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2017 (5) TMI 1764 - Tri - Companies LawScheme of compromise or arrangement - Jurisdiction - power of Tribunal to grant dispensation of the shareholders' meeting regarding the proposed scheme of amalgamation where all the shareholders have given consent - scope of Companies Act - Companies Act, 2013 has authorized only for the dispensation of the meeting of creditors where creditors having at least 90% value agreed and confirmed by way of an affidavit scheme - the matter was heard before the Bench - both the member differ on certain points and gave separate judgements and on that basis the matter was referred to the Hon'ble President under the provisions of Section 419(5) of the Companies Act, 2013 for constituting larger Bench - matter was then referred to the 3rd Member, Ms. Manorama Kumari, Member (Judicial). HELD THAT - Hon'ble President, NCLT referred the matter to the 3rd Member, Ms. Manorama Kumari, Member (Judicial) who has given a separate judgement and has passed order, which is annexed herewith as Annexure C. As per Ms. Manorama Kumari, Member (Judicial), There is imperative need to examine Section 230 and Section 232 of the Companies Act, 2013 and Rules made thereunder including the NCLT Rules, 2016 in the context of the objectives of the new Act and the legislative history behind this subject - Section 230(3) Companies Act, 2013 and Section 232(2) of the said Act and Rule 6 of the Companies (Compromises, Arrangements and Amalgamations Rules 2016, both start with the word Where and this has to be read with the word may as mentioned hereinabove. Now a question arises, that what was the legislative intent and the ratio decidendi behind using the word may and it is important to understand as to why the High Courts have exercised discretion under Section 391(1) of the Companies Act, 1956. It has to be accepted that the word may introduces an element or an essence of discretion and whenever the question of discretion comes in, authority follows and perhaps that is the reason why the authority and the inherent powers are granted so that in the interest of justice the same can be exercised in appropriate situations. It cannot be ignored that almost all the High Courts have exercised this discretion since long and dispensed with the calling of the meetings in appropriate situations. The precedents created by the High Courts to dispense with the requirement of convening the meetings are worth and continuation of such precedents are virtue in the era of ease of doing businesses as well as future course of corporate actions. A settled issue should not be unsettled without proper reasons. Thus the notion that calling of meetings is mandatory does not stand. In this case, number shareholders of both the applicant companies are very small (including majority common shareholders) and all of them have given their consents for the scheme in writing and the financial position of applicant/ amalgamated company shall have positive net worth post effectiveness of the Scheme and there has been no compromise with the creditors and that the respective creditors would, in no way, be affected by the scheme and that all the liabilities of the Amalgamating Company shall stand transferred to the Amalgamated Company. Scheme does not contemplate any corporate debt restructuring exercise. Section 232 of the Companies Act, 2013 is a specific provision carved out by the legislature when both the conditions mentioned in clauses (a) and (b) of sub-section (1) of Section 232 of the said Act are satisfied - The Tribunal is empowered to take appropriate steps in the interest of justice under Rule 11 of National Company Law Tribunal Rules, 2016 read with Rule 24(2) of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. Various directions regarding holding, convening as well as dispensing of various meetings issued. Application allowed.
Issues Involved:
1. Power of the Tribunal to dispense with shareholders' meeting for a proposed scheme of amalgamation. 2. Compliance with Section 230 and 232 of the Companies Act, 2013. 3. Interpretation and application of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. 4. Precedents and judicial discipline regarding dispensation of meetings. 5. Practical considerations and inherent powers of the Tribunal. Issue-wise Detailed Analysis: 1. Power of the Tribunal to dispense with shareholders' meeting for a proposed scheme of amalgamation: The primary issue was whether the Tribunal has the power to dispense with the shareholders' meeting regarding the proposed scheme of amalgamation when all shareholders have given their consent. The Companies Act, 2013 explicitly authorizes the dispensation of creditors' meetings under Section 230(9) if creditors holding at least 90% value agree and confirm by affidavit. However, there is no explicit provision for the dispensation of shareholders' meetings. 2. Compliance with Section 230 and 232 of the Companies Act, 2013: The application was filed under Sections 391 to 394 of the Companies Act, 1956, now corresponding to Sections 230 to 232 of the Companies Act, 2013. Section 230 deals with compromises and arrangements between a company and its creditors or members, while Section 232 specifically addresses mergers and amalgamations. The Tribunal must ensure compliance with these sections and the related rules to sanction the scheme of amalgamation. 3. Interpretation and application of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016: The Tribunal examined the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, particularly Rule 5, which provides directions for determining the necessity of meetings for creditors or members. The Tribunal noted that the rules do not explicitly grant the power to dispense with shareholders' meetings, unlike the provision for creditors' meetings under Section 230(9). 4. Precedents and judicial discipline regarding dispensation of meetings: The Tribunal considered various precedents set by High Courts and other NCLT benches. The Hon'ble High Courts have historically exercised discretion to dispense with shareholders' meetings when all shareholders have provided written consent. The Tribunal emphasized the importance of judicial discipline and the need to follow precedents unless a larger bench decides otherwise. The Tribunal referred to the Supreme Court's guidance in Sub Inspector Roop Lal vs. Lt. Governor and Union of India vs. Paras Laminates Pvt. Ltd., which stressed the importance of continuity, certainty, and predictability in judicial decisions. 5. Practical considerations and inherent powers of the Tribunal: The Tribunal acknowledged the practical difficulties and the need for inherent powers to ensure justice. The Tribunal noted that the Companies Act, 2013, and the Rules do not explicitly bar the exercise of inherent powers. Rule 11 of the NCLT Rules, 2016, allows the Tribunal to make necessary orders to meet the ends of justice. The Tribunal highlighted the importance of avoiding delays in corporate actions like mergers and amalgamations, which could undermine their effectiveness. Conclusion: The Tribunal, by majority decision, dispensed with the requirement of convening shareholders' meetings based on written consents from all shareholders. The Tribunal directed the applicant companies to serve notices to their creditors and relevant authorities and to comply with all procedural requirements. The Tribunal emphasized the need for strict compliance with the conditions laid down and the inherent powers of the Tribunal to ensure justice. The judgment reflects a balance between legal provisions, judicial precedents, and practical considerations in corporate restructuring.
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