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TMI Blog2019 (7) TMI 1616X X X X Extracts X X X X X X X X Extracts X X X X ..... 1st January, 2018 (First Impugned Order) and 21st February, 2018 (Second Impugned Order). The proceedings which were initiated by the Respondents for amalgamation by proposing scheme of amalgamation as per provisions of Sections 230 and 232 of the Companies Act, 2013 (Act - in short), got approved by common Order dated 27.08.2018 (Third Impugned Order) which has led to the filing of CA 324 of 2018. References 2. The parties have argued the matter mostly from the record of Company Appeal 324 of 2018 and as such, unless we will be mentioning otherwise, we will be referring to the documents and page numbers from CA 324 of 2018. 3. Respondent No.1 - NMCE - Transferor Company, a deemed recognized Stock Exchange under Securities Contracts (Regulation) Act, 1956 filed CA (CAA) No. 97/NCLT/AHM/2017) in the First Motion before the Tribunal for convening and holding of meetings of equity shareholders and unsecured creditors for approval of a Scheme of Amalgamation of Respondent No.1 with Respondent No.2. Respondent No.2 - ICE - Transferee Company, which is also similarly deemed recognized Stock Exchange filed CA (CAA) 105/NCLT/AHM/2017 before the Tribunal seeking dispensing of meetings o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of Respondent No.2 in CA 324 of 2018). Perusal of the Order shows that FMC had various issues against the Appellant and Kailash Gupta and others. In this Appeal, we take note but we are not concerned for decision of those issues as they are not subject for us to decide. FMC on that date of 23.07.2011 passed Orders giving direction in paragraph - 34 'a' to 'o' which we note. FMC gave directions to NMCE and its Enforcement Commission to initiate various proceedings and actions. The material directions relevant for us for the purpose of keeping special note, are at para - 34 'a' and 'o' which read as follows:- "a) The NMCE is directed to place before the Board of Directors the evidence regarding the irregularities in the allotment of shares of NMCE to NOL for convening an extra-ordinary meeting of the General Body of the NMCE to consider passing a resolution to authorize the Exchange to refer the matter to the appropriate authorities under the Companies Act, 1956 for cancellation of the irregular allotment of 29,32,280 share to the NOL and any other action as provided under the Companies Act, 1956; Needless to say, the impugned 29,32,280 shares presently held by NOL will not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... igh Court on 9th February, 2012 and 28th February, 2012 with a direction that any action, decision or proceedings taken in view of the FMC Order dated 23.07.2011 would abide by the result of the Special Leave Petition. (D) It is claimed that the Managing Director of Respondent No.1 filed FIR against Kailash Gupta with Crime Branch, Ahmedabad. He also filed private complaint before Enforcement Directorate alleging money laundering against Kailash Gupta and sought action under Prevention of Money Laundering Act (PMLA). The Enforcement Directorate registered a case under Section 420 and other provisions of Indian Penal Code, 1860 and freezed the shareholding of the Appellant. The Enforcement Directorate passed Provisional Attachment Order dated 18.10.2013 against 33,45,729 shares held by the Appellant in Respondent No.1 Company which included 29,32,680 shares, which were sought to be cancelled by Respondent No.1 Company before Company Law Board (now NCLT). It is stated on 31.12.2013, Enforcement Directorate further provisionally attached 12,96,900 shares of the Appellant in Respondent No.1 which were part of 29,32,680 shares sought to be cancelled by Respondent No.1 Company. (E) Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es now, does not permit the participation of NOL in shareholders' meeting, wherein the proposed Scheme will be placed for approval." It further observed in para - 32:- "32. In case the Scheme is approved by the shareholders and unsecured creditors and in case NMCE comes up before this Tribunal with a petition to sanction the Scheme, then, at that stage, NOL is at liberty to raise all objections and all such objections raised by NOL have to be considered by this Tribunal before approving of the Scheme." Second Impugned Order 9. The NCLT thereafter on 21st February, 2018, passed a Second Impugned Order where it took stock of the earlier developments and proceeded to pass Orders for holding meeting of the equity shareholders on 5th April, 2018 at 12 O' Clock noon and for holding meeting of unsecured creditors on 5th April, 2018 at 2.30 p.m. This Order was regarding the Respondent No.1 - NMCE with which the Appellant has been concerned. It appointed Retired Justice Kamal Mehta as Chairperson of the meeting and directed appointment of Mahesh Chand Gupta, PCS and in absence, Mr. Sparsh M. Gupta as PCS to be scrutinizer. It fixed a quorum of equity shareholders at 5 and unsecured cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they are also not entitled to vote in view of the regulatory guidelines dated May 6, 2014 referred to hereinabove. It may be observed that Regulation 19 of the Securities Contracts (Regulation) (Stock Exchange and Clearing Corporations), Regulations, 2012 provides for eligibility for holding of shares and Regulation 20 provides for criteria of a 'fit and proper person'." Chairperson considered the developments in the litigation and observed (para - 23) that Mr. Kailash Gupta cannot be allowed to vote at the present meeting. It was mentioned in para - 25 of the Report of the Chairperson:- "25. At the conclusion of the meeting, after considering the above, the result of the voting upon the said question was as follows: 25(1) The majority of the shareholders representing three-fourth in value of the equity shareholders voted in favour of the scheme of amalgamation being adopted. 25(2) Three equity shareholders of the applicant company holding in aggregate 81,28,447 equity shares representing 83.97% of total valid votes cast and 75% of total number of shareholders whose votes were found to be valid on poll at the meeting voted in favour of the scheme of amalgamation being adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n stayed by the Hon'ble High Court of Gujarat. Even otherwise, the Appellate Tribunal had also observed that it had no concern as to whether the Neptune Overseas Limited be allowed or not be allowed to exercise its voting rights as the same is not within the domain of the said Tribunal as the said aspect is being dealt with by other Courts. This Tribunal also considered the objections along with the response on behalf of NMCE. The Tribunal also perused the objections raised in the pending Company Appeal. 43. Under the circumstances, this Tribunal is also of the view that objections that NMCE has other options to enhance the capital or that the Scheme is not in the interest of the shareholders is not justified. The Board of Directors and the shareholders of both the companies in their commercial wisdom have proposed and approved the Scheme of Amalgamation. SEBI being the Regulator has also approved the Scheme of Amalgamation. In fact, it is one of the contentions on behalf of the Petitioner Companies that the Scheme of Arrangement is being proposed to comply with certain guidelines issued by the Government of India as also the regulations made by SEBI and the proposed Scheme would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to decision made by higher Forums. Arguments 14. We have heard Counsel for both sides. Counsel for both sides have referred to the developments and litigations as referred above and which is reflected even in the 3 Impugned Orders. The arguments raised before NCLT as can be seen in the Impugned Orders, are repeated before us also. A brief reference we make. The learned Counsel for the Appellant in substance argued that the scheme proposed did not mention that it was for complying with net worth criteria; the Respondent No.2 was in cash bleeding financial position and, R2 had insignificant presence in the market and that, R2 was incurring heavy annual operational expenditures and the scheme was not in the interest of Respondent No.1. Respondent No.1 had various prudent options to raise the capital which were not explored. If the scheme was allowed to go through, it would pre-emptively forfeit the rights of Appellant. It is argued that there was no valid quorum at the meeting convened of the shareholders. There were only 2 members when the meeting began and thereafter, 2 more joined when the meeting had already started. It is claimed that instead of Reliance Capital Limited (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsible for committing systematic fraud, misappropriation and committing series of crimes to benefit himself and his family members and the companies/entities owned and controlled by him or his family members. The learned Counsel for Respondents referred to the Orders passed by FMC and other judicial Orders to submit that the voting rights of the Appellant and Kailash Gupta continued to remain suspended in view of Orders issued by FMC under Section 10 of the Forward Contracts (Regulation) Act, 1952 read with Rules 7(2)(ii) of Forward Contracts (Regulation) Rules, 1954 which were valid and in force even till now (i.e. when arguments were done and completed). According to the Respondents in the light of Orders of FMC and the Regulations, the Appellant had no right to raise objections and even if the objections were considered, they had no substance. Respondents claimed that the scheme was brought in the interest of both the Respondents and to comply with the Statutory Regulations. The Scheme was just, fair and reasonable and in the interest of all stake holders. It is claimed that it was also in public interest. It is argued that when the meeting was held on 5th April, 2018, 7 members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Economic Affairs, Ministry of Finance, Government of India revising earlier applicable norms. Relevant paragraph of Norm - 2 relating to net worth requirements specifies:- "2. Net worth requirements: (1) Every recognized commodity exchange shall have a minimum networth of one hundred crore rupees at all times: Provided that a recognised commodity exchange having a lesser networth as on the date of commencement of these directions shall achieve a minimum networth of one hundred crore rupees within a period of three years from the date of issue of these directions." The same norms deal with fit and proper person criteria also. Norm - 6 deals with consequences if a person ceases to be fit and proper person. Norms - 5 and 6 read as follows:- "5. Fit and proper person criteria. (1) For the purposes of these directions, a person shall be deemed to be a fit and proper person if - (a) such person has a general reputation and record of fairness and integrity, including but not limited to - (i) financial integrity; (ii) good reputation and character; and (iii) honesty; (b) such person has not incurred any of the following dis-qualifications --- (i) the person or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18, the meeting of shareholders of Respondent No.1 took place. The FMC Order was in force and these revised norms were also in place and apart from the FMC Order holding Kailash Gupta not fit and proper person, these norms clearly created obstacle for the Appellant and Mr. Kailash Gupta. Considering this, we do not find anything wrong in the Appellant and Mr. Kailash Gupta not being allowed to vote in the meeting of the shareholders although he was allowed to attend and he even raised objections which were recorded as can be seen from the Report of the Chairperson of the Meeting. Thus, we discard the arguments on behalf of the Appellant that some shares were affected and some were still available to the Appellant. We find that Mr. Kailash Gupta who attended the shareholders' Meeting and who claims himself to be authorized signatory of the Appellant being not fit and proper person, could not have voted and was rightly not allowed to vote. 17. The other objections raised by the Appellant regarding quorum at the time of meeting, have no substance. The Report of the Chairperson is already on record as well as the Report of scrutinizer which shows the presence of quorum. The objections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suance of FMC order shall be subject to the final outcome of the pending Special Leave Petitions. As a result, the Order dated 23-07-2011 passed by the erstwhile FMC got restored for enforcement. National Multi Commodity Exchange of India Limited ('NMCE') has informed that directions contained in the said FMC Order have been substantially implemented by it and by various other enforcement agencies, viz. Gujarat State Police and Directorate of Enforcement ('ED') who have also initiated various actions, which include, two provisional orders that have been reportedly passed by ED, viz., (a) order dated 18.10.2013 attaching 33,45,729 equity shares of NOL and (b) order dated 31.12.2013 attaching 12,96,900 equity shares of Neptune Overseas Limited. In other words, out of 57,68,464 shares of NMCE shares held by NOL, a total no. of 46,42,629 shares have been attached by ED. Thus, it is observed that various law enforcement agencies have taken action on the basis of the Order passed by the erstwhile FMC. 3. NMCE has reported to SEBI that Directorate of Enforcement has written to the Share Transfer Agent and NSDL to give possession of no. of 46,42,629 attached shares to them as per Sec 8(4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant has kept harping that ICE is a company which was bleeding and had no net worth and that NMCE could have raised its own cash net worth. Nothing is shown that the Appellant raised any questions to this communication of SEBI. The letter of SEBI itself shows how the shares of the Appellant got affected and the submissions made that ICE was bleeding in finance and had no net worth, etc., need to be discarded. The argument that the scheme does not mention that it was proposed to meet the net worth requirement and so the scheme should be doubted, also needs to be discarded. Only because the scheme does not mention that meeting net worth criteria was one of the objective, does not make the scheme bad. Ultimately, it is a matter of legal requirement which Respondent No.1 Company was required to meet or find a solution. Letter of SEBI shows that NMCE (Respondent No.1) carried the risk of penal action against it. As such, we have no reason to doubt the Scheme for ulterior motives. It was necessary to meet the net worth requirement. We discard the objections being raised by Appellant. 19. We have gone through the First, Second and Third Impugned Orders. We do not find any reason ..... X X X X Extracts X X X X X X X X Extracts X X X X
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