Re Sustainability Limited, Mumbai Waste Management Limited, Ramky Sustainability Solutions Private Limited

(Hybrid Mode)

Per : Justice Sharad Kumar Sharma, Member (Judicial):

The brief facts of the case are that;

The Appellants, in the instant Company Appeal (AT) (CH) No. 66 / 2025 happen to be Re-Sustainability Limited (Appellant No. 1 / the Amalgamated Company / Demerged Company), Mumbai Waste Management Limited (Appellant No. 2 / Amalgamating Company), and Ramky Sustainability Solutions Private Limited (Appellant No. 3 / Resulting Company).

On 18.01.2024, the Board of Directors of Appellant No. 1, 2 & 3 had conducted their respective Board Meetings and approved the Composite Scheme of Arrangement between the Appellant Companies, their Shareholders and the Creditors.

Upon entering into a Composite Scheme of Arrangement, the Appellant Companies filed a Company Application being CA (CAA) / 8 / 230 / HDB / 2024 (First Motion Petition), before the Ld. NCLT, Hyderabad Bench – II, on 09.02.2024, under Section 230-232 of the Companies Act, read with the Companies (Compromises, Arrangements And Amalgamations) Rules, 2016, seeking directions to convene meetings of Equity Shareholders, Preferential Shareholders, Secured & Unsecured Shareholders of the Appellants Companies and to dispense with certain meetings.

In the proceedings of the CA (CAA) / 8 / 230 / HDB / 2024 (First Motion Petition), the Ld. Tribunal considered the contents of the Scheme of Arrangement as it stood approved by the Board on 18.01.2024, and proceeded to pass an order on 06.05.2024 allowing the same. However, certain errors had crept in the said order passed by the Ld. Adjudicating Authority which was brought to its knowledge by the Appellant Companies, by way of filing a Memorandum. The Ld. Adjudicating Authority took cognizance of the said errors as it was pointed out by the Appellant Companies which had crept in the order dated 06.05.2024, and passed a Corrigendum on 09.05.2024 rectifying the said errors.

Consequent to passing of the order dated 06.05.2024 and the Corrigendum of 09.05.2024, Ld. NCLT ordered the Appellant Companies to convene certain meetings and permitted dispensing with certain meetings as proposed by them, in order to carry forward the motion of their Scheme of Arrangement under Section 230 – 232 of the Companies Act.

The Appellant Companies, conducted the meeting after giving notice as required under law, in compliance of the directions given in the order of 09.05.2024, which was in qualification and in continuation to the order of 06.05.2024, where the Composite Scheme of Arrangement was approved by the respective Shareholders and Creditors of the Appellant Companies and thus, complied with the directions of the First Motion Petition Order dated 06.05.2024 to be read with the Corrigendum Order of 09.05.2024.

Thereafter, the Appellant Companies filed the Second Motion Petition being CP (CAA) / 30 / 230 / HDB / 2024, seeking sanction of the Composite Scheme of Arrangement. The said Petition came up for consideration before the Ld. NCLT on 13.07.2024 and as a first step, notices were issued to all the Statutory Authorities, who are concerned with the said Composite Scheme of Arrangement, and the notice of hearing with the date of hearing as 25.10.2024 was directed to be published in two Newspapers, in order to provide an opportunity to all parties who are likely to be affected consequent to implementation of the Composite Scheme of Arrangement. The Appellant Companies, complied with the said directions by carrying out the paper publication on 08.10.2024 and served notice to Regional Director, Registrar of Companies, Official Liquidator and Jurisdictional Income Tax Authority.

In the subsequent proceedings, which was held in CP (CAA) No. 30 / 230 / HDB / 2024 (i.e., the Second Motion Petition), the Official Liquidator, the Regional Director and the Registrar of Companies filed their reports in respect of the Composite Scheme of Arrangement under Section 230 – 232 of the Companies Act, 2013.

In furtherance thereto, the Appellant Companies filed their reply affidavits in response to the reports of the said Statutory Authorities and also filed clarification by way of affidavits and henceforth.

The Appellant Companies were heard on the aspect of implementation of the Composite Scheme of Arrangement and ultimately, the final order was rendered by the Ld. Tribunal on 28.04.2025.

Parts of this order, which has been rendered by the Ld. Adjudicating Authority in CP (CAA) No. 30 / 230 / HDB / 2024, has been challenged in the instant Company Appeal, by the Appellant Companies. The reliefs sought for in the instant Appeal are extracted below:

``78. In view of the facts mentioned in Paragraph No. VII above, points in dispute and questions of law set out in Paragraph No. VIII and grounds set out in Paragraph No. IX, the Appellant prays for the following relief(s):

in CP(CAA) No.30/230/HDB/2024 (as produced as Annexure A).

The primary grievance of the Appellants is against the directions given in Para 4 of the impugned order for filing of a separate application for demerger. The said Paragraph is extracted hereunder:

``4. This order will deal with the proposed Scheme only to the extent of the amalgamation of Petitioner Company-2 (the Amalgamating Company) into and with Petitioner Company-1 (the Amalgamated Company) to result in Petitioner Company-3 (the Resulting Company). With respect to the Demerger part of the Scheme, as it is contemplated after the amalgamation of Petitioner Company-2 (the Amalgamating Company) into and with Petitioner Company-1 (the Amalgamated Company) to result in Petitioner Company-3 (the Resulting Company) is completed, the same must be submitted as a separate application, so that the requisite statutory compliances pertaining to the demerged businesses may be independently examined and scrutinized.’’

It is the case of the Appellants that, while considering the Scheme, the Ld. Tribunal did initiate the process of sanctioning the Composite Scheme of Arrangement as approved by the Shareholders of the Appellant Companies by allowing the First Motion Petition, that the Composite Scheme had two limbs – Amalgamation between Appellant No.1 and Appellant No. 2 and simultaneous demerger of certain businesses from Appellant No. 1 to be merged with Appellant No. 3 and that, by the impugned order, Ld. NCLT denying sanction of demerger part of the Scheme, on the ground that the demerger must be submitted as a separate application, runs counter to the Composite Scheme of Arrangement as it was approved by the Shareholders of the respective Appellants.

If we look into the Impugned Order, in a nutshell, while considering the Scheme, the Ld. Tribunal did proceed to sanction the Composite Scheme of Arrangement based upon the decision taken in Shareholders’ Meeting of the Appellant Companies, by allowing the First Motion Petition. However, by the impugned order, the aspect of demerger, though it was a self-contained second limb as contemplated under the Composite Scheme of Arrangement, was denied, observing that a separate application was to be filed.

While denying to pass an order on demerger, the Ld. Tribunal observed that, since, as a consequence of amalgamation of Petitioner No. 2 Company (the Amalgamating Company), with Petitioner No. 1 Company (the Amalgamated Company), a Resulting Company (Petitioner No. 3 Company) will come into existence which is not specified under the Scheme of Arrangements. It has further observed that, though, the Board Resolutions as well as the Shareholders’ Meeting proceedings recommended for approval to be granted to the Composite Scheme of Arrangement, since the Resulting Company which would come into existence as a consequence of amalgamation, has not been clearly identified, the demerger of the same as being sought for, cannot be sanctioned at this stage because it will amount to demerging of an “unspecified Demerged Company”, and that demerger proposal must be submitted as a separate application as requisite statutory compliances pertaining to demerged businesses may be independently examined.

Accordingly, the Ld. Tribunal, in its order, observed that the order dated 28.04.2025 would only be dealing with and be limited to the extent of amalgamation of Petitioner No. 2 (the Amalgamating Company), into Petitioner No. 1 (the Amalgamated Company), resulting in the creation of Petitioner No. 3 (the Resulting Company).

For the purposes of the demerger of the Resulting Company, i.e., Petitioner No. 3, the Ld. Tribunal observed that the same would have to be resorted to by recourse to a separate process of law, by filing a separate application independently to examine and scrutinize the conditions precedent required to be satisfied for the purposes of passing of any order for demerging the companies, particularly when the demerging entity was not specified under the Scheme itself.

The case of the Ld. Counsel for the Appellant, while putting forth a challenge to the part of the impugned order denying the demerger of the Resulting Company, is on the ground that the impugned order dated 28.04.2025 is contrary to the fundamental structure of the Composite Scheme of Arrangement that was approved as a whole by the Shareholders and the Creditors of the Appellants, and that it is a manifest error that had crept into the orders passed by the Ld. Adjudicating Authority.

The case of the Appellant is that, since they had approached the Ld. Adjudicating Authority seeking sanction of the Composite Scheme of Arrangement between the Appellants and their Shareholders and Creditors, the Scheme sanctioned should have included the aspect of demerger, because the amalgamation and demerger together constituted parts of the Composite Scheme itself, as particularly contained in the preamble of the Scheme under Clause 1.1 & 1.2. Clause 1.1 states that the Composite Scheme of Arrangement is being presented under Section 230-232 of the Companies Act, 2013, read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, and further read with Section 2(1)(B), 2(19)(AA), 2(19)(AAA) & 2 (41A) of the Income Tax Act, 1961, Clause 1.2 outlines how the amalgamation and the demerger are to be carried out.

The case of the Appellant is that since the approved Composite Scheme of Arrangement had, as its basic objective, two limbs of implementation, namely, amalgamation and demerger as contained in Clause 1.2, without there being any objection thereto from the Statutory Authorities, the relief of demerger ought to have been granted as well and that since the legal reckoning of the Scheme was in its entirety, it has to be implemented together and cannot be split at the stage of implementation.

Clause 1.2 of the Composite Scheme of Arrangement is extracted as under:

``1.2 The Scheme, inter alia, provides for:

The Appellant has further submitted that, in accordance with the order of the first motion dated 06.05.2024 and its Corrigendum order dated 09.05.2024, the Ld. Tribunal had issued directions to conduct the meetings of the Equity Shareholders, Preferential Shareholders, Secured Creditors, and the Unsecured Creditors of the three Appellant Companies (that is, the Amalgamated Company, the Amalgamating Company, and the Resulting Company), and to get their approval of the Scheme.

The Appellant has submitted that once the directions were already issued by the Ld. Tribunal by the orders dated 06.05.2024 and the Corrigendum Order dated 09.05.2024, while reckoning the Scheme, that in itself would entail that the Ld. Tribunal had positively considered the aspect of demerger also, as it was sought under Clause 1.2(b) of the Scheme. Hence, it ought to be deemed to have been approved, more particularly when the entire process of amalgamation and the consequential demerger had been brought into the public domain by inviting objections through publication and issuance of notices to the Statutory Authorities, and none of them raised any objection to the Scheme as a whole and its two self-contained limbs of amalgamation and demerger.

In that eventuality, it is argued by the Ld. Counsel for the Appellant that there was no occasion for the Ld. Tribunal to have carved out an exception on its own, requiring that for the purposes of demerger, a separate recourse be followed.

It is apparent from the records that after the First Motion Petition had already been allowed, a meeting was convened on 04.07.2024 in compliance with the orders dated 06.05.2024 and 09.05.2024. Further, even at the stage when the second motion was carried before the Ld. Adjudicating Authority, on 16.07.2024, the Scheme continued to proceed in terms of the order of the First Motion Petition, which was later affirmed in the second motion Petition without any demur. Since there was no vital or circumstantial change, the conditions imposed in form of filing of a separate application for demerger would be irrational.

It could be said that, inter alia, while sanctioning the Scheme in Second Motion Petition on 28.04.2025, there was no practical impediment before the Ld. Adjudicating Authority necessitating attachment of a rider on its own, as contained in Paragraph 4 of the impugned order, deferring the sanction of the component of demerger as sought for, and issuing directions that the demerger proposal be submitted by filing a separate application.

Besides that, we observe that, the relevant documents for the instant case are the reports filed by the Official Liquidator before the Ld. NCLT on 05.11.2024 and 19.12.2024, and the response affidavit filed by the Appellants thereto, as well as the reports submitted by the Regional Director and the Registrar of Companies on 13.11.2024, 21.11.2024 and 30.01.2025 respectively and the replies submitted thereto, supported by the additional synopsis submitted by the Appellants. The aforesaid reports were considered in the second motion proceedings held on 07.02.2025, subsequent to which, the order was reserved on the Composite Scheme of Arrangement by an order passed on 07.02.2025. We find that there was no other material placed before the Ld. NCLT to take a contrary view of partial denial of demerger.

We further observe that upon consideration of the reports of the Official Liquidator, RoC, and RD, Ld. NCLT could have called for clarifications if any, from them which has not been done and that, in the absence of the same, and with none of the reports suggesting `Demerger’ to be taken up later, there was no rationale or reason to take a view contrary to the Scheme of Arrangement, as proposed by the respective Companies (Appellants) after getting the same approved by their Shareholders and Creditors.

The Appellants have challenged the findings recorded by the Ld. NCLT in the Paragraph Nos. 3, 4 & 26(i) of the impugned order, deferring the passing of orders on the aspect of demerger on the ground that the demerger was sought in respect of an “unspecified undertaking”, and have contended that the same was contrary to the records and was based on a misreading of the documents on record, including the Scheme of Arrangement itself. They have argued that the Composite Scheme of Arrangement, particularly as contained in Paragraph 1.1, clearly refers to the Demerged Company as the entity created upon amalgamation, namely, the Amalgamated Company of Appellant No. 1, and that, the ``Demerged Business’’ and the ``Demerged Undertaking’’ have been specifically defined in Paragraph 5.1(l) & 5.1(p) of the Composite Scheme of Arrangement. Hence, based on the aforesaid premise, and that in light of the stipulations contained under Paragraph 5.1(p), the demerged company, having been specified therein, cannot be treated as an unspecified Company, and therefore, the demerger could not have been denied. We see no reason to differ from the said arguments. The definition of the demerged undertaking itself, as contained under Clause 5.1(p) of the Scheme, reads as under:

It is hereby clarified that where any question arises as to whether any specific asset whether tangible or intangible, or liability or contract or employee or item or matter or thing pertains to or does not pertain in the Demerged Undertaking, the same shall be decided mutually by the Boards of the Demerged Company and the Resulting Company’’.

If we judiciously scrutinize the elaboration of the demerged undertaking as contained in Paragraph 5.1(p), which the Ld. Counsel for the Appellant has referred to in order to meet the objections raised by the Ld. Tribunal in the impugned order regarding the demerged company being unspecified, it is seen that the definition / description of ``Demerged Undertaking’’ lists out in detail its rights, obligations, assets and liabilities as on the appointed date.

On reading Clause 5.1(p) itself along with Clause 1.1 and Clause 1.2(b), the same contradicts the finding recorded by the Tribunal in Paragraphs 3, 4, and 26(i), that the Scheme does not specify the demerged company, as sought under Clause 1.1 read with Clause 1.2 of the Scheme. Clause 1.1 specifies Re Sustainability Limited as the ``Amalgamated Company’’, and upon Amalgamation, the ``Demerged Company’’ and Clause 1.2(b) envisages demerger of the ``Demerged Undertaking’’ as defined in Clause 5.1(p) of the Demerged Company into and with the ``Resulting Company’’. At this point, to hold that the ``Demerged Undertaking’’ and the `Demerged Company’’, are unspecified would amount to a perverse interpretation.

The Ld. Counsel for the Appellant has argued the controversy from the perspective that since the Scheme was composite in accordance with the implications of Clause 46 of the Scheme, amalgamation and demerger are two inseparable parts and demerger would be an automatic consequence upon the amalgamation and that any deviation therefrom would amount to a patent error.

In view of what has been discussed by us in the aforesaid paragraphs, the entire controversy lies in a very narrow compass, because there happens to be a partial challenge to the impugned order, where the Ld. Tribunal, while sanctioning the Scheme of Arrangement, had restricted the approval to the Scheme of Amalgamation only and directed that the demerger process, as it has been contemplated to be taken up after completion of amalgamation process, and must submit a separate application seeking the requisite direction for demerger, subject to compliance with the statutory provisions.

The observation made therein was on the ground that the Scheme itself did not specify the Demerged Undertaking and therefore demerger should be applied for separately after completion of amalgamation. In fact, this finding recorded in the impugned order happens to be contrary to the records, for the reason that the Scheme was a Composite Scheme and not a step by step process. Clause 1.1 and 1.2 of the Scheme are extracted hereunder:

``1.1) This composite scheme of arrangement (``Scheme’’, more particularly defined hereinafter) is presented pursuant to the provisions of Sections 230 to 232 and other applicable provisions of the Act (as defined hereinafter) read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, Section 2(1B), 2(19AA), 2(19AAA), 2(41A), conditions, if any, notified under sub-section (5) of Section 72A of the IT Act and other relevant provisions of the IT Act amongst Re Sustainability Limited (``Amalgamated Company’’ or, upon Amalgamation, the ``Demerged Company’’), Mumbai Waste Management Limited (``Amalgamating Company’’), Ramky Sustainability Solutions Private Limited (``Resulting Company’’) and their respective shareholders and creditors.

1.2) The Scheme, inter alia, provides for:

Thus Clause 1.1 and Clause 1.2, on their conjoint reading, provide as to which would be the ``Amalgamated Company / Demerged Company’’ and which would be the ``Resulting Company’’.

In view of the aforesaid Clauses, there was no ambiguity in the Scheme which was otherwise perceived by the Ld. Tribunal to conclude that since the Demerged Company or its business was not specified in the Scheme itself, the same was required to be processed through independent proceedings. The said finding recorded by the Ld. Tribunal happens to be contrary to Clauses 1.1 and 1.2, because when they themselves, in quite specific terms, specified the emergence of a “Demerged Company” as a consequence of the Amalgamation, which had been permitted by the impugned order, and in that event, filing a separate application for demerger would amount to an abuse of process, particularly when the parties to the proceedings were agreeable to the Demerged Company forming as a consequence of the Amalgamation.

Further, a reading of Section 232 of the Companies Act together with Section 2(19AA) of IT Act, a Scheme which includes demerger can be sanctioned by NCLT / NCLAT, and it is well within the powers conferred u/s. 230-232 of Companies Act. Ld. Counsel for the Appellant has cited several cases where such composite schemes involving merger and demerger on simultaneous basis have been sanctioned by NCLT / High Courts. Hence, for the purpose of the aspect of demerger, as it was sought under the Scheme itself, which was to consequentially come into existence after the Amalgamation, no independent process is required to be resorted to by the Appellants for seeking a demerger as proposed in the Scheme of Arrangement as contained under Clause 1.1 read with Clause 1.2.

Further, it is seen that, the Ld. NCLT has, by only sanctioning the Amalgamation and directing a separate application to be filed for the Demerger has considerably altered the terms of the Composite Scheme, which ought not to have been done since the Composite Scheme was approved by the board of directors, shareholders and creditors in their commercial wisdom. This settled position has been laid down by the Hon’ble Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579 at Paragraph 29 which is extracted hereunder:

``29… It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court. The Court certainly would not act as a court of appeal and sit in judgment over the informed view of the parties concerned to the compromise as the same would be in the realm of corporate and commercial wisdom of the parties concerned. This Court has neither the expertise nor the jurisdiction to delve deep into the commercial wisdom exercised by the creditors and members of the company who have ratified the Scheme by the requisite majority. Consequently, the Company Court’s jurisdiction to that extent is peripheral and supervisory and not appellate…’’

Accordingly, it is held that, since the Demerged Company has quite specifically been specified in Clause 1.1 of the Scheme as “Re-Sustainability Solutions Limited”, no independent application is required under law to be submitted as directed by the impugned order for the purpose of consideration of the demerger, particularly when, by the judicial process, the Tribunal had sanctioned the proposal of Amalgamation, which would automatically lead to undertaking of the process of demerger as specified in the Composite Scheme of Arrangement.

Ld. Counsel for the Appellants have also submitted that the impugned order suffers from certain factual errors as contained in Para 26(i), 26(ii) & 26(viii) of the said order. He has stated that, in Para 26(i), it is recorded that the amalgamation shall be ``effective from the date of this order’’, which is erroneous as the Scheme defines ``the effective date’’, for the Scheme under Clause 5(1)(s) and NCLT ought not to have altered the same. In Para 26(i) & 26 (viii), the impugned order records resulting in Petitioner Company No. 3 (the Resulting Company). Actually, Petitioner No. 3 Company is already in existence and the Scheme envisages merging of the Demerged Business into this Company. Thus, it is seen that the portions of the order occurring in Para 26(i) & (viii) which is being challenged by the Appellant, are liable to be set aside. In Para 26(ii), the order records that the Approval for the amalgamation is subject to the outcome of the Petition filed against the Amalgamated Company under Section 433(E), 434(1)(A) and 439 of Companies Act, 1956, pending before Hon’ble High Court of Telangana & Andhra Pradesh. The Appellant states that the Petition is not yet admitted. In Para 24 of the impugned order, Ld. NCLT also records that the said Petition has not been admitted. In such a situation, it is not necessary to put such a rider especially when no objections have been received in response to the public notice by Ld. NCLT. Hence Para 26(ii) also deserved to be deleted.

The aforesaid directions, with regard to the reckoning of the demerged undertaking, which have been observed by us on the strength of the Scheme itself, shall not operate as any exception or exemption with regard to the payment of stamp duty, taxes, or other statutory charges, if any, payable in accordance with law, or in respect of any permission, compliance, or any other requirement which may be specifically required to be complied with as per the provisions of law. The same shall continue to be obligatory upon the Demerged Company and the Resulting Company.

Subject to the aforesaid, the Company Appeal stands allowed, limited to the extent to which it has been challenged, namely, that the demerger, as a consequence of the approval of the Scheme of Arrangement granted by the order dated 28.04.2025, and the existence of the Demerged Company, would be purely consequential to the terms of the Scheme of Arrangement, for which no independent application would be required, since there was no ambiguity ever observed from any quarter in the Scheme with regard to the Demerged Company not being specified in accordance with the Scheme. Accordingly, no separate application is necessary to be filed by the parties with regard to the demerger.

Thus, the Company Appeal (AT) (CH) No. 66 / 2025 stands allowed, limited to the extent of the relief sought in the present Company Appeal, as extracted in Para 9 above, subject to the restrictions already observed with regard to the liability for payment of taxes and other dues payable by the Demerged Company in accordance with the applicable provisions of law. This order shall not be construed as granting any exemption or exception to the Demerged Company and the Resulting Company from the payment of any statutory dues, or from any statutory compliances.

The connected pending Interlocutory Applications, if any, will stand closed.