Jaykaycem (Central) Limited Vs J.K. Cement Limited (NCLT Allahabad)
Summary: The National Company Law Tribunal, Allahabad Bench, in In re Jaykaycem (Central) Limited with J.K. Cement Limited, CA (CAA) No. 01/ALD/2022, passed an order on 31 January 2022 allowing a first-stage application relating to the proposed amalgamation of Jaykaycem (Central) Limited, the transferor company, with J.K. Cement Limited, the transferee company. The application was filed under Sections 230(1) and 232(1) of the Companies Act, 2013, read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The principal issues were whether meetings of the transferor company’s equity shareholders and unsecured creditors could be dispensed with on the strength of their consent affidavits and whether the transferee company, being the holding company of the wholly owned subsidiary, needed to file a separate application or petition for sanction of the scheme. The Tribunal granted procedural dispensations while directing statutory notices and a subsequent confirmation petition. The order did not constitute final sanction of the amalgamation.
Jaykaycem (Central) Limited was a wholly owned subsidiary of J.K. Cement Limited, and the proposed Scheme of Amalgamation carried an appointed date of 1 April 2021. The transferor company was unlisted and had one class of shareholders, namely equity shareholders, and one class of creditors, namely unsecured creditors. The applicant informed the Tribunal that all its equity shareholders had already considered and consented to the proposed scheme through affidavits filed with the application. In addition, unsecured creditors representing 95.80% of the total value of unsecured creditors had furnished consent affidavits. It was expressly represented that the scheme did not alter the value or terms of the creditors’ claims and did not involve any compromise or arrangement with them. On this basis, the transferor company requested dispensation of the statutory meetings.
The applicant further submitted that the scheme would not affect the shareholders or creditors of J.K. Cement Limited. Since the transferor was already a 100% subsidiary, no shares were proposed to be issued by the transferee company, and no reorganisation or restructuring of the transferee company’s share capital was contemplated. The amalgamation would not change the control or management of J.K. Cement Limited. The applicant also asserted that the combined assets of the two companies were sufficient to meet their liabilities. Consequently, it argued that there was no compromise or arrangement between the transferee company and its shareholders, creditors or other classes of persons within the meaning of Sections 230 and 232, making a separate application or petition by the transferee company unnecessary.
In support of the transferee-company dispensation, the applicant relied upon the NCLT Allahabad Bench’s earlier order dated 8 January 2021 in In re Hobbits International Foods P. Ltd. & Another, Company Application No. 273/ALD/2020. The applicant sought directions dispensing with meetings of its equity shareholders and unsecured creditors, dispensing with proceedings by the transferee company, and permitting the transferor company to proceed with a confirmation petition under Section 230(6) read with Section 232(3) for final sanction of the scheme.
After considering the application, documents and submissions, the Tribunal allowed the first motion application. It dispensed with the meetings of the transferor company’s equity shareholders and unsecured creditors because all equity shareholders and unsecured creditors representing 95.80% in value had already consented to the scheme. The Tribunal also directed that J.K. Cement Limited was not required to file a separate petition for sanction of the scheme because no compromise or arrangement was proposed between the transferee company and any class of its shareholders or creditors. The distinction between the two companies was material: the transferor remained responsible for pursuing the prescribed statutory procedure, whereas a separate sanction petition by the transferee was dispensed with.
The Tribunal directed the applicant to serve notice under Section 230(5), along with the proposed scheme and accompanying documents, upon the Regional Director, Northern Region, Ministry of Corporate Affairs; the Registrar of Companies, Uttar Pradesh; the Official Liquidator; the jurisdictional Income Tax Department; and any applicable sectoral regulators or authorities. Notices were to be sent within three weeks of receipt of the order, in Form CAA-3 prescribed under Rule 8(2) of the 2016 Rules. The authorities were allowed 30 days from receipt of notice to submit representations, failing which they would be presumed to have none. The applicant was also directed to file an affidavit proving service within two weeks of dispatching notices and its confirmation petition within three weeks from the date of the order.
The application was accordingly disposed of with procedural directions. The significance of the order lies in the Tribunal’s acceptance of consent-based dispensation of meetings in a wholly owned subsidiary amalgamation and its recognition that a separate petition from the transferee company may be unnecessary where no compromise or arrangement with its stakeholders is involved. The order must, however, be distinguished from final approval of the merger, since the applicant was expressly required to file a further confirmation petition for sanction of the scheme. A later TaxGuru-reported NCLT decision discussing the Jaykaycem precedent illustrates its subsequent citation in similar amalgamation proceedings.
Cases Discussed
1. In re Hobbits International Foods P. Ltd. & Another, Company Application No. 273/ALD/2020, order dated 08.01.2021 (NCLT Allahabad Bench) — Relied upon by the applicant for the proposition that, in a proposed amalgamation involving a wholly owned subsidiary and its holding company, a separate application and sanction petition by the transferee company may be dispensed with where the scheme involves no compromise or arrangement between the transferee company and its shareholders or creditors. The present Tribunal granted the requested dispensation. No verified direct TaxGuru judgment URL for this precedent was identified.
FULL TEXT OF THE ORIGINAL ORDER OF NCLT ALLAHABAD
1. The instant application has been filed in the first stage of the proceedings under Section 230(1) read with Section 232(1) of the Companies Act, 2013 (“Act”) for orders and directions with regard to meetings of shareholders and creditors in connection with the Scheme of Amalgamation of Jaykaycem (Central) Limited, being the Applicant Company abovenamed (“Transferor Company”) with J.K. Cement Limited (“Transferee Company”). The Appointed Date of the Scheme has been fixed as 1st April 2021.
2. Ld. Counsel appearing for the Applicant/Transferor Company submits as follows:-
(a) The Applicant/Transferor Company is a wholly owned (100%) subsidiary of the Transferee Company.
(b) The Applicant/Transferor Company is an unlisted Companies having (a) only one class of shareholders, viz Equity Shareholders and (b) one class of creditors, viz Unsecured Creditors
(c) The Scheme embodies the arrangement between the Applicant/Transferor Company and its shareholders. In so far as such shareholders are concerned, the Applicant/Transferor Company has already filed the consent affidavits of all its shareholders along with the application and sought dispensation of their meeting accordingly.
(d) In so far as the creditors of the Applicant/Transferor Company are concerned, no change in value or terms or any compromise or arrangement is proposed under the Scheme with any of the creditors of the Applicant/Transferor Company. However, the Applicant/ Transferor Company, has in any event obtained and filed with the application consent affidavits of 95.80% in value of the Unsecured Creditors of the Applicant/Transferor Company and sought dispensation of their meetings accordingly.
(e) Insofar as the Transferee Company is concerned, the Applicant/ Transferor Company submits that there is no compromise or arrangement whatsoever between the Transferee Company and its shareholders or creditors or any other classes of persons within the meaning of Sections 230 or 232 of the Companies Act, 2013. The Transferor Company is a wholly owned (100%) subsidiary of the Transferee Company itself and no shares whatsoever are to be issued by the Transferee Company in terms of the Scheme. The Scheme thus does not involve any reorganisation or restructuring of the capital of the Transferee Company. By virtue of the Scheme, there will be no change in control and management of the Transferee Company. The aggregate assets of the Transferor Company and the Transferee Company are also more than sufficient to meet all their liabilities. The rights of the shareholders and creditors of the Transferee Company are thus not affected in any manner whatsoever by the Scheme.
(f) Since there is no compromise or arrangement whatsoever between the Transferee Company and any classes of persons within the meaning of Sections 230 or 232 of the Companies Act, 2013, the Applicant/Transferor Company submits that no application or proceedings for sanction of the Scheme under the said Sections or any other provisions of the Companies Act, 2013 are required to be taken by the Transferee Company. In this regard, the Applicant/Transferor Company also relies upon an order dated 8th January 2021 passed by this Tribunal in Company Application No.273/ALD/2020 (In Re: Hobbits International Foods P Ltd &Anr.) and submits that this Tribunal may be pleased to direct that filing of application and petition by the Transferee Company under Sections 230 and 232 of the Companies Act, 2013 in relation to the Scheme is not required.
3. Accordingly, on the basis of the application, orders and directions are sought for –
(a) dispensing with meetings of the Equity Shareholders and Unsecured Creditors of the Applicant/Transferor Company;
(b) convening and holding of meetings of shareholders and creditors of the Transferee Company and filing of application and petition by the Transferee Company for sanction of the Scheme is not required;
(c) a direction for filing of confirmation petition by the Applicant/Transferor Company under Section 230(6) read with Section 232(3) of the said Act for obtaining sanction of this Tribunal to the Scheme;
4. Upon perusing the records and documents in the instant proceedings and considering the submissions made on behalf of the Applicant/Transferor Company, we allow the instant application and make the following orders:-
(a) Meetings of the Equity Shareholders and Unsecured Creditors of the Applicant/Transferor Company under Section 230(1) read with Section 232(1) of the Companies Act, 2013 are dispensed with, in view of all such Equity Shareholders and 95.80% in value of the Unsecured Creditors of the Applicant/Transferor Company having already considered and given their consent to the Scheme.
(b) It is directed that the Transferee Company is not required to file any petition for sanction of the Scheme as there is no compromise or arrangement whatsoever between the Transferee Company and any classes of persons within the meaning of Sections 230 or 232 of the Companies Act, 2013;
5. Notice under Section 230(5) of the Companies Act, 2013 along with all accompanying documents, including a copy of the aforesaid Scheme and statement under the provisions of the Companies Act, 2013 shall be served on the Regional Director, Northern Region, Ministry of Corporate Affairs, New Delhi; Registrar of Companies, Uttar Pradesh, Kanpur; Official Liquidator, High Court, Allahabad; Income Tax Department having jurisdiction over the Applicant/ Transferor Company clearing indicating the PAN of the company concerned, and other sectoral regulators or authorities, if any by sending the same by hand delivery through special messenger or by post or by email within three weeks from the date of receiving this order. The notice shall specify that representation, if any, should be filed before this Tribunal within 30 days from the date of receipt of the notice with a copy of such representation being simultaneously sent to the Advocate of the said Applicant/Transferor Company. If no such representation is received by the Tribunal within such period, it shall be presumed that such authorities have no representation to make on the said Scheme of Amalgamation. Such notice shall be sent pursuant to Section 230(5) of the Companies Act, 2013 read with Rule 8(2) of the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 in Form No. CAA3 of the said Rules with necessary variations, incorporating the directions herein.
6. The Applicant/Transferor Company to file an affidavit proving service of notices, as aforesaid, within a period of two weeks from the date of dispatch thereof.
7. The Applicant/Transferor Company shall file its confirmation petition for sanction of the Scheme under Section 230(6) read with Section 232(3) of the said Act within three weeks from the date of this order.
8. The Company Application being CA (CAA) No.01/ALD/2022 is disposed of accordingly.
