2023 (7) TMI 638 - AT - Companies Law

Scheme of Rearrangement - demerger/transfer of business - the Demerged Company RPPMSL is a wholly-owned subsidiary of the Appellant Company RIL - Requirement of getting consent from creditors and shareholders - Discretionary power of NCLT - Validity of order of NCLT to direct the Appellant Company to obtain consent affidavits of at least ninety percent of value of total Secured Creditors as per section 230(9) of the Companies Act, 2013 or to hold meeting of Secured Creditors as per section 230(6) of the Companies Act, 2013 HELD THAT - It is seen from the averments and pleadings of the Appellant made as Applicant before NCLT, which is also noted in the Impugned Order, that RPPMSL is a wholly-owned subsidiary of the RIL and further that no shares are required to be issued or allotted as consideration after implementation of the proposed Scheme. Also, admittedly the rights of the shareholders of RIL will not be affected after implementation of the Scheme, as no new shares are proposed to be issued in consideration neither there is any reorganization of the shareholding structure of the RIL. In Section 232(1) of the Companies Act it is left to the discretion of the Tribunal, as the word used is may , regarding the holding of meeting of the creditors or class of creditors or members or class of members in the manner directed by the Tribunal - this discretion given in section 232(1) to the Tribunal has been interpreted by Hon ble Bombay High Court in the matter of Mahaamba Investments Limited 2001 (1) TMI 904 - HIGH COURT OF BOMBAY and Eurokids India Pvt. Ltd. 2014 (12) TMI 1380 - BOMBAY HIGH COURT and also by this Tribunal in the matter of Patel Hydro Power Private Limited 2021 (12) TMI 967 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI that if the Transferor Company is wholly owned subsidiary of the Transferee Company and there is no reorganization of the share capital of Transferee Company and the creditors and shareholders of the Transferee Company are not affected by the implementation of the Scheme as the assets of the Transferee Company and the Transferor Company far exceed their liabilities, the requirement for holding meetings of the shareholders, secured and unsecured may be dispensed with. The impugned order set aside - it is directed that the convening and holding of meetings of Equity Shareholders, Secured and Unsecured Creditors of the Appellant Company RIL is dispensed with and further consent affidavits of 90% of the total value of shareholders and secured creditors and all unsecured creditors will not be necessary at this stage - appeal allowed.

Summary

Issues Involved:
1. Requirement of obtaining consent affidavits or holding meetings of Secured Creditors and Equity Shareholders.
2. Dispensation from convening meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors.

Summary:

1. Requirement of obtaining consent affidavits or holding meetings of Secured Creditors and Equity Shareholders:
The Appellant challenged the NCLT's directive to obtain consent affidavits from at least ninety percent of the value of total Secured Creditors and Equity Shareholders or to hold meetings as per sections 230(6) and 230(1) of the Companies Act, 2013. The NCLT's order was based on the proposed Scheme of Arrangement involving the demerger of the Digital EPC and Infrastructure Business from RPPMSL (Demerged Company) to RIL (Resulting Company).

2. Dispensation from convening meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors:
The Appellant argued that since RPPMSL is a wholly-owned subsidiary of RIL, no new shares are to be issued, and the rights of shareholders and creditors would not be affected. The Appellant cited judgments from various High Courts and the NCLAT, which dispensed with such meetings under similar conditions. The Learned Senior Counsel for the Appellant emphasized that both RIL and RPPMSL are solvent, with assets exceeding liabilities, and no consideration is to be paid for the demerger.

Judgment:
The NCLAT noted that the proposed Scheme does not involve the issuance of new shares and that both companies are solvent. The Tribunal referred to previous judgments, including those of the Bombay High Court and the NCLAT, which supported dispensing with the requirement for meetings under similar circumstances. The NCLAT found that the NCLT's direction for obtaining consent affidavits or holding meetings was not based on cogent reasoning.

Conclusion:
The NCLAT set aside the NCLT's order dated 11.5.2023, directing that the convening and holding of meetings of Equity Shareholders, Secured, and Unsecured Creditors of RIL is dispensed with, and consent affidavits of 90% of the total value of shareholders and secured creditors and all unsecured creditors will not be necessary at this stage. The appeal was allowed and disposed of accordingly, with no order as to costs.