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2021 (1) TMI 725 - AT - Companies LawRejection of scheme for amalgamation proposed by the Appellants - Section 421 of the Companies Act, 2013 - HELD THAT - The Ministry of Corporate affairs in its General Circular bearing No. 09/2019 dated 21.08.2019 made the clarification under section 232(6) of Companies Act, 2013. According to such circular, section 232(6) of the Companies Act enables the companies in question to choose and state in the scheme an appointed date'. This date may be a specific calendar date or may be tied to the occunence of an event such as grant of license by a competent authority or fulfilment of any preconditions agreed upon by the parties, or meeting any other requirement as agreed upon between the parties, etc., which are relevant to the scheme - Also, since the appointed date under the Scheme was specified as 01.01.2019 but Clause 1.1.3 of the Scheme provides that the Appointed Date can be such other date as may be fixed by the NCLT. Therefore, NCLT shall not reject the Scheme solely on the ground that the appointed date and valuation date is different. The Appellants to put the entire issue at rest, are agreeable and filed an affidavit to this effect that the appointed date should be same as the Valuation Date i.e. 31.07.2018. Since a considerable amount of time have been lost and as the Appellants are agreeing under the scheme that the appointed date may be such date as the NCLT may decide i.e. the valuation date (31.07.2018) - the appeal is allowed and the appointed date shall be the valuation date i.e. 31.07.2018.
Issues Involved:
1. Appointed Date vs. Valuation Date 2. Public Policy and Shareholder Interests 3. Compliance with Statutory Procedures 4. Judicial Overreach by NCLT Issue-wise Detailed Analysis: 1. Appointed Date vs. Valuation Date: The primary contention raised by the NCLT was the discrepancy between the appointed date of the scheme (01.01.2019) and the valuation date (31.07.2018). The NCLT suggested that the appointed date should coincide with the valuation date, as the share exchange ratio would significantly change based on market prices. The Appellate Tribunal noted the Ministry of Corporate Affairs' General Circular No. 09/2019, which clarified that the appointed date could be a specific calendar date or tied to an event relevant to the scheme. The Tribunal concluded that the NCLT should not have rejected the scheme solely on this ground, especially since Clause 1.1.3 of the Scheme allowed for the appointed date to be fixed by the NCLT. The Appellants agreed to align the appointed date with the valuation date to resolve the issue. 2. Public Policy and Shareholder Interests: The NCLT rejected the scheme on the grounds that it was against public policy, suggesting it disproportionately benefited certain shareholders. The Appellate Tribunal found this reasoning flawed, emphasizing that the scheme had received overwhelming approval from 99.95% of stakeholders, including 96.05% of public shareholders. The Tribunal noted that no objections were raised by SEBI or other regulatory authorities, and there was no evidence of fraud or deceit in obtaining shareholder consent. The Tribunal stressed that the commercial wisdom of the shareholders should not be overlooked. 3. Compliance with Statutory Procedures: The Appellants complied with all procedural requirements under Sections 230-232 of the Companies Act, 2013. Notices were served to all regulatory authorities, and no objections were received. The NCLT had accepted the clarifications and undertakings provided by the Appellants concerning the observations made by the Regional Director, Western Region. The Official Liquidator also confirmed that the affairs of the 2nd and 3rd Appellants were conducted properly. 4. Judicial Overreach by NCLT: The Appellate Tribunal found that the NCLT overreached its scope of judicial intervention by delving into issues not required for determining an amalgamation under Sections 230-232. The Tribunal highlighted that the NCLT failed to point out any material illegality in the scheme and accepted the Appellants' clarifications against the Regional Director's objections. The Tribunal ruled that the NCLT's decision to reject the scheme based on perceived benefits to certain shareholders without reasonable findings was unjustified. Conclusion: The Appellate Tribunal allowed the appeal, directing the NCLT, Mumbai Bench to approve the proposed scheme without further delays. The appointed date was set as the valuation date (31.07.2018) to resolve the issue. The Tribunal emphasized that this decision should not be used as a precedent, as the General Circular issued by the Ministry of Corporate Affairs provided reasonable clarification regarding the appointed date under Section 232(6) of the Companies Act, 2013. The Regional Director, Western Region, Ministry of Corporate Affairs, Mumbai, was directed to monitor the scheme's implementation according to the appointed date.
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