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Judgment
The Appellant has filed the present appeal under Section 421 of the ‘Companies Act, 2013 (hereinafter referred as to ‘Act’) against the impugned order dated 26th August, 2022 in CA (CAA) No. 195/2022.) and impugned order dated 30th September 2022 in CA No. 464 of 2022 in CA (CAA) No. 195/2022) passed by National Company Law Tribunal, Mumbai Bench-V (hereinafter referred as to ‘Tribunal’).
The Appellant has filed these applications for approval of the scheme for capital reorganization of the Appellant company thereby providing for transfer of amounts standing to the credit of General Reserve to Retained Earnings.
The Appellant has urged for dispensation of meeting of Secured Creditors and Unsecured Creditors.
The Appellant has sought following reliefs:
That the Appellate Tribunal may be pleased to allow the present Appeal and declare that the requirement to obtain consent affidavits of all the secured creditors and unsecured creditors of at least 90% value of the unsecured creditors, in a scheme of arrangement under Section 230(1) (b) is contrary to the well-established law;
That the Appellate Tribunal be pleased to rectify Paragraphs 19 and 20 of the Impugned Order dated 26th August 2022 in Company Scheme Application No. CA(CAA) No. 195 of 2022 passed by National Company Law Tribunal Court V, Mumbai Bench;
That the Appellate Tribunal may be pleased to set aside Impugned Order dated 30.09.2022 in CA No. 464 of 2022 in CA(CAA) No. 195 of 2022 passed by National Company Law Tribunal Court V, Mumbai Bench etc.
The Tribunal in its order dated 26th August, 2022 has permitted holding of meeting of Equity Shareholders in accordance with the provisions of the Act and the Companies (Compromise, Arrangements and Amalgamation) Rules, 2016 as prayed by the Company. However, the Appellant company is assailing para 19 & 20 of the said order which are depicted as below:
“19.The Learned Counsel for the Applicant Company submits that as on of 31st March 2022 the Applicant Company has 227 Secured Creditors having an aggregate value of Rs. 3,10,53,53,71,281 details of which are annexed as to the Company Scheme Application. The present Scheme is an arrangement between the Applicant Company and its shareholders, under the provisions of Section 230 of the Companies Act, 2013. The Scheme provides for capital reorganisation of the Applicant Company, inter alia, providing for transfer of amounts standing to the credit of General Reserves to Retained Earnings of the Applicant Company. No consideration is proposed to be issued pursuant to the Scheme. Thus, the Secured Creditors of the Applicant Company shall, in no way, be affected by the Scheme, as there is no reduction in the amount payable to any of the creditors and no compromise or arrangement is contemplated with the creditors. Further, there is no outflow of cash from the Applicant Company and the Scheme would not in any way adversely affect the operations of the Applicant Company or the ability of the applicant company to honour its commitments or to pay debts in the ordinary course of business. Therefore, the convening and holding of a meeting of the Secured Creditors of the Applicant Company is dispensed with. The Applicant Company undertakes to serve notice to all their respective Secured Creditors by Registered Post-AD/Speed Post, and email-ids, if available with Applicant Companies and in case the e-mail ids are not available, by way of registered post acknowledge due enclosing a copy of Scheme, with instructions that they may submit their representations, if any, to the Tribunal within a period of 30 days from the date of receipt of such notice and copy of such representations shall simultaneously be served upon the Applicant Companies. It shall be the responsibility of the Applicant Companies to ensure that every Secured Creditors is put on notice regarding the Scheme, so that they may take an informed decision thereon and file consent affidavit of all Secured Creditors at the time of Filing of Company Petition.
20.The Learned Counsel for the Applicant Company submits that as on 31st March 2022 the Applicant Company has 3,656 Unsecured Creditors having an aggregate value of Rs. 1,08,93,26,59,597 the details of which are annexed to the Company Scheme. The Scheme provides for capital reorganisation of the Applicant Company, inter alia, providing for transfer of amounts standing to the credit of General Reserves to Retained Earnings of the Applicant Company. No consideration is proposed to be issued pursuant to the Scheme. Thus, the Unsecured Creditors of the Applicant Company shall, in no way, be affected by the Scheme, as there is no reduction in the amount payable to any of the creditors and no compromise or arrangement is contemplated with the creditors. Further, there is no outflow of cash from the Applicant Company and the Scheme would not in any way adversely affect the operations of the Applicant Company or the ability of the applicant company to honour its commitments or to pay debts in the ordinary course of business. Therefore, the convening and holding of meeting of the Unsecured Creditors of the Applicant Company is dispensed with. However, the Applicant Company is directed to issue notice to all their respective Unsecured Creditors, by Registered PostAD/Speed Post, and e-mail ids, if available with the Applicant Company and in case the e-mail ids are not available, by way of registered post acknowledge due enclosing a copy of the Scheme, with instructions that they may submit their representations, if any, to the Tribunal within a period of 30 days from the date of receipt of such notice, and copy of such representations shall simultaneously be served upon the Applicant Company. It shall be the responsibility of the Applicant Company to ensure that every Unsecured Creditors is put on notice regarding the Scheme, so that they may take an informed decision thereon and file consent affidavit of all Unsecured Creditors of at least the value of 90% Unsecured Creditors at the time of filing of Company Petition.”
Brief facts of the case:-
The Share Capital of the Appellant as on 31st March 2022 is as under:
The details of other equity including General Reserves (as defined in the Scheme) of the Appellant as on 31st March 2021 are as under:
The Board of Directors of the Appellant vide resolution dated 29th October 2021 has approved the said Scheme. The rationale of the Scheme is set out below:
I. “Over the years, the Company has built up significant reserves through transfer of profits to the reserves in accordance with provisions of the erstwhile Companies Act, 1956 and erstwhile rules notified thereunder, namely, the Companies (Transfer of Profits to Reserves) Rules, 1975.
II. Steady growth in sales volume, balanced capital expenditure for continuing operations has helped the Company achieve a strong track record of generating cash flows. With healthy business practices in place, the Company expects that it will continue its growth trajectory and its business operations will keep generating incremental cash flow over the coming years.
III. The Company is of the view that the funds represented by the General Reserves are in excess of the Company’s anticipated operational and business needs in the foreseeable future, thus, these excess funds can be utilized to create further shareholders’ value, in such manner and to such extent, as the Board of the Company in its sole discretion, may decide, from time to time and in accordance with the provisions of the Act and other Applicable Law.
IV. The Scheme is in the interest of all stakeholders of the Company.”
The equity shares of the Appellant are listed on the BSE Limited and National Stock Exchange of India Limited. The Appellant has already submitted the said Scheme with BSE Limited and National Stock Exchange of India Limited for their respective “no objection(s)” in compliance with Regulation 37 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and under SEBI Master Circular No. SEBI/ HO/ CFD/ DIL1/ CIR/ P/ 2021/ 0000000665 dated 23rd November 2021. The Appellant has received observation letters dated 7th April 2022 from National Stock Exchange of India Limited and 19th April 2022 from Bombay Stock Exchange Limited.
As on 31st March 2022, the Appellant had 227 Secured Creditors having a value of Rs 31053 Crore Approx. and 3,656 Unsecured Creditors having a value of Rs 10893 Crore Approx.
The Company Scheme Application was filed by the Appellant herein under Section 230 of the Act read with Companies (Compromise, Arrangement and Amalgamations) Rules, 2016 before Tribunal on 31.07.2022, wherein the Appellant inter alia sought directions for:
convening meeting of the Equity Shareholders of the Appellant and if thought fit, approve, with or without modification(s), the proposed Scheme of Arrangement between Vedanta Limited and its shareholders and (b) dispensing with the requirement of convening meetings for the secured creditors and unsecured creditors of the Appellant.
The Scheme provides for capital reorganization of the Appellant, inter alia, providing for transfer of amounts standing to the credit of General Reserves (as defined in the Scheme) to Retained Earnings (as defined in the Scheme) of the Appellant, pursuant to the provisions of Section 230 (1) and other applicable provisions of the Act. This Scheme also provides for various other matters consequent and incidental thereto.
The Appellant sought dispensation with the requirement of holding meetings of the secured creditors and unsecured creditors, broadly on the grounds that:
The Scheme is under Section 230(1)(b) of the Act, providing for capital reorganization of the Appellant and no consideration is proposed to be issued pursuant to the Scheme.
The creditors of the Appellant shall, in no way, be affected by the Scheme, as there is no reduction in the amount payable to any of the creditors and no compromise or arrangement is contemplated with the creditors.
Further, there is no outflow of cash from the Appellant. Thus, the Scheme would not, in any way, adversely affect the operations of the Appellant or the ability of the Appellant to honor its commitments or to pay its debts in the ordinary course of business.
Ld. Sr. Counsel Dr. A.M.Singhvi, appearing on behalf of the Appellant Company has tried to persuade the Bench that the direction of the Tribunal to the Appellant Company to mandatorily obtain consent affidavits from its creditors is unwarranted and is not backed by Judicial Precedence and the provisions of the Section 230 of the Act.
The Ld. Sr. Counsel also submitted that the scheme so proposed by the Appellant Company is an arrangement with its shareholder providing for transfer of amounts standing to the credit of General Reserve to Retained Earnings of the Appellants and the creditors are not affected by this and hence no consent from Creditor is mandated. He cited the judgment of Hon’ble High Court of Andhra Pradesh in the matter of Teck-men Tools (P.) Ltd.1 where he has submitted that the requirement of obtaining consent arises only, if the arrangement is between the company and its creditors and not with shareholders.
The Ld. Sr. Counsel further submitted that even Section 230 of the Act is not prescribing for mandatory obtaining consent certificate. The Creditors remained unchanged and there is no reduction in payment to creditors then why such requirement of their consent.
The Ld. Sr. counsel for the Appellant even cited the judgment of Nestle India Limited and suggested that this judgment provides for Non-holding of meeting of unsecured creditors unless they are affected by it. Similarly, Ld. Sr. Counsel also cited the order passed by the Hon’ble High Court of Bombay in the mater of Hindustan Unilever Limited (Company Summons for Directions 346 of 2016) to supplement his views that if a scheme is not prejudicial to the interest of creditors, then there is no requirement of holding meeting of creditors or dispensing that meeting. Similarly, the High Court of Punjab and Haryana in the matter of Sargon Geosynthetics Limited v/s Maccaferri Environmental Solutions Private Limited2 while dealing with the objection raised by an Unsecured Creditor objecting to the sanctioning of the Scheme without the approval of the creditors observed that unless it is proved that the scheme is fraudulent or that the scheme is likely to adversely affect their rights, the objection to waiver of meeting or scheme of amalgamation would not survive. Copy of the Order passed by High Court of Punjab and Haryana in Sargon Geosynthetics Limited v/s Maccaferri Environmental Solutions Private Limited. The Calcutta High Court in Bengal Tea Industries Ltd v/s Union of India3 while dealing with objections raised on behalf of the Regional Director observed that since the scheme did not provide for any arrangement with the creditors of the company nor adversely affects the interest of the creditors it is not necessary in law to call a meeting of the creditors and obtain their views on the scheme.
Since in the appeal there was no Respondent, this Tribunal vide order dated 14.10.2022 directed the Appellant to implead ROC Mumbai as party Respondent. Thereafter, we heard Ld. Sr. Counsel for the Appellant as well as Mr. Kamal Kant Jha, Sr. Panel Counsel, GOI who has appeared on behalf of ROC/Respondent alongwtih Mr. Ajay Panwar Assistant Registrar, ROC.
For brevity and clarity the views of the Respondent which covers also his submissions before this Appellate Tribunal are enumerated hereunder:
'...It shall be the responsibility of the Applicant Companies to ensure that every Secured Creditors is put on notice regarding the Scheme, so that they may take an informed decision thereon and file consent affidavit of all Secured Creditors at the time of Filing of Company Petition.'
The relevant portion of the para 20 of the Order under challenge in this Appeal is reproduced hereunder:-
'...It shall be the responsibility of the Applicant Company to ensure that every Unsecured Creditors is put on notice regarding the Scheme, so that they may take an informed decision thereon and file consent affidavit of all Unsecured Creditors of at least the value of 90% Unsecured Creditors at the time of Filing of Company Petition.'
3.That the appellant herein filed a CA No. 464 of 2022 in CA (CAA) No. 195 of 2022 before Hon'ble the National Company Law Tribunal, Mumbai and prayed for the rectification of paras 19 & 20 of the Order dated 26.03.2022 passed in CA(CAA) No. 195 of 2022.
4.That, Hon'ble National Company Law Tribunal, Mumbai Bench vide Order dated 30th September, 2022 dismissed the Application being devoid of merit and clarified in paras 3 &4 of the order as to why the conditions to file consent affidavits of the secured and unsecured creditors were imposed. The contents of the last few lines of para 3 and para 4 of the order dated 30.09.2022 are reproduced hereunder:-
"It is very difficult to draw a straight-line jacket formula with regard to exercise of judicial discretion. Admittedly, dispensing of meetings of creditors is a judicial discretion of the Tribunal, in which the petitioner has no role to play. Since this Tribunal has already exercised its discretion in dispensing the meetings, it is empowered to pass appropriate directions to protect the interest of other stakeholders, in consonance with section 230(9) of the Companies Act, 2013. The petitioner cannot insist this Tribunal to approve the scheme without complying either of the two.
4.This Tribunal, after observing from the petition that the Applicant Company has (i) 7,43,582 equity shareholders holding 371,71,99,039 equity share; (ii) NIL preference shareholders; (iii) 227 secured creditors having an outstanding amount of Rs.31053,53,71,281; and (iv) 3,656 unsecured creditors having an outstanding amount of Rs.10893,26,59,597 as on 31st March 2022 directed to file consent affidavits in the interest of the creditors.”
5.That the Appellant preferred the present appeal before this Hon’ble Tribunal against the order dated 26th August, 2022 (Paragraph 19 and 20) in CA(CAA) No. 195 of 2022 and order dated 30th September, 2022 in CA No. 464 of 2022 in CA(CAA) No. 195 of 2022 passed by the Ld. National Company Law Tribunal Court V, Mumbai Bench and this Hon’ble Appellate Tribunal was pleased to direct the Appellant herein to implead Registrar of Companies, Mumbai as Party Respondent by its Order dated 14th October, 2022.
6.That the Respondent herein finds no illegality in the said Orders as it is backed by a statutory provision, viz. Section 230 (9) of the Companies Act, 2013 that reads as under:-
‘230. Power to compromise or make arrangements with creditors and members.—(9) The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent. value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.’
7.That the Orders dated 26.08.2022 and 30.09.2022 passed by Hon’ble National Company Law Tribunal, Mumbai are well reasoned orders and they have been passed after taking into consideration the interests of all the stake holders.
Under these circumstances, the Respondent humbly prays that this Hon’ble Appellate Tribunal may graciously be pleased to dismiss the captioned Company Appeal and pass such other orders as this Hon’ble Appellate Tribunal may deem fit and proper.
It is necessary to reproduce the order dated 30.09.2022 passed by the Tribunal for better appreciation and clarity on the issue:
IN THE NATIONAL COMPANY LAW TRIBUNAL COURT V, MUMBAI BENCH
CA No. 464 OF 2022 IN CA(CAA) No. 195 OF 2022
Unsecured Creditors, issued the following directions at Para 19 and 20 as follows:-
Para 19 “It shall be the responsibility of the Applicant Companies to ensure that every Secured Creditors is put on notice regarding the Scheme, so that they may take an informed decision thereon and file consent affidavit of all Secured Creditors at the time of filing of Company Petition”.
Para 20 “It shall be the responsibility of the Applicant Company to ensure that every Unsecured Creditor is put on notice regarding the Scheme, so that they may take an informed decision thereon and file consent affidavit of all Unsecured Creditors of at least the value of 90% Unsecured Creditors at the time of filing of the Company petition”.
2.Aggrieved against the said direction, the Petitioner filed the present CA for deleting the above direction, with regard to obtaining the consent affidavits, in Para 19 and 20 of the said order dated 26.08.2022 on the ground that the Scheme sought to be approved by this Tribunal, is only a Scheme of arrangement between the Company and its shareholders, just for transfer of amounts standing to the General Reserves account, to the Retained Earnings account, and no consideration is proposed to be issued pursuant to the Scheme and the Scheme is a mere capital re-organization and the Secured Creditors and Unsecured Creditors shall in no way be affected, as there is no reduction in the amount payable to any of the class of the Creditors.
3.In support of their contention, the Petitioner relied on the ruling of the NCLT, New Delhi Bench, in the matter of Nestle India Limited in
IN THE NATIONAL COMPANY LAW TRIBUNAL COURT V, MUMBAI BENCH
CA No. 464 OF 2022 IN CA(CAA) No. 195 OF 2022
CA (CAA 30 of 2022) wherein the New Delhi Bench not only dispensed the requirement of holding of the meeting without insisting consent affidavits of both Secured and Unsecured Creditors. Insofar as the above referred order of the New Delhi Bench relied by the Petitioner is concerned, it is an order of the co-ordinate Bench of NCLT which is not binding on this Bench. Even otherwise, no law prescribes that judicial discretion has to be exercised by all the forums in a particular manner or in a particular fashion. The judicial discretion, on any issue, has to be exercised by a Court or a Tribunal keeping in mind the facts and circumstances of that particular case. It is very difficult to draw a straight-line jacket formula with regard to exercise of judicial discretion. Admittedly, dispensing of meetings of Creditors is a judicial discretion of the Tribunal, in which the Petitioner has no role to play. Since this Tribunal has already exercised its discretion in dispensing the meetings, it is empowered to pass appropriate directions to protect the interests of other stakeholders, in consonance with Section 230(9) of the Companies Act, 2013. The Petitioner cannot insist this Tribunal to approve the Scheme without complying either of the two.
1.4. This Tribunal, after observing from the Petition that the Applicant Company has (i) 7,43,582 equity shareholders holding 371,71,99,039 equity shares; (ii) NIL preference shareholders; (iii) 227 secured creditors having an outstanding amount of Rs. 31053,53,71,281; and (iv) 3,656 unsecured creditors having an outstanding amount of Rs. 10893,26,59,597 as on 31st March 2022 directed to file consent affidavits in the interests of the Creditors.
2.5. In this regard it is appropriate to mention here that recently a Two-Judge Bench of the Hon'ble Supreme Court, headed by Hon'ble Justice B. R. Gavai and Hon'ble Justice P. Narasimha, deprecated the practice of seeking clarification of a judgment through filing
IN THE NATIONAL COMPANY LAW TRIBUNAL COURT V, MUMBAI BENCH
CA No. 464 OF 2022 IN CA(CAA) No. 195 OF 2022
miscellaneous application for rectification/modification and the Hon'ble Supreme Court went one step ahead in imposing costs also on the Petitioner in filing such application.
Keeping in mind the above principle of law laid down by the Hon'ble Supreme Court and the facts and circumstances in this case, this Bench is of the considered view that it is not legally permissible to this Tribunal, to delete any part of its order, by sitting as a Court of appeal or revision, and the remedy of the Petitioner, if at all, he is aggrieved against the said order of the Tribunal, is to go for an appeal and not through the present Application.
Hence, there is no merit in the above Application and is liable to be dismissed. Accordingly, the above CA 464 of 2022 is dismissed.
We have carefully gone through the submission made by the Ld. Counsel for the parties, documents available on record and our observations are as under:
a. The undisputed fact are given hereunder:
Scheme of Arrangement – This Scheme of Arrangement provides for capital reorganization of the company, inter alia, providing for transfer of amounts standing to the credit of the General Reserve to the Retained Earnings of the Company. This scheme also provides for various other matters consequential thereto or otherwise integrally connected therewith.
Rational for the scheme – Over the yeas, the Company has built up significant reserves through transfer of profits to the reserves in accordance with provisions of the erstwhile Companies Act, 1956 and erstwhile rules notified thereunder, namely, the Companies (Transfer of Profits to Reserves) Rules, 1975.
“General Reserve” means and includes the amounts as reflected in the financial statement – Balance Sheet of the company, as ‘General Reserves’ under ‘Other Reserves’, which have been built primarily through transfer of retained undistributed profits, pursuant to the provisions of the companies Act, 1956 and the erstwhile Rules notified thereunder, namely the Company (Transfer of Profits to Reserves) Rules, 1975.
“Retained Earnings” means and include the amounts as reflected in the financial statements of the company, as ‘retained earnings’ under ‘Reserves and Surplus’, and representing the cumulative profit/(loss) of the company.
Paid up share capital of the company approx. Rs 372 Crores
Retained Earnings Rs. 13038 Crore, General Reserve Rs. 12,587 Crore
Secured Creditors Rs.31,053 Crore approx. includes nationalized banks, mutual funds, private sectors banks etc.
Unsecured Creditors Rs.10,893 Crores approx. includes small creditors of a value of Rs. 10,000 and above also.
Promoters Group shareholding percentage 69.69%
b. The hurting point for the Appellant company in the orders of Tribunal is that the Applicant company is directed to ensure that every secured creditor is put on notice regarding the scheme and so also every unsecured creditor is put on notice regarding the scheme so that all of them may take an uniformed decision thereon and file consent affidavit of all secured creditors and in respect of unsecured creditors 90% of the value of unsecured creditors at the time of filing of company petition.
c. BSE vide e-letter dated 19.04.2022 has put certain conditions which includes followings:
•“As per SEBI Circular dated Feb 01, 2022 read with Master Circular, the company is required to submit “No Objection Certificate” from the lending scheduled commercial banks/Financial institutions debentures trustees, from not les than 75% of the secured creditors in value.
•Company shall ensure that the financials in the Scheme including financials considered for valuation report are not for period more than 6 months old.
•Company shall ensure to separately and prominently disclose to the shareholders and NCLT via the draft scheme of arrangement documents following information/ facts:
i.The rationale for transferring Rs. 12,587 Crore standing to the credit of the General Reserve to the Retained Earnings of the Company for the previous financial years.
ii.Explain the purpose behind the proposed transfer of funds from one of the free reserve account to another account through the scheme.”
d. The Scheme reflects that the fund reflected by General Reserve are in excess of the companies anticipated operational and business needs in the forcible future and meant to create further shareholders value in such manner as the Board of the Director of the Company in its sole discretion decide from time to time. This reflects not a healthy sign when approx.70% of the shareholding is with the promoters and company debt content is 3 times of (Equity + General Reserve) and if we remove General Reserve which is a free reserve to provide cushion to the creditors then Debt content is one 13982 times of Equity. Once amount lying in General Reserve infrastructure to Retained Earnings, then Board of Directors approved Resolution allows free hand to Directors to even issue Bonus shares or pay Dividend etc.
e. The General Reserve provides a cushion to the creditors of the company, be it bankers or other secured and unsecured creditors. The Company seems to be highly debt leverage. In such situation, General Reserve provides at least some cushion to the bankers and other creditors.
f. At page 110 of the Appeal paper book, the Company Secretary and Compliance Officer has given an undertaking for non-applicability of valuation report and fairness opinion for the scheme of arrangements between the company and its shareholders as applied before the Tribunal under Section 230 of the Act is also not a very healthy sign as also not in compliance of BSE e-letter dated 19.04.2022. Valuation report and fairness opinion are a must for the Scheme of Arrangement so that for the listed company, the Stakeholders are fully aware of the impact.
g. As far as citations of various judgments are concerned, it is not appliable as the health of each company varies. Like the judgment cited by the Ld. Sr. counsel for the Appellant, Hon’ble High Court of Andhra Pradesh Teck-men Tools (P.) Ltd as stated supra para 28 & 30 read as under:
“28 In the light of the settled legal position that the court has no power to usurp the rights of the class of members or creditors to decide for themselves whether or not to approve the scheme, even if it considers that they would have approved the scheme (Palmer's Company Law), would the court be justified in examining the scheme and recording its satisfaction that the interests of the creditors are not affected, when these are matters which the creditors should have been permitted to examine and decide for themselves in a meeting to be called for this purpose?
30 The court should, ordinarily, exercise its discretion, in favour of convening a meeting of the creditors, even in a scheme of arrangement between the company and its members for the safest way of ascertaining, whether or not the creditors are adversely affected by the scheme, would be in a meeting of the creditors themselves, which the court, undoubtedly is entitled to convene under sub-section (1) of section 391. Dispensing with the holding of a meeting of the creditors should be an exception and not the norm. Among the exceptional circumstances would fall cases where the creditors of a class, either in their entirety or by a substantial majority, have given their letters of consent to the scheme of arrangement, obviating the need of holding a meeting of that class, as holding a meeting, in such an eventuality, would merely be an empty ritual and a useless formality. Even in exceptional cases, where the court is satisfied that a meeting of the creditors need not be held, it should record its reasons in arriving at such a decision. In cases where a meeting of the creditors is held, the court would ascertain their wishes looking not only at the resolutions passed in their meeting but also at the report of the chairman of the meeting which would contain details of the proceedings in brief and the views expressed by the creditors in the meeting (I.C.I.C.I Ltd., in Re 104 Bom, LR 399: (2003) 115 Comp Cas 465 (Bom).” Other cited judgments of Appellants also required ascertaining the impact of Scheme whether it is prejudicial to the interest of creditors?
h. In view of the aforesaid observations including assistance provided by the RoC, Mumbai, it is very much clear that the order of the Tribunal deserves to be uphold and rather scheme should have been rejected, if it was not backed by valuation report, fairness opinion and consent of Secured and Unsecured Creditors as required by Section 230(9) of the Act which requires vide Section 230 (1) of the Act a compliance even if compromise or arrangement is proposed between a company and its members or between a company and its creditors etc. For a ready reference, the Section 230 of the Act is depicted herein below:
“230.(1) Where a compromise or arrangement is proposed—
(a)between a company and its creditors or any class of them; or
(b)between a company and its members or any class of them,
the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a Company Appeal (AT) No. 181-182 of 2022 company which is being wound up, of the liquidator, appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,] order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs.
Explanation.—For the purposes of this sub-section, arrangement includes a re-organisation of the company’s share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods.
(2)The company or any other person, by whom an application is made under sub-section (1), shall disclose to the Tribunal by affidavit—
(a)all material facts relating to the company, such as the latest financial position of the company, the latest auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against the company;
(b)reduction of share capital of the company, if any, included in the compromise or arrangement;
(c)any scheme of corporate debt restructuring consented to by not less than seventy-five per cent. of the secured creditors in value, including—
(i)a creditor’s responsibility statement in the prescribed form;
(ii)safeguards for the protection of other secured and unsecured creditors;
(iii)report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board;
(iv)where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and
(v)a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer.
(3)Where a meeting is proposed to be called in pursuance of an order of the Tribunal under subsection (1), a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address registered with the company which shall be accompanied by a statement disclosing the details of the compromise or arrangement, a copy of the valuation report, if any, and explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and the debenture-holders and the effect of the compromise or arrangement on any material interests of the directors of the company or the debenture trustees, and such other matters as may be prescribed: Provided that such notice and other documents shall also be placed on the website of the company, if any, and in case of a listed company, these documents shall be sent to the Securities and Exchange Board and stock exchange where the securities of the companies are listed, for placing on their website and shall also be published in newspapers in such manner as may be prescribed: Provided further that where the notice for the meeting is also issued by way of an advertisement, it shall indicate the time within which copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the registered office of the company.
(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.
(5)A notice under sub-section (3) along with all the documents in such form as may be prescribed shall also be sent to the Central Government, the income-tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the Registrar, the respective stock exchanges, the Official Liquidator, the Competition Commission of India established under sub-section (1)of section 7 of the Competition Act, 2002, if necessary, and such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals.
(6)Where, at a meeting held in pursuance of sub-section (1), majority of persons representing three fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator [appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be,] and the contributories of the company.
(7)An order made by the Tribunal under sub-section (6) shall provide for all or any of the following matters, namely:—
(a)where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable;
(b)the protection of any class of creditors;
(c)if the compromise or arrangement results in the variation of the shareholders’ rights, it shall be given effect to under the provisions of section 48;
(d)if the compromise or arrangement is agreed to by the creditors under sub-section (6), any proceedings pending before the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall abate;
(e)such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement: Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133.
(8)The order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order.
(9)The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent. value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.
(10)No compromise or arrangement in respect of any buy-back of securities under this section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of section 68.
(11)Any compromise or arrangement may include takeover offer made in such manner as may be prescribed: Provided that in case of listed companies, takeover offer shall be as per the regulations framed by the Securities and Exchange Board.
(12)An aggrieved party may make an application to the Tribunal in the event of any grievances with respect to the takeover offer of companies other than listed companies in such manner as may be prescribed and the Tribunal may, on application, pass such order as it may deem fit.
Explanation.—For the removal of doubts, it is hereby declared that the provisions of section 66 shall not apply to the reduction of share capital effected in pursuance of the order of the Tribunal under this section.”
Hence, we do not find any inconformity in the order of the Tribunal which is backed by both the provisions of the Act, law laid down by the Hon’ble High Court, the health of the company which is highly debt leveraged.
j. We accordingly, ‘uphold’ the order passed by the Tribunal. The Appeal deserves to be dismissed and is dismissed. No order as to cost.
k. The ‘Registry’ is directed to send a copy to this order to the ‘Registrar of Companies, Mumbai’ and also to ‘National Stock Exchange’ and ‘Bombay Stock Exchange’.
Pending application, if any, stands disposed of.