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TMI Blog2019 (7) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... nch (hereinafter referred to as 'Tribunal') in C.A. (CAA) No. 54/BB/2018, C.A. (CAA) No. 55/BB/2018 and C.A. (CAA) No. 56/BB/2018 by virtue whereof the Tribunal declined to sanction the scheme of demerger on the ground that several issues were pending finalization and certain investigations were pending in relation to the business of the demerged company. However, liberty was granted to file afresh after the pending investigations are disposed of. Since, the parties and subject matter are common, all the three appeals were heard together and are proposed to be disposed of by a common judgment. 2. For better understanding of the issues involved, it would be appropriate to briefly notice the factual matrix. The Appellants in all the three appeals who were petitioners before the Tribunal, sought an order for sanctioning the scheme of demerger in terms whereof the wind energy generation business of 'Mineral Enterprises Ltd.' (the Demerged Company) was sought to be separated and given to 'MEL Windmills Pvt. Ltd.' (Resulting Company No.1) whereas the real estate, shares and security investments of 'Mineral Enterprises Ltd.' were sought to be given to 'MEL Properties Pvt. Ltd.' (Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings of the Shareholders and Creditors. Learned counsel for Appellants further submits that the impugned order was passed without hearing the parties on the said issue and without considering the terms of demerger scheme. The impugned order is assailed on the ground that it's a non-speaking order and the Tribunal has overstepped its jurisdiction. It is further submitted that the question of sanction of the scheme of demerger could not have been decided at the preliminary stage and without eliciting the views of the Stakeholders including the concerned regulatory authorities. The Tribunal ought to have directed meetings to be convened and notices to be issued to the concerned authorities in terms of the statutory provisions. Lastly it is contended that the demerger scheme proposed by the Appellants was not with regard to the business of Mining which had to continue with the Demerged Company. Therefore, the pending investigations against the Director of the Demerged Company would continue post the demerger without adversely impacting the scheme of demerger. Appellants in Company Appeal (AT) No. 04 of 2019 and Company Appeal (AT) No. 05 of 2019 figure as Respondents No. 1 and 2 in Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer. (3) Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub-section (1), a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address registered with the company which shall be accompanied by a statement disclosing the details of the compromise or arrangement, a copy of the valuation report, if any, and explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and the debenture-holders and the effect of the compromise or arrangement on any material interests of the directors of the company or the debenture trustees, and such other matters as may be prescribed: Provided that such notice and other documents shall also be placed on the website of the company, if any, and in case of a listed company, these documents shall be sent to the Securities and Exchange Board and stock exchange where the securities of the companies are listed, for placing on their website and shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion (6) shall provide for all or any of the following matters, namely:- (a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable; (b) the protection of any class of creditors; (c) if the compromise or arrangement results in the variation of the shareholders' rights, it shall be given effect to under the provisions of section 48; (d) if the compromise or arrangement is agreed to by the creditors under sub-section (6), any proceedings pending before the Board for Industrial and Financial Reconstruction established under section 4 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall abate; (e) such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal necessary to effectively implement the terms of the compromise or arrangement: 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." 5. On a plain reading of the aforesaid provisions it comes to fore that the Tribunal, while dealing with an application under Section 230 of the Act, on being satisfied that the compromise or arrangement has been proposed in connection with a scheme for the reconstruction of the company or companies involving merger/ amalgamation of two or more companies and under the scheme property or liabilities of the transferor company is required to be transferred to transferee company or divided among/ transferred to two or more companies is required to order meeting of the creditors or members, as the case may be, to be called. Sub-section (9) thereof empowers the Tribunal to dispense with calling of a meeting of creditors where such creditors, having at least 90% value agree to and confirm the scheme of compromise or arrangement. The creditors/ members are required to file an affi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld stage, was not required to venture into the merits of the proposed scheme of demerger which had to be examined only after obtaining the consent of creditors/members with requisite majority. For proper exercise of jurisdiction vested in the Tribunal it was imperative either to call the meeting of creditors/ members for consideration of the proposed scheme of demerger or to dispense with such meeting by invoking Sub-section (9) of Section 230 as 100% of shareholders of each company, 100% of creditors of Resulting Companies and 97.18% of creditors of the Demerged Company had filed consent affidavits. The Tribunal failed to adhere to the mandate of law which was mandatory and imperative in nature. This goes to the root of the impugned order which cannot be sustained. 7. Apart from what has been stated hereinabove, the pending issues could not be construed as an impediment in sanctioning the proposed scheme of demerger. It is so for more than one reason. First being the case of Appellants - Petitioners before the Tribunal, that the demerger scheme proposed by the Appellants was not with regard to business of Mining which would continue with the Demerged Company and the pending inves ..... X X X X Extracts X X X X X X X X Extracts X X X X
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