Jatinder Singh Ahuja & Others Vs Tata Steel Limited & Others (NCLAT New Delhi)
Summary: The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, examined three connected appeals challenging the approval of the composite scheme of amalgamation involving Bamnipal Steel Limited, Tata Steel BSL Limited and Tata Steel Limited. The appeals arose from the order dated 29 October 2021 passed by the National Company Law Tribunal (NCLT), Mumbai Bench, sanctioning the amalgamation. Company Appeal (AT) No. 132 of 2021 was preferred by 17 public shareholders of Tata Steel BSL Limited, while Company Appeal (AT) Nos. 150 and 151 of 2021 concerned objections raised by unsecured creditors. The appellants questioned the legality and fairness of the approved scheme on several grounds, including the valuation methodology, the proposed share-exchange ratio, the treatment of minority shareholders, the rights of unsecured creditors and compliance with the statutory procedure under the Companies Act, 2013. The central issue before the NCLAT was whether the appellants possessed the requisite legal standing to challenge the scheme and whether the NCLT’s sanctioning order warranted appellate interference.
The background of the dispute was Tata Steel’s acquisition of Bhushan Steel Limited through the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. Bhushan Steel was admitted into the insolvency resolution process on 26 July 2017, and the resolution plan submitted by Tata Steel was approved on 15 May 2018. Subsequently, Bamnipal Steel Limited, a subsidiary of Tata Steel Limited, acquired 72.65% of Bhushan Steel’s equity share capital on 18 May 2018. Bhushan Steel was thereafter renamed Tata Steel BSL Limited on 27 November 2018. The composite scheme proposed the amalgamation of Bamnipal Steel Limited and Tata Steel BSL Limited into Tata Steel Limited, resulting in the dissolution of the transferor companies without winding up. The scheme prescribed an exchange ratio under which shareholders of Tata Steel BSL would receive one fully paid-up equity share of Tata Steel Limited, having a face value of ₹10, for every 15 equity shares of Tata Steel BSL, each having a face value of ₹2. The appointed date under the scheme was 1 April 2019, and the exchange ratio became a major source of disagreement among dissenting shareholders.
The shareholder appellants contended that the exchange ratio of 15:1 was unfair, unreasonable and prejudicial to minority shareholders of Tata Steel BSL Limited. They argued that the valuation did not adequately reflect the company’s financial performance, earnings potential, business prospects and value following its acquisition through the insolvency resolution process. Particular objections were raised against the adoption of the market approach to valuation instead of the income approach. The appellants referred to the relative earnings of Tata Steel Limited and Tata Steel BSL Limited and submitted that an earnings-based comparison would have produced a more favourable exchange ratio. They also questioned the reliance on a valuation report prepared considerably earlier than the final approval of the scheme and raised objections concerning the appointed date, disclosure of the Regional Director’s reports and the absence of a reasonable exit opportunity for dissenting shareholders. According to the appellants, the approved arrangement effectively compelled minority shareholders to accept an exchange ratio that did not properly reflect the value of their investments, thereby raising concerns about fairness and minority shareholder protection.
The unsecured-creditor appellants raised distinct objections concerning the procedure adopted for approval of the amalgamation. R&S Engineering Services claimed outstanding dues of ₹4,16,19,292, while Tapas Kumar Malla claimed ₹16,00,810, taking their combined claims to ₹4,32,20,102. They submitted that the NCLT had dispensed with meetings of unsecured creditors without obtaining the consent affidavits contemplated under Section 230(9) of the Companies Act, 2013. According to them, the statutory provisions governing the convening of creditor meetings, obtaining approval and dispensing with meetings had not been properly followed. They relied on Sections 230(1), 230(6) and 230(9), contending that unsecured creditors were entitled to appropriate procedural safeguards before the scheme could be sanctioned. The appellants further argued that their outstanding claims required protection and that the amalgamation should not adversely affect their prospects of recovery. They therefore sought interference with the NCLT’s approval order and appropriate directions concerning the security or protection of their unpaid dues.
The respondent companies opposed the appeals and maintained that the scheme had been approved after compliance with the applicable statutory requirements. They challenged the locus standi of the appellants, submitting that neither the shareholder appellants nor the unsecured-creditor appellants satisfied the minimum eligibility thresholds prescribed under the proviso to Section 230(4) of the Companies Act, 2013. The respondents stated that notices had been issued pursuant to the NCLT’s directions and that the concerned creditors were afforded opportunities to submit their representations and objections. They also emphasised the overwhelming approval received from shareholders, including 99.33% of the equity shareholders and 90.93% of the public shareholders of Tata Steel BSL Limited, together with a combined approval figure of 99.99% for the public and equity shareholders of Tata Steel Limited. The respondents further referred to the steps taken after sanction of the scheme, including stock-exchange intimations, fixing of the record date, issuance of shares and filing of the sanctioned arrangement with the Registrar of Companies. They maintained that the scheme was fair, reasonable, commercially justified and not contrary to statutory provisions or public policy.
The NCLAT examined the legal framework governing compromises, arrangements and amalgamations under Chapter XV of the Companies Act, 2013, particularly Sections 230, 231 and 232. The Tribunal identified several issues arising from the appeals, including the appellants’ locus standi, the correctness of the valuation methodology, the fairness of the 15:1 share-exchange ratio, the appointed date and compliance with statutory requirements. It considered the provisions relating to meetings of creditors and members, the approval of schemes by the prescribed majority, the rights of dissenting stakeholders and the powers of the Tribunal when sanctioning an arrangement. The NCLAT also examined the factual circumstances surrounding the amalgamation, including the acquisition of Bhushan Steel through the insolvency resolution process, the subsequent corporate restructuring and the approvals obtained for the scheme. The Tribunal considered the distinction between objections concerning the commercial merits of a scheme and the statutory entitlement of shareholders or creditors to challenge that scheme before the adjudicating authority.
On the preliminary question of maintainability, the NCLAT found that the 17 shareholder appellants collectively held approximately 0.0699% of the paid-up share capital of Tata Steel BSL Limited. This holding was substantially below the minimum 10% shareholding requirement prescribed under the proviso to Section 230(4) of the Companies Act, 2013 for raising objections to a compromise or arrangement. Similarly, the unsecured-creditor appellants did not establish that their outstanding claims represented at least 5% of the company’s total outstanding debt, as required under the same provision. The Tribunal held that the statutory thresholds governing objections were mandatory and that the appellants had failed to demonstrate the requisite standing to maintain their challenges. Having reached this conclusion, the NCLAT considered it unnecessary to undertake a detailed determination of the remaining issues concerning valuation methodology, the share-exchange ratio, the appointed date and other alleged deficiencies in the scheme. Thus, although the appellants had raised numerous substantive objections, the failure to satisfy the prescribed eligibility requirements proved decisive.
Accordingly, the NCLAT dismissed Company Appeal (AT) No. 132 of 2021 along with connected Company Appeal (AT) Nos. 150 and 151 of 2021, declining to interfere with the NCLT Mumbai Bench’s order dated 29 October 2021 approving the composite scheme of amalgamation. The Tribunal concluded that the shareholder appellants and unsecured-creditor appellants lacked the statutory standing necessary to maintain objections under Section 230(4) of the Companies Act, 2013. Consequently, the challenges concerning the 15:1 share-exchange ratio, the valuation of Tata Steel BSL Limited, the appointed date and the procedural treatment of unsecured creditors did not result in the setting aside of the sanctioned scheme. The appeals were dismissed without costs, and pending interlocutory applications were closed. The ruling underscores the significance of the statutory thresholds applicable to objections against schemes of compromise and arrangement and illustrates that the ability of minority shareholders and creditors to challenge an approved amalgamation is subject to the eligibility conditions expressly prescribed by the Companies Act, 2013.
Cases Discussed
- Mega Corporation Ltd., Company Appeal (AT) No. 04 of 2018
- MEL Windmills Private Limited v. Mineral Enterprises Ltd., Company Appeal (AT) No. 04 of 2019
- Mohit Agro Commodities Private Limited v. Gujarat Ambuja Exports Ltd., Company Appeal (AT) No. 59 of 2021
- DLF Phase IV Commercial Developers Limited & Ors., Company Appeal (AT) No. 180 of 2019
- Ghanshyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, 2021 SCC OnLine SC 313
- Hindustan Lever Employees Union v. Hindustan Lever Ltd., 1995 Supp (1) SCC 499
- Miheer H. Mafatlal v. Mafatlal Industries Ltd., (1997) 1 SCC 579
- Sesa Industries Ltd. v. Krishna H. Bajaj & Others, (2011) 3 SCC 218
- Ankit Mittal v. Ankita Pratisthan Ltd. & Ors., 2019 SCC OnLine NCLAT 847
