In Black's Law
Dictionary, Public Interest is defined as Something in which
the public, the community at large, has some pecuniary interest, or some
interest by which their legal rights or liabilities are affected. It does not
mean anything so narrow as mere curiosity, or as the interests of the particular
localities, which may be affected by the matters in question. As far as
our Companies Act, 2013 (Act) is concerned, it has received statutory
recognition in sections 62(4), 129, 210,221, 233(5) and 237 in the Act. The
Company law recognizes the fact that interest of public policy shall be given
precedence despite the approval of the management and stakeholders.
1. Setting Aside Merger Order In Public Interest
Case :- 63 Moons Technologies Ltd. (formerly known as Financial Technologies
India Ltd.) vs. Union of India & Ors. Civil Appeal No. 4476 OF 2019Background
National Spot Exchange Ltd (NSEL), then 99.99% subsidiary of Financial
Technologies India Ltd (FTIL) had shut down its operation after payment default
and was ordered not to enter into any fresh contracts by Forward Market
Commission which has been integrated into the Securities and Exchange Board of
India (SEBI). After the crisis, the Ministry of Corporate Affairs (MCA) on
February 12, 2016 had directed merger of two entities National Spot Exchange
Ltd. (NSEL) and 63 moons technologies Ltd. (formerly known as Financial
Technologies India Ltd.) (Company) exercising the power conferred by Section
396 of erstwhile Companies Act, 1956. The order of MCA was challenged by the
Company which was dismissed by the Bombay High Court. The Company challenged the
order of the Bombay High Court in Supreme Court. The Apex Court provided its
judgment on April 30, 2019.
The extract of Sec. 396 is as under:- (Emphasis provided)
396. Power of Central Government to provide for amalgamation of companies in
- Where the Central Government is satisfied that it is essential in the
public interest that two or more companies should amalgamate, then,
notwithstanding anything contained in Sections 394 and 395 but subject to
the provisions of this section, the Central Government may, by order
notified in the Official Gazette, provide for the amalgamation of those
companies into a single company with such constitution; with such property,
powers, (4) No order shall be made under this section, unless:
(a) a copy of the proposed order has been sent in draft to each of the companies
concerned; (aa) the time for preferring an appeal under sub-section (3A) has
expired, or where any such appeal has been preferred, the appeal has been
finally disposed of; and
(b) the Central Government has considered, and made such modifications, if any,
in the draft order as may seem to it desirable in the light of any suggestions
and objections which may be received by it from any such company within such
period as the Central Government may fix in that behalf, not being less than two
months from the date on which the copy aforesaid is received by that company, or
from any class of shareholders therein, or from any creditors or any class of
Observation by Apex Court
- The conditions precedent to pass an order by the Central Government
under Section 396 of the Companies Act, 1956 must first be satisfied before
the Section can be said to operate. First and foremost, the Central
Government has to be satisfied, meaning thereby, that it must, on certain
objective facts, come to a conclusion that amalgamation between two or more
companies is necessary. This can only be done if the Central Government
finds it essential, i.e., necessary to do so. Also, this can only be done in
- The pre-requisite of Section 396 is that the Central Government must
apply its mind when compulsorily amalgamating two or more companies in the
public interest. Public interest is an expression which is wide and
amorphous and takes colour from the context in which it is used. However, like the
expression public purpose, what is important to be noted is that public
interest is the general interest of the community, as distinguished from the
private interest of an individual.
- The Central Government order does not apply its mind to the essentiality
aspect of Section 396 at all. In fact, in several places, it refers to
essential public interest as if essential goes with public interest instead
of being a separate and distinct condition precedent to the exercise of
power under Section 396. On facts, therefore, it is clear that the
essentiality test, which is the condition precedent to the applicable to
Section 396, cannot be said to have been satisfied.
- The expression public interest would mean the welfare of the public or
the interest of society as a whole, as contrasted with the selfish interest of
a group of private individuals. Thus, public interest may have regard to the
interest of production of goods or services essential to the nation so that they
may contribute to the nation’s welfare and progress, and in so doing, may also
provide much needed employment.
- The Apex Court in its judgement1 had observed that In particular, it is
urged that where the rules are of a general nature and are subordinate
legislation the satisfaction of the condition precedent becomes a part of
the legislative process so far as the subordinate authority is concerned...
Additionally the Apex Court took a view that There is no doubt that where a
statute requires that certain delegated power may be exercised on fulfilment of certain conditions precedent, it is most desirable that the
exercise should be prefaced with a recital showing that the condition had been
fulfilled. But it has been held in a number of cases dealing with executive
orders that even if there is some lacuna of this kind, the order does not become
ab initio invalid and the defect can be made good by filing an affidavit later
on to show that the condition precedent was satisfied.
- It shall be further noted that, the principle of interpretation of the
provision shall be construed according to the intent for which it is made.
If the language employed in the legislation is clear and plain the same must
be given effect to however if the provision are not precise or variable the
rule of strict grammatical interpretation shall cease to understand the real
- Additionally, the concept of Public Interest in relation to Company
would take the Company outside the realms of being concerned only in
relation to shareholders. The High Court of Orissa2 in its supra further
stated.... It emphasises the idea of the company functioning for the public
good or general welfare of the community at any rate not in a manner
detrimental to the public good.
2. Rejection of Scheme of Amalgamation In Public Interest
Case: Wiki Kids Ltd.(Appellant 1) and Avantel Ltd. (Appellant 2) v. Regional
Director, South East Region and Others Company Appeal (AT) No.285 of 2017
Facts of Wiki Kids Ltd and Avantel Ltd. v/s. Regional Director, South
- The Appeal was preferred by Appellant 1 and Appellant 2 against the
order of NCLT, Hyderabad wherein the scheme of amalgamation was rejected by
- Appellant 1 (Unlisted Company) and Appellant 2 (Listed Company) was
controlled by common promoters. The rationale of the scheme of amalgamation
was that is that Amalgamation will enable Appellant 2 to diversity into
high growth and profitable areas of business without any gestation. The
Appellants had obtained consent from shareholders and creditors. The share
exchange ratio has been computed by an expert independent chartered
accountant in accordance with the settled principles of valuation and law.
- The Appellant cited judgements3 wherein it was held that the company
court’s jurisdiction to that extent is peripheral and supervisory and not
appellate. Further, the Appellant placed reliance on judgement4 wherein it
was observed that the basic principle of such satisfaction is none other
than the broad and general principles inherent in any compromise or
settlement entered between parties that it should not be unfair or contrary
to public policy or unconscionable.
Synopsis of Judgement
- The Tribunal observed that, the Appellant 1 is not commence its
commercial production/operation, whereas the rationale of the scheme states
improved cash flows, increased net worth, better credit rating,
strengthening the value of all the stakeholders, optimising and ever growing existing
resources and infrastructure of Appellant 2.
- Pursuant to the share exchange ratio the shares allotted to the
shareholders of Appellant 1 are nothing but common promoters and the
financial benefit is only flowing to few common promoters and public
interest is not being served as envisaged in the scheme. Further it was
observed that, the scheme of amalgamation did not have list of shareholders,
name of directors of both companies and disclosure of shares allocated to
common promoters in absence of vital information stakeholders would not take
a well informed decision whether to approve or reject scheme.
- The Tribunal buttress on the observation of the Valuation Report wherein
it was observed that Appellant 1 did not prepare profit and loss account
till financial year 2015-16 as the Appellant 1 was developing an e-platform
and ready for commercial launch. It is clear that Appellant 1 did not
generate revenue till the said financial year.
Questions under consideration
- Despite of reported judgements in relation to role of Courts in
amalgamation can scheme be rejected by Tribunal?
- It shall be noted that every judgment is distinguished basis the
facts of the case. In a case if it is evident that the scheme is not fair
and evasive it would be prudent to consider the case on standalone basis.
Mumbai in its order5 had rejected the Scheme of arrangement citing the scheme
designed purely scheme appears to be framed also for the purpose of evading the
duly payable stamp-duty and to deny the shareholders at various levels their
legitimate right of a proper valuation of the intrinsic share value along with
goodwill. It was further observed by the Tribunal that the scheme is unfair and
unreasonable and is in violation of many provisions of various laws and does not
even stands to logic and further contrary to Public Interest.
To conclude Public interest has very wide expression and comprehends that there
should be economic welfare of the community at large. In this regard, Indian law
enjoins the duty on the judiciary to examine objectively and carefully if any
arrangements are not violative of public interest.
- The Swadeshi Cotton Mills Co. vs The State Of U. P. And Others (on 17
March, 1961) 1961 AIR 1381, 1962 SCR (1) 422
- N.R.Murty vs Industrial Development Corporation Of Orissa Ltd. And Others on
7 January, 1977
- Miheer H Mafatlal v. Mafatlal Industries Ltd.  23 CLA 1 (SC)/ 1
- Hindustan Lever Employees Union v. Hindustan Lever Ltd.  15 CLA 318
(SC)/ Supp (1) SCC 499
- UFO Moviez India Limited and PJSA Technosoft Private Limited C.P.
(CAA)/1920/MB/2018 order dated 12th February, 2019.