2021 (6) TMI 1031 - AT - Companies Law

Scheme of Amalgamation - seeking dispensation of the meeting of the Equity Shareholders, Secured Creditors and Unsecured Creditors in respect of the scheme of Amalgamation - Sections 230 to 232 and other relevant provisions of the Companies Act, 2013 - HELD THAT - The material on record establishes that the Transferee Company is a Wholly Owned Subsidiary of the Transferor Company and there is no issuance of any new shares and therefore there is no reorganization of share capital and consequently no arrangement wherein Shareholders have to compromise with Creditors of the Transferor Company . The documentary evidence substantiates that the net worth of the Transferee Company is definitely positive - there are force in the contention of the Learned Counsel appearing for the Appellants that there are no Creditors in the subsidiary Companies and that the Transferee Company is the only Shareholder of the Transferor Company . This Tribunal has placed reliance in IN RE DLF PHASE IV COMMERCIAL DEVELOPERS LIMITED, DLF REAL ESTATE BUILDERS LIMITED, DLF RESIDENTIAL BUILDERS LIMITED, DLF UTILITIES LIMITED AND DLF LIMITED 2019 (8) TMI 829 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI and observed that the scheme would not prejudicially affect the Creditors or Shareholders of the Appellant Company when an Application is filed by the Transferor Company or Transferee Company , a separate Application is not necessary and dispensed with the meeting of the equity Shareholders and Creditors of the Appellant Company. At the cost of repetition, keeping in view that the financial position of the Transferee Company is highly positive, the merger does not involve any compromise/arrangement with any Creditor of the Company, that there would be a positive net worth and Creditors would not be compromised, the Tribunal ought to have exercised the discretion in dispensing with the requirement of convening the meeting which would facilitate ease of doing business and save time and resources. When the Transferor and Transferee Company involve a parent Company and a Wholly Owned Subsidiary the meeting of Equity Shareholders, Secured Creditors and Unsecured Creditors can be dispensed with as the facts of this case substantiate that the rights of the Equity Shareholders of the Transferee Company are not being affected - the direction in respect of the Transferee Company issued by the NCLT, to convene the meetings of the Equity Shareholders, Secured Creditors and Unsecured Creditors on 22.04.2021 is set aside - application allowed.

Summary

Issues Involved:
1. Dispensation of meetings for equity shareholders, secured creditors, and unsecured creditors.
2. Financial position and net worth of the Transferee Company.
3. Impact of the amalgamation on the rights and interests of shareholders and creditors.
4. Legal precedents and discretion of the Tribunal in such cases.

Issue-wise Detailed Analysis:

1. Dispensation of Meetings for Equity Shareholders, Secured Creditors, and Unsecured Creditors:
The Appellant companies, Mohit Agro Commodities Processing Pvt. Ltd. (Transferor Company) and Gujarat Ambuja Exports Ltd. (Transferee Company), filed an appeal under Section 421 of the Companies Act, 2013, challenging the NCLT's order which mandated separate meetings of equity shareholders, secured creditors, and unsecured creditors of the Transferee Company. The NCLT had dispensed with the meeting of the equity shareholders of the Transferor Company due to a consent affidavit but required the Transferee Company to hold meetings through video conferencing due to the pandemic.

2. Financial Position and Net Worth of the Transferee Company:
The Transferee Company, a public company incorporated on 12.08.1991, had a positive net worth with assets exceeding liabilities by ?1436.62 Crores. The Transferor Company, a wholly-owned subsidiary of the Transferee Company, had no creditors, and its authorized and paid-up share capital was ?1,60,00,000. The Transferee Company had a substantial authorized and paid-up share capital, and its shares were subdivided from ?2 to ?1 with no change in share capital since 05.10.2020.

3. Impact of the Amalgamation on the Rights and Interests of Shareholders and Creditors:
The amalgamation aimed to simplify the corporate structure, eliminate duplicate procedures, consolidate resources, and reduce administrative costs. The scheme did not affect the rights of shareholders or creditors as no new shares were issued, and there were no creditors in the subsidiary companies. The Transferee Company, being financially robust, ensured that the rights and liabilities of secured and unsecured creditors were not compromised.

4. Legal Precedents and Discretion of the Tribunal:
The Tribunal referred to several legal precedents, including cases like 'Jupiter Alloys and Steel (India) Limited,' 'DLF Phase-IV Commercial Developers,' 'Adobe Properties Private Limited,' and 'Housing Development Finance Corporation Ltd.' These cases established that the Tribunal has the discretion to dispense with meetings if the rights of stakeholders are not affected. The Tribunal noted that Section 232(1) of the Companies Act, 2013, uses the word 'may,' indicating discretion to be exercised in appropriate situations. The Tribunal emphasized that when the Transferor Company is a wholly-owned subsidiary of the Transferee Company, and the financial position is positive, the meetings can be dispensed with to facilitate ease of business and save resources.

Conclusion:
The Tribunal concluded that the financial position of the Transferee Company was highly positive, and the merger did not involve any compromise with creditors. Therefore, the Tribunal allowed the application, set aside the NCLT's direction to convene the meetings, and dispensed with the requirement of holding meetings for equity shareholders, secured creditors, and unsecured creditors of the Transferee Company. The decision was based on the rationale that the rights of the equity shareholders and creditors were not affected, and the amalgamation would streamline operations and reduce costs.