2024 (8) TMI 408 - HC - Companies Law

Rejection of application of petitioners for processing the scheme of amalgamation between petitioner nos.2 to 5 with petitioner no.1 - rejection of application under Section 233 of the Companies Act, 2013 - HELD THAT - The observation mentioned in paragraph 3 of the quoted portion of the impugned order amounts to forming an opinion, still respondent no.2 could not have rejected the application but instead should have filed an application before the NCLT on or before 27th November 2018 stating its objections and requesting that the Tribunal may consider the scheme under Section 232. This is a mandatory provision because respondent no.2 had to form an opinion that the scheme is not in public interest or in the interest of the creditors, notwithstanding no objections having come from the Registrar or the Official Liquidator or each of the companies involved in the merger of filing of declaration of solvency with the Registrar and the scheme having been approved by majority representing nine-tenths in value of the creditors or class of creditors of respective companies indicated in the meeting convened by the company. On a conjoint reading of sub-sections (2), (3), (4) and (5), the phrase may used in sub-section (5) will have to be construed as mandatory. It is said so because if the Government is of the view that the scheme is not in the public interest or in the interest of the creditors then same is to be decided by the Tribunal. If the phrase may in sub-section (5) is used as optional then company involved in the amalgamation scheme would be at the mercy of the Central Government if the scheme is rejected without any adjudication. It is, therefore, mandatory for the Central Government to make an application before the Tribunal and get adjudication on said issue. In the instant case, the declaration of solvency has been filed. The scheme has also been approved as required by sub-section (1) of Section 233. The said section does not empower respondent no.2 to reject the declaration filed but if at all respondent no.2 is of the opinion that any of the conditions is not satisfied then appropriate application has to be made to the Tribunal within the prescribed period objecting to the scheme. Respondent no.2 not having followed the mandatory procedure prescribed, the impugned order dated 12th November 2018 is bad in law. The same is hereby quashed and set aside - Petition disposed off.

Summary

Issues:
1. Rejection of application for processing the scheme of amalgamation under Section 233 of the Companies Act, 2013.
2. Authority of Regional Director to pass the rejection order.
3. Compliance with pre-conditions under Section 233 for merger or amalgamation.
4. Interpretation of the phrase "may" in sub-section (5) of Section 233 as mandatory.
5. Validity of the rejection order and the requirement for filing an application before the Tribunal.

Analysis:

1. The petitioners, five companies with common Directors and Shareholders, challenged the rejection of their application for processing the scheme of amalgamation under Section 233 of the Companies Act, 2013. The rejection was based on the ground that certain companies were not solvent as per the balance sheet, leading to the dispute over the legality of the rejection.

2. The petitioners argued that the Regional Director, who passed the rejection order, did not have the authority to do so under Section 233 of the Companies Act. They contended that if the Regional Director had concerns about the scheme, they should have filed an application before the National Company Law Tribunal (NCLT) within a specified period, rather than rejecting the application outright.

3. The Court examined the compliance with pre-conditions for merger or amalgamation under Section 233. It noted that the pre-conditions, including approval by shareholders and creditors, declaration of solvency, and filing of the scheme with relevant authorities, were met by the petitioners. The Court emphasized the importance of following the prescribed procedures before rejecting an application.

4. The Court delved into the interpretation of the phrase "may" in sub-section (5) of Section 233, stating that it should be construed as mandatory. It explained that if the Government deems the scheme not in the public interest or creditors' interest, it must seek adjudication by the Tribunal. The Court highlighted the necessity of following the proper procedure to ensure fairness and legal compliance.

5. Ultimately, the Court found that the rejection order was invalid as the Regional Director had not followed the mandatory procedure prescribed by the law. The Court quashed the rejection order and emphasized the need for proper application to the Tribunal if there are objections to the scheme. The consequences under Section 233 of the Companies Act were to follow after setting aside the rejection order, leading to the disposal of the petition.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, and the Court's reasoning in resolving the dispute over the rejection of the scheme of amalgamation under the Companies Act.