MOONS TECHNOLOGIES LTD. (FORMERLY KNOWN AS FINANCIAL TECHNOLOGIES INDIA LTD.) & ORS. versus UNION OF INDIA

Citation: [2019] 8 S.C.R. 26 · Decided: 30-04-2019 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Disposed off

Cited by 2 judgment(s) · cites 28 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2019] 8 S.C.R.
63 MOONS TECHNOLOGIES LTD.
(FORMERLY KNOWN AS FINANCIAL
         TECHNOLOGIES INDIA LTD.) & ORS.
v.
UNION OF INDIA
(Civil Appeal No. 4476 of 2019)
APRIL 30, 2019
    [R. F. NARIMAN AND VINEET SARAN, JJ.]
Companies Act, 1956: s.396 – Constitutionality of – Held:
s.396 provides for compulsory amalgamation of companies in public
interest – Art.31A of the Constitution envisages that any “law”
providing for the amalgamation of two or more corporations in public
interest is immune from challenge on grounds relatable to Art.14 or
Art.19 of the Constitution of India – s.396 of the Companies Act is
such a law – Constitution of India –  Arts.14, 19 and 31A.
Companies Act, 1956: s.396 – Derivative immunity of the
Central Government order – Whether the Central Government’s order
made under s.396 would also receive the protective umbrella of
Art.31A, given the fact that s.396 is undoubtedly protected by Art.31A
– Whether order of Central Government passed under s.396 is
administrative in nature – Held: The expression “law”, as defined
in Art.13(3)(a), includes an Ordinance, rule, regulation, notification,
and custom or usage having in the territory of India the force of
law – Obviously, therefore, when the expression “order” is used, it
would take colour from Ordinance, rule, regulation, notification,
which are all legislative in nature, and not administrative – Even
custom or usage having the force of law refers to general rules of
conduct, as opposed to administrative orders passed on the facts of
a case –  However, the Central Government’s  order in question
directly impacts the rights and liabilities of the companies, their
shareholders and creditors, sought to be amalgamated under the
order – Such order is not an order in general which applies to all
such companies, but only to the particular companies sought to be
amalgamated and does not lay down any general rule of conduct
by itself, but in fact, follows the general rule of conduct laid down
[2019]  8 S.C.R. 26
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by s.396 –  Therefore, such an order is not in the nature of legislation
or delegated legislation –  The fact that, under s.396(5), the Central
Government order has to be laid before the Houses of Parliament
does not detract from the fact that the order is administrative and
not legislative in character – Constitution of India – Art.13(3).
Companies Act, 1956: s.396 – Essentiality test – Held: The
Central Government has to be “satisfied”, meaning thereby, that it
must, on certain objective facts, come to a conclusion that
amalgamation between two or more companies is necessary – This
can only be done if the Central Government finds it “essential”,
i.e., necessary to do so.
Companies Act, 1956: s.396 – Public interest – Meaning of –
In the context of compulsory amalgamation of two or more
companies, the expression “public interest” would mean the welfare
of the public or the interest of society as a whole, as contrasted
with the “selfish” interest of a group of private individuals – Thus,
“public interest” may have regard to the interest of production of
goods or services essential to the nation so that they may contribute
to the nation’s welfare and progress, and in so doing, may also
provide much needed employment – “Public interest” in this context
would, therefore, mean the combining of resources of two or more
companies so as to impact production and consumption of goods
and services and employment of persons relatable thereto for the
general benefit of the community – Conversely, any action that
impedes promotion of industry or obstructs growth which is in
national or public interest would run counter to public interest as
mentioned in s.396 of the Act.
Companies Act, 1956: s.396(3) – Amalgamation order –
Compensation – Right of shareholder or a creditor –  s.396(3) speaks
of a shareholder’s or a creditor’s interest in or rights against the
company resulting from an amalgamation order – A shareholder or
creditor gets effected by an amalgamation order if the value of his
share gets depleted as a result of the amalgamation and if dividends
that have been paid to him are likely to come down as a result of the
amalgamation – Likewise, a creditor of a solvent company is directly
effected by an amalgamation by which the amount loaned by such
63 MOONS TECHNOLOGIES LTD.(FORMERLY KNOWN AS FINANCIAL
TECHNOLOGIES INDIA LTD.) v. U.O.I
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SUPREME COURT REPORTS
[2019] 

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