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2017 (10) TMI 358 - Tri - Companies LawMerger and Amalgamation of Companies - purpose of notifying scheme to the regulating authorities - purpose of notifying scheme to the regulating authoritieswhen external arrangement does not alter the rights of the stakeholders of that company, do we need to insist upon such company to call and hold meetings in respect to such scheme? - Held that - In section 232(1), it has been said that the provisions of sub-section (3) to (6) of section 230 shall apply mutatis mutandis. For no meeting is ordered to be held with either members or creditors, giving a notice to them under sub section (3) will not arise, because their rights are not affected by this demerger/merger, but when it comes to notice to various regulating authorities under sub-section (5) of section 230, a notice has to go to all those authorities along with documents as mentioned under section 232(2), - (a) the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company; (b) confirmation that a copy of the draft scheme has been filed with the Registrar; (c) a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties; (d) the report of the expert with regard to valuation, if any; (e) a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme. Since the purpose of notifying scheme to the regulating authorities is not only to know about holding meeting, but also to look into as to whether various stakeholders interest is protected or not, this notice about scheme with the documents shall be sent to various authorities as stated under sub-section (5) of section 230, therefore this Bench cannot and will not exempt the transferee company form complying with sending notice to the regulating authorities and giving advertisement. Soon after compliance of above, if this Bench is satisfied with compliance under section 232(1) & (2) as mentioned above, may sanction the scheme with provisions for, in this case, for transfer of undertaking of transferor to its holding company; since allotment of shares not happening in transfer company, no provision need to be made for it; transfer of legal proceedings by or against transferor companies if any to its holding company, transfer of transferors employees to the transferee company; a certificate over accounting treatment by the company auditor. When the statute clearly mandates all these aspects to be complied with, so as to make the transferee as party to the approval of the scheme and make this approval binding upon the holding company, the holding company shall be a party to the approval of scheme, to get such binding, the holding company shall also file an application for notifying the fact of proposal of scheme as mentioned above. Therefore we cannot go to that extent to say that no application is required to obtain for approval for Scheme because if application is not there from two parties who are separate entities entering into a Scheme, we doubt about the binding nature of this order over the two parties entered into a Scheme. Therefore, this Transferee Company shall file an application before this Bench with the power it has from its Board of Directors by notifying it to all Regulating Authorities as mentioned above.
Issues Involved:
1. Whether the holding/transferee company requires undergoing the process laid down in Chapter XV of the Companies Act, 2013. 2. The necessity of holding shareholders' and creditors' meetings for the approval of the amalgamation scheme. 3. Compliance with the procedural requirements under Sections 230 and 232 of the Companies Act, 2013. 4. The applicability of the Mahaamba Ruling to the current case. Detailed Analysis: Issue 1: Whether the holding/transferee company requires undergoing the process laid down in Chapter XV of the Companies Act, 2013. The tribunal examined the necessity for the holding company to undergo the process specified in Chapter XV of the Companies Act, 2013, which deals with compromises, arrangements, and amalgamations. The tribunal noted that the terms "compromise," "arrangement," and "amalgamation" have established meanings. Compromise involves mutual concessions to settle differences, while arrangement includes reorganization of share capital. Amalgamation refers to the blending of two or more companies involving merger or reconstruction. The tribunal emphasized that the trigger point for invoking jurisdiction for compromises or arrangements is an application to the Tribunal for ordering a meeting to get approval from the shareholders/creditors. If no change is proposed to any of its members/creditors' rights, then the company does not need to have any compromise or arrangement with its members/creditors. Issue 2: The necessity of holding shareholders' and creditors' meetings for the approval of the amalgamation scheme. The tribunal observed that in the present case, the holding company has 100% shareholding in all the transferor companies, and the net worth of the transferee company is significantly higher than that of the transferor companies. The scheme does not necessitate the issuance of new shares or reorganization of the shareholding or debt position of the holding company. Therefore, there is no need for internal arrangement within the transferee company. The tribunal referred to the Mahaamba Ruling, which exempts holding companies from holding meetings with either members or creditors when 100% subsidiaries merge into their holding company. The tribunal held that since the Board of Directors is empowered to approve the scheme, there is no need for holding shareholders' meetings. Consequently, the question of dispensation of shareholders' meetings does not arise. Issue 3: Compliance with the procedural requirements under Sections 230 and 232 of the Companies Act, 2013. The tribunal analyzed Sections 230 and 232 of the Companies Act, 2013. Section 230 deals with compromises and arrangements within a company, while Section 232 applies to mergers and amalgamations. The tribunal noted that if no compromise or arrangement is proposed, there is no occasion for the company to make such a proposal, and the Tribunal cannot order a meeting. However, Section 232 requires additional essentials for invoking its provisions, including the transfer of the undertaking, property, or liabilities of any company to another company. The tribunal held that the transferee company must comply with the remaining procedures under Section 232, including notifying various regulatory authorities and providing necessary documents. Issue 4: The applicability of the Mahaamba Ruling to the current case. The tribunal acknowledged the relevance of the Mahaamba Ruling, which exempts holding companies from holding meetings with members or creditors when 100% subsidiaries merge into their holding company. The tribunal noted that under the new Companies Act, 2013, the dispensation of shareholders' meetings has been done away with, which was frequently allowed under the 1956 Act regime. The tribunal concluded that since the financial position of the transferee company is highly positive and the merger does not affect the rights of the applicant shareholders or creditors, the transferee company need not hold any meeting with its creditors or members. Conclusion: The tribunal disposed of the application, directing the transferee company to file an application for compliance with the remaining mandates under Section 232 and to file a company petition for the sanction of the scheme. The tribunal held that the transferee company need not hold any meeting with its creditors or members, as the merger does not affect their rights.
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