L & T Housing Finance Limited And Anr. vs L &T Finance Limited

The Bench is convened by videoconference today.

Learned Senior Advocate for the Petitioner Companies states that this Petition seeks sanction of this tribunal under Sections 230-232 of the Companies Act, 2013 (the Act) to the Scheme of Amalgamation by way of Merger by Absorption (the Scheme) of L&T Housing Finance Limited and L&T Infrastructure Finance Company Limited (Petitioner Company 1 and Petitioner Company 2 are collectively referred to as the "Petitioner Companies"/ "Amalgamating Companies" / "Transferor Companies" as the context may admit) with L&T Finance Limited (hereinafter referred to as "Transferee Company"/ "Amalgamated Company"/ "LTFL" as the context may admit). The Advocate for the Petitioner Companies further states that the Petitioner Companies have their respective registered offices in the state of Maharashtra and the subject matter of the Company Scheme Petition is within the jurisdiction of this Tribunal. The Transferee Company has its registered office in the state of West Bengal and the Transferee Company has thus filed its Company Petition before the National Company Law Tribunal, Kolkata Bench seeking sanction to the Scheme and the same is pending final hearing.

Heard the Learned Senior Advocate for the Petitioner Companies and the representative of the Regional Director (Western Region, Mumbai). No objector has appeared before this Tribunal to oppose the Scheme. The Petitioner Companies have filed an Additional Affidavit dated 21st January, 2021 stating that no secured creditor and unsecured creditor of the respective Petitioner Companies have filed any objection in relation to the Scheme.

Learned Senior Advocate for the Petitioner Companies states that the Petitioner Company 1 is a housing finance company registered with the National Housing Bank ("NHB") and is primarily engaged in the business of housing finance. Petitioner Company 2 is registered with the Reserve Bank of India ("RBI") as a non-deposit taking, non-banking finance company-infrastructure finance company ("NBFC-IFC") and is primarily engaged in business of infrastructure financing. The Transferee Company is registered with the RBI as a non-deposit taking systemically important non-banking finance company ("NBFC-ND-SI"). The primary business of the Transferee Company is rural finance (comprising of farm equipment financing, two-wheeler financing, micro loans and consumer loans), housing finance (comprising loan against property and real estate financing) and infrastructure financing. Learned Senior Advocate for the Petitioner Companies further states that the Petitioner Companies and the Transferee Company are wholly owned subsidiaries of L&T Finance Holdings Limited ("LTFH"), a public company. LTFH is the holding company for the financial services business of L&T group and is registered with the RBI as a systemically important core investment company ("CIC-ND- SI").

The Scheme of Amalgamation, provides inter alia for the amalgamation of the Petitioner Companies into the Transferee Company, by way of merger by absorption and the dissolution of the Petitioner Companies without winding up and the consequent issuance of the shares of the Transferee Company to LTFH as per the share exchange ratios in accordance with the Scheme and various other matters incidental, consequential or otherwise integrally connected therewith pursuant to provisions of Sections 230 - 232 and other relevant provisions of the Act in the manner provided for in this Scheme and in compliance with the provisions of the Income Tax Act, 1961.

The background, rationale and benefits of the Scheme as stated in the Scheme are as follows:

A. Background and Rationale:

LTFH, being a core investment company, currently holds multiple lending entities (with different portfolios) and other financial services businesses / entities. While each of the lending entities caters to distinct segments, it is proposed to consolidate the businesses of the lending entities within LTFL, which is the flagship operating lending entity within the group, for creation of a single larger unified entity and reduce the number of Non-Banking Finance Companies within the group to achieve optimal and efficient utilization of any income/ capital generated/ surplus cash flow from such businesses by the merged entity; and enhance operational and management efficiencies.

B. Benefits:

(a) Consolidation of business would achieve simplification of holding structure of entities forming part of the group, improve operational and management efficiencies, streamline business operations and decision-making process and enable greater economies of scale.

(b) Would lead to creation of a single unified entity with a wider and stronger capital and asset base, having greater capacity for conducting its operations more efficiently and competitively.

(c) Reduce the number of NBFCs within the group, as well as achieving a reduction in administrative costs, overheads and multiplicity of legal and regulatory compliances.

(d) Enable access to business relationships and other intangible benefits that the Petitioner Companies have built over decades.

(e) The Petitioner Companies and Transferee Company, have significant complementarities and the consolidation of the businesses carried on by them is strategic in nature and will generate significant business synergies thereby enhancing stakeholders' value.

(f) The Petitioner Companies and Transferee Company, have a proven track record in the respective businesses of credit and consolidation which will lead to pooling of knowledge and expertise.

This Company Petition is filed in consonance with sections 230 to 232 of the Act along with the Order dated 24.07.2020 passed in C.A.(CAA) No.1024/MB.IV/2020 along with IA 1015/MB.IV/2020 in C.A.(CAA) 1024/MB.IV/2020 wherein amendment to the Scheme by amending clause 22 of the Scheme was allowed by this tribunal.

The Learned Senior Advocate for the Petitioner Companies had submitted that pursuant to the order dated 24.07.2020, the Petitioner Company No.1 and Petitioner Company No.2 procured revised Affidavits of consent from all the 7 (Seven) equity shareholders of the Petitioner Company No.1 and Petitioner Company No.2 respectively providing their approval to the amended Scheme and the same had been annexed with the respective Petition.

The Learned Senior Advocate for the Petitioner Companies had also submitted that the notice of filing of the Company Application and Order dated 24.07.2020 was transmitted to all the secured creditors and unsecured creditors of the respective Petitioner Companies as on 31.05.2020.

The Regional Director, Western Region, Mumbai ("RD") has filed its observations by the Report dated 7th January, 2021 ("Report") before this Tribunal inter alia raising certain observations to the Scheme in paragraph IV therein. The observations made by the RD have been dealt with by the Petitioner Companies in their Affidavit in Reply, dated 12th January, 2021. Further the office of the RD has filed a Supplementary Report dated 21st January, 2021 with this Tribunal, confirming that the Petitioner Companies have provided reply to observations made by RD in its Report and that on basis thereon the Tribunal may decide the matter on merit. For the sake of ready reference, the observations made by the Regional Director, replies provided by the Petitioner Companies to observations made by RD and RD's view in the Supplementary Report are mentioned hereunder:

S. No .

Observations in RD Report dated 07.01.2021 (Para IV)

Petitioners' Reply dated 12.01.2021

RD's Suppleme ntary Report

a)

In compliance of AS-14 (IND AS103), the Petitioner Companies shall pass such accounting entries which are necessary in connection with the scheme to comply with other applicable Accounting Standards such as AS-5(IND AS-8) etc.

The Petitioner Companies have undertaken to this Tribunal to pass such accounting entries which are necessary in connection with the Scheme, to comply with other applicable Accounting Standards such as AS- 5 (IND AS-8) etc., to the extent applicable.

On basis of observatio ns of the RD and response submitted by the Petitioner Companies thereon, the NCLT, Mumbai to decide the matter on merits.

b)

As per Definition of the Scheme,

"Appointed Date" shall mean April 1, 2020;

"Effective Date" means the last of the dates on which all the conditions and matters referred to in Clause 30 occur or have been fulfilled or waived in accordance with this Scheme/Applicabl e Law. References in this Scheme to 'date of coming into effect of the Scheme' or 'effectiveness of the Scheme' shall mean the Effective Date;

In this regard, it is submitted that Section 232 (6) of the Companies Act, 2013 states that the scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date. However, this aspect may be decided by the Hon'ble Tribunal takinginto account its inherent powers.

Further, the Petitioners may be asked to comply with the requirements as clarified vide circular no. F. No. 7/12/2019/CL-I dated 21.08.2019 issued by the Ministry of Corporate Affairs.

In accordance with Section 232(6) of the Companies Act, 2013 ("Act"), the Scheme clearly indicates/specifies:

(i.) in clause 10 (xii) that the Appointed Date shall mean April 1, 2020 i.e. a specific calendar date;

(ii.) in clause 10 (xiv) that the Effective Date, means the last of the dates on which all the conditions and matters referred to in Clause 30 occur or have been fulfilled or waived in accordance with this Scheme/Applicabl e Law; and

(iii.) in Clause 12 of the Scheme it is stated that with effect from the Appointed Date, the Petitioner Companies shall stand amalgamated into the Amalgamated Company and their respective undertakings shall, pursuant to the provisions of Sections 230 to 232 and other applicable provisions, if any, of the Act, be and stand transferred to and vested in the Amalgamated Company, as a going concern without any further act, instrument, deed, matter or thing so as to become, the undertaking of the Amalgamated Company by virtue of and in the manner provided in the Scheme.

The Petitioner Companies have already complied with the requirements as applicable, of the Ministry of Corporate Affairs General Circular No. F. No. 7/12/2019/CL-I dated August 21, 2019, by mentioning the Appointed Date in the Scheme as a specific calendar date i.e. April 1, 2020, which is not a date which precedes the date of filing by more than a year, and the same alsobeing in compliancewith the provisions of Section 232 (6) of the Act.

c)

Petitioner Company have to undertake to comply with section 232(3)(i) of Companies Act, 2013, where the transferor company is dissolved, the fee, if any, paid by the transferor company on its authorised capital shall be set-off against any fees payable by the transferee company on its authorised capital subsequent to the amalgamation and therefore, petitioners to affirm that they comply the provisions of the section.

The Petitioner Companies undertake to this Hon'ble Tribunal that they would comply with the provisions set out in Section 232 (3) (i) of the Act and that the fee, if any, paid by the Petitioner Companies on its authorized share capital shall be set off against any fees payable by the Amalgamated Company on its authorized share capital subsequent to the amalgamation, if applicable;

d)

In view of the observations made by the ROC, Mumbai in it's Report dated 24.09.2020 mentioned on para No. 11 in the table above, direct the petitioner company to resolve the investor complaints before approval of the Scheme.

The Petitioner Company 2 has stated that, out of total complaints against Petitioner Company 2 mentioned by Registrar of Companies ("ROC") in its report, 17 complaints have already been closed. A list of the complaints along with its status as on date, as appearing on Ministry of Corporate Affairs ("MCA") site, have been submitted to this Tribunal. It is further stated that in respect of the remaining 9 complaints, Petitioner Company 2 has also resolved the said complaints as and when received by the Petitioner Company 2, however the status of these complaints is still marked as 'Under examination' on the MCA portal. Petitioner Company 2 has redressed all complaints mentioned by the ROC in its report. Further the Petitioner Company 2 has shared relevant proof of communication with the concerned Complainant either by itself or through the Registrar and Transfer Agent ("RTA") and requested ROC to update status of all such complaints as "Closed" vide letter dated 11th January, 2021. Copy of the letter written by the Petitioner Company 2 to the ROC dated 11th January, 2021 has been submitted to this Tribunal by the Petitioner Company 2. Petitioner Company 2 has stated that in any event post sanction to the Scheme, in terms of the Scheme, the Amalgamated Company will bear the responsibility of the investor complaints pertaining to the Petitioner Company 2;

e)

The Registered Office of the Amalgamated Company is situated in the state of West Bengal i.e outside of the jurisdiction of NCLT of this Tribunal and falls within the jurisdiction of NCLT of Kolkata. Accordingly, similar approval be obtained by the Amalgamated Company from Hon'ble NCLT at Kolkata.

The Petitioner Companies have stated that as the Amalgamated Company has its registered office in West Bengal i.e. outside the jurisdiction of this Hon'ble Tribunal, the Amalgamated Company has filed its Petition in the National Company Law Tribunal, Kolkata Bench, under whose jurisdiction the registered office of the Amalgamated Company is situated and the same is pending hearing. Thus, the Amalgamated Company has already sought to obtain sanction and approval to the Scheme from the Hon'ble National Company Law Tribunal, Kolkata Bench;

f)

The Hon'ble Tribunal may kindly seek the undertaking that this Scheme is approved by the requisite majority of members and creditors as per Section 230(6) of the Act in meetings duly held in terms of Section 230(1) read with subsection (3) to (5) of Section 230 of the Act and the Minutes thereof are duly placed before the Tribunal.

The Petitioner Companies have stated that in accordance with the directions of this Hon'ble Tribunal vide order dated 24th July 2020 (a) the meeting of the equity shareholders of both the Petitioner Companies were dispensed with based on the respective consents by way of affidavits received from all equity shareholders of both the Petitioner Companies; and (b) the meetings of the secured and unsecured creditors of both the Petitioner Companies were not required to be convened. Further in accordance with the directions of this Hon'ble Tribunal vide order dated 14th December 2020, the Petitioner Companies state that consents/ noobjection of the respective secured creditors of the Petitioner Companies have been obtained wherever the terms and conditions of the agreement(s) entered into with the concerned secured creditor provides for such a condition. The Petitioner Companies have filed an Affidavit of compliance of the order dated 14th December 2020 in this Hon'ble Tribunal;

g)

Hon'ble NCLT may kindly direct the petitioners to file an affidavit to the extent that the Scheme enclosed to Company Application & Company Petition, are one and same and there is no discrepancy/any change/changes are made;

The Petitioner Companies have stated that, this Hon'ble Tribunal vide its order dated 24th July 2020 passed in Company Scheme Application CA(CAA) No. 1024/MB.IV/2020 had allowed amendment to the Scheme by substitution of Clause 22 relating to share exchange ratio. The Petitioner Companies have confirmed to this Tribunal that the Scheme as amended in the Company Scheme Application pursuant to the said order and the Scheme annexed to the Company Scheme Petition is one and the same and that there is no discrepancy/any change/changes made therein;

h)

It is observed that debentures of the Amalgamating Company-1 are listed on the wholesale debt market segment of the NSE and debentures of Amalgamating Company-2 are listed on the wholesale debt market segment of BSE and NSE. In this regard, Petitioner Company may be directed to state whether the NOC of the concerned regulatory authority have been obtained. Further, the Petitioner Company also clarify that the concerned debenture holders of Amalgamating Company-1 and Amalgamating Company-2 have given their consent for this proposed scheme.

The Petitioner Companies have stated that (i) the nonconvertible debentures of Petitioner Company 1 are listed on the wholesale debt market of National Stock Exchange of India Limited (NSE); and (ii) the non-convertible debentures of Petitioner Company 2 are listed on the wholesale debt market of NSE and BSE Limited (BSE). NSE has provided its in-principle approval to Petitioner Company 1 and Petitioner Company 2. The said in-principle approval of NSE was submitted to the office of the Regional Director and same has been attached in the representation filed in Hon'ble Tribunal. The Petitioner Companies have submitted the NSEin-principle approval to Petitioner Company 1 and Petitioner Company 2. BSE has also provided its in-principle approval to the Petitioner Company 2 and the inprinciple approval of BSE has been submitted to the office of the Regional Director and same has been attached in the representation filed in Hon'ble Tribunal. The Petitioner Companies have submitted to this Tribunal the BSEinprinciple approval to Petitioner Company 2. The Petitioner Companies have state that the Tribunalvide its order dated 24th July 2020 has dispensed with the meetings of the secured creditors and unsecured creditors of the Petitioner Companies. The Petitioner Companies state that in accordance with the terms of the relevant debenture trust deeds in respect of the said debentures and pursuant to directions of this Tribunalvide order dated 14th December 2020, the Petitioner Companies have procured consents of respective Debenture Trustees on behalf of the debenture holders and the said consents have been submitted to this Tribunal.

i)

It is submitted that the petitioner Company in it'sreply submitted to the office of Regional Director, Western Region, Mumbai vide letter dated 16.12.2020 has stated that Amalgamating Company-1 and Amalgamating Company-2 shall continue to undertake their respective businesses, of Housing Finance Company and Infrastructure Finance Company, respectively, up to the effective date of the Amalgamation Scheme. Pursuant to the proposed transaction becoming effective, the undertakings of the Applicant Companies (i.e., business, assets, liabilities, employees, etc.) will be subsumed into Amalgamated Company. RBI has provided its noobjection to the Scheme through letter dated 19.06.2020.

Further RBI has granted extension of NOC for a period of 6 months till 11.06.2021 vide its e-mail dated 11.12.2020. The Amalgamated Company shall continue to operate as an 'Investment and Credit Company' (NBFC-ICC), with its principal business of providing loans and advances. Further, in lines with the NOC granted by RBI to the proposed amalgamation, Amalgamating Company-1 and Amalgamating Company-2 shall surrender their respective registrations with the regulators (HFC registration issued by NHB to Amalgamating Company-1; and the NBFC-IFC registration issued by RBI to Amalgamating Company-2), post the Scheme of Amalgamation becoming effective. This is also stated in at Paragraphs 10(xxx), 10(xxxi) and 14(iii) of the Scheme of Amalgamation. Copy of the letter (along with all enclosures) dated 16.12.2020 of the Petitioner Company is enclosed herewith and marked as Annexure 'E'.

The Petitioner Company be directed to ensure compliance of the RBI/NHB Guidelines.

The Petitioner Companies have undertaken to this Tribunal that they would comply with RBI/NHB Guidelines, to the extent applicable;

j)

As per MCA data, it is observed that Amalgamating Company l & 2 have not filed it's Balance Sheet for the Financial Year 2018-2019 and 2019-2020. Amalgamating Companies may be directed to comply with provision of Section 137 of the Companies Act, 2013 and file Balance Sheet for the Year 2018-19 and 2019-20.

The Petitioner Company 1 has filed its Balance sheet for Financial Year 2018-19 on 16th March 2020. The Service Request Number (SRN: R35489574) challan and SRN approval email from the MCA have been submitted to this Tribunal. Petitioner Company 1 has filed its Balance sheet for Financial Year 2019-20 on 26th August, 2020. The Service Request Number (SRN: R51556850) challan and SRN approval email from the MCA have been submitted to this Tribunal. Petitioner Company 2 has filed its Balance sheet for Financial Year 2018-19 on 17th March 2020 (Standalone financial statements, SRN: R35649086) and 19th December 2020 (consolidated financial statements, SRN: R75907139). SRN challan and SRN approval email from the MCA have been submitted to this Tribunal. Petitioner Company 2 has filed its Balance sheet for Financial Year 2019-20 on 26th August 2020 (Standalone financial statements, SRN: R51564623) and on 17th September, 2020 (consolidated financial statements, SRN: R56398761). The Service Request Number (SRN) challan and SRN approval email from the MCA have been submitted to this Tribunal.

k)

In Clause-25(VI) of Accounting Treatment of the Scheme, The Petitioner Company stated that the excess of or deficit, in the value of the assets over the value of liabilities of the Amalgamating Companies vested in the Amalgamated Company pursuant to this scheme as recorded in the books of account of the Amalgamated Company shall after adjusting the aggregate face value of the shares issued by the Amalgamated Company to the members of the Amalgamating Companies pursuant to this scheme and the amounts recorded in terms of para ii above, be adjusted in capital reserves in the books of Amalgamated Company.

In this regard, it is submitted that such surplus shall be credited to the "Capital Reserve arising out of amalgamation" and it shall not be available for distribution of the dividend."

The Petitioner Companies have submitted that the excess of or deficit in the value of the assets over the value of liabilities of the Amalgamating Companies vested in the Amalgamated Company pursuant to this Scheme as recorded in the books of account of the Amalgamated Company shall after adjusting the aggregate face value of the shares issued by the Amalgamated Company to the members of the Amalgamating Companies pursuant to this Scheme and the amounts recorded in terms of para 25(ii) of the Scheme, be adjusted in capital reserves in the books of Amalgamated Company. Petitioner Companies further submit that treatment of Capital reserve arising out of amalgamation shall be done in accordance with applicable accounting standards and the provisions of the Act and rules made thereunder;

The observations made by the Regional Director and the clarifications and undertakingsgiven by the Petitioner Companies have been verified and accepted.

The Official Liquidator, High Court, Bombay (OL) has filed his Report dated 19th October, 2020 stating that the affairs of the Petitioner Companies have been conducted in a proper manner.

From the material on record and after perusing the clarifications and submissions of the Petitioner Companies to the Report, the Supplementary Report of the RD and the Report of the OL, additional Affidavit from the Petitioner Companies confirming that no objections were received from any of the secured and unsecured creditors in relation to the Scheme, the Scheme appears to be fair and reasonable and does not violate any provisions of law and is not contrary to public policy.

The Petitioner Companies states that vide order 14.12.2020, the Petitioner Companies have obtained consents/no-objection of the respective secured creditors of the petitioner Companies wherever the terms and conditions of the agreement(s) entered into with the secured creditor provides for such a condition and affidavit of compliance have also been filed for same.

Since all the requisite statutory compliances have been fulfilled, CP (CAA) 1067/ MB-IV/ 2020 is made absolute in terms of prayer clause of the petition.

ORDER

i. The Scheme is hereby sanctioned, and the Appointed Date is fixed as 1st April, 2020 as defined in Clause 10(xii) of the Scheme.It shall be binding on the Petitioner Companies involved in the Scheme and all concerned including their respective Shareholders, Secured Creditors, Unsecured Creditors and Employees.

ii. This order is subject to the sanction to the Scheme by the National Company Law Tribunal, Kolkata Bench.

iii. The Petitioner Companies are directed to file a certified copy of this order along with a copy of the Scheme with the concerned Registrar of Companies, electronically in e-Form INC-28 within 30 days from the date of receipt of order duly certified by the Joint Registrar of this tribunal.

iv. The Petitioner Companies are directed to lodge a certified copy of this order along with a copy of the Scheme, with the concerned Superintendent of Stamps, for the purpose of adjudication of stamp duty payable, if any, on the same within 60 days from the date of receipt of the order.

v. The Petitioner Companies shall comply with all the undertakings given by them.

vi. The Petitioner Companies shall, within 15 days of receipt of this order, issue newspaper publications with resect to approval of the Scheme, in the same newspapers in which previous publications were issued.

vii. The Petitioner Companies shall take all consequential and statutory steps required under the provisions of the Act in pursuance of the Scheme.

viii. All concerned Regulatory authorities to act on a copy of this order duly certified by the Joint Registrar of this tribunal along with the copy of the Scheme.

ix. Any person interested in the above matter shall be at liberty to apply to the tribunal for any directions that may be necessary.

x. Ordered accordingly. Thus, the Company Petition with C.P.(CAA)/1067/MB.IV/2020 in C.A.(CAA)/1024/MB.IV/2020shall stand to be disposed of.