Patel Hydro Power Private Limited Vs NCLT Order (NCLAT Delhi)
Summary: The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, allowed the appeal filed by Patel Hydro Power Private Limited and other appellant companies against the order dated 15 November 2021 passed by the National Company Law Tribunal (NCLT), Mumbai Bench-IV, in C.A. (CAA)/37/MB-IV/2021, insofar as it imposed requirements concerning meetings and consents of shareholders and creditors. The appeal arose from a proposed Scheme of Merger by Absorption involving wholly-owned subsidiaries and their holding company, Patel Engineering Limited. The central dispute concerned whether the NCLT could require the transferee company to convene shareholder meetings, obtain consent affidavits representing 90% of its unsecured creditors and secure specific consents from parties that had initiated insolvency proceedings, notwithstanding the appellant’s contention that the Scheme did not adversely affect stakeholder rights.
The appellant companies had filed their scheme application under Sections 230 to 232 of the Companies Act, 2013, read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The proposed arrangement contemplated the merger by absorption of wholly-owned subsidiaries with Patel Engineering Limited, the transferee company. The NCLT had recorded that consent affidavits from secured creditors representing Rs. 1,881.81 crore had already been submitted. It nevertheless directed the transferee company to furnish equity shareholders’ consent affidavits or convene a meeting, issue notices to unsecured creditors and file consent affidavits representing at least 90% of their value. It also required specific consent from petitioners involved in seven pending proceedings under the Insolvency and Bankruptcy Code.
The appellants contended that these additional directions were unnecessary because the proposed amalgamation would not result in the issuance of new shares or any dilution of the existing shareholding of the transferee company. The transferor companies were wholly-owned subsidiaries, and the proposed transaction would not reorganise the share capital of the holding company. They maintained that the rights of shareholders and creditors would remain unaffected and that the transferee company would continue to exist after amalgamation. Accordingly, pending legal proceedings by or against the transferee company would continue, without diminishing its existing obligations.
A major objection concerned the NCLT’s direction requiring consent affidavits from unsecured creditors representing 90% in value. The appellants argued that Sections 230 to 232 did not mandate compulsory procurement of such affidavits in every scheme of amalgamation. They also challenged the direction requiring specific consent from the petitioners who had initiated insolvency proceedings, particularly where those proceedings had not yet been admitted. According to the appellants, there was no statutory requirement compelling a company to obtain 100% consent from creditors merely because they had filed insolvency applications.
The appellants additionally questioned the direction concerning a physical shareholders’ meeting. They referred to the Ministry of Corporate Affairs clarification dated 8 April 2021, dealing with the conduct of general meetings through video conferencing or other audio-visual means and electronic communication with members. Reliance was placed upon the NCLAT decisions in DLF Phase IV, Commercial Developers Limited and Others and Ambuja Cements Limited, which had considered the circumstances in which stakeholder meetings could be dispensed with in schemes involving wholly-owned subsidiaries.
The NCLAT examined Section 230 of the Companies Act, including its provisions concerning meetings, disclosure, notices and consent of creditors representing at least 90% in value. It also considered Section 232 governing mergers and amalgamations, along with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. The Appellate Tribunal emphasised that Section 232(1) uses the expression “may”, indicating that the Tribunal possesses discretion concerning the direction to convene meetings. Such discretion must be exercised judicially, having regard to the nature of the arrangement, its consequences for stakeholders and the protection of creditors’ interests.
In applying this principle, the NCLAT noted that the transferor companies were wholly-owned subsidiaries and that the proposed amalgamation would not require the issuance or allotment of shares as consideration. The rights of shareholders of the transferee company would therefore remain unaffected, and its share capital would not be reorganised. The Tribunal also considered the relevance of the MCA clarification concerning the mode of conducting meetings and issuing notices.
The Appellate Tribunal relied upon Mahaamba Investments Ltd. v. IDI Ltd., in which the Bombay High Court had considered a scheme where no new shares were being issued by the transferee company and the financial position of the companies protected creditors’ interests. In those circumstances, the High Court had held that a separate petition by the transferee company was unnecessary. Reference was also made to Eurokids India Pvt. Ltd., where the Bombay High Court had dispensed with separate scheme proceedings involving a wholly-owned subsidiary and its transferee holding company because the arrangement did not reorganise share capital or prejudice creditors.
Considering these authorities alongside Ambuja Cements Limited and DLF Phase IV, Commercial Developers Limited and Others, the NCLAT held that the relevant inquiry was whether the amalgamation altered the rights of shareholders or creditors, involved a compromise affecting their interests or otherwise required meetings for statutory compliance. The Tribunal recognised that the power to dispense with meetings was discretionary and depended upon the circumstances of the particular scheme. Where a merger involved a parent company and its wholly-owned subsidiary, with no fresh share issuance, no capital reorganisation and no adverse impact on stakeholder rights, dispensing with meetings could be justified.
On the facts, the NCLAT concluded that the proposed Scheme did not adversely affect the rights and liabilities of secured or unsecured creditors, no compromise was being offered to such creditors and the shareholders’ rights remained unchanged. Consequently, it held that obtaining consent affidavits from unsecured creditors representing 90% in value was not required in the circumstances of the case. The appeal was allowed, and the NCLT’s order was set aside to the extent of its directions concerning dispensation of meetings of equity shareholders and creditors. The judgment establishes that stakeholder meeting and consent requirements in amalgamation proceedings must be considered in light of the particular scheme and the actual effect on stakeholders, rather than treated as automatic requirements in every wholly-owned subsidiary merger.
Cases Discussed
1. DLF Phase IV, Commercial Developers Limited and Others — Company Appeal (AT) No. 180 of 2019 (NCLAT). Relied upon. The NCLAT had set aside directions requiring meetings of equity shareholders and secured and unsecured creditors in the circumstances of the scheme before it. The decision was considered in determining whether similar directions were warranted in the present wholly-owned subsidiary amalgamation.
2. Mahaamba Investments Ltd. v. IDI Ltd. — (2001) 105 Comp Cas 16; 2001 SCC OnLine Bom 1174 (Bombay High Court). Relied upon. The Bombay High Court held that a separate petition by the transferee company could be dispensed with where no new shares were issued, shareholders’ rights remained unaffected and the financial position of the companies protected creditors. The NCLAT reproduced the relevant observations while examining its discretion under Section 232.
3. Eurokids India Pvt. Ltd. — C.S.D. No. 911 of 2014; 19/12/2014 (Bombay High Court). Relied upon. The Bombay High Court had dispensed with separate scheme proceedings under Sections 391 and 394 of the Companies Act, 1956, where the transferor company was wholly owned by the transferee company, no fresh shares were issued and creditors’ rights were not adversely affected.
4. Ambuja Cements Limited — Company Appeal (AT) No. 19 of 2021; 06/04/2021; 2021 SCC OnLine NCLAT 117 (NCLAT). Relied upon. The NCLAT had dispensed with meetings of equity shareholders and secured and unsecured creditors in an amalgamation involving a wholly-owned subsidiary and its holding company and remanded the matter to the NCLT for further consideration. The present Tribunal applied the same underlying principles.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
1. Aggrieved by the Order dated 15.11.2021, passed by the NCLT (National Company Law Tribunal, Mumbai Bench-IV) in C.A. (CAA)/37/MB-IV/2021, M/s. Patel Hydro Power Private Limited and Ors. preferred this Appeal under Section 421 of the Companies Act, 2013 (hereinafter referred to as the ‘Act’).
2. Facts in brief, are that a Company Scheme Application was filed by the Appellant Companies under Section 230-232 of the Act read with Companies (Compromise, Arrangement and Amalgamation) Rules, 2016 (hereinafter referred to as the ‘Rules’), whereby and whereunder the Appellant Company sought dispensation of the meeting of the Equity Shareholders, Secured Creditors and Unsecured Creditors, in respect of the Scheme of merger by absorption Wholly Owned Subsidiary (‘Transferor Company’) with its holding Company namely M/s. Patel Engineering Ltd. (‘Transferee Company’) and their respective Shareholders (‘the Scheme’). The Transferor Appellant Company and the Transferee Appellant Company are collectively referred to as the ‘Appellant Companies’.
3. By the Impugned Order, NCLT has directed the Appellant Transferee Company as follows:-
“20. Further, the Consent Affidavits of the Secured Creditors of Rs.1881.81 crore of the Transferee Company have also been provided by the Transferee Company as detailed above. The condition of Consent Affidavit of the Secured Creditors has since been complied.
21. The Transferee Company has not submitted the list of Equity Shareholders and Unsecured Creditors. As far as the Meeting/Consent Affidavit of the Equity Shareholders of the Transferee Company are concerned, the Transferee Company will submit Consent Affidavits of the Equity Shareholders of the Transferee Company or hold the meeting of the Equity Shareholders before filing of the Company Petition. In case the Transferee Company choses for the meeting of the Equity Shareholders, the same may be held on 22nd December, 2021, Wednesday at 11.00 am at the registered office of the Transferee Company or at any convenient place in Mumbai. The Chairman/Managing Director of the Transferee Company will be the Chairperson of the meeting of the Equity Shareholders.
22. At least 30 (thirty) clear days before the aforesaid meeting of the Equity Shareholders of the Transferee Company be held as aforesaid, a notice convening the said meeting at the day, date and time aforesaid, together with copies of the Scheme and the Explanatory Statement required to be sent under Section 230(3) of the Companies Act, 2013 read with Rule 6 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, shall be sent by Registered Post-AD/Speed Post and e-mail to the Equity Shareholders of the Transferee Company whose email addresses are duly registered with the Transferee Company, addressed to each of the shareholders, at their last known e-mail addresses as per the records of the Transferee Company.
23. At least 30 (thirty) days before the aforesaid meeting of the Equity Shareholders of the Transferee Company to be held as aforesaid, an advertisement of notice convening the said meeting, indicating the day, date and time aforesaid be published once each in ‘Business Standard’ in English and ‘Navshakti’ in Marathi, both circulated at Mumbai, and stating that copies of the Scheme and the statement required to be furnished pursuant to Section 230 (3) of the Companies Act, 2013 can be obtained free of charge by emailing the Transferee Company.
24. Keeping in view of the fact and circumstances of the case, as 14 Transferor Companies are transferring into the Transferee Company and in the interest of the creditors of the Applicant Companies, this Bench directs the Transferee Company to issue Notice of Scheme to all its Unsecured Creditors by Registered Post-AD/Speed Post and by E-mail whose Email IDs are available with the Company and file Consent Affidavits of the Unsecured Creditors at least of the value of 90% at the time of filing of Company Petition.
25. Further, the Bench has observed that since there are 7 (seven) IBC proceedings pending against the Applicant Companies, the list of which has been filed by the Applicant Companies vide Additional Affidavit dated 11.06.2021 annexed as Annexure “C”, the Applicant Companies are directed to issue notice of Scheme by Registered Post-Ad/ Speed Post and Email upon the Petitioners who have filed the Insolvency Proceedings against the Applicant Companies and specific consents of these Petitioners of the IBC Proceedings is to be submitted at the time of filing of Company Petition.
26. The Applicant Companies to file affidavit of service and compliance within 10 working days after serving the notices to all the Regulatory Authorities as stated above and do report to this Tribunal that the directions regarding the issue of notices have been duly complied with.”
4. The Appellant had sought dispensation from the requirement of holding Equity Shareholders and Creditors Meetings of the 7th Appellant/Transferee Company from the Tribunal, as no new shares are being issued by the Transferee Appellant Company and the ‘Scheme’ would not result in dilution in shareholding of the Transferee Appellant Company.
5. Learned Counsel appearing for the Appellants contended that the approval of Members/Creditors was required only when there was any change in the rights. But when no change is proposed to Members/Creditors’ rights, the requirement of consent/approval could be done away with. He argued that NCLT had erred in directing the Transferee Appellant Company to compulsorily obtain 90% consent Affidavits from its Unsecured Creditors, while no such provisions are stipulated under Sections 230-232 of the Act, which mandates the Companies to compulsorily obtain the concerned Affidavit from its Creditors. It is also the case of the Appellants that NCLT ought not to have directed the Transferee Appellant Company to procure ‘consents’ from the Petitioners who have filed Insolvency Proceedings, which have not yet been admitted, against the Transferee Appellant Company when there is no such provision in the law that mandates procuring of 100% consent from the Creditors who have filed Insolvency Proceedings. Learned Counsel further contended that since the Transferee Company would continue to be in existence post amalgamation, any pending Legal Proceedings by or against the Transferee Appellant Company would continue, in the same manner and in the same extent and there would be no diminution of obligations of the Transferee Appellant Company. It is also their case that direction of NCLT to hold Physical Meeting for Shareholder is contrary to Ministry of Corporate Affairs (‘MCA’) clarification dated 08.04.2021, on manner and mode of issuance of Notice for conducting General Meetings which allows the listed Companies to conduct Meetings through VC or OAVM facilities and allows issuance of Notice to the Members for such Meetings by using only electronic means including registered email addresses of Members. The Learned Counsel placed reliance on the Judgement of this Tribunal in ‘DLF Phase IV, Commercial Developers Limited and Ors.’ in Company Appeal (AT) No. 180 of 2019 and also in ‘Ambuja Cements Limited’ Vs. — (2021) SCC OnLine NCLAT 117.
6. For better understanding of the case, it is relevant to reproduce the Sections 230 and 232 of the Companies Act, 2013 and also the relevant Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 are hereunder:-
‘Sec 230 Companies Act 2013
[(1) Where a compromise or arrangement is proposed—
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator 2[appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,] order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such a manner as the Tribunal directs.
Explanation.—For the purposes of this sub-section, arrangement includes a reorganization of the company’s share capital by the consolidation of shares of different classes or by the division of shares into share of different classes, or by both of those methods.
(2) The company or any other person, by whom an application is made under subsection (1), shall disclose to the Tribunal by affidavit—
(a) all material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company;
(b) reduction of share capital of the company, if any, included in the compromise or arrangement;
(c) any scheme of corporate debt restructuring consented to by not less than seventy-five per cent of the secured creditors in value, including—
(i) a creditor’s responsibility statement in the prescribed from;
(ii) safeguards for the protection of other secured and unsecured creditors;
(iii) report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board;
(iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and
(v) a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer.
(3) Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub-section (1), a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address registered with the company which shall be accompanied by a statement disclosing the details of the compromise or arrangement, a copy of the valuation report, if any, and explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and the debenture-holders and the effect of the compromise or arrangement on any material interests of the directors of the company or the debenture trustees, and such other matters as may be prescribed:
Provided that such notice and other documents shall also be placed on the website of the company, if any, and in case of a listed company, these documents shall be sent to the Securities and Exchange board and stock exchange where the securities of the companies are listed, for placing on their website and shall also be published in newspapers in such manner as may be prescribed:
Provided further that where the notice for the meeting is also issued by way of an advertisement, it shall indicate the time within which copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the registered office of the company.
(4) A notice under sub-section (3) shall provide that the persons to whom the notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of such notice:
Provided that any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent of the shareholding or having outstanding debt amounting to not less than five per cent of the total outstanding debt as per the latest audited financial statement.
(5) A notice under sub-section (3) along with all the documents in such form as may be prescribed shall also be sent to the Central Government, the income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the Registrar, the respective stock exchanges, the Official Liquidator, the competition commission of India established under sub-section (1) of section 7 of the Competition Act, 2002 (12 of 2003), if necessary, and such other sect oral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it will be presumed that they have no representations to make on the proposals.
(6) Where, at a meeting held in pursuance of sub-section (1), majority of persons representing three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the tribunal by an order, the same shall be binding on the company, all the creditor, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator 2[appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,] and the contributories of the company.
(7) An order made by the Tribunal under sub-section (6) shall provide for all or any of the following matters, namely:–
(a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable;
(b) the protection of any class of creditors;
(c) if the compromise or arrangement results in the variation of the shareholders’ rights, it shall be given effect to under the provisions section 48;
(d) if the compromise or arrangement is agreed to by the creditors under sub-section (6), any proceedings pending before the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) shall abate;
(e) such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement:
Provided that no compromise or arrangement shall be sanctioned by the tribunal unless a certificate by the company’s auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133.
(8) The order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order.
(9) The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.
(10) No compromise or arrangement in respect of any buy-back of securities under this section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of section 68.]
(11) Any compromise or arrangement may include takeover offer made in such manner as may be prescribed:
Provided that in case of listed companies, takeover offer shall be as per the regulations framed by the Securities and Exchange Board.
(12) An aggrieved party may make an application to the Tribunal in the event of any grievances with respect ot the takeover offer of companies other than listed companies in such manner as may be prescribed and the Tribunal may, on application, pass such order as it may deem fit.
Explanation.—For the removal of doubts, it is hereby declared that the provisions of section 66 shall not apply to the reduction of share capital effected in pursuance of the order of the Tribunal under this section.’
‘Section 232 – Merger and amalgamation of companies
1[(1) Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal—
(a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies: and
(b) that under the scheme, the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) is required to be transferred to another company (hereinafter referred to as the transferee company), or is proposed to be divided among and transferred to two or more companies, the Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of section 230 shall apply mutatis mutandis.
(2) Where an order has been made by the Tribunal under sub-section (1), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namely:–
(a) the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company:
(b) confirmation that a copy of the draft scheme has been filed with the Registrar;
(c) a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties;
(d) the report of the expert with regard to valuation, if any:
(e) a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme.
(3) The Tribunal, after satisfying itself that the procedure specified in sub sections (1) and (2) has been complied with, may, by order, sanction the compromise or arrangement or by a subsequent order.’
‘Companies (Compromises, Arrangements and Amalgamations) Rules, 2016
G.S.R.1134(E).— In exercise of the powers conferred by sub-sections (1) and (2) of section 469 read with sections 230 to 233 and sections 235 to 240 of the Companies Act, 2013 (18 of 2013), THE Central Government hereby makes the following rules, namely:-
1. Short Title and Commencement.—
(1) These rules may be called the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
(2) They shall come into force with effect from 15th December, 2016.
3. Application for order of a meeting.—
(1) An application under sub-section (1) of section 230 of the Act may be submitted in Form no. NCLT-1 (appended in the National Company Law Tribunal Rules, 2016) alongwith:-
(i) a notice of admission in Form No. NCLT-2 (appended in the National Company Law Tribunal Rules, 2016);
(ii) an affidavit in Form No. NCLT-6 (appended in the National Company Law Tribunal Rules, 2016);
(iii) a copy of scheme of compromise or arrangement, which should include disclosures as per sub-section (2) of section 230 of the Act; and
(iv) fee as prescribed in the Schedule of Fees.
(2) Where more than one company is involved in a scheme in relation to which an application under sub-rule (1) is being filed, such application may, at the discretion of such companies, be filed as a joint-application.
(3) Where the company is not the applicant, a copy of the notice of admission and of the affidavit shall be served on the company, or, where the company is being would up, on its liquidator, not less than fourteen days before the date fixed for the hearing of the notice of admission.
(4) The applicant shall also disclose to the Tribunal in the application under sub-rule (10, the basis on which each class of members or creditors has been identified for the purposes of approval of the scheme.
4. Disclosure in application made to the Tribunal for compromise or arrangement.—
Creditors Responsibility Statement. For purposes of sub-clause (c) of sub-section (2) of section 230 of the Act, the creditor’s responsibility statement in Form No. CAA. I shall be included in the scheme of corporate debt restructuring.
Explanation:- For the purpose of this rule, it is clarified that a scheme of corporate debt restructuring as referred to in clause (c) of sub-section (2) of section 230 of the Act shall mean a scheme that restructures or varies the debt obligations of a company towards its creditors.
5. Directions at hearing of the application.—
Upon hearing the application under sub-section (1) of section 230 of the Act, the Tribunal shall, unless it thinks fit for any reason to dismiss the application, give such directions as it may think necessary in respect of the following matters:-
(a) Determining the class or classes of creditors or of members whose meeting or meetings have to be held for considering the proposed compromise or arrangement; or dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-section (9) of section 230;
(b) fixing the time and place of the meeting or meetings;
(c) appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case may be and fixing the terms of his appointment including remuneration;
(d) fixing the quorum and the procedure to be followed at the meeting or meetings, including voting in person or by proxy or by postal ballot or by voting through electronic means;’
7. It is seen from the record that the Transferor Company being a Wholly Owned Subsidiary of the Applicant Transferee Company, no shares are required to be issued or allotted as consideration from the proposed amalgamation. The rights of the Shareholders of the Transferee Company are not affected as no new shares are being issued to the Shareholders of the Transferor Companies and the proposed Scheme does not involve any reorganization of the share capital. In a similar case, this Tribunal in ‘Ambuja Cements Limited’ (Supra) dispensed with the meeting of the Equity Shareholders, Secured and Unsecured Creditors of the Appellant Company and remanded the matter back to NCLT for further consideration. We also find force in the contention of the Learned Counsel for the Appellants that the manner and mode of issuance of Notice for conducting General Meetings issued by MCA vide circular dated 08.04.2021, is applicable.
8. This Tribunal in the matter of ‘DLF Phase IV, Commercial Developers Limited and Ors.’ (Supra) set aside the direction of NCLT for convening meetings of the Equity Shareholders, Secured and Unsecured Creditors. In ‘Mahaamba Investments Ltd.’ Vs. ‘IDI Ltd.’. The Hon’ble High Court of Bombay held as follows:-
“5. In the present case, having regard to the relevant clauses of the proposed scheme and particularly the provision whereby no new shares are sought to be issued to the members of the transferor company by the transferee company, the scheme will not affect the members of the transferee company. The creditors of the transferee company are not likely to be affected by the scheme in view of the financial position of the transferee company. In paragraphs 13 and 14 of the affidavit in support of the company application, the financial position of the transferor and transferee companies has been set out and which would show that in so far as the transferor company is concerned, it has an excess of assets over liabilities to the extent of Rs. 508 lakhs whereas in the case of the transferee company, there is an excess of assets over liabilities to the extent of Rs. 6,900 lakhs.
6. In the circumstances, the office objection is accordingly disposed of with the clarification that filing of a separate petition by the transferee company is not necessary, in the facts and circumstances of the present case.”
9. In ‘Eurokids India Pvt. Ltd.’ (C.S.D. No. 911 of 2014) dated 19.12.2014, the Hon’ble High Court of Bombay observed as hereunder:-
“The Applicant Company is Wholly Owned Subsidiary of the Transferee Company and there is no re-organization of share capital of the Transferee Company and no new shares are being issued by the Transferee Company as all shares will be cancelled as per Clause 5 of the Scheme and rights of creditors of Transferee Company are not affected as mention in para 19 of the Affidavit in support of Summons for Direction and also in view of observations made by this court in Mahaamba Investment Ltd vs. IDI Ltd. (2001) 105 Co cases page 16 to 18, the filing of separate Company Summons for Direction and Company Scheme Petition under Section 391 and 394 of the Companies Act, 1956 by Eurokids International Private Limited, the Transferee Company is dispensed with.”
(Emphasis Supplied)
10. It is seen that Section 232(1) of the Companies Act, 2013 uses the word ‘may’ which introduces an element of discretion to the Tribunal to be exercised in the interest of justice in appropriate situations. It is evident from the aforesaid citations that the High Courts have exercised this discretion dispensing with the requirement of convening the meetings, if the Bench is satisfied in all respects. Section 232 is a specific provision carved out by the Legislature when both conditions maintained in clauses (a) and (b) of sub-Section (1) of Section 232 are met. In the instant case the amalgamation sought for is between a Wholly Owned Subsidiary and the Holding Company. The point which needs to be noted is whether such an arrangement alters the rights of the Stakeholders of the Company; whether such an amalgamation has any bearing internally on Creditors/Members of both the Companies; whether not holding the subject meeting would amount to violation of any of the provisions of the Companies Act, 2013; whether the Tribunal can exercise their discretion when the ‘Transferor Company’ is a Wholly Owned Subsidiary of the ‘Transferee Company’ and financial position of the ‘Transferee Company’ is positive and the merger is not affecting the rights of the Shareholders or the Creditors.
11. The material on record establishes that the ‘Transferee Company’ is a Wholly Owned Subsidiary of the ‘Transferor Company’ and there is no issuance of any new shares and therefore there is no reorganization of share capital and consequently no arrangement wherein Shareholders have to compromise with Creditors of the ‘Transferor Company’.
12. To reiterate, we observe that the rights and liabilities of Secured and Unsecured Creditors were not getting affected in any manner by way of the proposed scheme as no new shares are being issued by the ‘Transferor Company’ and no compromise is offered to any Secured and Unsecured Creditors of the ‘Transferee Company’. Therefore, we are of the considered view that when the ‘Transferor and Transferee Company’ involve a parent Company and a Wholly Owned Subsidiary the meeting of Equity Shareholders, Secured Creditors and Unsecured Creditors can be dispensed with as the facts of this case substantiate that the rights of the Equity Shareholders of the ‘Transferee Company’ are not being affected. Therefore, we hold that obtaining 90% consent Affidavits from its unsecured Creditors is not required keeping in view the facts of the attendant case.
13. For all the aforenoted reasons we allow this Appeal and set aside the Order of NCLT with respect to directions regarding dispensation of meetings of Equity Shareholders and Creditors only.
