MC Data Systems Private Limited Vs

Per: Subrata Kumar Dash, Member (Technical)

IA (CA) No.5/2022 and CP (CAA) No.24/Chd/Hry/2021 (2nd Motion) IA (CA) No.5/2022 and CP (CAA) No.24/Chd/Hry/2021 are being taken up together, being interrelated and interconnected.

This is a joint second motion application filed by Petitioner Companies namely; MC Data Systems Private Limited (Transferor Company No.1/ Petitioner Company No.1), Inswell IT Applications Private Limited (Transferor Company No.2/ Petitioner Company No.2), and Infinite Computer Solutions (India) Limited (Transferee Company/Petitioner Company No.3) in relation to the Scheme of Arrangement between the petitioner companies under Section 230-232 and Section 66 of Companies Act, 2013 (the Act) and other applicable provisions of the Act read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (the Rules).

The Petitioner Companies have prayed for sanctioning of the Scheme of Arrangement between the respective companies. The said Scheme is attached as Annexure P-1 of the petition.

In the course of the proceedings, an application bearing no. IA (CA) No.5/2022 has been filed under Rule 11 of the NCLT Rules, 2016 by the applicant/objector i.e. Nirsau Consultancy LLP against the petitioner companies.

In this application, the applicant/objector prayed, inter alia, to reject reduction of capital in relation to small shareholders and to direct the Transferee Company to give a fair chance to all small shareholders to take the decision to continue or not through a separate application under Section 230(11) of the Companies Act, 2013 for the reduction or takeover of the shares of the public shareholders.

It is stated by the applicant/objector that the Transferee Company was delisted in the year 2018 and is having sufficient reserves and case and intends to reduce its paid-up share capital, by paying off to the shareholder in order to maximize the value of such shareholders.

In response, the petitioner companies in their short reply filed by Diary No.00495/3 dated 12.04.2022 have raised the issue of maintainability of the objection as the applicant is not qualifying the threshold mandated by Section 230(4) of the Companies Act, 2013. It is further stated that under the Companies Act, 1956, there was no such threshold to raise objections and this has been remedied  in  the  Companies  Act,  2013.  Attention  has  been  drawn  to  the recommendations of the Report of Expert Committee on Company Law (“Report”), the Companies Act, 2013, the relevant part of which is extracted below:-

“Minority Interest

The Committee examined the view that quite frequently shareholders/creditors with insignificant stake raise objections to schemes of merger/acquisition and the process of dealing with such objection becomes vexatious. After a detailed discussion, the Committee recommended that while protection of minority interest should be recognized under the law, only shareholders/creditors having significant stake at a level to be prescribed under law should have the right to object to any scheme of mergers. The philosophy behind such a move would be to streamline the procedure of articulation of the minority interest while restricting obstructionist attitude on the part or any section of minority.”

(emphasis supplied)

In response to the affidavit filed by the Transferee Company on the maintainability of the application IA (CA) No.5/2022, the applicant/objector has filed an affidavit by Diary No.00495/5 dated 27.06.2022, wherein it is stated that their objections relate only to the Part-III of the Scheme dealing with the Selective Capital Reduction of the non-promoter shareholder of the Transferee Company and not against the merger as such. It is further stated that the prayer is for the protection of minority shareholders.

We have gone through the above submissions made by both parties. For the sake of clarity, a reference is made to Section 230(4) of the Companies Act, 2013, which is extracted below:-

“(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.” (emphasis supplied)

In the present case, the applicant/objector admittedly holds 10,384 equity shares in the Transferee Company which constitute only 0.0311% of the total shareholding of the Transferee Company. Such percentage held by the objector does not meet the minimum threshold prescribed under proviso to Section 230(4) of the Act, and on this ground, we hold that the objection lacks validity under the statutory provision. Consequently, IA (CA) No.5/2022 is, therefore, dismissed and disposed of accordingly.

Now, coming to the merits of the second motion petition, it is submitted that Petitioner Companies have filed the first motion application bearing CA (CAA) No.8/Chd/Hry/2021 before this Tribunal for seeking directions for dispensing/convening with the meetings of Equity Shareholders, Secured and Unsecured Creditors of the Applicant Companies, and of Preference Shareholders of Applicant Company No.1. The first motion application was disposed of by order dated 04.08.2021, with directions to dispensed with the meetings of Equity Shareholders of the Applicant Company No.1 & 2, and of Preference Shareholders of Applicant Company No.1 and of Secured & Unsecured Creditors of the Applicant Companies and to convene the meetings of Equity Shareholders of the Applicant Company No.3 for the reasons mentioned in the aforesaid orders.

The main objects, date of incorporation, authorized and paid-up share capital, and the rationale of the Scheme had been discussed in detail in the order dated 04.08.2021.

In the second motion proceedings, certain directions were issued by this Tribunal by order dated 05.01.2022 and the same were compiled by filing an affidavit by diary No.01231/7 both dated 21.03.2022. The notice of hearing was published in “Financial Express” (English) Delhi NCR Edition and “Jansatta” (Hindi) Delhi NCR Edition on 15.01.2022. The original copies of the newspapers are attached as Annexure-A2 of the aforesaid affidavit. It has also stated in the affidavit that copies of notices were served upon the (a) Central Government through Regional Director (Northern Region), Ministry of Corporate Affairs; (b) Registrar of Companies, NCT of Delhi and Haryana; (c) the Official Liquidator (attached to Punjab and Haryana High Court); (d) Reserve Bank of India; and (e) the jurisdictional Income Tax Department, by way of speed post. Original postal receipts along with the tracking report are attached as Annexure A-1 of the aforesaid affidavit.

It is deposed by the authorised signatories of the petitioner companies that the Petitioner Company No.3 has received an objection so far with regards to the Scheme of Arrangement from a shareholder, namely Nirsau Consultancy LLP, who has 10,384 equity shares representing 0.0311% of the paid-up capital of the Company. Copy of the objection as received is attached as Annexure A-3 of the affidavit. The aforesaid affidavit is filed by Diary No.01231/7 dated 21.03.2022.

In response to the abovementioned notices, the statutory authorities have furnished their replies.

14.1 Registrar of Companies (RoC)/Regional Director (RD)

The Regional Director (RD) has filed its report along with the report of the Registrar of Companies (RoC) by Diary No.168 dated 30.05.2022. as per para 21 of the report of Registrar of Companies (RoC), it is stated that an inquiry in the matter of transferee company was made pursuant to directorate’s report under section 208 of the Companies Act, 2013. The R.D. in its report has observed that at para 11 of the report of Registrar of Companies it is stated that:-

“That as per Clause 31 of the RoC report dated 24.05.2022, following observation was raised:

I. As per MCA General Circular no, 9/19, if the Appointed dated is significantly ante-dated beyond a Year from the date of filling, the justification for the same would have to be specifically brought out in the scheme and it should not be against public interest. In this case, the appointed date is 01.04.2019. However, the justification of the same being significantly ante-dated in terms of the above circular is not clearly brought out.

II.Two parts of the Scheme are effective from different dates, while Part Il is effective from the, appointed date, Part IV is effective from the Effective date. However, as per section 232(6), the Scheme shall clearly indicate an "Appointed Date" from which it shall be "effective". Thus, the Scheme cannot have two different effective dates.

III. The Transferee Company was delisted in the year 2018 and the Scheme proposes reduction of share capital to provide exit to relevant shareholders (other than promoters). Both the Transferor Companies are shown as promoters of the Transferee Company. Now since both the Transferor Companies will get merged with the Transferee and thereafter the reduction will be effected, the shareholders of the Transferor Companies will get classified as relevant shareholders in the post-merger scenario. However, the benefit of exit ought to have been provided only to the direct non-promoter shareholders of the Transferee Company in the pre-merger scenario.

IV. It has been observed that Transferor Companies and Transferee Company both have cross-shareholding in each other.

V. As per Clause 15 of the proposed Scheme, it is stated that upon the Scheme becoming effective, the Authorized share capital of the Transferee Company shall stand increased to Rs. 70,00,00,000 (divided into 7,00,00,000 equity shares of Rs. 10/-each) and Rs. 27,00,00,000/- (divided into-2,70,00,000 preference shares of Rs. 10/- each). In this regard the Transferee Company may be directed to comply with the provision of section 232 (3)(i) of the Companies Act, 2013 in regard to fee payable on its revised authorized share capital.”

14.2 In response to the aforesaid observations made by the ROC the Petitioner Companies have filed a response by Diary No.01231/10 dated 31.05.2022 wherein they have provided the following clarifications:

a. In response to the Report of RD/RoC, the Petitioner Companies have filed a response by Diary No.01231/10 dated 31.05.2022 wherein the Petitioner Companies have stated In response to para 11(I) of the report that the First Motion Application was filed on February 25, 2021 and as per clause No.1.3 of Part I of the Scheme the appointed date is April 01, 2020. Accordingly, at the time of filing of application with this bench the appointed date was within the period of one year.

b. It is also submitted in response to Para 11(II) of the report that as per clause 1.3 of part I of Scheme, the “Appointed Date” means “April 01, 2020 or such other date as may be approved by the Hon’ble NCLT( as defined below), being the date with effect from which this scheme shall be deemed to have become operative and as per clause 1.6 of part I of Scheme “Effective Date” means “the date or last of the dates on which a certified copy of the order of the Tribunal sanctioning this Scheme is filed with the Registrar of Companies, Delhi and Haryana, by the Transferor Companies and the Transferee Company, being the date from which such order shall become effective” It is also submitted that as per Clause 4 Part I of the scheme, The amalgamation of Transferor Companies into Transferee Company (Part II) and Reduction of share capital of Transferee Company (Part III) shall be operative from effective date only. The relevant part of the scheme is extracted herein below:-

“ 4. Date of coming into effect:

The Scheme set out herein in its present form or with any modification(s) approved or imposed or directed by the Tribunal or any other appropriate authority shall take effect in the following manner:

Part II of the Scheme - shall take effect from the Appointed Date but shall be operative on and from the Effective Date.

Part III of the Scheme - shall take effect on and from the Effective Date.”

c. In response to Para 11(III) of the report, it is asserted that the Scheme will not be prejudicial to the interests of any concerned shareholders or creditors or the general public at large. It is further asserted that non-promoter shareholder in Transferor Company No.1 holding 0.0007% shareholding shall become non-promoter shareholder of Transferee Company post amalgamation and such non-promoter shareholders of Transferor Company No.1 would be given the benefit of exit as contemplated for other existing non-promoter shareholders of Transferee Company prior to the merger. The sole non-promoter shareholder of Transferor Company No.1 has also consented to the entire Scheme by way of affidavit which is attached as Annexure A-1 of Dairy No. 01231/10 Dated 31.05.2022.

d. It is further replied in that all the cross-shareholding of the transferor and transferee company shall stand cancelled as per clause 13.6 of the scheme. The transferee also undertakes to pay the applicable fee, if any, post the consolidation of the authorised share capital of the transferor companies with the authorised share capital of the Transferee company.

e. It is further replied in response to Para 21 of the report of the RoC that the technical scrutiny/inquiry is undertaken on the transferee company will also be continued with the transferee company post-merger scenario. accordingly, there is no impact on the scheme on the continuation of such technical scrutiny/inquiry on the transferee company.

On a perusal of this response, we feel that the issues raised by the RD/RoC have been adequately addressed and no adverse observation against the petitioner companies is called for.

14.3 Official Liquidator

The Official Liquidator has filed his report vide Diary No.01231/08 dated 05.04.2022. The Official Liquidator in its report has reproduced the information on the incorporation of the Petitioner Companies, their capital structure, financial highlights, shareholding, etc. The Official Liquidator has also reproduced the extracts of Reports of the Statutory Auditors of the Petitioner Companies on the Financial Statements.

On a perusal of the report, it is seen that the Official Liquidator has made no adverse observation against the petitioner companies.

14.4 Income Tax Department

The petitioner companies have placed on record the NoC issued by the Income Tax Department which is attached as Annexure-1 of Diary No.01151 dated 30.05.2022. As per NoC(s) dated 07.04.2022, 21.03.2022 and 04.05.2022, the Income Tax Department has stated that they have no objection to the proposed merger of M/s MC Data Systems Private Limited; Inswell IT Applications Private Limited with Infinite Computer Solutions (India) Limited.

On a perusal of the record, it is seen that the Income Tax Department has made no adverse observation against the petitioner companies.

14.5 Competition Commission of India

The Competition Commission of India has filed its report vide Diary No.774 dated 06.10.2021. The Competition Commission of India in its report has as stated that the aforesaid matter has not been filed with the Commission under the provisions of the Act and the Tribunal may seek an undertaking from the companies involved that approval of the Commission is not required for the said matter.

The authorised signatories of the petitioner companies have deposed by way of affidavit that the provisions of the Competition Act are not applicable in the present case on any criteria like assets/turnover etc. Hence, no notice to the Competition Commission of India is required. The aforesaid affidavit has been filed by Diary No. 01231/11 dated 11.07.2022.

On a perusal of the report, it is seen that the Competition Commission of India has made no adverse observation against the petitioner companies.

The certificate of the Statutory Auditors with respect to the Scheme between Petitioner Companies to the effect that the accounting treatment proposed in the Scheme is in compliance with applicable Indian Accounting Standards (Ind AS) as specified in Section 133 of the Act, read with rules thereunder and other Generally Accepted Accounting Principles was filed as Annexures P-18 of the petitioner companies.

We have heard the learned counsel for petitioner companies as well as learned Senior Standing Counsel for the Income Tax Department and perused the record carefully.

In the context of the above discussion, the Scheme contemplated between the petitioner companies, appears to be prima facie in compliance with all the requirements stipulated under the relevant Sections of the Companies Act, 2013. As the objections from the Statutory Authorities have been duly addressed by the Petitioner Companies and since all the requisite statutory compliance have been fulfilled, this Tribunal sanctions the Scheme of Amalgamation and Arrangement appended as Annexure “P-1” with the petition.

Notwithstanding the submission that no investigation is pending against the petitioner companies, if there is any deficiency found or, violation committed qua any enactment, statutory rule or regulation, the sanction granted by this Tribunal will not come in the way of action being taken, albeit, in accordance with law, against the concerned persons, directors and officials of the petitioners.

While approving the scheme as above, it is clarified that this order should not be construed as an order in any way granting exemption from payment of stamp duty, taxes or any other charges, if any, payment is due or required in accordance with law or in respect to any permission/compliance with any other requirement which may be specifically required under any law.

THIS TRIBUNAL DO FURTHER ORDER:

i. That all the properties, rights and powers of the Transferor Companies be transferred, without further act or deed, to the Transferee Company and accordingly, the same shall pursuant to Sections 230 to 232 and Section 66 of the Companies Act, 2013, be transferred to and vested in the Transferee Company for all the estate and interest of the Transferor Companies but subject nevertheless to all charges now affecting the same;

ii. That all the liabilities and duties of the Transferor Companies be transferred, without further act or deed, to the Transferee Company and accordingly the same shall pursuant to Sections 230 to 232 and Section 66 of the Companies Act, 2013, be transferred to and become the liabilities and duties of the Transferee Company;

iii. That the Appointed Date for the scheme shall be 01.04.2020 as specified in the scheme;

iv. That the proceedings, if any, now pending by or against the Transferor Companies be continued by or against the Transferee Company;

v. That the employees of the Transferor Companies shall be transferred to the Transferee Company in terms of the 'Scheme';

vi. That the technical scrutiny/inquiry or any other legal action which is initiated pursuant to the Directorate’s Letter in respect of transferee Company shall be continued against Transferee Company.

vii. That the fee, if any, paid by the Transferor Companies on its authorized capital shall be set off against any fees payable by the Transferee Company on its authorized capital subsequent to the sanction of the 'Scheme';

viii. That the Transferee Company shall file the revised memorandum and articles of association with the Registrar of Companies, NCT of Delhi and Haryana and further make the requisite payments of the differential fee (if any) for the enhancement of authorized capital of the Transferee Company after setting off the fees paid by the Transferor Companies;

ix. That the Petitioner Companies shall, within 30 days after the date of receipt of this order, cause a certified copy of this order to be delivered to the Registrar of Companies for registration and on such certified copy being so delivered, the Transferor Companies shall be dissolved without undergoing the process of winding up. The concerned Registrar of Companies shall place all documents relating to the Transferor Companies registered with him on the file relating to the said Transferee Company, and the files relating to the Transferor Companies and Transferee Company shall be consolidated accordingly, as the case may be.

As per the aforesaid directions, formal orders in Form No. CAA-7 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 be issued after the filing of the Schedule of Properties within three weeks from the date of receiving a certified copy of this order by the petitioners.

All the concerned Regulatory Authorities to act on a copy of this order annexed with the Scheme duly authenticated by the Registrar of this Bench.

Accordingly, Company Petition CP (CAA) No.24/Chd/Hry/2021 is allowed and disposed of.