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2023 (1) TMI 643 - AT - Companies LawRejection of scheme of arrangement - It is the forceful submission of the Appellants that, just because, there is an allegation of commission of an offence, against the provisions of the Companies Act, 2013, the Scheme of Arrangement, is not to be rejected - It is the version of the Respondent that the Companies are retaining the amount collected already from the Shareholders, before the Companies Act, 2013. HELD THAT - Section 2 (31) of the Companies Act, 2013, defines deposit including any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India - As a matter of fact, only those deposits, loans or money receipts, which are repayable, and which are not in the category of exempted Deposits, will be treated as Deposits. Also that, Rule 2 (1) (c) of the Companies (Acceptance of Deposits), Rules, 2014, defines, Deposits, in an inclusive fashion. If a Company, had Defaulted in the repayment of the Fixed Deposit, which was already Matured, despite the fact that the Company was making Profits, it was obligated on the Company s part, that it should make arrangements in such a way that there could be no problem in the Repayment of Deposits. Payment of Penal Interest - HELD THAT - Rule 17 of the Companies (Acceptance of Deposits) Rules, 2014, provides that a Company, shall be liable to Pay, Penal Interest at 18% per annum to a Depositor, if there is any failure to repay the Deposits - In fact, the Penal Interest, is payable, when payment was overdue, ofcourse, after Maturity of Deposit. Damages for Fraud - HELD THAT - Section 75 of the Companies Act, 2013, relates to Damages for Fraud, due to failure to repay the Deposits, accepted by a Company. Further, the definition of Fraud, under Section 447 of the Companies Act, 2013, is an inclusive one and it concerns the Affairs of a Company or a Body Corporate. Disqualification for Appointment of Director - HELD THAT - Section 164 of the Companies Act, 2013, pertains to the Disqualification of Directors, incurred during the Terms of Office, as Directors, and not with the Retirement of a Director. Compromises, Arrangements and Amalgamations, under the Companies Act, 2013 - HELD THAT - Section 230 of the Companies Act, 2013, deals with Power to Compromise or make Arrangements with the Creditors and the Members, and the said Section is wide enough to include any reasonable Compromise or Arrangement. The word Arrangement, has wider meaning, than the term Compromise - If the Scheme, is unjust, unfair, unconscionable or an illegal one, the Court (now Tribunal), is justified in declining to Sanction the Scheme, in the considered opinion of this Tribunal. No wonder, a Tribunal / a Court of Law, is to bear in mind that the fairness and viability of the Scheme, qua the right of minority shareholders, before according an Approval. Assessment - HELD THAT - The Tribunal, is to see that the Scheme is not a camouflage, for a purpose, other than ostensible reason(s). Also, the Tribunal, is to find out, whether a particular Scheme, is opposed to public policy or otherwise, by applying its judicial mind - As far as the present case is concerned, it cannot be forgotten that both the Company Directors, were deemed to be disqualified, in the teeth of ingredients of Section 164 (2) (b), read with Rule 14 (2) of the Companies Appointment and Qualification of Directors Rules 2014. There is a clear cut violation of Section 73 of the Companies Act, 2013, in regard to the Prohibition on acceptance of deposits from public, for acceptance of deposits, from the Directors of the 1st Appellant / Company, in respect of the years 2014-15 and 2015-16. On a careful and meticulous consideration of the contentions advanced on either side, in the light of the violations, committed by the Appellants, under the Companies Act, keeping in mind that both the Companies had not given replies, to the Show Cause Notices, issued by the Registrar of Companies, Ernakulam, Kerala, and also taking note of the surrounding facts and circumstances of the present case, comes to an inevitable, inescapable and irresistible conclusion that the Appellants, had not made out a fit and proper case, for Sanctioning the Scheme of Amalgamation, in accordance with Law - Appeal dismissed.
Issues Involved:
1. Rejection of the Scheme of Amalgamation by the National Company Law Tribunal (NCLT), Kochi Bench. 2. Alleged violations of the Companies Act, 2013 by the Appellant Companies. 3. Objections raised by the Regional Director, Ministry of Corporate Affairs. 4. Compliance with statutory provisions under Sections 230 and 232 of the Companies Act, 2013. 5. Jurisdiction and role of the Tribunal in sanctioning schemes of amalgamation. Detailed Analysis: 1. Rejection of the Scheme of Amalgamation: The NCLT, Kochi Bench, dismissed the applications for the Scheme of Amalgamation between the Appellant Companies. The Tribunal observed that both companies violated several provisions of the Companies Act, 2013, including Sections 73, 74, and 448. The violations included retaining deposits beyond permissible limits, non-disclosure of deposits in financial statements, and misleading disclosures in balance sheets. The Tribunal emphasized that any business proposition must comply with the law and should not violate the rights of any person. 2. Alleged Violations of the Companies Act, 2013: The Registrar of Companies, Kerala, reported that the Appellant Companies violated Section 74(1)(b) by retaining deposits from directors without proper disclosure. The companies also failed to disclose these deposits in their financial statements, violating Sections 73 to 76A. The Appellants argued that the deposits from directors were not required to be disclosed before 15.09.2015 and that the omission was inadvertent. However, the Tribunal found these explanations insufficient and upheld the objections raised by the Regional Director. 3. Objections Raised by the Regional Director: The Regional Director, Ministry of Corporate Affairs, objected to the Scheme of Amalgamation, citing multiple violations of the Companies Act by the Appellant Companies. These included accepting unsecured loans from directors without proper declarations, non-disclosure of these loans in financial statements, and misleading disclosures in balance sheets. The Regional Director also pointed out that the companies failed to repay deposits within the stipulated period, leading to disqualification of directors under Section 164(2)(b). 4. Compliance with Statutory Provisions: The Appellants contended that the Scheme of Amalgamation was approved by shareholders, secured creditors, and unsecured creditors, and that all statutory requirements were met. They argued that the Tribunal's jurisdiction under Sections 230 and 232 of the Companies Act, 2013, was limited to ensuring compliance with statutory procedures and that the Scheme should not be rejected based on alleged violations. However, the Tribunal held that the violations were significant and could not be overlooked, thus rejecting the Scheme. 5. Jurisdiction and Role of the Tribunal: The Tribunal emphasized its supervisory role in ensuring that schemes of amalgamation comply with the law and do not violate public policy or the rights of any stakeholders. The Tribunal referred to various judicial precedents, including the Supreme Court's decision in Miheer H Mafatlal v. Mafatlal Industries Limited, which outlined the scope of the Tribunal's jurisdiction. The Tribunal concluded that the Appellant Companies' violations of the Companies Act were substantial and justified the rejection of the Scheme. Conclusion: The Tribunal dismissed the appeal, upholding the NCLT Kochi Bench's decision to reject the Scheme of Amalgamation. The Tribunal found that the Appellant Companies had committed significant violations of the Companies Act, 2013, which could not be ignored. The Tribunal emphasized the importance of compliance with statutory provisions and the need for transparency and honesty in business operations. Consequently, the appeal was deemed devoid of merits and dismissed without costs.
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