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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 ..... ubhrata Chakraborty i/b. Juris Corp for Petitioner in WP 1785 of 2016 and for Respondent Nos. 7, 8, 9, 10 and 11 in WP No. 2743 of 2014. Mr. D. J. Khambata - Senior Advocate with Mr. J. P. Sen - Senior Advocate, Mr. Aditya Mehta, Mr. Pheroze Mehta, Ms Devika Deshmukh Ms Rashna Dastur, Ms Sharmila S. Deshmukh, Ms Yugandhara Khanwilkar, Ms Namrata Jani, Mr. Parag Vyas, Mr. G. R. Sharma and D. P. Singh i/b Mr. Jay Bhatia and Mr. Dushyant Kumar for Respondent No.1 - Union of India in all the matters. Mr. Iqbal Chagla and Mr. Shiraz Rustomjee - Senior Advocates with Mr. Mihir Mody, Mr. Nishant Upadhyay, Mr. Nirav Parmar and Mr. Jayesh Ashar i/b. M/s. K. Ashar & Co. for SEBI. Mr. Aspi Chinoy and Mr. S. U. Kamdar - Senior Advocates with Mr. Ameet Naik and Mr. Abhishek Kale i/b. M/s. Naik Naik & Associates for Respondent No. 3 in WP No. 2743 of 2014 and for Respondent No. 2 in WP No. 1785 of 2016 and for Respondent No. 2 in WP No. 1922 of 2016. Mr. Zubin 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts of one day's duration for sale and purchase of commodities traded on the spot exchange established by NSEL. The conditions, inter alia, placed an absolute bar on short sales and stipulated that all outstanding positions at the end of the day, must result in delivery of commodities. 5] In 2009 or thereabouts, NSEL offered contracts with long term settlement periods including T+18, T+25 and T+36, where, "T" represents the trade day and the numbers 18, 25 and 36 represent the period within which the deliveries of commodities will be completed and the transactions squared off. Further, in 2009 itself, NSEL offered paired contracts, comprising short term buy contract and a long term sell contract, i.e., T+2 and T+25. In some instances assured interest returns were offered. By the year 2013, 99% of the turnover of the spot exchange comprised paired contracts, almost unconnected with genuine spot transactions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches in operations. The Central Government ordered inspection of books and accounts of both NSEL and FTIL under Section 209A. The Economic Offences Wing (EOW) registered cases against the directors, key personnel of NSEL, FTIL and some of the defaulters under the Maharashtra Protection of Interests of Depositors (in Financial Establishments) Act, 1999 (MPID Act). 9] The FMC, after issuance of show cause notice, made an order dated 17th December 2013 declaring FTIL and certain key personnel to be not fit and proper to hold more than 2% of the paid up equity capital of Multi Commodities Exchanges (MCXS) and other exchanges. This was challenged by instituting Writ Petition No. 337 of 2014, which came to be admitted. However, by order dated 28th February 2014, interim relief was declined. The special leave petition against the order dated 28th February 2014, was dismissed as withdrawn. 10] 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 ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all these petitions, have challenged this impugned order on various grounds. SUBMISSIONS ON BEHALF OF FTIL, JIGNESH SHAH, RAVI SHETH, SHAFT, STANDARD CHARTERED BANK, AND INTERVENOR 13] Mr. Harish Salve, the learned Senior Advocate for the FTIL and most of the other learned counsel for the petitioners and intervenors, submit that the impugned order is in gross breach of the principles of natural justice and fair play for at least four reasons. Firstly, no opportunity of personal hearing was granted to any of the affected parties except FTIL and NSEL, despite specific directions issued by this Court in its order dated 4th February 2015. Secondly, the Central Government has not even properly considered the objections and suggestions made by the affected parties and such non-consideration constitutes breach of the principles of natural justice and fair play. Thirdly, the Central 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 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia (1978) 3 SCC 459, Balmadies Plantations vs. State of Tamil Nadu(1972) 2 SCC 133 , Express News Papers vs. Union of India 1986 (1) SCC 133, State of Punjab vs. Gurudial Singh 1980 (2) SCC 471 and Collector vs. Rajaram Jaiswal 1985 (3) SCC 1, in support of these propositions. 15] Mr. Salve and most of the other learned counsel for the petitioners and intervenors, submit that the Central Government has misconstrued the scope of the expression 'interests of member' in Section 396 so as to altogether exclude the economic value of the shareholding. They submit that the expression, in the context of listed companies like FTIL would include the entire package of rights and interests associated with such shares. They submit that the compulsory amalgamation of FTIL having net worth of Rs. 2800 crores with NSEL having putative liabilities of Rs. 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ran vs. Ramchand Wadhwani & Anr. (1962)2 SCR 753, in support of the proposition that even the availability of alternate remedy by way of appeal is no bar to assail an appealable order in writ jurisdiction. 18] Mr. Seervai, Mr. Shah and Mr. Zubin Behramkamdin submit that there is violation of Article 14 of the Constitution since the Central Government has practised hostile and invidious discrimination in the matter. They submit that this is for the first time that the provisions of Section 396 have been invoked to compulsorily amalgamate two non-government companies. They rely on a list of instances where the provisions of Section 396 came to be invoked in the past. They point out that each and every instance concerns Government companies. They rely on Circular dated 20th April 2011 issued by the Ministry of 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, ensur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s vitiated and liable to be struck down. They rely mainly on the legislative history, the statement of objects and reasons to the Bill which preceded the Constitution (Fourth Amendment) Act, 1955 and the Companies (Amendment) Bill 1959. They also make reference to Notes on Clauses mainly to submit that amendment to substitute the expression national interest with public interest in Section 396, was an amendment of merely "drafting nature". They rely on Uttam Das vs. Shiromani Gurdwara Prabhandak Committee, Amritsar AIR 1996 SC 2133, Chagan Bhujbal vs. Union of India Writ Petition No. 3931 of 2016 decided on 14th December 2016, Wood Polymer Limited vs. Bengal Hotels Pvt. Ltd. 1977 (109) ITR 177 and Union of India vs. Ambalal Sarabhai Enterprises Ltd. 1984 (55) Company Cases 623, in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udhsinhji K. Jadega & Anr. Vs. State of Gujarat(1995) 5 SCC 302, Commissioner of Income Tax, Shimla vs. Greenworld Corporation, Parwanoo (2009) 7 SCC 69 and Tarlochan Dev Sharma vs. State of Punjab & Ors (2001) 6 SCC 260, in support of these propositions. 24] Mr. Salve and most of other counsel for the petitioners and intervenors submit that the impugned order, tacitly proceeds on the basis that NSEL, FTIL, its directors and key personnel have indulged into fraud or are liable to make good any amounts to the alleged investors. They submit that up to now, not a single adjudicatory authority has determined the issue of fraud or liability of NSEL, much less FTIL or its directors. They submit that the powers under Section 396 could never have been exercised merely 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to order compulsory amalgamation of two or more companies. They submit that in the present case, no such exercise has been undertaken by the Central Government to determine whether other less drastic options were available. They submit that there is a difference between cases where the Government or the statutory authorities are merely required to form an opinion and cases where the exercise of power is predicated upon record of essentiality and satisfaction. They rely on Peerless General Finance and Investment Co. Ltd. vs. Union of India (1991) 71 Company Cases 300, in support of these propositions. 27] Initially, Mr. Salve and most of the other counsel for the petitioners and intervenors, submitted that the impugned 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 proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve themselves obtained decrees against defaulters to the extent of Rs. 1233.02 crores. They point out that the investors have also obtained injunctions or attachment orders against the defaulters' assets conservatively quantified at Rs. 4,400 crores. They point out that even the EOW has attached the assets of the defaulters to the extent of Rs. 6,330 crores. They submit that all these are vital and relevant considerations, which have been totally ignored by the Central Government in making the impugned order. 29] Ms Rajani Iyer, appearing for Standard Chartered Bank, an unsecured creditor of FTIL submits that the interests of the Bank as well as other similarly placed creditors 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave no application, except to the extent indicated in the parent statute. They submit that the impugned order in the present case, answers all the indicia of a delegated or sub-ordinate legislation. They submit that this is evident from the fact that the impugned order of amalgamation operates in rem; looks to the future by creating new rights and liabilities; is conceived in public interest; is required to be and is published in the Official Gazette; and is required to be laid before the Parliament for exercise of Parliamentary scrutiny. They submit that all these factors make it clear that the impugned order is nothing but a delegated legislation / subordinate 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 legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmits that the petitioners have repeatedly pointed out that NSEL or FTIL are not at all liable to the investors. In any case, investors have already obtained decrees in excess of Rs. 1200 crores against the defaulters and assets of the defaulters, in excess of Rs. 6000 crores stand attached or injuncted from alienation. Secondly, there is absolutely nothing in the text of Section 396 to suggest that it applies only to the amalgamation of two or more healthy companies. He submits that when the provisions of a Statute are clear and unambiguous, the effect of such provision cannot be avoided on basis of actual or perceived consequences. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to institute appeal under Section 396 (3A). Even factually, no such denial is demonstrated. Section 396 (3A) entitles "any person aggrieved by any assessment of compensation ..........." to institute an appeal. Relying on Babua Ram vs. State of U.P. 1995 (2) SCC 689, he submits that the expression is a wide import and would mean a person who has suffered legal injury or one who has been unjustly deprived or denied of some benefit, advantage or compensation, which he would be interested to obtain in the usual course. 38] Mr. Khambata submits that since this was an extra-ordinary case and the Central Government was satisfied 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 submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... litary ground as aforesaid. He points out that even FTIL, in paragraph 82 of its petition , has listed the several grounds upon which the impugned order is based, though, no doubt, FTIL, has contested the validity of such grounds. 43] Without prejudice, Mr. Khambata submits that where public interest is involved, the Mohinder Singh Gill principle is inapplicable. He submits that there is ample material on record in support of the ground, which, NSEL concedes, the order is premised on. He submits that even the solitary ground was sufficient in public interest to make the impugned order. He however, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted by FTIL and NSEL. In such circumstances, the Grant Thornton Report was valid and relevant material taken into consideration by the Central Government for making the impugned order. 47] Mr. Khambata submits that there is contradiction in the submissions of FTIL and some of its major shareholders on one hand and other shareholders of FTIL. He submits that on one hand, FTIL and its major shareholders including Jignesh Shah contend that decrees for amounts in excess of Rs. 1,200 crores have already been obtained against defaulters, assets to the extent of Rs. 4,000 to Rs. 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 Rs. 2,800 crores with NSEL which has putative liabilities of Rs. 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 petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. Mr.Khambata relies on Barium Chemicals vs. CLB (supra), Rohtas Industries (supra), M. Jhangir Bhatushah vs. Union of India 1989 Supp (2) SCC 201, Re: Jayantilal N. Parekh ILR 1949 Bom 508, Vinod Kumar vs. State of Haryana 2013 (16) SCC 293, G.B. Mahajan vs. Jalgaon Municipal Council 1991 (3) SCC 91 and Ganga Bhishnu Swaika vs. Calcutta Pinjrapole Society 1968 (2) SCR 117. 51] Mr. Rustomjee, learned counsel for SEBI (formerly FMC), submits that the promoters of NSEL held out several representations and made several commitments in order to secure 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 comprisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any case, there were 120 warehouses holding inventory valued at Rs. 6000 crores, which is more than sufficient for effecting deliveries for the next 12 to 18 months. 55] Mr. Rustomjee points out that NSEL on 22nd July 2013 furnished undertakings that no further/fresh contracts would be launched till further orders, and further, all existing contracts would be settled on the due dates. However, NSEL, on 31st July 2013, suspended trading in all contracts, (except E-series) until further orders. On 14th August 2013, NSEL presented a settlement plan extending over 30 weeks, within, which, NSEL proposed to settle all pending obligation, assessed conservatively at Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. 60] For all these reasons, the respondents submit that there is no legal infirmity in the impugned order and all these petitions may be dismissed. ISSUES FOR DETERMINATION 61] Based upon the submissions made by learned counsel for the parties, the following issues, broadly arise for determination in all these matters : (A) Whether the impugned order was made in violation of the principles of natural justice and fair play? (B) Whether, taking into consideration the provisions in Section 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal and therefore, challenge to the same as raised by only some of the shareholders of FTIL may not be entertained. 64] Since, most of the issues referred to in the preceding two paragraphs are proposed to be dealt with in the course of consideration of the aforesaid broad based issues, there is no separate reference made to them. We also make it clear that the aforesaid were the only issues argued before us by the learned counsel for the parties. This clarification 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es reference to experience gained in the last six years which revealed that the provisions were inadequate to deal with excessive speculation and other malpractices prevalent in some forward markets. It was noted that persons indulging in illegal forward trading could not be prosecuted for want of adequate documentary evidence and even persons found guilty, often got away with light punishment. There were no provisions to stop trading beyond official hours. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the President on 11th October, 1971. (4) The present Bill is intended to replace the Ordinance." [Emphasis supplied] 71] In furtherance of Objects and Reasons, FCRA provides for establishment and constitution of FMC, which is now substituted by Securities and Exchange Board of India (SEBI). The powers and functions of FMC have been defined. Chapter III is concerned with grant and withdrawal of recognition to recognized associations, 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. Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in the Official Gazette, specify in respect of any goods, the period under such contract not being capable of extension by the mutual consent of the parties thereto or otherwise." [Provided that where any such contract is performed either wholly or in part,- (1) by tendering of the documents of title to the goods covered by the contract by any party thereto (not being a commission 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 Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by payment of differences or set off does not convert a ready delivery contract into a forward contract. Since, the Government was unable to check the misuse of the ready delivery contracts under the unamended Act, by Amendment Act 53 of 1971 the definitions came to be amended in the aforesaid terms. 79] In terms of the amended definitions of the expressions '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 regim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified commodities on the Exchange through the Commodity Seller's Broker; v. This sell order would be matched / consummated against a buy order placed by a Trading Client through the Trading Client's Broker; vi. The '+2 / +25' refers to the days after the Trade day ('T'), at which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t's Brokers, paired the contracts, so that : a) both the T+2 and the T+25 contracts were entered into at the same time, on the same day, between the same Trading Client and Commodity Seller; b) upon settlement of the T+2 Contract, the Trading Client 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 / structur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Consumer Affairs ("DCA"), which exempted all forward contracts of one day's duration for the sale and purchase of commodities on NSEL from the provisions of the Forward Contracts (Regulation) Act, 1952 ("FCRA"), subject to 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 Rs. 1,34,000/- crores. Therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conditions of the exemption notification dated 5th June 2007 and consequently, the FCRA itself. 90] The FTIL in its pleadings as well as the list of dates, is really in no position to factually dispute 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 ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because, later on, it turned out that most of such assertions or assurances were found to be false. 96] On 10th July 2013, Jignesh Shah made a detailed and comprehensive presentation to DCA and FMC, in terms, holding out the following : "(i) NSEL has 120 warehouses, holding inventory valued at Rs. 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 Rs. 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 fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tory authorities that there was no serious problem regards the operations at the NSEL Exchange, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspired between 10th July 2013 and 31st July 2013, to prompt the NSEL to suspend 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 esca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that NSEL model has full stock as collateral and 10-20% 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 Rs. 700/- to Rs. 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 Rs. 850 crores is in place. This was followed by email communication on the same date i.e. 1st August 2013, in which, NSEL stated that amount of Rs. 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 Rs. 62 crores. 109] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, 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 business. Indian Bullion Market As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 recurring basis. Further despite repeated defaults members were allowed to trade and increase their expenses. For example, Lotus Refineries had defaulted, as per the Rules of the Exchange, on 198 days between the fifteen month period of 1 April 2012 and 30 July 2013. Exemptions from Margin Requirements: Members who were in a default position or whom had exhausted their margin limits on trading were granted an exemption from margin requirements and thus allowed them to increase their exposure by engaging in new trades. More than 1,800 margin limit exemptions were granted between 2009 through to 2013. Inadequate monitoring of member collateral: NSEL did not carry out any diligence to establish the existence of stock at member managed warehouses, upon which trades were being executed. Grant Thornton carried out a stock verification exercise and found significant shortages vis-avis expected collateral. Related Party Transactions 1.6 IBMA is registered as a client with Karvy Comtrade limited for executing trades on futures com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e scope of Internal Audit Functions, performance of internal auditors and scope of work for the internal auditors. Common members of the Board and the Audit Committee were : Mr.Jignesh Shah Mr.Joseph Massey Mr.V. Hariharan Mr.Shreekant Javalekar 1.10 The Board Meeting minutes of 31 March 2010 and 11 August 2010 stated that the Company (NSEL) approached Karvy Financial Services Limited (KFSL) to extend credit facilities to a member, specifically N.K. Proteins. Further the Board granted and approved for issue of a guarantee to KFSL, to the extent of Rs. 14 crores, in respect of credit facilities extended to N.K. Proteins. 1.11 Our review of the Information technology identified several independent standalone systems wherein the flow of business transactions and related information between different systems required manual intervention. Given the complexity and nature of trading transaction such systems including warehouse (eWDMS), CNS, Delivery System (EMI) and trading should have been integrated. Further, these systems did not produce/have any form of MIS operational. All reporting and analysis was done on manual worksheets. Our review of the Board minutes did not indicate an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' consumption upto next 1 to 1.5 years. The key observations in this regard read as follows: (i) There was no documentation in relation to warehouse activities for long term trades indicating that such contracts were not secured by warehouse stocks. The warehouses were customer managed warehouses and the underlying collateral were not in custody of NSEL. NSEL did not have control over these warehouses and Grant Thornton was denied access to number of warehouses. (ii) The Warehouse Development and Regulatory Authority had in fact rejected NSEL's application for registration of its warehouses way back on 16th May 2011. Notwithstanding such rejection, NSEL's website represented that its warehouses were registered with the Authority. (iii) No verification or due diligence was ever undertaken by NSEL to ensure compliance by its members of the conditions outlined in its rules and byelaws even though in terms of NSEL byelaws, warehouse receipt issued by NSEL were meant to evidence a commodity being held in an approved warehouse. (iv) NSEL did not insist upon deposit of commodities inthe warehouses prior to executing sale transactions. Instead NSEL resorted to issuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to have committed no less than 198 defaults and still, was permitted to continue trading and retain membership. Lotus Refinery Private Limited was also granted margin waivers and unlimited trade limit waiver notes. Mr. Joshi pointed out that Lotus Refinery Privae Limited was controlled by the son-in-law of the Chairman of NSEL Mr. Anjani Sinha. 119] On 4th October 2013, FMC issued notice to Jignesh Shah and FTIL and certain other key personnel to show cause as to why they should not be declared as fit and proper persons to be shareholders or directors of MCX in view of the events that had transpired at NSEL. In the proceedings that ensued, FTIL and Jignesh Shah were offered opportunity to cross-examine Grant Thornton in the context of its report. This opportunity was however not availed. Ultimately FMC made order on 17th December 2013 declaring FTIL, Jignesh Shah, Srikant Javalgekar and Joseph Messy as not fit and proper persons to be shareholders of any association / exchange recognised by the Government or registered by the FMC in excess of the prescribed threshold limits and/or to hold positions in the management and the board of such association / exchange. The order, make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laborate enquiry has been made by the Commission. Findings of fact of serious nature have been recorded against the Petitioners. The fraud perpetrated is to the tune of Rs. 5,500 Crores. Criminal investigations are in progress. Considering the gravity of the allegations which have been found to be established against the Petitioners, this is not a fit case where prayer for stay can be granted in exercise of writ jurisdiction under Article 226 of the Constitution of India." 122] We are conscious that the aforesaid observations are only prima facie and the challenge to FMC's fit and proper order is pending. However, learned counsel for the respondents are right in their submissions that the aforesaid observations are not altogether irrelevant particularly when the petitioners insist upon relying upon observations in some bail orders to urge that they are in no manner responsible for the unprecedented crisis at NSEL Exchange. In the written submissions at the stage of rejoinder, FTIL has submitted that since Rule has been issued in the writ petitions challenging FMC's fit and proper order dated 17th December 2013, no reference whatsoever can be made to FMC's order and to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution of appeals expired and since, no appeals had been instituted by any parties against the assessment order, the Central Government, proceeded to make the impugned order dated 12th February 2016 ordering the amalgamation of NSEL with FTIL in public interest. 127] In March 2016, FTIL amended its writ petition so as to incorporate challenge to the impugned order dated 12th February 2016. 128] On 8th March 2017, when the final hearing of the petitions was on, FTIL filed an affidavit along with resolution that FTIL had resolved to infuse funds upto Rs. 50 crores in NSEL for FY 2016-17 to FY 2018-19. The affidavit also states that FTIL, up to then, had already infused an amount of Rs. 109 crores in NSEL. The affidavit states that all such amounts are to assist NSEL in effecting recoveries from defaulters and also for its day to day administrative operational legal and recovery expenses. 129] There is ample material on record which constitutes more than prima facie evidence in support of the aforesaid objective facts upon which the subjective satisfaction of the Central Government was based. In regard to several instances, we have, referred to the pleadings of the petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, powers, rights, interests, authorities and privileges ; and with such liabilities, duties, and obligations; as may be specified in the order. (2) The order aforesaid may provide for the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company and may also contain such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation. (3) Every member or creditor (including a debenture holder) of each of the companies before the amalgamation shall have, as nearly as may be, the same interest in or rights against the company resulting from the amalgamation as he had in the company of which he was originally a member or creditor; and to the extent to which the interest or rights of such member or creditor in or against the company resulting from the amalgamation are less than his interest in or rights against the original company, he shall be entitled to compensation which shall be assessed by such authority as may be prescribed and every such assessment shall be published in the Official Gazette. The compensation so assessed shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it comes to the exercise of powers under Section 396. However, the scope and extent to which such principles shall apply have also been set out in the provision itself. The principles would stand complied with, where the companies which are proposed to be amalgamated are furnished copies of the proposed order in draft, so that the said companies as well as other parties likely to be affected may make suggestions or objections to the proposed order. Thereafter, the Central Government has to consider such suggestions and objections and make such modifications, if any, in the draft order. There is nothing in the statutory provision to suggest any hearing or personal hearing before making any order under Section 396. 136] In the facts of the present case, the procedural requirements set out in Section 396 have been complied with. Copy of the proposed order in draft was sent to the concerned companies. The companies, their shareholders, creditors and even employees have made suggestions and raised objections. Such suggestions and objections have been duly considered by the Central Government before making the impugned order. There is an assessment order made on 1st April 2015 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted to pass appropriate order after giving brief hearing to all interested parties. However, such direction, has to be construed in the light of statutory scheme of as well as circumstantial flexibility, which is well accepted in dealing with challenges based upon failure of natural justice. The principles of natural justice, though universal have to be realistically and pragmatically employed. Manohar Lal Sharma vs. Principal Secretary & Ors. (2014) 9 SCC 614 As held by the House of Lords in Lloyd vs. Mc Mahon, (1987) All ER 1118 (HL) the rules of natural justice are not engraved on tablets of stone. The scope and extent of principles of natural justice depends upon the nature of right which is proposed to be affected, character of decision maker, the nature of the decision itself and the statutory or other frame work in which it operates. 139] The Mc Mahon principle is accepted by our Supreme Court in several of its decisions. The Supreme Court has repeatedly held that principles of natural justice are not embodied rules and therefore, the expression natural justice is not capable of any precise definition. The principles are evolved to check arbitrary exercise of power by an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a given case, can be exasperating. The Courts cannot look at law in the abstract or natural justice as mere artefact. Nor can they fit into a rigid mould the concept of reasonable opportunity. If the totality of circumstances satisfies the Court that the party visited with adverse order has not suffered from denial of reasonable opportunity, the Court will decline to be punctilious or fanatical as if the rules of natural justice were sacred scriptures. 142] The insistence on the part of the petitioners, that all the 50389 objectors ought to have been afforded opportunity of personal hearing, sounds more in the arena of unnatural expansion of the principles of natural justice. The aim of principles of natural justice is not to create undue or uncontemplated obstacles in the discharge of statutory powers, particularly when public interest is involved in the exercise of such powers. Acceptance of such a contention might have rendered the entire exercise extremely cumbersome and time consuming, if not impossible. In Nidhi Kaim vs. State of Madhya Pradesh & Ors. (2016) 7 SCC 615, and Union of India & Ors vs. O.Chakradhar (2002) 3 SCC 146, the Supreme Court turned down the similar c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natural justice is invariably void. 145] The Constitution Bench of the Supreme Court in Managing Director, ECIL, Hyderabad & Ors. vs. B. Karunakar & Ors. (supra) has held that the theory of reasonable opportunity and the principles of natural justice have been evolved to uphold the rule of law and to assist the individual to vindicate his just rights. They are not incantations to be invoked nor rites to be performed on all and sundry occasions. Whether in fact, prejudice has been caused to the employee or not on account of denial to him of the report, has to be considered on facts and circumstances of each case. Where, therefore, even after furnish of the report, no different consequence would have followed, it would be a perversion of justice to permit the employee to resume duty and to get all the consequential benefits. It amounts to rewarding the dishonest and the guilty and thus to stretching the concept of the natural justice to illogical and exasperating limits. It amounts to an unnatural expansion of natural justice which in itself antithetical to justice. 146] In State Bank of Patiala vs. S. K. Sharma (supra), the Supreme Court, restricted its earlier rulings in Chintapa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act, the principles have to be realistically and pragmatically employed. The entire process leading to the making of the impugned order cannot be said to have occasioned any miscarriage of justice. Therefore, taking into consideration the totality of the circumstances, we are unable to fault the impugned order on the ground of failure of natural justice or fair play. 149] This is also not a case where there is failure of natural justice because the objections and suggestions made by FTIL, NSEL, and several other interested parties have not at all been considered by the Central Government before making the impugned order. The record indicates that the Central Government, in this case, constituted a Committee headed by the Additional Secretary assisted by the Legal Adviser to facilitate the consideration of such objections and suggestions. This Committee with the help of specially created computer software, tabulated and collated various objections and suggestions, as received. Such objections and suggestions were then analyzed and addressed to. Such analysis and address is reflected to a substantial extent in the impugned order. Merely because the suggestions or objection, may not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned order, records and considers in substantial details, the objections and suggestions received from various parties. In paragraph 7.2 and 7.3 of the impugned order, the Central Government, considered and dealt with the various objections and suggestions raised by and on behalf of FTIL and NSEL. As noted earlier, both FTIL and NSEL were even afforded an opportunity of personal hearing. Paras 7.4, 7.5 and 7.6 of the impugned order, the Central Government has considered and dealt with the objections and suggestions on behalf of shareholders, creditors and investors group. In paragraph 7.7, the submissions made by industry chambers have been considered. In paragraph 8.1 and 8.2 suggestions or in piece provided by EOW and Enforcement Directorate have also been considered. Therefore, it is not possible to accept the contention that there has been failure of natural justice on account of any non-consideration of objections and suggestions made by FTIL, NSEL, its shareholders, creditors and other interested persons. 153] From the record, we are also satisfied that this is not a case where the Central Government has placed reliance upon certain adverse material in the impugned orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able in the light of such suggestions and objections. The fact that exhaustive suggestions and objections were made by the petitioners upon virtually all facets of the draft order, itself suggests that full opportunity was afforded to the parties to put forth their suggestions and objections. There is no case of failure of natural justice or fair play, therefore made out by the petitioners in the facts and circumstances of the present case. 156] Extensive submissions were made to urge that the impugned order in the present case was in the nature of delegated or subordinate legislation. On this basis, it was urged that the principles of natural justice were inapplicable, except perhaps to the extent indicated in the parent statute. In this case, proceeding on the basis that the impugned order is an administrative or at the highest a quasi judicial order as urged by the petitioners, we find that there was no breach in compliance with the principles of natural justice and fair play. Therefore, we do not deem it necessary to address the issue as to whether the impugned order is in the nature of delegated or subordinate legislation. Even independent of any decision upon such issue, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions from challenge on the ground that such law may be inconsistent with or takes away or abridges any of the rights conferred by Articles 14, 19 or 31 of the Constitution. 162] The Statement of Objects and Reasons to the Constitution (Fourth Amendment) Act, 1955, insofar as it relates to Article 31A (1)(c) of the Constitution of India, reads as follows: "3. It will be recalled that the zamindari abolition laws which came first in our programme of social welfare legislation were attacked by the interests affected mainly with reference to articles 14,19 and 31, and that in order to put an end to the dilatory and wasteful litigation and place these laws above challenge in the courts, articles 31A and 31B and the Ninth Schedule were enacted by the Constitution (First Amendment) Act. Subsequent judicial decision interpreting articles 14,19 and 31 have raised serious difficulties in the way of the Union and the States putting through other and equally important social welfare legislation on the desired lines, e.g., the following: (i) ... (ii) .. (iii) .. (iv) ... (v) The reforms in company law now under contemplation, like the progressive elimination of the managing agency system ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me interest in or the rights against the company resulting from amalgamation ...." in Section 396 (3). This is because the main contention of the petitioners is that the "interest" of a shareholder in a company necessarily means the package of rights associated with shares which includes the economic value of the shareholding. 168] In the written submissions tendered by the petitioners in Writ Petition No. 2985 of 2014, the expression "interest" in section 396 was sought to be explained in the following manner : "16. c. ii. ............The determination of the interest of a shareholder especially in the context of a listed company would require a determination of the individual and cumulative impact of the entire package of rights and interests associated with the shares including: a. The voting rights emanating from the shares; b. The rights to enjoy profits of the company in the shape of dividends; c. The right to elect Directors and to thus participate in the management; d. The right to apply for appropriate relief in case of oppression; e. The right to apply for relief in the case of mismanagement; f. The right to apply to the Court for winding up and the right to share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly for appropriate relief in case of operation or mismanagement, right to apply to the court for winding up and the right to share the surplus on winding up. However, the later part of the written submission which suggests that even the economic value of the shareholding is to be included in the expression "interest", there may be some difficulty in accepting the same. Neither the text nor the context supports any such construction. The precedents cited by the petitioners did not support such construction. Mr.Salve did make reference to accounting standard (AS 23), in support of such construction. However, upon due consideration of the same, we find that the accounting standards cited are of no assistance in interpretation of the Statute in question. 171] In order to evaluate the contention, reference is necessarily required to be made to the very nature of a "share" and the 'interests of a shareholders' in the context of the Indian law as incorporated in the Companies Act 1956. 172] In Borland's Trustees vs. Steel Brothers & Co. (1901) 1 Ch. 279, the Chancery Division speaking through Farwell J. explained the nature of a share in a company, in the following terms :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares at any time at his option. ..... The State has not usurped the shareholders right to vote or vested it in any other authority. The State appoints directors of its own choice but that it does not by the impugned act. Thus there has been no dispossession of the shareholders from their right of voting at all. The same reasoning applies to the other rights of the shareholders spoken about, namely, their right of passing resolution and of presenting winding up petition. These rights have been restricted undoubtedly and may not be capable of exercised to the fullest extent as long as the management by the State continues. Whether the restrictions are such as would bring the case within the mischief of Article 19(1)(f) of the Constitution, I will examine presently; but I have no hesitation in holding that they do not amount to dispossession of the shareholders from these rights in the sense that the rights have been usurped by other people who are exercising them in place of displaced shareholders." 175] In Bacha Guzdar (supra), the Supreme Court, in no uncertain terms held that a shareholder has got no interests in the property of the company though he has undoubtedly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to elect directors and thus to participate in the management through them; (ii) to vote on resolutions at meetings of the company; (iii) to enjoy the profits of the company in the shape of dividends; (iv) to apply to the court for relief in the case of oppression; (v) to apply to the court for relief in the case of mismanagement; (vi) to apply to the court for winding up of the company; (vii) to share in the surplus on winding up......" (emphasis supplied) 178] In the context of amalgamation itself, the Supreme Court in Hindustan Lever Employees' Union (supra) has held that the shareholder has no interest in the assets of the company while the company is in existence. It is only at the stage of liquidation of the company that the shareholders become interested in the assets of the company. The share of any member in a company is movable property and transferable in the manner provided by the Articles of the company. This is provided by Section 82 of the Companies Act. The definition of 'goods' in the Sale of Goods Act, 1930 specifically includes stocks and shares. A share represents a bundle of rights which includes, inter alia, the rights (i) to elect direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectly or indirectly through subsidiary(ies), 20% or more of the voting power of the investee, it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectly through subsidiary(ies), less than 20% of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an investor from having significant influence." 182] Clause (7) of AS 23 reads as follows. "7. An investment in an associate should be accounted for in consolidated financial statements under the equity method except when: (a) the investment is acquired and held exclusively with a view to its subsequent disposal in the near future; or (b) the associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investor. Investments in such associates should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. The reasons for not applying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholding or some right to earn profits through any capital appreciation of listed value of shares is also required to be taken into consideration for purposes of Section 396(3). 184] In the rejoinder, it was submitted that since the Central Government has assessed compensation to shareholders of NSEL on the basis of economic value, the same yardstick has to be applied when it comes to assessing compensation payable to shareholders of FTIL. 185] In order to reach to the stage of assessment of compensation, the Central Government or the prescribed authority is required to determine whether the interests of the shareholders in or rights against have been altered. Only then the issue of assessment of compensation arises. The position of shareholders of NSEL and FTIL is substantially different. In case of NSEL, the entire shareholding stands wiped out since, under the impugned order, NSEL is to stand dissolved without being wound up. The interest of shareholders of NSEL in or the rights against the resultant company are obviously not the same as held in the original company which is to stand dissolved without being wound up. In contrast, the interest of the shareholders of FTIL in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, plain and unambiguous. Normally, in such a situation, the courts are bound to give effect to the meaning, irrespective of the consequences. This is not to say that the petitioners have established any draconian consequences. On one hand, the petitioners suggest that there is no possibility of NSEL being adjudged liable to the investors. The petitioners also suggest that there are sufficient assets already attached to satisfy decrees against defaulters. On the other hand, the petitioners, expressed apprehensions of draconian consequences on the premise that liability may be foisted on NSEL for making good the amount of over Rs. 5600 crores to the investors. The statutory construction of a provision which is clear, plain and unambiguous cannot sway on the basis of such inconsistent apprehensions. 189] In Principles of Statutory Interpretations (Justice G. P. Singh, Thirteen Edition) there is reference made to the Sussex Peerage case (1844) 11 CL & F 85 in the following form: "If the words of the statute are in themselves precise and unambiguous, then no more can be necessary than to expound those words in their natural and ordinary sense. The words themselves do alone in such c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there is any serious diminution of the interests of the shareholders in or their rights against the company, as a result of the impugned order. Mere reference to putative liability of NSEL is hardly sufficient. Besides, this reference to putative liability has to be balanced with reference to the repeated assertion by FTIL, NSEL and even the major shareholders of FTIL like Jignesh Shah (46% stake in FTIL) or Ravi Sheth and Bharat Sheth (5.34% and 2.76% stake in FTIL) that, in reality, there is no problem at NSEL; that NSEL, in terms of its byelaws and rules can never be held liable; that in any case decrees in an amount of Rs. 1233.02 crores have already been secured; that total value of properties of the defaulters attached is in the range of Rs. 6,329.63 crores and there are injunctions restraining the defaulters from dealing with their property valued at Rs. 4400.10 crores. In fact, Jignesh Shah, who holds the maximum stake in FTIL, in his written submissions, states that 'the claims of the 'investors' are more than adequately secured......' 193] This means that major shareholders holding almost 52% stake in FTIL see no reasonable possibility of FTIL being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is not possible to even hold that any case of serious erosion in economic value of the shares, has at all been made out. It is necessary to note that by 21st October 2014 when the draft order of amalgamation was made available to the companies, the news of collapse of NSEL's Exchange was already in public domain. By that time, FMC's fit and proper order dated 17th December 2013, was also in the public domain. Therefore, to suggest that the fall in the price of the FTIL shares between 21st October 2014 to 31st October 2014 was solely attributable to the proposed action under Section 396 and to claim compensation on such basis, is unacceptable. 197] The impugned order does not take away rights or interests of FTIL. It also does not take away rights or interests of the shareholders of FTIL. FTIL, having held 99.9998% shares in NSEL was entitled to and did exercise all the statutory rights as a shareholder. As a result of the impugned order, the shares held by FTIL in NSEL stand extinguished and instead, the entire business and undertaking of the NSEL vests in FTIL. The rights and interests of FTIL, or for that matter, the shareholders of FTIL cannot, under such circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the issue of derivative immunity. 201] Therefore, upon cumulative consideration of the aforesaid, we are unable to accept the contention that the Central Government was dis-entitled in law or on facts to order the compulsory amalgamation of allegedly loss making wholly owned subsidiary (NSEL) with its profit making holding company (FTIL) in public interest by resort to Section 396. ISSUE -C (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 ? 202] The contention that the Central Government, in this case, has failed to even make an assessment order as contemplated by Section 396(3) was raised mainly by Mr. Seervai on behalf of SHAFT. In the rejoinder though, Mr. Salve and Mr. Mookherjee also made submissions to the similar effect. In the written submissions on behalf of FTIL and Jignesh Shah at the stage of rejoinder it was urged that there would be erosion in the value of shares of FTIL due to the impugned amalgamation in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the written submissions that the assessment order dated 1st April 2015 be set aside or in the alternative, the prescribed authority be directed to award appropriate compensation to the petitioners after granting them a hearing. There was reference to Chamber Summons No.204 of 2016, which was possibly a chamber summons seeking leave to amend the petition, at the stage when the final hearing in the matter had advanced substantially. 206] As noted earlier, Mr. Shah, the learned counsel for the petitioners however, handed in a preacipe on 21st March 2017 stating that Chamber Summons No. 204 of 2016 was not being pressed and all references to the said chamber summons in paragraphs 2,3,4,6, 20(b), 20(c), 21(ii) and 35 of the written submissions dated 8th March 2017 are omitted. This means that Writ Petition No. 2985 of 2014 contains no pleadings whatsoever in support of the ground now projected. 207] The pleadings in Writ Petition No. 1922 of 2016 instituted by the Association of Retail Shareholders of FTIL (SHAFT) do not even contain the ground that the impugned order is required to be set aside because the Central Government or the prescribed authority has failed to make any order a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, in the pleadings, such assessment order dated 1st April 2015 has been challenged by at least some of the petitioners and liberty to challenge has been applied by others on the ground that they are aggrieved by the same. Several challenges have been raised to the assessment order, including that such assessment order was made and notified in breach of our earlier order dated 4th February 2015, or that the assessment order was made in breach of principles of natural justice, or that the assessment order is vitiated by non-application of mind because valuation reports of experts were mechanically accepted and so on. 211] In this case, there is no dispute that the prescribed authority has made an assessment order dated 1st April 2015 determining that the value of NSEL's shares is Rs. 77/- per share on the basis that may not be liable for the default taken place on its exchange. In the present case, FTIL holds 99.9998% shares of NSEL, the balance being held by NAFED. Upon amalgamation, FTIL ceases to hold shares in NSEL which stands dissolved without being wound up, but the entire business and undertaking of NSEL stands vested in FTIL. NAFED, now stands allotted 38 shares in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owdhury (supra) the Supreme Court, after explaining the nature of a share and the consequent interest of a shareholder in a company had noted that the impugned Ordinance had not dispossessed the shareholder, in any sense of the term, of the shares held by him in the company. Nobody had taken away the shares from him. His legal and beneficial interest in respect of the shares he held was left intact. If the company declares dividends, he would be entitled to the same. He can sell or otherwise dispose of the shares at his option. Accordingly, the impugned Ordinance was held valid, even though, at the relevant time, Article 19(1)(f) was a part of the Constitution. In the present case, since the shares of the shareholders of FTIL have remained intact, there is no variation in the interests of the shareholders in FTIL or in their rights against FTIL. This is not a case of acquisition by offering no compensation or nil compensation. The observations in K.T. Plantation Private Limited (supra) cannot be read out of context, particularly, when the pleadings clearly establish that SHAFT has construed the assessment order to mean that no compensation is payable to the shareholders of FTIL bec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of limitation as prescribed therein. 217] The matter can be viewed from yet another perspective. In the context of Issue-B, we have already examined the scope of Section 396(3) and held that the interest of the shareholder referred to therein does not include the economic value of their shareholding or some right to earn profits through any capital appreciation of listed value of shares. Further, we have held that the question of assessment of compensation arises only where the shareholder's interest in or rights against the resultant company are not, as nearly as may be, the same as the shareholder's interest in or rights against the original company. We have also held that in so far as the shareholders of FTIL are concerned there is no diminution in their interest in or rights against the resultant company as compared to their interest in or rights against the original company. 218] This means that even on merits, there is no infirmity in the assessment order dated 1st April 2015 to the extent, it denies compensation to the shareholders of FTIL. The same is the position of the creditors of FTIL. There is nothing in the provisions of Section 396(3) which suggest that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en unit was hived off or quarantined, so that the other units of UTI remained healthy. They submit that since the Central Government has not adopted similar approach in the present situation, there is hostile and invidious discrimination involved. Submissions were also made to the effect that some other group of companies (which were not named), who had borrowed heavily from public sector banks and financial institutions but had failed to honour their commitments, were let off by the Central Government or its agencies by according them the status of non performing assets (NPAs). Since, in the present case, drastic action of compulsory amalgamation has been taken, there is hostile and invidious discrimination involved. 222] We see no merit in any of the aforesaid contentions. There is nothing in either the text or the context of Section 396 to suggest that the same can be invoked only in respect of government companies. Even assuming that the provisions of Section 396 have been invoked for the first time to amalgamate two non government companies, such a circumstance neither vitiates the exercise of such power nor can the same be struck down as involving any hostile or invidious di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons had been granted to thirty two vessels and denial of permission to the respondents, (International Trading Company) vessel amounted to breach of guarantee of equality in Article 14 of the Constitution of India. The Supreme Court, held that even if it is accepted that there were any permissions improperly granted, that might render those permissions vulnerable, but such improper permissions cannot come to the aid of the respondents. The Supreme Court held that two wrongs do not make one right. A party cannot claim that since some thing wrong has been done in another case directions should be given for doing another wrong. It would not be setting a wrong right, but would be perpetuating another wrong. In such matters there is no discrimination involved. The concept of equal treatment on the logic of Article 14 of the Constitution cannot be pressed into service in such cases. What the concept of equal treatment presupposes is existence of similar legal foothold. It does not countenance, repetition of a wrong action to bring both wrongs on a par. Even if hypothetically it is accepted that a wrong has been committed in some other case by introducing a concept of negative equality th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such circular, there is no question of any of the petitioners insisting upon compliance with such procedures, when, Section 396, expressly excludes the application of such procedures where amalgamation is proposed in public interest. There is no question of any hostile or invidious discrimination involved in the non compliance of such procedures. 230] The circumstance that the circular dated 20th April 2011 proposes such procedures when it comes to amalgamation of two or more government companies or the circumstance that in the instances referred to by the petitioners such procedures may have been followed, does not, denude the Central Government from exercising powers under Section 396, without being bogged down by the cumbersome procedures prescribed in Sections 391 or 394 of the Companies Act, 1956. 231] In fact, Section 396 contains a non obstante clause in the context of application of Sections 394 and 395. Section 396, it must be noted, is undoubtedly a legislation to provide for amalgamation of two or more corporations in public interest. Article 31A (1)(c) of the Constitution provides that notwithstanding anything contained in Article 13, no law providing for the amalgam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation under the Drugs (Prices) Control Order 1995 , which was a delegated legislation. In this context, the Supreme Court, held that though the contents of a policy document cannot be read and interpreted as statutory provisions, at the same time, the Central Government which combines the dual role of policy maker and the delegate of legislative power, cannot at its sweet will and pleasure give a go by to policy guideline evolved by itself in the matter of selection of drugs for price control. The delegated legislations that follow the policy formulation should be broadly and substantially in conformity with that policy , otherwise it would be vulnerable to attack on the ground of arbitrariness resulting in violation of Article 14 of the Constitution. 235] In the present case, the Central Government was required to deal with an unprecedented situation which led to the collapse of the commodities stock exchange. None of the petitioners have placed any material on record to even remotely suggest that the previous instances of amalgamations by resort to Section 396 where in circumstances even remotely comparable to the facts and circumstances of the present case. The circular dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation to the Court or Tribunal under Section 391 or otherwise, there was no necessity of expressly excluding the application of Section 391 from the scheme of Section 396. In order to obviate any contention that the Central Government, in the exercise of its powers under Section 396, is nevertheless required to apply the same parameters as are prescribed to the courts or tribunals in Section 394, the legislature may have deemed it appropriate to provide for a non obstante clause to override the effect of Sections 394 and 395. 239] Besides, if the provision in Section 396 is analyzed, it is apparent it represents a complete Code in so far as amalgamation of two or more companies by the Central Government in public interest, is concerned. Therefore, on the basis of circular dated 20th April 2011, it is not possible to read into Section 396 the provisions of Section 391. 240] Since, the petitioners have failed to establish 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1955 to submit that in all such matters the guiding star must be "national interest" and not merely "public interest". This submission cannot be accepted for several reasons. 246] Firstly, when the words of a statute are clear, plain and unambiguous the courts are bound to give effect to that meaning. In such a situation there is no question of adopting any other hypothetical construction on the ground that such construction is more consistent with the alleged object or policy of the statute. The primary rule of construction is that the intention of the legislature must be found in the words used by the legislature itself. (See Kanailal Sur vs. Paramnidhi Sadhu Khan) AIR 1957 SC 907 247] Secondly, even if we were to advert to the notes on clauses, all that they state is that the amendment in Section 396 to substitute the expression "national interest" with "public interest" is of a "drafting nature". Now if this is so, it is legitimate to proceed on the basis that at least the draftsman who prepared the notes on clauses noticed no difference or distinction between the two expressions. If Mr. Mookherjee and Mr. Dwarkadas subscribe to this line, then, obviously, the circumstance th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel mainly rely upon Notes on Clauses to the 1959 Bill which states that the amendment to substitute "national interest" with "public interest" in Section 396 is of a "drafting nature" , there is no reason to accept their contention that nevertheless there is some distinction between the two expressions in the context of Section 396. If at all, there is any distinction between the two expressions, then, the circumstance that the Parliament, in terms, has chosen to amend Section 396 so as to substitute the expression "national interest" with "public interest", will have to be respected and not ignored. 254] In fact, even the decision of the Gujarat High Court in Wood Polymer Limited (supra) relied on by Mr. Mookherjee expressly states that the expression "public interest" is sometimes used as an expression inter-changeable for the national interest. This is a term very often used in contradistinction to "private interest" or "personal interest". It is 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 (vide Black'sDictionary, 4th edition, p. 1393). The word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whatsoever involved in ordering amalgamation of NSEL with FTIL ? 258] In order to evaluate the petitioners contentions, we need to first analyse the scope and import of the expression public interest employed in Section 396. 259] In Bihar Public Service Commission vs. Saiyed Hussain Abbas Rizwi (2012) 13 SCC 61, para 22, the Supreme Court has held that the expression "public interest" has to be understood in its true connotation so as to give complete meaning to the relevant provisions of the Act. The expression "public interest" must be viewed in its strict sense with all its exception so as to justify denial of as statutory exemption in terms of the Act. In its common parlance, the expression "public interest" , like "public purpose" , is not capable of any precise definition. It does not have a rigid meaning, is elastic and takes colour from the Statute in which it occurs, the concept varying with time and state of society and its needs. Thus what is 'public interest' today, may not be so considered a decade later. In any case, the expression cannot be considered in vacuo but must be decided on the facts and circumstances. (State of Bihar v. Kameshwar Singh) AIR 1952 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concept of "public interest" takes its own colour in providing its own inherent yardstick by reference to the context in which it is used the expression is used, the Statute in which it is used and purpose sought to be achieved by the use of the expression. 263] Wood Polymer (supra) refers to the recommendations of Vivian Bose Commission (enquiry into affairs of companies controlled by Dalmia and Jains). It is in pursuance of these recommendations that Section 394 (1) was introduced in Companies Act, 1956 requiring the Court which is called upon to sanction the amalgamation of two or more companies, to ensure that the scheme is not contrary to the "public interest". The Vivian Bose Commission, which was constituted to enquire into and the on the report of certain companies owned by Dalmia and Jains and two others and especially about the irregularities, fraud or breaches of trust or action in disregard of honest commercial practices and breaches of provisions of Companies Act. The terms of reference required the Commission to suggest action, which could be taken to prevent such situation in future, so that, there is due and proper administration of funds and assets of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that the provision for such scheme of amalgamation was utilised for the object of defeating tax. The Court which is charged with the duty, before it finally permits dissolution of the transferor-company without winding up, to ascertain whether its affairs have been carried not only in a manner not prejudicial to its members, but also to "public interest". The expression "public interest" must therefore, take its colour and content from the context in which it is used and if proposed amalgamation is not in "public interest", the Court has power to refuse to sanction the scheme. 266] In the Guide to Companies Act by A. Ramaiya, 17th Edition 2010, various facets of the expression public interest have been discussed. E.Pendleton Herring, in Public Administration and the Public Interest is quoted to define the expression as 'an elusive abstraction' meaning general social welfare or 'regard for social good' and predicating 'interest of the general public in matters where regard for social good is of the first moment'. To be meaningful, it must relate to the good life of those with reference to whom it is used. In the words of Justice Felix Frankfurter of the Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c interest means general welfare of the public that warrants recognition and protection; something in which the public as a whole has a stake. This expression has to take colour from the statute in which it occurs. In the precise context of amalgamation under the Companies Act, 1956, this expression would mean 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. The expression can never be narrowly construed to restrict the same to the interest of shareholders or employees only, but, the interest of the society as a whole may have to be examined as held by the Supreme Court in Hindustan Lever Employees Union (supra). Similarly, in determining the import of such expression in the context of amalgamation of companies, sole attention cannot be confined to the interest of creditors or members of the companies in question. The interest of other important consumers of industry-cum-commercial service can never be ignored. The expression public interest constitutes a positive check on unhindered exercise of private right whether by management or by stockholders. Where public interest is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken on a commodities exchange. 273] In response to show cause notices issued by FMC (SEBI), NSEL, on 10th July 2013, i.e., hardly 21 days prior to NSEL bringing its operations to a grinding halt , painted a picture that there was nothing amiss. NSEL , through Jignesh Shah and other key personnel presented that there were 120 warehouses full of stocks valued at Rs. 6000 crores, margin amount and settlement guarantee fund is in place and that over the last four years 99% of the trade had resulted in delivery on daily basis. NSEL, however, failed to furnish the undertakings in terms demanded by FMC. Further, on 31st July 2013, despite presenting a picture hardly 21 days earlier that nothing was amiss, brought the operations on the exchange to a grinding halt. 274] As on 31st July 2013, the commodity sellers defaulted on their outstanding payment obligations to the trading clients to the extent of almost Rs. 5600 crores. NSEL, relying upon some clause in its bye-laws refused to honour any counter guarantee. Neither was there any sufficient amount in form of margin nor in the settlement guarantee fund. Above all, there were hardly any commodities in the warehouses owned and controlled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L and also the Head of the Audit Committee of NSEL. As per the accounting standards, the balance sheets and other accounts of NSEL were required to be and were routinely placed before the Board of FTIL. 277] There is material to indicate that both NSEL and FTIL had common key personnel. There is material to indicate that software for the operations at the NSEL Exchange had in fact been provided by FTIL. The FTIL, loaned an amount of Rs. 179 crores or thereabouts to NSEL to enable NSEL to at least settle the investors with claims upto Rs. 2 lakhs. The FTIL, in the course of these proceedings has filed an affidavit to state that it has, till date, infused an amount of Rs. 109 Lakhs in NSEL towards working capital and to assist NSEL in recovery proceedings against defaulters. The affidavit states that FTIL has committed further amount of Rs. 50 crores per year for the next 3 years. There is material on record that from July 2013, at NSEL there is hardly any commercial activity or returns. NSEL is confronted with several litigations and the strength of its employees which was 193 in July 2013 has come down to 33 by July 2014. On basis of all such objective facts, if the Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple, the Central Government is barred from adding or supplementing reasons by way of affidavits ? (G)(ii) Whether the impugned order stands vitiated because there is no material whatsoever on record in support of the aforesaid solitary ground or reason ? 280] Upon careful perusal and analysis of the impugned order, we are unable to accept Mr. Chinoy's submission that the impugned order is based upon a solitary ground or reason. Rather, we agree with the submission of Mr. Khambatta that the same is based on at least three 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 consolidating the businesses of NSEL and FTIL; (b) Giving effect to business realities of the case by consolidating the businesses of FTIL and NSEL and preventing FTIL from distancing itself from NSEL, which is, even otherwise, its alter ego; and (c) Facilitating NSEL in recovering dues from defaulters by pooling human and financial resources of FTIL and NSEL. 281] It is true that the aforesaid three grounds or reasons may not have been stated in se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per order dated 17th December 2013 and extracts from FMC's proposal as reflected in the said order may have been referred to in the impugned order, it is clear that FMC's fit and proper order was not the reason/basis for the Government's decision that it was essential in public interest to merge NSEL with FTIL. This contention is paraphrased in the written note submitted by Mr.Chinoy on 23rd October 2017. 284] The aforesaid contention, coming as it does from NSEL, is in direct conflict with the averment in NSEL's affidavit dated 15th April 2016 sworn by Santosh Dhuri, which reads thus: "10. It is submitted that the bedrock of the impugned draft order is a proposal dated 18 August 2014 sent by Forward Markets Commission ("FMC"), to the Central Government thereby asking Central Government to invoke section 396 for amalgamation of NSEL with FTIL. It is submitted that said FMC's proposal itself based on erroneous and nonappreciation of facts which were not laid out before the Central Government in its right and correct perspective and which in our opinion misled the Central Government in passing the impugned draft order. It is submitted that the Central Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loaned an amount of Rs. 179.26 crores by FTIL for distribution to the small investors, who, suffered losses by trading the platform and spot exchange of NSEL. There is material on record that NSEL, after it closed the operations at the spot exchange on 31st July 2013 had assured the investors/traders that revised settlement calender would be announced after 15 days period. On 14th August 2013, NSEL, informed FMC that it would calculate the net obligation of the members and proposed a settlement plan extending over 30 weeks. Again, this assurance was made subject to realisation of funds from the concerned members. NSEL, however, defaulted on its own settlement plan from the 1st week itself. As of 22nd September 2014, NSEL, could disburse only an amount of Rs. 541.69 crores as against net obligations of over Rs. 5600 crores. 289] The FMC, in its proposal submitted to the Central Government in 2014, had clearly stated that despite FMC support, NSEL, was unable to effect any significant recoveries from the defaulters. Even the settlement plan proposed by NSEL failed to take off and no substantial payments were made to the investors. The FMC stated that NSEL, despite having the respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal hearing in these petitions had considerably advanced, FTIL, tendered an affidavit dated 4th July 2017 to place on record its resolution dated 28th March 2016 to infuse a sum up to Rs. 50 crores for each of the financial years, i.e., FY 2016-17 to FY 2018-19, to support NSEL to recover dues from defaulters ; to defend various legal cases ; to continue taking necessary legal actions against various parties to recover amounts from defaulters; and for working capital. The affidavit states that such resolution was passed and such finances are proposed to be infused at the request of NSEL. 294] The affidavit dated 4th July 2017 also confirms that the activities of NSEL have come to a grinding halt, though, the affidavit purports to blame the FMC for such a situation. The affidavit also states that up to now FTIL has infused approximately Rs. 109 crores with NSEL, mainly to prosecute and defend legal proceedings. There is reference to NSEL having obtained decrees worth more than Rs. 1200 crores and injunctions against assets of defaulters valued at Rs. 5444.31 crores. The affidavit further states that FTIL is committed to funding NSEL for purposes of recovery from defaulters since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, such opportunity, was not availed. 298] In the present case, we are unable to accept Mr. Chinoy's contention that the impugned order could never have been made by any reasonable man or authority on the ground that the amalgamation would facilitate NSEL in recovering dues from defaulters by pooling human and financial resources of FTIL and NSEL and that such a reason is extraneous. 299] In Ion Exchange (India) Limited 2002 (1) Mh.L.J. 411, the learned Single Judge of this Court Dr. D.Y. Chandrachud, J. (as His Lordship then was), has held that the pooling of human, material and financial resources between a holding company and its loss making wholly owned subsidiary cannot be regarded as an extraneous or an irrelevant factor in their amalgamation. Viewed in the context of business realities, this is a permissible object and nothing militates against public interest or commercial morality. No doubt, that was a case involving consensual amalgamation between a holding company and its loss making wholly owned subsidiary. However, the observations therein answer the contention that pooling of human material and financial resources between a holding company and its loss mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Whether the impugned order can be said to be unreasonable, applying Wednesbury principles ? 302] Initially, almost all the learned counsel for the parties relied on Barium Chemicals Ltd. (supra) accepting that the tests set out therein are the most appropriate when it comes to review of administrative action based upon subjective satisfaction. However, at the stage of rejoinder they sought to make a distinction between 'opinion cases' and 'satisfaction cases', by suggesting that the test in the later is more intense. They submit that in 'satisfaction cases', the authority must be satisfied to the hilt that the proposed action is almost imperative and therefore, the authority, must eliminate all other options to deal with the situation. They rely on Peerless General Finance and Investment Co. Ltd. (supra) in support of this contention. 303] At the stage of rejoinder, some of the learned counsel for the petitioners also attempted to distinguish Barium Chemicals Ltd. (supra), by pointing out that in Barium Chemicals Ltd. (supra), the Supreme Court was concerned with Section 237(b), which merely required the Central Government for form an 'opinion' th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rium Chemicals Ltd. (supra), Vinod Kumar (supra) and Rohtas Industries (supra), the Supreme Court has set out the parameters of judicial review in cases where the order is based on subjective satisfaction of the authority. It is held that the opinion or satisfaction recorded in the order may not normally be challenged on the grounds of propriety or sufficiency. However, this does not mean that the Court exercising judicial review is precluded from examining whether or not the subjective satisfaction was based on any objective facts. This means that the existence of circumstances or the objective facts is open to judicial review though, sufficiency or propriety thereof may not be. Even if certain objective facts are found to exists, if on the basis of such facts, no sensible person could have legitimately formed or arrived at such a satisfaction, then, the Court will strike down such a decision in the exercise of judicial review. Further, the Courts exercising judicial review are also entitled to examine whether the record of subjective satisfaction is vitiated by mala fide correction, abuse of power, non-application of mind or perversity. Subjective satisfaction also stand vitiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a member of both, the Board, as well as the Audit Committee, of the NSEL and was shown as one of the key management personnel of NSEL for the period from Financial Year 2005-06 to 2011-12. (FMC Order - Petition - Vol. III - Ex.J/Pg. 804 at Pgs. 827, Pgs. 847-848 and 871] Each of the minutes of the Board meetings of NSEL were regularly tabled at the Board meetings of FTIL. Thus, FTIL had full knowledge of the unsatisfactory affairs of NSEL. [Petition - Para 2.11 (v)/Pg. 97S] As a wholly - owned subsidiary, NSEL is completely under the control of FTIL, including financial control over the affairs of NSEL. [Petition - Para 2.11 (vi)/Pg.97S-T] 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 Affidavit in Rejoinder to Respondent No.4 dated 23rd September, 2016 - Vol.30, Para 35/Pg.3030] Human Resources services were undertaken in common by the FTIL Group for FTIL, MCX and NSEL. (FTIL Affidavit in Rejoinder to Respondent No.4 dated 23rd September, 2016 -Vol. 30, Pg. 3031/Para 38] FTIL's finance team was running the finances of NSEL and members of FTIL's Finance and Accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its exchange would create a "huge crises and chaos". (R1 Comp - Part I- Para 4(b)/Pg.148] In July 2013 a payment crisis of approximately Rs. 5,600 crores arose on NSEL. [Petition - Vol. I - Ex.A - Pg. 97P] FTIL has admitted that this was a result of a fraud, but alleges that this was "a fraud at the Warehouse level" which "went undetected" (Item 15 Note (a) - FTIL LoD]" 309] In the course of rejoinder, Mr. Salve and Mr. Mookherjee submitted a counter chart, not to seriously dispute any of the objective facts stated by Mr. Khambata but to submit that at least some of the circumstances referred to by Mr. Khambata, find no reference in the impugned order. On this basis, the Mohinder Singh Gill principle was pressed into service to urge that such objective facts cannot be relied upon to sustain the impugned order. 310] The counter chart submitted in the course of rejoinder contains some glaring inaccuracies. That apart the counter chart and the submission based thereon proceed upon misinterpretation or at least a very pedantic construction of the impugned order. In order to some how or the other attract the Mohinder Singh Gill principle, it is impermissible to read or construe the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position is even otherwise borne out from the other material on record. 314] There is no dispute that FTIL owns 99.9998% of NSEL's shares. There is material in the form of FTIL Annual reports itself which establishes that the FTIL, through the Board of Directors of NSEL constituted by it, possesses effective control over its subsidiary i.e. NSEL. In the FTIL, Annual Report 2013, FTIL itself held out NSEL's exchange as a part of its "exchange verticals". Again, there is no dispute that Jignesh Shah, founder and promoter of FTIL, directly/indirectly holds and control over 45% of its shares. There is also no dispute that he served as Vice-Chairman through on the Board of NSEL, as Chairman-cum-Managing Director of FTIL and as the Founder-Chairman and Group CEO of FTIL. There is material on record which establishes that Jignesh Shah was a member of both, the Board, as well as the Audit Committee, of the NSEL and was shown as one of the key management personnel of NSEL for the period from Financial Year 2005-06 to 2011-12. There is material on record which establishes that each of the minutes of the Board meetings of NSEL were regularly tabled at the Board meetings of FTIL. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o investors involved in paired contracts. There is material in the form of e-mails in which NSEL instructed its own Business Development Team not to officially commit to fixed returns but to communicate the daily trade rates and returns telephonically or from their personal email ids. Neither FTIL nor NSEL has really denied all this. No doubt, the facts are sought to interpreted differently. Suffice to note that such presentation or e-mails are a matter of record. 318] The Grant Thornton report points out that by April - July 2013, 99% of the turnover of NSEL was made up of such paired contracts. There is material which establishes that in monetary terms, this translates to a turn over of Rs. 1,34,000 crores. The mechanism of paired contracts virtually converted the operation at the NSEL exchange from a commodities exchange, which it was meant to be , to a platform for engaging in financing transactions, which it was never meant to be. The mechanism of paired contracts at least prima facie , was in breach of the conditions of the exemption notification dated 5th June 2007. The mechanism of paired contracts, at least prima facie , was in breach of provisions of FCRA. 319] The NSEL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed upon objective facts for which, there is, more than prima facie proof. 322] There is yet another facet of judicial review when the impugned decision is based on subjective satisfaction. Such decision can be set aside where it is found that the decision maker has acted unreasonably. This is usually determined applying the Wednesbury principle. 323] In R. vs. Secretary of State for the Environment Ex p. Nottinghamshire CC (1986) AC 240 at 249, Lord Scarman explained that "Wednesbury principle" is a convenient legal shorthand used by lawyers to refer to the classical review by Lord Greene MR in the Wednesbury Corporation (supra), in which the Courts will intervene to quash as being illegal, exercise of administrative discretion. 324] Lord Greene MR, expounded the principle as follows: "It is true that discretion must be exercised reasonably. Now what does that mean ? Lawyers familiar with the phraseology used in relation to exercise of statutory discretion often use the word 'unreasonable' in a rather comprehensive sense. It has frequently been used and is frequently used as a general description of the things that must not be done. For instance, a person entrusted wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be authorised to do. It distinguishes between proper use and improper abuse of power. It is often expressed by saying that the decision is unlawful if it is one to which no reasonable authority could have come. This is essence of what is most commonly called 'Wednesbury unreasonableness'. 328] The principle is not understood in any different manner in India. In fact, G. B. Mahajan (supra), the Supreme Court pointed out the distinction between the test of reasonableness in administrative law and law of Torts. By reference to observations in "Legal Control of Government" (Bernard Schwartz and H.W.R. Wade at page 253), it was held that in law of Torts, the Judge merely enforces what he thinks is reasonable. But in condemning unreasonable administrative action, the Judge must ask himself whether the decision is one which a reasonable body could have reached. In other words, he allows some latitude for the range of difference opinion which may fall within the bounds of reasonableness. The "reasonableness" as contemplated in administrative law must, therefore, distinguish between proper use and improper abuse of power. The test in such matters, is not the Courts own standard of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been excluded from consideration. Therefore, merely enumerating several factors and styling the same as relevant or irrelevant is not sufficient to apply the Wednesbury test and interfere with the impugned decision. 331] Then again, we have to be conscious that we are exercising powers of judicial review and not exercising any appellate jurisdiction in the matter. In exercise of such a jurisdiction, we have to strike a critical balance between the vigilance expected of us when restrictions are imposed on fundamental rights or statutory rights and the restraint expected of us when the statutory authorities, having due regard to relevant considerations and disregarding irrelevancies, reach a subjective satisfaction on the basis of the objective facts before them in order to give effect to the legislative provision. Then, normally, we would not be inclined to judicially review the decision, unless, the decision is so absurd that no reasonable person who had applied his mind to the question to be decided, could have ever arrived at it. In this jurisdiction we are more concerned with the decision making process than the decision itself. In this jurisdiction, we do not substitute o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e trading platform of its subsidiary for illicit gains, which were kept away from the eyes of regulator. The impugned order notes that by misinterpreting the conditions of exemption notification and in collusion with handful of members, massive fraud involving Rs. 5500 crores has taken place, which has the potential effect of eroding trust and confidence in exchanges and financial markets. The impugned order states that amalgamation of the two companies is necessary to build confidence in the system. 334] The reference to "fraud involving Rs. 5500 crores" is to be read in the context. The reference is not to be construed as determination of any such fraud by the Central Government. The phrase, obviously refers to the undisputed fact that the trading client with dues of over Rs. 5500 crores remained to be paid by the defaulting commodity sellers and further, notwithstanding the positive assertions and representations held out by NSEL through Jignesh Shah that there was inventory valued at Rs. 6000 crores in the warehouses or that there was settlement guarantee fund of Rs. 738.55 crores, ultimately, there were neither any commodities to effect deliveries nor was there an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by all intents and purposes the way in which the both companies were managed, owned and controlled, NSEL was nothing but the alter ego of FTIL and the two companies were practically a single entity. It is pointed out that even all the stakeholders look to both as one entity. The amalgamation order only formalizes this practical reality in public interest. 337] In the aforesaid regard, the impugned order itself makes reference to several objective facts, whether directly or indirectly. The impugned order notes that FTIL owns 99.9998% of the shareholding of the NSEL and the constitution of the Board of Directors of NSEL is entirely under the control of FTIL. The impugned order records that even factually it is the FTIL, through the Board of Directors of NSEL constituted by it, which possesses effective and absolute control over the functioning of NSEL. There is reference to regular tabling of NSEL Board Meeting Minutes at the Board Meetings of the FTIL. There is material in support ofdominant influence exerted by the Board of Directors of FTIL on the management of NSEL. There is reference to FTIL infusing Rs. 179.26 crores in NSEL to tide over minimum difficulties. The impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a mind capable of knowing and forming an intention-indeed it is much too late in the day to suggest the contrary. It can only know or form an intention through its human agents, but circumstances may be such that the knowledge of the agent must be imputed to the body corporate. 340] In Sunil Mittal (supra), the Supreme Court has also referred to the reiteration of the aforesaid principle by Lord Denning in Bolton (H.L.) (Engg.) Co. Ltd. v. T. J. Graham & Sons Ltd. (1957) 1 QB 159 : (1956) 3 WLR 804 : (1956) 3 All ER 624 (CA) in the following words : "A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are Directors and managers who represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control of its affairs. In such circumstances, it would be necessary to ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons. The position of law on this issue in Canada is almost the same. Mens rea is attributed to corporations on the principle of 'alter ego' of the company. 343] In Sunil Mittal (supra), the Supreme Court clarified that the position of law in India has been clearly stated by the Constitution Bench in Standard Chartered Bank vs. Directorate of Enforcement. (2005) 4 SCC 530 and on detailed consideration of entire body of case laws in this country as well as other jurisdictions, it has been observed as follows : '6. There is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the effect that corporations cannot commit a crime, the generally accepted modern rule is that except for such crimes as a corporation is held incapable of committing by reason of the fact that they involve personal malicious intent, a corporation may be subject to indictment or other criminal pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r at least three distinct and discernible reasons. The reasons are restoration, of confidence in exchanges, which are an integral and essential part of Indian economy and financial system. The confidence was required to be restoring in the wake of collapse of national level of commodities of exchange. One of the methods of restoring the confidence was to hold FTIL and NSEL to their representations repeatedly made and asserted. 347] The third reason or ground set out in the impugned order is that the same will facilitate NSEL in recovering dues from defaulters by using the human and financial resources of FTIL. In the context of discussion on issue 'G' and the contention of Mr. Chinoy for NSEL that the impugned order is based only on this ground or reason, we have pointed out that there is ample material on record in support of such reason or ground. We have also held that in the facts of the present case, such reason or ground cannot be said to be irrelevant or extraneous so as to suggest that no sensible person, instructed in law and on facts, could have ever regarded such a reason for making the impugned order. Suffice to note that the reason or ground is conceived in pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or not is a justiciable question to be decided, in the event of dispute, by a court exercising powers of judicial review. Irrationality refers to "Wednesbury unreasonableness". It applies to a decision which 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. Finally, procedural impropriety means the failure to observe basic rule of natural justice or to act with procedural fairness towards the person who will be affected by the decision. This will also cover the failure to observe procedural rule that are expressly laid down in the legislative instrument by which its jurisdiction is conferred. 351] In making the impugned order, the Central Government, has quite correctly appreciated the scope and import of the provisions of FCRA and the Companies Act. Thus, there is no question of any illegality involved in the making of the impugned order. 352] Applying the test of Wednesbury unreasonableness, there is no case made out to interfere with the impugned order. The Central Government, in this case, has taken into account relevant considerations, ignor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion any liability upon either NSEL or FTIL. This is also not a case where the Central Government has sought to apportion any liability of NSEL upon FTIL. Rather, the Central Government, in public interest, has chosen to amalgamate the two companies, thereby acknowledging their corporate veil. Besides, Mr. Khambata may not be entirely incorrect in his submission that the facts and circumstances of the present case may have justified the lifting of corporate veil. Accordingly, we are unable to fault the impugned order on the ground that the same involves lifting of corporate veil without existence of any circumstances warranting such lifting. 356] Most of the petitioners have contended that the Central Government in making the impugned order has placed excessive reliance on FMC's fit and proper order dated 17th December 2013 and this circumstance is indicative of surrender or abdication of discretion by the Central Government. Several decisions were cited to point out that adoption of such a course of action by the Central Government might amount to acting under dictation, thereby vitiating subjective satisfaction. In particular, strong reliance was placed on Anirudhsinhji Jadeg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it accepted the rating accorded to councils by the Commission for Social Care Inspection (CSCI) in respect of their social services performance. (Audit Commission for England and Wales vs. Ealing London Borough Council(2005) EWCA Civ 556). 359] In the facts of the present case, we find though the Central Government has referred to the FMC's order as one of the relevant materials, the emphasis on the FMC's order is not so excessive as to suggest any surrender or abdication of discretion or to attract the vice of acting under dictation. This is also not a case where the FMC's order is the sole basis for making the impugned order. In this regard, it is pertinent to note that there is no unity even amongst the petitioners like FTIL and Jignesh Shah on one hand and NSEL on the other as to the impact of FMC's order on the Central Government making the impugned order. Both, appear to have taken extreme positions, neither of which appear to us, to be correct. 360] FTIL and Jignesh Shah maintain that the Central Government has abdicated its discretion to that of FMC and has virtually acted under the dictation of FMC since according to them the impugned order lays excessive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be accepted. As noted earlier, this court, whilst issuing Rule in Writ Petition Nos. 337, 363 and 370 of 2014 challenging FMC's order, proceeded to reject interim relief by order dated 28th February 2014. The special leave petitions against the order dated 28th February 2014, were dismissed as withdrawn. In the order refusing interim relief, this court has noted that FMC has recorded elaborate and detailed findings of fact after considering the evidence on record. The order further notes that such findings have been recorded after compliance with principles of natural justice and the same disclose serious non compliances. No doubt, such observations are only prima facie. The petitioners have themselves contended that in a matter of this nature, it is not sufficient for the Central Government to merely allude to the circumstances but further, there should be at least prima facie proof with regard to such circumstances. 363] The material on record, however, indicates that NSEL, 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 noth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iple the court will see that the legislature and the administrative authority 'maintain a proper balance between the adverse effects which the legislation or the administrative order may have on the rights, liberties or interests of persons keeping in mind the purpose which they were intended to serve.' The legislature and the administrative authority, are, however, given an area of discretion or a range of choices but as to whether the choice made infringes the rights excessively or not is for the court. That is what meant by proportionality. 367] In the context of Article 14 of the Constitution and administrative action, Om Kumar (supra) explains the position by reference to the classification test and the arbitrariness test. If, under Article 14 of the Constitution, administrative action is to be struck down as discriminatory applying the classification test, then, it is a case of primary review and the test of proportionality will apply in matters of judicial review. However, if under Article 14 of the Constitution, administrative action is to be struck down as arbitrary, as explained in E.P. Royappa (supra), it is a case of secondary review and the test of Wednesbury ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion action called in question. The administrative authority, while exercising discretionary power will have to necessarily establish that its decision is balanced and in proportion to the object of the power conferred. The test of proportionality is therefore concerned with the way in which the decision maker has ordered his priorities i.e. the attribution of relative importance to the factors in the case. Thus, it is not much the correctness of the dispute that is called into question, but the method to reach the same. 372] In Modern Dental College (supra), the Supreme Court quotes Aharon Barak (former Chief Justice, Supreme Court of Israel), when he says that there are four sub components of proportionality which need to be satisfied to sustain the restriction imposed. They are as follows: (i) it is designated for a proper purpose; (ii) the measures undertaken to effectuate such a limitation are rationally connected to the fulfillment of that purpose; (iii) the measures undertaken are necessary in that there are no alternative measures that may similarly achieve that same purpose with a lesser degree of limitation; and finally (iv) there needs to be a proper relation ("prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the submission that the impugned order may not achieve the stated purpose. Considering the magnitude of the crisis, there is nothing unreasonable if the regulatory authorities propose to tackle the situation by initiating series of actions. The combined effect of these actions may yield results even assuming that actions considered in isolation, may not. The measures taken, in the present case, were necessary and even the petitioners did not suggest any alternative measures that might have achieved the same purpose, with lesser degree of limitation. Mr. Zubin Behramkamdin, who appeared for the employees of FTIL came closest to suggesting some alternative measure. In his notes of arguments, Mr. Behramkamdin suggested that if a dedicated bench were to be constituted by this court to take up matters concerning the NSEL Spot Exchange, then, there may have been no necessity to make the impugned order amalgamating NSEL with FTIL. Such contention is only required to be noted to be rejected. If, the impugned order has the additional effect of 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the legal regime under which they were governed. The impugned order also addresses the issue of holding the promoters of such exchanges to account for the repeated and solemn representations held out by them both, at the stage of securing exemptions and thereafter, in the operation of the exchange itself. All these are relevant factors, which, in the present case, have gone into the decision making process and consequently the decision itself. Thus construed, we are unable to detect any dis-proportionality in the impugned order. 379] The petitioners choose to assess the impact or the so-called restrictions, almost entirely from their own limited perspective and not from the perspective of public interest. No doubt, even the interests of the companies in question, their shareholders, creditors and employees are relevant. However, the petitioners, choose to regard such interests as the only interests which the Central Government was expected to focus on. This is obviously not the correct perspective expected of the Central Government, which has to necessarily focus on public interest. The concept of public interest, specially in the context of amalgamation of companies includes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso the manner in which the entire operations at a national level stock exchange came to be subverted. Even before this Court, none of the petitioners or shareholders even suggested any serious options or range of options, which were open to the Central Government to adopt in a situation of this nature. In such circumstances, it is really not possible to interfere with the impugned order, applying the test of proportionality. 381] In this case, there is material on record that NSEL established the commodities spot exchange on basis of representations that the same would provide a platform for farmers and other traders to sell their produce to buyers without intervention of middlemen or agents in an efficient and transparent manner. NSEL represented that there would be no forward trading and NSEL would counter guarantee performance of contracts at the exchange. NSEL was permitted to establish the exchange by exempting its operations from the regulatory regime established by FCRA subject to the condition that 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 exchang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... areas, stock exchanges are self regulators. As self regulatory organizations, stock exchanges have a frontline responsibility for regulation of their markets and for controlling compliance by members of rules to which they are subject. They ensure in that capacity, compliance of the requirements established the statutory regulator. Apart from the regulation of members, market surveillance carried on by stock exchanges in certain jurisdictions regulates issuers. They do so by ensuring that the stocks of issuers are reliably traded and that issuers meet standards of corporate governance. In exercising these powers, stock exchanges may face issues involving a conflict of interest. Such conflicts of interest have to be handled and addressed effectively within the regulatory framework. Stock exchanges as institutional mechanisms have an important role to play in ensuring the stability of the financial and economic system. 386] The Division Bench notes that the orderly functioning of 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 transpa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The observations in the two decisions regards the importance of exchanges to the economic health of the country, apply with full vigor to commodities exchange, particularly, a national level commodities exchange having turnover of thousands of crores. 389] The conduct of the affairs of stock 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 Rs. 1,34,000 crores between the years 2009 to 2013. 390] If exchanges such as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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