2019 (7) TMI 522 - AT - Companies Law

Sanction of scheme of demerger - compromise or make arrangements with creditors and members - Section 230 and 232 of the Companies Act, 2013 r/w Rule 3 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. HELD THAT - The Tribunal, while dealing with an application under Section 230 of the Act, on being satisfied that the compromise or arrangement has been proposed in connection with a scheme for the reconstruction of the company or companies involving merger/ amalgamation of two or more companies and under the scheme property or liabilities of the transferor company is required to be transferred to transferee company or divided among/ transferred to two or more companies is required to order meeting of the creditors or members, as the case may be, to be called. Sub-section (9) thereof empowers the Tribunal to dispense with calling of a meeting of creditors where such creditors, having at least 90% value agree to and confirm the scheme of compromise or arrangement - This is a sine quo non for proceeding further and any order of sanctioning or refusing to sanction such compromise or arrangement by the Tribunal would be without jurisdiction unless the Tribunal has dispensed with calling of such meeting of creditors/ members in terms of Sub-section (9). It is manifestly clear that at the stage of calling of meeting of creditors/members for consideration of the scheme of compromise or arrangement the Tribunal is not required to examine the merits of the scheme qua the proposed compromise/ arrangement. Any such indulgence on the part of Tribunal would fall foul of the provision engrafted in Section 230 (1) of the Act and would be without jurisdiction. The mandate of law engrafted under Section 230(1) of the Act requiring the Tribunal to order calling of meeting of the creditors/ members of the concerned companies not being complied with and the mandatory provisions being observed in breach, the impugned order cannot be supported. The Tribunal, at the very threshold stage, was not required to venture into the merits of the proposed scheme of demerger which had to be examined only after obtaining the consent of creditors/members with requisite majority. The Tribunal seriously erred in dismissing the application on merit when the stage of consideration of the proposed scheme of demerger was yet to arrive. The impugned order suffers from serious legal infirmity and the same is set aside - the matter is remanded back to the National Company Law Tribunal, Bengaluru Bench for proceeding further - appeal allowed by way of remand.

Summary

Issues Involved:
1. Whether the Tribunal erred in declining to sanction the scheme of demerger due to pending investigations.
2. Whether the Tribunal failed to consider the prayer for dispensation of meetings of creditors and shareholders.
3. Whether the Tribunal overstepped its jurisdiction by examining the merits of the scheme at the preliminary stage.

Issue-wise Detailed Analysis:

1. Tribunal's Refusal to Sanction the Scheme of Demerger Due to Pending Investigations:
The Tribunal declined to sanction the scheme of demerger on the ground that several issues were pending finalization and certain investigations were pending in relation to the business of the demerged company. The Appellants argued that the pending investigations, registered as Spl. CC No. 12/2016 and Spl. CC No. 471/2016, were unrelated to the proposed demerger and should not impede the approval process. The Tribunal's decision was based on these pending issues, but the Appellants contended that the demerger scheme was not related to the mining business under investigation, and thus, the pending investigations would not impact the demerger.

2. Tribunal's Failure to Consider the Prayer for Dispensation of Meetings:
The Appellants submitted that they had filed applications for the dispensation of meetings of their creditors and shareholders, supported by consent affidavits from 100% of the shareholders of each company, 100% of the creditors of the resulting companies, and 97.18% of the creditors of the demerged company. The Tribunal rejected the applications without considering these consent affidavits or directing the convening of meetings, which the Appellants argued was a breach of the mandatory provisions under Section 230(1) of the Companies Act, 2013. The Tribunal's refusal to either dispense with or direct the calling of meetings was seen as a failure to adhere to the statutory requirements.

3. Tribunal Overstepping its Jurisdiction:
The Tribunal was criticized for overstepping its jurisdiction by examining the merits of the proposed scheme of demerger at the preliminary stage. According to the Appellants, the Tribunal's role at this stage was limited to ordering the meeting of creditors or members or dispensing with such meetings if 90% of the value of creditors or members agreed to the scheme. The Tribunal's decision to reject the scheme on merits without first obtaining the consent of creditors/members or directing meetings was deemed premature and beyond its jurisdiction. The Tribunal was required to call for meetings or dispense with them based on the consent affidavits before delving into the merits of the scheme.

Conclusion:
The Tribunal's order was set aside due to its failure to comply with the mandatory provisions of Section 230(1) of the Companies Act, 2013, and for overstepping its jurisdiction by examining the merits of the scheme at the preliminary stage. The matter was remanded back to the National Company Law Tribunal, Bengaluru Bench, for further proceedings in accordance with the observations made and the provisions of law, ensuring that the consent of creditors/members is obtained or meetings are convened as required.