2019 (4) TMI 36 - AT - Companies Law

Scheme of amalgamation - certain companies in the scheme were carrying on NBFC activities and approval of the Reserve Bank of India had not been taken and the petition required to be rejected - reasonableness of the proposed exchange ratio could not be ascertained - financial assets are more than non-financial assets and income from operation is zero - HELD THAT - If the transferor companies show zero income from operations and still show huge investments to be their assets, the Regional Director rightly observed that the intrinsic value of these investment (assets) is not known and the reasonableness of the proposed exchange ratio could not be ascertained. Such accounts showing zero income and showing huge investments as assets must be said to be not inspiring confidence. If there are huge investments as assets and it shows that financial assets are more than non-financial assets and income from operation is zero without its break up between financial income and non-financial income, the required criteria to determine the principal business of the company being finance company gets met. The National Company Law Tribunal not being satisfied from the case put up by the appellant declined to accept the scheme and we find it difficult to interfere with the impugned order. Even with or without the circular of the Reserve Bank of India dated October 19, 2006, keeping in view the above legal provisions, the appellants have not been able to satisfy the Regional Director or the National Company Law Tribunal that they are not involved in NBFC activities. Counsel for the appellants has not been able to satisfy us also. The appeal does not even plead that the appellants are not indulging in NBFC activities. The appeal memo while referring to the appellant-companies merely stated that the objects of the companies were as amended from time to time and which have been set out in the memorandum of association of the different companies. No such articles of association or memorandum of association have been produced before us to show what are aims and objects of these companies. No documents are shown as to what are the activities of these companies. Thus no material has been brought to satisfy that the impugned order is erroneous and deserves to be interfered with. Appeal dismissed.

Summary

Issues:
1. Rejection of scheme of arrangement by National Company Law Tribunal
2. Compliance with RBI regulations for NBFC activities
3. Lack of appearance by Regional Director in the appeal

Issue 1: Rejection of scheme of arrangement by National Company Law Tribunal

The appellants filed an appeal after their scheme of arrangement, aimed at amalgamating several companies, was rejected by the National Company Law Tribunal. The process involved initial filings with the High Court of Delhi, followed by a joint petition for amalgamation. However, the Regional Director raised concerns regarding certain companies engaging in NBFC activities without obtaining necessary approvals from the Reserve Bank of India. The Tribunal concluded that the scheme was not compliant with RBI regulations and rejected the petition.

Issue 2: Compliance with RBI regulations for NBFC activities

The appellants argued that the Regional Director's decision was incorrect, citing an RBI circular that specified conditions for companies to be classified as NBFCs. The circular required that more than 50% of a company's assets and income should be from financial activities to qualify as an NBFC. The appellants contended that companies showing "zero" income could not meet these criteria. Despite the appellants' submissions, the Regional Director remained unconvinced, emphasizing the lack of clarity regarding the companies' financial activities and assets.

Issue 3: Lack of appearance by Regional Director in the appeal

Notably, the Regional Director did not contest the appeal despite being served notice. The Regional Director's report highlighted concerns about the companies' operations and compliance with regulatory requirements. The report indicated that the companies were primarily involved in investment activities and extending loans without proper registration as NBFCs. Additionally, penalties were imposed for non-compliance with Companies Act provisions, reflecting poorly on the companies' conduct.

In conclusion, the Tribunal dismissed the appeal, emphasizing the appellants' failure to prove compliance with NBFC regulations and address the Regional Director's concerns adequately. The lack of evidence regarding the companies' activities and objectives further weakened the appellants' case. Ultimately, the Tribunal upheld the rejection of the scheme of arrangement, highlighting the importance of adhering to regulatory requirements in corporate transactions.