AI Structured Summary
Not yet generated for this judgment
Judgment
KANTHI NARAHARI, MEMBER (TECHNICAL)
Preamble:
The Present Appeal is filed invoking provisions of Section 421 of the Companies Act, 2013 against the order dated 08.06.2022 passed by the National Company Law Tribunal, New Delhi (Bench-V) in CA (CAA) No. 44/ND/2022 under Sections 230 to 232 of the Companies Act, 2013 whereby the Learned National Company Law Tribunal (in short ‘NCLT’) directed the Appellant Company to convene its Shareholders meeting in the matter of scheme of arrangement.
Brief Facts:
Appellant’s Submissions:
The Learned Counsel for the Appellant submitted that an application under Sections 230 to 232 of the Companies Act, 2013 was filed before the NCLT by the Transferor Companies viz. Adgyde Solutions Pvt. Ltd. as Applicant No.1 and Momagic Incubation Pvt. Ltd. as Applicant No. 2 and Green Wood Crops Pvt. Ltd. as Transferee Company in relation to the scheme of arrangement (in short ‘the Scheme”) proposed between the Transferor Companies and Transferee Company praying the Tribunal for issuance of directions for dispensation of the meeting of the Shareholders of Transferor Companies and Transferee Company and also issue direction for dispensation of meeting of Secured and Unsecured Creditors of Transferor Companies and Transferee Company.
Both the Transferor Companies are wholly owned subsidiaries of the Appellant / Transferee Company and 100% of the share capital of the Transferor Companies are held by the Appellant / Transferee Company.
Observation of NCLT with respect to Transferor Companies
The NCLT while adjudicating upon the matter dispensed with the convening of meeting of shareholders of Transferor Companies. Further, with respect to secured creditors of the Transferor Companies, it is observed that since there are NIL secured creditors the requirement of convening and holding of a meeting does not arise. With respect to unsecured creditors, NCLT observed that the consent affidavits of the unsecured creditors has already been placed on record, therefore, the necessity of convening and holding a meeting of unsecured creditors is dispensed with.
The observation of the NCLT with respect to Transferee Company
The NCLT while discussing with respect to convening the meeting of the shareholders of the Transferee Company observed as under at page 45 of Appeal Paper Book:
“Here in the case in hand, since out of six (06) only five (05) shareholders have given their consent, therefore, in our considered view that the prayer of the petitioner to dispense with the calling of the meeting of the shareholders of Transferee Company is not liable to be accepted.
Accordingly, the meeting of Shareholders of the Transferee Company is directed to be held through Video Conferencing / Other Audio Visuals Means within 60 days of this order. The Quorum of the meeting shall be 75% in value. The Chairman shall fix the date, time and venue of the meeting.”
The Learned Counsel for the Appellant submitted that since the Transferor Companies are wholly owned subsidiaries of the Transferee Company and the 100% of the share capital of both the Transferor Companies are held by the Transferee Company, therefore, under the scheme of arrangement, no shares are required to be issued or allotted as consideration from the proposed amalgamation. It is further submitted that the proposed scheme of arrangement will not result in any dilution in the shareholding of the shareholders of the Transferee Company. Further, the rights of the shareholders of the Transferee Company are not affected as the proposed scheme does not involve any reorganisation in either the shareholding or debt position of the Appellant / Transferee Company.
Further, it is submitted that the Transferee Company will remain in existence as before without any change, either to its shareholding pattern or to its debt position. The financials of Transferee Company post amalgamation its net-worth will remain highly positive. The present net-worth of the Transferee Company is Rs.71,62,38,849/- and post amalgamation the net-worth of the Transferee Company will continue to remain highly positive i.e. at Rs.73,59,65,629/-. There is no adverse effect of the proposed scheme of amalgamation on the shareholders of the Transferee Company.
The Learned Counsel submitted that all the facts have been placed before the NCLT and relied upon the decision of this Tribunal in the matter of Ericsson India Pvt. Ltd. CA (AT) No. 148 of 2021 dated 18.01.2022 and In re-Ambuja Cements Ltd. CA (AT) No.19 of 2021 dated 06.04.2021 and requested the NCLT seeking dispensation of the meetings of the equity shareholders secured and unsecured creditors of the Transferor Companies and Transferee Company.
Analysis / Appraisal
Heard the Learned Counsel for the Appellant perused the records and citations relied upon by him in support of his case.
The Adjudicating Authority while considering dispensation of convening, meetings of the shareholders of the Transferor Companies on the ground that consent affidavits of the shareholders have been obtained and placed on record, therefore, it was observed that there is no necessity for convening and holding meetings of the shareholders, accordingly the meetings are dispensed with.
While so, the meeting of the shareholders of the Transferee Company is concerned the NCLT directed the Transferee Company to convene the meeting of its shareholders and the request made for dispensation of meeting has not been considered. It is an admitted fact that the Transferee Company having 6 shareholders in total and 5 shareholders have given their consent. In spite of consent given by 5 shareholders out of 6 shareholders the NCLT refused to dispense with the convening the meeting.
The moot point for consideration is whether in a case where there is a scheme of arrangement between the wholly owned subsidiary and the holding company, and whether the meeting of the shareholders / creditors of the holding company or Transferee Company can be dispensed with, since in case there is no dilution in the shareholding of the shareholders of the Transferee Company and even post amalgamation the net-worth of the Transferee Company remain highly positive?
In answer to the above point, the facts are recapitulated as under.
It is an admitted fact that the Appellant is a Transferee Company and the Transferor Companies are wholly-owned subsidiary of the Appellant Company. The total shareholding i.e. (100% shares) of Transferor Companies are held by the Transferee Company. In the affidavit, the Appellant categorically mentioned that post amalgamation the net-worth of the Transferee Company will remain highly positive and the proposed scheme of arrangement will not result in any dilution in the shareholding of the shareholders of the Transferee Company. The rights of the shareholders of the Transferee Company are not affected as the proposed scheme does not involve any reorganisation in either the shareholding or debt position of the Transferee Company.
In sum and substance, the following points emerge for consideration:
Both the Transferor Companies are wholly owned subsidiary of the Transferee Company.
No new shares are being issued
Rights of the shareholders of the Transferee Company are not affected.
The scheme does not involve reorganisation of the share capital.
The net-worth of the Transferee Company post amalgamation remain highly positive.
The consent affidavits of more than 90% of the shareholders have been filed.
This Tribunal in catena of judgments held that in cases of Merger / Amalgamation of a wholly owned subsidiary and its parent company / holding company, the meetings of the creditors / shareholders can be dispensed with as held in re-Ambuja Cements Ltd in CA (AT) No. 19 of 2021 dated 06.04.2021. In Ambuja Cements the similar facts fell for consideration and this Tribunal after discussing various judgments passed by this Tribunal and the Hon’ble High Courts with regard to the dispensation of meetings of equity shareholders, secured and unsecured creditors, dispensed with the meetings of equity shareholders, secured and unsecured creditors of the Appellant Company i.e Ambuja Cements Ltd.
However, the Adjudicating Authority failed to consider the said facts and also failed to take into account the aforesaid decision of this Tribunal with regard to the issue that arise for consideration in the present case regarding dispensation of the meeting of the shareholders and creditors.
This Tribunal also in the matter of Mohit Agro Commodities Processing Pvt. Ltd. in Company Appeal (AT) No. 59 of 2021 dated 28.06.2021 while dealing with similar issue, allowed the Appeal by dispensing with the convening of the meetings of the equity shareholders, secured and unsecured creditors.
Further, the Hon’ble High Court of Bombay in the matter of Mahaamba Investment Ltd. Vs. IDI Limited (2001) SCC Online 1174 at para 5 & 6 held as under:
“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”
In the above decision, the Hon’ble High Court of Bombay held that filing of separate petition by the Transferee Company is not necessary. However, in the present case, the Appellant being a Transferee Company filed joint application along with the Transferor Companies.
The Hon’ble High Court of Delhi in the matter of MASTERJI METALLOYS PVT. LTD. with GOODLUCK STEEL TUBES LTD. Company Appeal (M) No. 9/2016 dated 18.01.2016 at para 10.1 held as under
“10.1Accordingly, given the fact that the Transferor Company is a 100% subsidiary of the Transferee Company, the requirement to convene meetings of shareholders and creditors can be dispensed with. It is ordered accordingly.
11.The Application stand allowed.”
Further the Hon’ble High Court of Delhi in the matter of SHILPI CABLETRONICS LTD. & ORS. in CO. APPL. (M) No. 22/2012 dated 03.02.2012 dealing with the similar facts the Hon’ble High Court dispensed with the convening of meetings of shareholders and creditors as held at para 14:
“14.In view of the submissions made at the bar and the settled law on the subject, the requirement of convening meetings of shareholders, secured and unsecured creditors of the transferee company to approve with or without modification, the proposed scheme is dispensed with.”
This Tribunal is of view that the NCLT ought to have considered the precedents of this Tribunal decided in identical cases in various judgments, however, the NCLT erred in not considering those judicial precedents. In this regard, the Hon’ble Supreme Court in the matter of Gammon India Ltd. Vs. Commissioner of Customs Mumbai reported in (2011) 12 SCC 499 at para 35 & 36, held that the precedent law must be followed by all concerned, deviation from the same should be only on a procedure known to law. Hon’ble Supreme Court held as under:
“35.It needs to be emphasised that if a Bench of a tribunal, in an identical fact situation, is permitted to come to a conclusion directly opposed to the conclusion reached by another Bench of the tribunal on an earlier occasion, that will be destructive of the institutional integrity itself. What is important is the tribunal as an institution and not the Company Appeal (AT) No. 147 of 2022 9 of 12 personality of the members constituting it. If a Bench of the Tribunal wishes to take a view different from the one taken by the earlier Bench, Propriety demands that it should place the matter before the President of the Tribunal so that the case is referred to a larger Bench, for which provision exists in the Act itself.”
“36.In this behalf, the following observations by a three-Judge Bench of this court in Sub-Inspector Rooplal v. Ltd. Governor are quite apposite: (SCC p. 654, para 12)
“12 At the outset, we must express our serious dissatisfaction in regard to the manner in which a coordinate Bench of the Tribunal has overruled, in effect, an earlier judgment of another coordinate Bench of the same Tribunal. This is opposed to all principles of judicial discipline. If at all, the subsequent Bench of the Tribunal was of the opinion that the earlier view taken by the coordinate Bench of the same Tribunal was incorrect, it ought to have referred the matter to a larger Bench so that the difference of opinion between the two coordinate Benches on the same point could have been avoided. It is not as if the latter Bench was unaware of the judgment of the earlier Bench but knowingly it proceeded to disagree with the said judgment against all known rules of precedents. Precedents which enunciate rules of law form the foundation of administration of justice under our system. This is a fundamental principle which every presiding officer of a judicial forum ought to know, for consistency in interpretation of law alone can lead to public confidence in our judicial system. This Court has laid down time Company Appeal (AT) No. 147 of 2022 10 of 12 and again that precedent law must be followed by all concerned; deviation from the same should be only on a procedure known to law. A subordinate court is bound by the enunciation of law made by the superior courts. A coordinate Bench of a court cannot pronounce judgment contrary to declaration of law made by another Bench. It can only refer it to a larger Bench if it disagrees with the earlier pronouncement.” We respectfully concur with these observations and are confident that all the courts and various tribunals in the country shall follow these salutary observations in letter and spirit.”
This Tribunal considering the submissions of the Appellant that the Appellant Company is a holding company and no new shares are being issued, the rights of the shareholders of the Appellant Company are not affected, the scheme does not involve reorganisation of the share capital and the net-worth of the Appellant Company post amalgamation would remain highly positive.
This Tribunal is of the view that the NCLT erred in not considering the decisions of this Tribunal which forms judicial precedents. We are of the view that rejecting the prayer of the of the Appellant is non-est and without application of mind.
Relying upon the decisions of this Tribunal and the Hon’ble High Courts, which squarely applicable to the facts of the present case and viewed in that perspective, this Tribunal comes to a resultant conclusion Company Appeal (AT) No. 147 of 2022 11 of 12 that the Appellant has made out a prima-facie case to be interfered with the order passed by the NCLT. Accordingly, the order passed by the NCLT dated 08.06.2022 in Company Application (CAA) No. 44/ND/2022 is set aside.
In fine, the Company Appeal (AT) No. 147 of 2022 is allowed with the following directions:
Convening meeting of shareholders of the Transferee Company/ Appellant Company is dispensed with.
ii) No order as to costs.
iii) Applications if any, pending stand closed.