NCLT Chandigarh Dispenses with Shareholder and Creditor Meetings in Wholly Owned Subsidiary Amalgamation

Nirvaan Mining Private Limited Vs A.N.E. Industries Private Limited (NCLT Chandigarh)

Summary: The National Company Law Tribunal, Chandigarh Bench, considered a joint first motion application filed by Nirvaan Mining Private Limited, the Transferor Company, and A.N.E. Industries Private Limited, the Transferee Company, under SSections 230 and 232 of theof the Companies Act, 2013, seeking directions concerning their proposed Scheme of Amalgamation. Both companies had registered offices in Punjab, and the Transferor Company was a wholly owned subsidiary of the Transferee Company. The proposed appointed date was 1 April 2024. The companies’ respective boards had unanimously approved the Scheme on 20 January 2024, subject to Tribunal sanction. As the entire share capital of the Transferor Company was held by the Transferee Company and its nominee shareholder, the applicants submitted that no new shares would be issued and no valuation or share exchange ratio would be necessary.

The applicants sought dispensation of meetings of the Transferor Company’s equity shareholders and unsecured creditors, as well as the Transferee Company’s equity shareholders, secured creditors and unsecured creditors. The Transferor Company had two equity shareholders and two unsecured creditors, all of whom had provided consent affidavits, and no secured creditors. The Transferee Company had three equity shareholders who had consented, but consent affidavits had not been obtained from its 11 secured creditors and 169 unsecured creditors. The applicants argued that the Scheme involved no compromise or arrangement with the Transferee Company’s creditors, would not change its share capital or adversely affect stakeholder rights, and that its net worth exceeded ₹60.27 crore as of 30 September 2023.

Following the Tribunal’s direction dated 7 March 2024, the applicants filed a clarification on 19 March 2024, relying on earlier NCLT Allahabad decisions concerning amalgamation of wholly owned subsidiaries with holding companies. They also submitted statutory auditors’ certificates regarding compliance with accounting standards and stated that the Scheme did not envisage corporate debt restructuring.

The Tribunal dispensed with meetings of the Transferor Company’s equity shareholders and unsecured creditors and the Transferee Company’s equity shareholders, secured creditors and unsecured creditors. However, it directed the Transferee Company to serve individual notices on all secured and unsecured creditors, inviting objections or comments within 30 days, together with the Scheme and explanatory disclosures. Both companies were further directed to serve statutory notices in Form CAA-3 on specified governmental and regulatory authorities, allowing 30 days for representations. The first motion application was disposed of with these directions. The order concerns procedural dispensation and statutory notices at the first motion stage; it does not constitute final sanction of the amalgamation.

Cases Discussed

• In re Jaykaycem (Central) Limited and J.K. Cement Limited, Company Application CA (CAA) No. 01/ALD/2022 (NCLT, Allahabad Bench) — The applicants relied on this decision for the proposition that the transferee company in an amalgamation involving its wholly owned subsidiary need not separately seek sanction where there is no compromise or arrangement with its stakeholders.
• TNS Hotels and Resorts Pvt. Ltd. with Mirza International Ltd., Company Application CA (CAA) No. 21/ALD/2023 (NCLT, Allahabad Bench) — The applicants cited this decision concerning dispensation of shareholder and creditor meetings without creditor consent affidavits, accompanied by individual notices inviting creditor objections within 30 days.

FULL TEXT OF THE NCLT JUDGMENT/ORDER

1. This is a joint First Motion Application filed by Applicant Companies namely; Nirvaan Mining Private Limited (for short hereinafter referred to as Applicant Company No. 1/Transferor Company) and A.N.E. Industries Private Limited (for short hereinafter referred to as Applicant Company No. 2/Transferee Company) under Sections 230 & 232 of the Companies Act, 2013 (the Act) and other applicable provisions of the Act read with Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 ((the Rules) and the National Company Law Tribunal Rules, 2016 (NCLT rules) in relation to the Scheme of Amalgamation between the Applicant Companies. The said Scheme is attached as Annexure A-3 of the Application.

2. It is submitted that the registered office of both the Applicant Companies are situated in the State of Punjab and hence are under the territorial jurisdiction of this Bench.

3. The Applicant Companies have prayed for dispensing with the requirement of convening meetings of the Equity Shareholders and Unsecured Creditors of the Transferor Company. The Transferor Company does not have any Secured Creditor. It is further prayed to dispense with the requirement of convening meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors of the Transferee Company. Alternatively, it is prayed that separate meetings of the Secured and Unsecured creditors of the transferee company may be convened if deemed fit by this tribunal.

4. The Applicant Company No. 1/Transferor Company is engaged in providing civil construction, mining support services and other related activities having its registered office address at 2, Lajpat Nagar, Nawanshahr-144514 Punjab. The Applicant Company No. 1 was incorporated on 16.05.2017. The share capital of the Transferor Company as provided in the application is reproduced as follows:

5. The Applicant Company No. 2/Transferee Company is engaged in mining, infrastructure development, earthmoving, transportation and other logistic support services and other related activities. The Applicant Company No. 2 was incorporated on 29.05.2003. The share capital of the Transferee Company as provided in the application is reproduced as follows:

6. A copy of the Memorandum and Articles of Association along with the Master Data of the Applicant Company No.1 and Applicant Company No. 2 is annexed with the application as Annexure A-1/1 and Annexure A-2/1 respectively.

7. The copy of the Audited Financial Statements as on 31.03.2023 of the Applicant Company No. 1 and Applicant Company No. 2 have been annexed with the Application as Annexure A-1/2 and Annexure-A-2/2, respectively.

8. The Transferor Company is a wholly owned subsidiary of the Transferee Company. The entire Share Capital of the Transferor Company is held by the Transferee Company and its Nominee Shareholder.

9. It is stated that the Board of Directors of the Transferor Company and the Transferee Company in their respective meetings held on 20th January, 2024 considered and unanimously approved the proposed Scheme of Amalgamation subject to sanctioning of the same by this Tribunal. The copies of the Board Resolutions of the Applicant Companies No. 1 & 2 are attached as Annexure: A- 1/5 and A-2/4, respectively with the application.

10. The Rationale of the Scheme is reproduced below:

–

11. It is further submitted by the counsel for the Applicant Companies that since the Transferor Company is a wholly owned subsidiary of the Transferee Company, no new share will be issued pursuant to the present Scheme of Amalgamation. Hence, no Valuation of Shares or Share Exchange Ratio is required for the proposed Scheme of Amalgamation.

12. It is deposed by the authorised representative of Applicant Companies that as per the information available with the Applicant Transferor Company as on the date of this Application, no proceeding for inspection, inquiry or investigation under the provisions of the Companies Act, 2013, or under the provisions of the Companies Act, 1956, or under any other law is pending against the Transferor Company. Further, no material legal proceeding is pending against the Applicant Company.

13. It is further submitted that in pursuance of the proviso to Section 230(7) and Section 232(3) of the Act, the Applicant Transferor Company has filed certificate dated 18.01.2024 and the Applicant Transferee Company has filed certificate dated 23.01.2024 issued by their respective Statutory Auditors certifying that the Scheme is in compliance with the Accounting Standards under Section 133 of the Act and the same are attached as Annexure: A-4 with the application.

14. It is submitted by the applicant companies that under the Scheme of Amalgamation, no compromise is being proposed with any Secured or Unsecured Creditors of the Transferor Company and the Transferee Company. The proposed Scheme is not prejudicial to any Secured or Unsecured Creditors of the Transferor Company and the Transferee Company and that no corporate debt restructuring is envisaged in the proposed Scheme of Amalgamation.

15. The appointed date of the Scheme for the purpose of the Amalgamation shall be with effect from 1st April, 2024 as mentioned in Clause 1.1.4 of Scheme of Amalgamation.

16. It is stated that the Scheme (Annexure A-3) also takes care of the interest of the staff/workers and employees of the Applicant Companies by virtue of Clause 7 of the Scheme.

17. The clause 5 of the Scheme sets out the procedure of continuity and institution of legal proceeding(s) which is reproduced below:

18. It is stated that the Applicant Transferor Company and the Transferee Company have filed their Audited Financial Statements for the year ended 31st March, 2023 which are attached as Annexure A-1/2 & A-2/2, respectively, with the application. The Applicant Transferor Company and the Transferee Company have also filed their Un-audited Financial Statements (provisional) for the period ended 30th September, 2023 which are attached as Annexure A-1/3 & A-2/3 with the application.

19. The Applicant Companies have furnished the details of the Equity Shareholders, Secured Creditors and Unsecured Creditors as follows: Transferor Company: Total No. Consent Affidavits Obtained

Transferee Company:

1 In addition to the aforesaid Un-secured Creditors, the Transferee Company had some ‘Statutory and Other Dues’ which have either been paid in full or being provision in nature, are not due for payment. Certificate from the Chartered Accountants confirming the same is enclosed.

20. It is stated by the Ld. counsel for the petitioner company that consent of all equity shareholders of the transferee company has been obtained but there is no requirement for obtaining consent of secured creditors which are 11 in number and unsecured creditors 169 in number of the transferee company. The Ld. Counsel for the petitioner was directed to file a short note clarifying this issue vide order dt. 07.03.2024.

21. In pursuance to the order dt. 07.03.2024, the Applicant company filed a short note vide diary no. 00631/01 dt. 19.03.2024, wherein it has stated the following clarifications;

a. The proposed Scheme embodies an arrangement between the Transferor Company and its Shareholders and the Transferor Company is not proposing any compromise or arrangement with any of its Creditors.

b. The Transferor Company is a wholly owned subsidiary of the Transferee company. Since it is an amalgamation of a wholly owned subsidiary with its holding company, no new shares will be issued pursuant to the scheme of amalgamation.

c. There will not be any change in the share capital of the Transferee Company pursuant to the proposed amalgamation. The proposed Scheme of Amalgamation does not envisage any compromise or arrangement between the Transferee Company and its Shareholders or Creditors or any other class of persons whatsoever within the meaning of Sections 230 and 232 of the Companies Act, 2013, , and other applicable provisions, if any.

d. The Transferee Company is a profit-making company with strong financials. Assets of the Transferee Company are more than sufficient to meet all the liabilities of the Transferor and Transferee Companies. The rights of the Shareholders, Secured Creditors and Unsecured Creditors of the Transferee Company will not be adversely affected by the present Scheme of Amalgamation.

e. As on 30th September, 2023, the Transferee Company has a Net Worth of more than Rs. 60.27 Crore as per the detail given below:

f. The Applicant companies have placed reliance on the following judgements: In Company Application CA (CAA) No. 01/ALD/2022 [Re: Jaykaycem (Central) Limited and J.K. Cement Limited] it was held that the Transferee Company is not even 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 ог 232 of the Companies Act, 2013. The aforesaid Scheme of Amalgamation has since been approved by the Hon’ble Tribunal.

g. In case of a Scheme of Amalgamation of a wholly owned subsidiary with the Holding Company in TNS Hotels and Resorts Pvt. Ltd. with Mirza International Ltd. (Company Application CA (CAA) No. 21/ALD/2023), Allahabad Bench of this Tribunal has dispensed with the requirement of convening meetings of Shareholders, Secured Creditors and Unsecured Creditors of the Transferee Company without the Consent Affidavits. The Hon’ble Tribunal further directed the Transferee Company to serve individual notices of the proposed Scheme of Amalgamation to all its Secured Creditors and Unsecured Creditors inviting their objections/comments to the proposed Scheme of Amalgamation which may be filed with the Hon’ble Tribunal  within a period of 30 days from the date of such notice.

22. Accordingly, the directions of this Bench in the present case are as under:

I. In relation to the Applicant Company No. 1/Transferor Company:

a. The meeting of the Equity Shareholders of Applicant Company No. 1 is dispensed herewith, keeping in view that all the Equity Shareholders have given their consents by way of affidavits;

b. Since, there are no Secured Creditors in the Applicant Company No. 1, the requirement of convening the meeting of Secured Creditors does not arise;

c. The meeting of the Unsecured Creditors of the Applicant Company No. 1 is dispensed herewith, keeping in view that all the Unsecured Creditors have given their consents by way of affidavits.

II. In relation to Applicant Company No. 2/Transferee Company: a. The meeting of the Equity Shareholders of Applicant Company No. 2/Transferee Company is dispensed herewith, keeping in view that all the Shareholders have given their consents by way of affidavits;

b. The meeting of the Secured Creditors of the Applicant Company No. 2/Transferee Company is dispensed herewith, keeping in view the averments made by the Applicant Companies.

c. The meeting of the Un-secured Creditors of the Applicant Company No. 2/Transferee Company is dispensed herewith, keeping in view the averments made by the Applicant Companies.

III. It is directed that the Applicant Company No. 2/Transferee Company shall serve individual notices of the proposed Scheme of Amalgamation to all its Secured Creditors and Unsecured Creditors inviting their objections/comments to the proposed Scheme of Amalgamation which may be filed with the Hon’ble Tribunal within a period of 30 days from the date of such notice.

IV. It is further directed that along with the notices, Applicant Company No. 2/Transferee Company shall also send, a copy of the scheme, statements explaining the effect of the scheme on the creditors, key managerial personnel, promoters and non-promoter members, etc. along with the effect of the Scheme of Amalgamation on any material interests of the Directors of the Company, if any, as provided under sub-section (3) of Section 230 of the Act.

V. The Applicant Companies shall individually and in compliance ofsub- section (5) of Section 230 of the Act andRule 8 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 send notices in Form No. CAA-3 along with copy of the Scheme, Explanatory Statement and the disclosures mentioned in Rule 6 of the “Rules” to (a) the Central Government through the office of the Regional Director, Northern Region, Ministry of Corporate Affairs, New Delhi; (b) the Registrar of Companies, Punjab and Chandigarh (c) the Official Liquidator (attached to Punjab and Haryana High Court) and (d) Concerned Income Tax Department by mentioning the PAN of both the Applicant Companies, and to such other Sectoral Regulator(s) governing the business of the Applicant Companies, if any, stating that report on the same, if any, shall be sent to this Tribunal within a period of 30 days from the date of receipt of such notice and copy of such report shall be simultaneously sent to the applicant companies, failing which it shall be presumed that they have no objection to the proposed Scheme.

VI. All the aforesaid directions are to be complied with strictly in accordance with the applicable laws including forms and formats contained in the Rules as well as the provisions of the Companies Act, 2013 by the Applicant Companies.

23. With the aforesaid directions, this First Motion Application stands disposed of. A copy of this order be supplied to the learned counsel for the Applicant Companies.