on the matter. Since 10 April, shares of 63 Moons have surged 56.7%. SC examined whether the amalgamation order was essential and in public interest under the provisions of Section 396. It held that public interest was in relation only to the businesses of the two companies—NSEL and 63 Moons.
“What is important to note is that there is no interest of the general public as opposed to the businesses of the two companies that are referred to," said the Supreme Court in its order.