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TMI Blog2017 (10) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... ll as the transferor companies being positive; there being no re-organisation of the capital of the transferee company or issuance of fresh shares to the shareholders of the transferor companies and there being no arrangement with its shareholders or compromise with its creditors of the Transferee company, it does not require to hold either shareholders' meeting or creditors' meeting for approval of this Scheme, henceforth it has sought direction from this Tribunal exempting it from passing through the procedure laid under sections 230-232 of the Companies Act, 2013. 3. The Senior counsel Shri Darius Khambata appearing on the applicant company behalf submits that this applicant company has 100% shareholding in all these transferor companies; its net worth is positive of Rs. 38,641,09,78,963 crores and net worth of these transferor companies is almost in decimals comparing to the net worth of the Transferee Company. Since no liability is going to be added to this holding company by merging of its subsidiaries with it, he says, there is no need to enter into any compromise with its creditors. He further submits that even after all these subsidiaries' (transferors) shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, merger or reconstruction, meaning thereby Board of Directors are empowered to approve any Scheme that is falling within the arrangement as mentioned in the Chapter of Compromises, Arrangements &Amalgamations. 7. As Section 179 speaks of Powers of Board, following Section 180 speaks of Restrictions on powers of Board. It is indeed a caveat over section 179 envisaging that the Board of Directors shall take consent of the company by special resolution, if company, (1) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking of the whole or substantially the whole or any of such undertakings; (2) to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation; (3) to borrow money, including the money already borrowed, exceeding aggregate of its paid up share capital and free reserves, apart from temporary loans obtained from the company's bankers in the ordinary course of business or to remit or give time for repayment of any due from the Director, (4) to remit, or give time for the payment of, any debt due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peak about internal arrangement in a company, whereas amalgamation is blending of two or more companies involving merger or the amalgamation of one company or more with another company/companies. One basic thing to be understood is, the trigger point for invocation of jurisdiction for compromises or arrangements is an application to the Tribunal for ordering a meeting to be held to get approval from the shareholders/ creditors of the respective company, unless such application is made, perhaps initially there won't be any beginning to undergo the process set out in this chapter. If at all any change is likely to happen to any of its members/creditors by any of the arrangements the company wants to have, then obviously the company shall go for the process applicable to it in chapter of Compromises, arrangements and amalgamations, therefore, all these approvals and monitoring by Tribunals is to ensure that stakeholders are not adversely affected by any of these arrangements. 13. Here is the key, if any change to the rights of any of the members/creditors, majority approval of those persons whose rights are likely to be affected has to be taken. There can't be any relaxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent classes or by the division of shares into shares of different classes, or by both of those methods." 18. For this section begins with saying that where a compromise or arrangement is proposed with shareholders or creditors, as the case may be, and when an application comes before NCLT, it will order a meeting to be called, held and conducted in such manner as the Tribunal directs. By close reading of this section, conclusion comes is that when company wants to have a proposal for some arrangement with its members/creditors as the case may be, it will apply to the Tribunal to invoke its jurisdiction under the respective section to ordering a meeting as mentioned in the section. Sometimes, arrangement of clauses, placement of adjectives or adverbs makes difference to its meaning and emphasis. Since this section begins with where a compromise or arrangement is proposed, if no such proposal to compromise or arrangement with its creditors or members is present, obviously there won't be any application asking for a meeting to be ordered by the Tribunal. Whenever we try to understand any section or statute, we shall try to understand in the way it is put together to gather the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to as the transferee company), or is proposed to be divided among and transferred to two or more companies, the Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of section 230 shall apply mutatis mutandis, (2) Where an order has been made by the Tribunal under sub-section (I), merging companies or the companies in respect of which a division is proposed, shall also be required to circulate the following for the meeting so ordered by the Tribunal, namely: - (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferor company decide to opt out of the transferee company, provision shall be made for payment of the value of shares held by them and other benefits in accordance with a pre-determined price formula or after a valuation is made, and the arrangements under this provision may be made by the Tribunal: Provided that the amount of payment or valuation under this clause for any share shall not be less than what has been specified by the Securities and Exchange Board under any regulations framed by it; (i) where the transferor company is dissolved, the fee, if any, paid by the transferor company on its authorized capital shall be set-off against any fees payable by the transferee company on its authorized capital subsequent to the amalgamation; and (j) such incidental, consequential and supplemental matters as are deemed necessary to secure that the merger or amalgamation is fully and effectively carried out: Provided that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrangement is proposed, are to he transferred to a new company, whether or not a public company, it is a merger by formation of a new company; (ii) references to merging companies are in relation to a merger by absorption, to the transferor and transferee companies, and, in relation to a merger by formation of a new company, to the transferor companies; (iii) a scheme involves a division, where under the scheme the undertaking, property and liabilities of the company in respect of which the compromise or arrangement is proposed are to be divided among and transferred to two or more companies each of which is either an existing company or a new company; and (iv) property includes assets, rights and interests of every description and liabilities include debts and obligations of every/ description." 22. In this section, a separate procedure has been plated out to follow, except application of some portion of section 230 (1) and of section 230 (3-6), therefore for clearance of a scheme under section 232, unlike in section 230, this entire section (sec. 232) has to be followed. 23. Though section 232 (1) begins with as begun in section 230 (1), as we go deep down into the sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany to call and hold meetings in respect to such scheme? Law is always to be understood on need-based approach, unless it is specifically directed to obtain permission or license to do an act. This kind of obtaining permission of State or Court normally arises to ensure not only to ensure the economic interest of the members/creditors is not adversely affected, but also to ensure fiscal discipline or to remain adhere to public policy or to maintain law and order. Since main emphasis held out is on protecting the rights of members/creditors of the companies involved in mergers and amalgamations, as long as the merger or amalgamation has no bearing internally on creditors/members of the respective company, we with all humility believe, such company need not propose a meeting with its creditors or members. 27. In the back drop of the above proposition, let us examine as to whether this Holding Company internal arrangement in existence requires any change to remain compatible with external arrangement it is having with transferor companies or not? The answer is there need not be any internal arrangement within Transferee Company because, (i) that this applicant company has 100% hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e held, there could not be an occasion for dispensing with holding meeting. Until before 2013 Act has come into force, shareholder/creditors meetings were dispensed with by considering consent given by members/creditors. Since this Bench has already held that Board of Directors themselves are empowered to approve scheme, no occasion would arise for holding shareholders meeting. Therefore, question of dispensation of shareholders meeting would obviously not arise and henceforth it can't be said that not holding shareholders meeting will amount to violation of any of the provisions of Companies Act, 2013, more specially under this Chapter-XIII. Likewise, when it does not require a meeting with creditors, the question of dispensation of meeting would not arise. 30. Until now, it has been dealt with that approval of either shareholders or creditors is not a requisite to approve the scheme, now the point ascertainable is whether the transferee company has to comply with remaining procedure so as to get sanction for the scheme or not. 31. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pproval 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. 34. 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. 35. It is hereby made clear that when Transferor companies are wholly owned subsidiaries of the Transferee company and the financial position of the Transferee is highly positive and this merger is not effecting the rights of the applicant shareholders or creditors, allowing Transferee company to obtain approval without taking the shareholders' approval is permissible under law, henceforth it is hereby held that this transferee company need n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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