2024 (4) TMI 242 - HC - Companies Law

Seeking conversion from an unlimited liability company to a limited liability company - Section 18 of the Companies Act 2013 - whether the Appellant s application filed on 21st October 2014 before the ROC will be governed by the conditions in the statutory provision of Section 18 of the Act as it existed on the said date or the additional criteria provided in Rule 37 which was inserted subsequently by the Legislature w.e.f. 27th July 2016 would also be applicable to the said application? - HELD THAT - The submissions of the Appellant cannot be accepted and it is opined that the Appellant did not acquire any vested right of conversion upon filing the application under Section 18 of the Act on 21st October 2014 with the ROC. It is well settled by Supreme Court that the relevant law for grant of approval of an application would be the date on which the approval is granted. Reference made to the judgment of Supreme Court in USMAN GANI J. KHATRI OF BOMBAY AND ORS VERSUS CANTONMENT BOARD AND ORS 1992 (5) TMI 205 - SUPREME COURT where it has been held that At present the statutory bye-laws published on April 30 1988 are in force and the fresh building plans to be submitted by the petitioners if any shall now be governed by these bye-laws and not by any other bye-laws or schemes which are no longer in force now. Further the Supreme Court in RAMESH PRASAD VERMA VERSUS THE STATE OF BIHAR AND ORS 2009 (8) TMI 1291 - PATNA HIGH COURT has held that a legislation if clarificatory declaratory or explanatory in nature and purport will have retrospective operation especially in the absence of any indication to the contrary. The contention of the Appellant that the ROC by insisting on NOCs from the creditors lenders and stakeholders has sought to render Section 18(3) otiose is without any merit. The requirement of NOC has been statutorily incorporated in Rule 37 and the said Rule also contemplates issuance of notice by the applicant-company to each of its creditors inviting objections if any to the proposed conversion. The Appellant has not challenged the vires of the Rule 37 and in fact consciously abandoned the challenge initially made to the said Rule. Thus with the said Rule existing on the statute book the objection of the ROC with respect to the non-circulation of this application of conversion to the creditors lenders and stakeholders of the applicant-company is not arbitrary and is in conformity with Rule 37. The contention of the Appellant that ROC in the impugned decision erred in referring to Section 366 of the Act read with Rules 3 and 4 of the Companies (Authorised to Register) Rules 2014 as it is not attracted to an application filed under Section 18 of the Act does not persuade to set aside the impugned decision. The ROC has recorded in the impugned order that it adverted to the principles laid down in Section 366 and the Rules 2014 as the applicant herein was objecting to the newly inserted Rule 37 and as per ROC the Rules of 2014 also embodied the same spirit of the statute. There are no merit in the present appeal and the same is dismissed.

Summary

Issues Involved:
1. Application of newly inserted Rule 37 to pending applications under Section 18 of the Companies Act, 2013.
2. Requirement of No Objection Certificates (NOCs) from creditors, lenders, and stakeholders.
3. Compliance with the statutory scheme of Section 18 of the Companies Act, 2013.
4. Retrospective application of Rule 37.
5. Relevance of Section 366 of the Companies Act, 2013.

Issue-wise Summary:

1. Application of Newly Inserted Rule 37:
The court examined whether the Appellant's application filed on 21st October 2014 would be governed by the conditions in Section 18 of the Companies Act, 2013 as it existed on the said date or the additional criteria provided in Rule 37, which was inserted subsequently w.e.f. 27th July 2016. The court held that the relevant law for the grant of approval would be the date on which the approval is granted, as established by Supreme Court precedents. Therefore, the newly inserted Rule 37 would be applicable to the pending application.

2. Requirement of No Objection Certificates (NOCs):
The ROC rejected the Appellant's application on the grounds that it was not just and equitable to approve the conversion without NOCs from creditors, lenders, and other stakeholders. The ROC concluded that converting the company's status would be prejudicial to the interests of the creditors and stakeholders. The court upheld the ROC's decision, noting that the requirement of NOCs had been statutorily incorporated in Rule 37, which the Appellant did not challenge.

3. Compliance with the Statutory Scheme of Section 18:
The Appellant contended that it had a vested right for conversion under Section 18 of the Act as it existed on the date of the application and that the ROC's insistence on NOCs rendered Section 18(3) otiose. The court disagreed, stating that the Appellant did not acquire any vested right of conversion upon filing the application and was bound to comply with the extant law during the pendency of its application.

4. Retrospective Application of Rule 37:
The court held that applying Rule 37 to pending applications did not give it retrospective effect. It would be retrospective if an earlier approval granted for conversion was sought to be made void or voidable based on the criteria laid down in Rule 37. The court noted that Rule 37 was clarificatory and intended to fill a legislative omission, thus having retrospective operation.

5. Relevance of Section 366:
The Appellant argued that the ROC erred in referring to Section 366 of the Act and the Companies (Authorised to Register) Rules, 2014, which are not applicable to an application under Section 18. The court found that the ROC referred to these provisions as they embodied the same spirit of the statute and upheld the ROC's decision, noting that the conclusions drawn were based on Rule 37.

Conclusion:
The court dismissed the appeal, finding no merit in the Appellant's contentions and upholding the ROC's decision to reject the conversion application based on the criteria set out in Rule 37.