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TMI Blog2023 (1) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... passing the 'impugned order' dated 05.02.2021 in TCAA/4/KOB/2019 & TCAA/5/KOB/2019, wherein, inter alia at Paragraphs 18 to 20, had observed the following: 18. "This Tribunal heard the arguments advanced by Shri Pranoy Harilal, learned counsel for the petitioners / applicants and gone through the report submitted by the Registrar of Companies, Kerala. The Registrar of Companies has stated that the Regional Director, Ministry of Corporate Affairs, who is the competent authority in the matter, has strongly objected to the Scheme of amalgamation submitted by the petitioner companies for the reasons that the companies have violated Section 74(1)(b) of the Companies Act, 2013 by retaining amounts of Rs.17,50,000/- accepted from Sri Mohammed Kasim Varikkodan, a Director of the transferor company during the year 2014-15 as also Rs.15,00,000/- from Sri Ibrahim Kutty another Director of the transferor company during the year 2015-16. In the Board report for 2014-15 and 2015-16 the company has not made disclosure regarding acceptance of deposits of the aforesaid two amounts from the said Directors violating the provisions of Section 73 of the Companies Act, 2013. They have violated the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised by the Regional Director, Ministry of Corporate Affairs, pointing out various lapses on the part of the petitioner companies, this Tribunal refers to a decision of the coordinate Bench of this Tribunal at Mumbai in the case of UFO Moviez India Limited and another - C.P. (CAA) No./1920/MB/2018 in C.A. (CAA) No. 120 of 2018, wherein even though the facts are different, the question whether based on the report of the Regional Director, the relief for sanction of amalgamation can be rejected has been answered. The Mumbai Bench in that case held as under:- "It is not that this Bench is against any business combinations, mergers or any proposition that would make the investors, promoters and shareholders more and more profitable. In fact, we welcome it. But at the same time, one must be humble and serious enough to abide by law and any proposition of business must be planned in such a manner that no law, logic and rights of any person are violated. There may be some repetitions which we are conscious of but the same is done to emphasize on various viewpoints differently. In the present case on hand, the Petitioners, underestimating the prudence and ability of the system, made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n filed before the 'National Company Law Tribunal', Kochi Bench. In these two 'Applications', the 'Appellants / Petitioners', had sought a 'relief', in sanctioning a 'Scheme of Amalgamation' of the 'Appellant No. 1 / Transferor Company', with the 'Appellant No.2 / Transferee Company', within the meaning of Sections 230 and 232 of the Companies Act, 2013, read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (the Rules). 7. It is pointed out on behalf of the Appellants, that the aforesaid Applications, were filed initially, before the 'Hon'ble High Court of Kerala', in Company Petition Nos. 36 and 38 of 2016, praying for 'Sanction of Scheme of Amalgamation' of the 'Appellant No. 1 / Transferor Company' with 'Appellant No. 2 / Transferee Company'. After the 'Constitution of National Company Law Tribunal', the 'Hon'ble High Court of Kerala', had transferred the abovementioned Company Petitions, as per Order dated 13.03.2017 to the 'National Company Law Tribunal', Chennai Bench, where it was numbered as TP(HC)/ 112 & 113 (Kerala)/2019. Later, after the 'National Company Law Tribunal', Kochi Bench, came into existence, the matter was transferred to the 'Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. It is the version of the Appellants, a mere glance of the documents and records, will exhibit that the whole process, contemplated under the Companies Act, 2013 and the Rules were satisfied and all requirements were complied with. Furthermore, by virtue of the 'Amalgamation', there shall be an 'impetus' and 'increase', in the 'area of operations' of the '2nd Appellant / Transferee Company', apart from the 'reduction in costs'. 15. On behalf of the Appellants, it is projected before this 'Tribunal' that the 'Amalgamation', shall result in the combination of manpower of both the Companies and a 'single management structure' for the 'Companies'. Added further, the combined managerial and technical expertise, will enable the '2nd Appellant / Transferee Company', to develop a business model, that would be 'competitive' and 'cogent'. 16. The Learned PCS for the Appellants contends that there is nothing in the 'Scheme', which aims to achieve anything 'fraudulent' or 'hidden' or which may result in 'violation' of any 'Law', for the time being in force. Although the Companies are not facing any 'investigation' or 'winding up proceedings'. In fact, both the Companies have filed their 'I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r game according to the rules and do not overstep the limits. But subject to that how best the game is to be played is left to the players and not to the umpire. The supervisory jurisdiction of the Company Court can also be culled out from the provisions of Section 392 of the Act which reads as under : "392, (1) Where a High Court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it - (a) shall have power to supervise the carrying out of the compromise or arrangement ; and (b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or thereafter, give such modifications in the compromise or arrangement as it may consider necessary for the proper working or the compromise or arrangement. (2) If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under section 391 cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company, and such an order shall be deemed to be an order under Section 433 of this Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ably approve. The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interest of the class which it is empowered to bind, or some blot is found in the Scheme." In the case of Alabama, New Orleans, Texas and Pacific Junction Railway Company reported in (1891) 1 Ch 213: (1886-90) All ER Rep Ext 1143, the relevant observations regarding the power and jurisdiction of the Company Court which is called upon to sanction a scheme of arrangement or compromise between the company and its creditors or shareholders were made by Lindley, L.J. as under: "What the court has to do is to see, first of all, that the provisions of that statute have been complied with; and, secondly, that the minority has been acting bona fide. The court also has to see that the minority is not being overriden by a majority having interests of its own clashing with those of the minority whom they seek to coerce. Further than that, the Court has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts and Indian High Courts observed as under on the power and jurisdiction of the Company Court which is called upon to sanction a scheme of merger and amalgamation of companies. "It is a matter for the shareholders to consider commercially whether amalgamation or merger is beneficial or not. The court is really not concerned with the commercial decision of the shareholders until and unless the court feels that the proposed merger is manifestly unfair or is being proposed unfairly and / or to defraud the other shareholders. Whether the merged companies will be ultimately benefitted or will be able to economise in the matter of expenses is a matter for the shareholders to consider. If three Companies are amalgamated, certainly, there will be some economies in the matter of maintaining accounts, filing of returns and various other matters. However, the court is really not concerned with the exact details of the matter and if the shareholders approved the scheme by the requisite majority, then the court only looks into the scheme as to find out that it is not manifestly unfair and / or is not intended to defraud or do injustice to the other shareholders." We may also in this conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecedence. The jurisdiction of the court in this regard is comprehensive." Sen, J. speaking for himself and Venkatachaliah, CJ., also towed the line indicated by Sahai, J., about the jurisdiction of the Company Court while sanctioning the Scheme and made the following pertinent observations: (SCC p. 528, para 84) "An argument was also made that as a result of the amalgamation, a large share of the market will be captured by HLL. But there is nothing unlawful or illegal about this. The Court will decline to sanction a scheme of merger, if any tax fraud or any other illegality is involved. But that is not the case here. A company may, on its own, grow up to capture a large share of the market. But unless it is shown that there is some illegality or fraud involved in the scheme, the Court cannot decline to sanction a scheme of amalgamation. It has to be borne in mind that this proposal of amalgamation arose out of a sharp decline in the business of TOMCO. Dr Dhavan has argued that TOMCO is not yet a sick Company. That may be right, but TOMCO at this rate will become a sick Company, unless something can be done to improve its performance. In the last two years, it has sold its inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising of the same class whom they purported to represent. 8. That the scheme as a whole is also found to be just, fair and reasonable from the point of view of prudent men of business taking a commercial decision beneficial to the class represented by them for whom the scheme is meant. 9. Once the aforesaid broad parameters about the requirements of a scheme for getting sanction of the Court are found to have been met, the Court will have no further jurisdiction to sit in appeal over the commercial wisdom of the majority of the class of persons who with their open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid discussion, we hold that the order passed by the Court under Section 394 of the Companies Act is based upon the compromise between two or more companies. Function of the Court while sanctioning the compromise or arrangement is limited to oversee that the compromise or arrangement arrived at is lawful and that the affairs of the company were not conducted in a manner prejudicial to the interest of its members or to public interest that is to say, it should not be unfair or contrary to public policy or unconscionable. Once these things are satisfied the scheme has to be sanctioned as per the compromise arrived at between the parties. It is an instrument which transfers the properties and would fall within the definition of Section 2 (1) of the Bombay Stamp Act which includes every document by which any right or liability is transferred. The State Legislature would have the jurisdiction to levy stamp duty under Entry 44, List III of the Seventh Schedule of the Constitution of India and prescribe rates of stamp duty under Entry 63, List II." Hon'ble High Court's Decisions: 21. In the decision of the Hon'ble Gujarat High Court in Re. Navjivan Mills Co. Ltd. v. Unknown (decided o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons for which are not far to seek and to which I would presently advert. At the meeting of preference shareholders, out of the total of 7,000 preference shares, 4,144 shares were represented and the scheme was approved unanimously. At the meeting of unsecured creditors who were depositors and holders of loan accounts, out of a total debt under this head of Rs. 25,72,374, creditors, the value of those deposits was Rs. 24,92,280 attended and unanimously approved the scheme. At the meeting of unsecured creditors who were suppliers of stores, etc., out of the total value of debt of Rs. 29,75,556 affirmative voting represented debt worth Rs. 18,18,370 and the negative voting represented the debt in the value of Rs. 1,22,575. These figures would at a glance show that the classes were fairly represented and the scheme has been approved by an overwhelming majority far above the statutory majority. The last question is whether the scheme is fair and reasonable one which a man protecting his commercial interest and guided by reasonable expectation would approve. I need not dwell upon this aspect because the creditors and shareholders of Navjivan had hardly any choice. If one can say tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udges of their own interest and the support that they have extended to the scheme would indisputably indicate that they are people who have properly considered the whole thing and possibly reached a conclusion which represents their best judgment. Presumably, they must have honestly acted. There is no allegation of coercing the minority. There was not even a single dissenting vote. Therefore, despite my intense feeling that Kohinoor has almost dictated its terms to Navjivan I would accept the scheme as reasonable and fair one. At any rate, this narration by itself would effectively repel the contention of the Central Government that the interest of Kohinoor is jeopardised in the scheme. That, in my opinion, is begging the issue. Be that as it may, in the circumstances disclosed in the case, I would accept the judgment of the shareholders evidenced by the votes cast by the shareholders, both preference and ordinary, and unsecured creditors of Navjivan and would hold, keeping in view the huge majority the scheme has received, that the scheme is a reasonable and fair one and it is not oppressive of minority by majority. Then the question is whether the scheme is commercially sound. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt not to sanction the scheme. That Section 391(2) only requires the disclosure of all material facts to the Court, establishes this. If it were otherwise, Section 391, and in particular, Sub-section (2) thereof, would have been worded differently. The purport of Section 391(2) is that all the material facts relating to the company including the pendency of any investigation proceedings in relation to the company under Sections 235 - 351 and the like, ought to be disclosed to the Court in order to enable the Court to decide whether or not the scheme ought to be sanctioned in view of such facts. The manner of exercise of discretion would then depend upon the facts of each case." Appellate Tribunal's Decisions: 24. In the decision of this 'Tribunal', in Mel Windmills Pvt. Ltd. v. Mineral Enterprises Limited & Anr. with Mel Properties Pvt. Ltd. v. Mineral Enterprises Limited & Anr., etc. (vide dated 27.05.2019), reported in (2019) SCC Online NCLAT 900, wherein at paragraph 7, it is observed as under: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions: 26. According to the Learned Counsel for the Respondent, the '1st Appellant / Company', had collected 'Deposits', from six Directors of the company and 76 number of shareholders of the '1st Appellant / Company'. Moreover, according to the Respondent, on verification, it was found that 'all the six Directors, were appointed, on dates, before giving 'Loans', to the '1st Appellant / Company', and all the 'Shareholders', who were given 'Unsecured Loans', to the '1st Appellant / Company', are also the 'Shareholders' of the 'Company', as per 'Register of Member', furnished by the 'Company'. 27. It is represented on behalf of the 'Respondent / Union of India', through the 'Regional Director' (SR), Ministry of Corporate Affairs, Chennai, on 'verification of the Ledgers and Registers', filed by the 'Appellant Companies', that they had accepted 'Unsecured Loans', only from the 'Directors' of the 'Company' from 01.04.2014, and the said 'Loans' or 'Exempted Deposits', in terms of Rule 2(i)(viii) of the Companies (Acceptance of Deposits) Rules, 2014. 28. It comes to be known that the 'Appellant Companies', had submitted the 'copy of the Declaration', secured from the 'Directors' of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n' of the Companies Act, 2013, which permitted the 'Private Companies', to 'increase the Limit', on the 'number of Members', from 50 to 200. 32. As a matter of fact, the '1st Appellant / Company', had shown in their record, that 63 more persons, from whom the 'Deposits', were 'accepted', became 'Members', from 13.09.2013 to 31.03.2014. 33. Indeed, the '1st Appellant' / 'Company', had manipulated the 'records', to reflect that the 'Sum' received from these '63 persons', as amount received from the 'Members', with a view to 'escape', from the 'breach of the ingredients of Section 58A of the Companies Act, 1956'. 34. It is pointed out on behalf of the Respondent that the '1st Appellant / Company', had filed two (2) PAS-3 forms on 26.08.2014 for allotments made on 27.03.2014 and 29.03.2014, each containing 49 new shareholders with a considerable delay, as seen from the 'records', on verification. 35. Continuing further, it is projected on the side of the Respondent that, in both instances, the 'Number of Shareholders' involved was 49', and it was the 'methodology' of the '1st Appellant / Company', to first 'accept' the 'monies' from 'outside parties', as 'Unsecured Loans', and late ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , rendering 'Acceptance of Deposits' of Rs.17,50,000/- and Rs.15,00,000/- from the said 'Directors', which is in 'negation of Section 73 of the Companies Act, 2013, for which, the company, is 'liable to pay a minimum penalty of Rs. 1 Crore', and that the 'Officer' in 'Default', shall be 'punishable' with 'imprisonment', for a term of seven years or with 'Fine', which shall not be less than Rs.25,00,000/-, but, which may extend to Rs.2 Crores. In effect, the submission of the Learned Counsel for the Respondent is that, the 'Acceptance of the aforesaid Deposits', attracts the 'Penal provision'. 39. The Learned Counsel for the Respondent comes out with a plea that the '1st Appellant / Company, had as much as Rs.10,53,48,359/- as 'Outstanding Deposits', as on 31.03.2013 from the 'Directors' and 'Members', which had risen to Rs.14,44,85,889/-, as on 31.03.2014. 40. In reality, the new provisions Section 73 'Prohibition on acceptance of deposits from public', Section 74 'Repayment of deposits, etc., accepted before commencement of act', Section 75 'Damages for fraud', Section 76 'Acceptance of deposits from public by certain companies', Section 76-A 'Punishment for contravention of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Balance Sheets', which attracts the 'Punishment for Fraud', under Section 447 of the Companies Act. 45. The Learned Counsel for the Respondent, brings it to the notice of this 'Tribunal', that the 'Regional Director' of the 'Respondent', had observed that 'similar breaches', committed by the '2nd Appellant / Company', and that the 'objection', was placed by the 'Regional Director', of the 'Respondent', against the 'Approval', being accorded to the 'Scheme'. 46. Furthermore, the 'Registrar of Companies', Ernakulam, was directed to examine the above issues, in 'depth' / 'detail', and 'Show Cause Notices', were to be issued to the '1st Appellant', and the '2nd Appellant / Companies' and its 'Officer(s)', in 'Default', for the 'breaches', committed and 'explanations', were to be obtained from the said 'Companies', and the same to be forwarded to the 'Regional Director' of the 'Respondent', for further consideration. 47. According to the Respondent, the 'Registrar of Companies', Ernakulam, Kerala, had issued 'Show Cause Notice(s)', to the 'Companies' and its 'Directors', and the same were acknowledged, but, 'no replies', were sent by them, in this regard. 48. The Learned Counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , where Fletcher Moul Ton LJ, observed to the effect the words 'damages' and 'damage in Law', have more than one meaning and great care has to be exercised, in examining the context in which they severally appear. 'Disqualification for Appointment of Director': 56. Section 164 of the Companies Act, 2013, pertains to the 'Disqualification of Directors', incurred during the 'Terms of Office', as 'Directors', and not with the 'Retirement of a Director', as per decision B.R. Kundra, Delhi v. Motion Pictures Association, reported in (1976) 46 CompCas 339 (Del). 'Compromises, Arrangements and Amalgamations, under the Companies Act, 2013': 57. Section 230 of the Companies Act, 2013, deals with 'Power to Compromise' or make 'Arrangements' with the 'Creditors' and the 'Members', and the said Section is wide enough to include any reasonable 'Compromise' or 'Arrangement'. The word 'Arrangement', has wider meaning, than the term 'Compromise'. 58. At this juncture, this 'Tribunal', worth recalls and recollects the decision in Travancore National v. Quilon Bank, in Re., reported in (1939) 9 CompCas 14 Mad., wherein it is observed that the use of word 'may', in the Section denotes, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on hand, although on behalf of the 'Appellants', it is projected before this 'Tribunal', that the 'sanctioning of the arrangement', mentioned in the 'Scheme', will be for the 'advantage and benefit' of the 'Appellants'/'Companies', its 'Shareholders', and the 'Creditors', coupled with the fact that no 'investigation proceedings', were instituted or pending, in terms of the relevant provisions of the Companies Act, etc., this 'Tribunal', on a consideration of the submissions made on behalf of the 'Respondent' / 'Union of India' (Regional Director, Southern Region, Ministry of Corporate Affairs, Chennai), pertinently points out that the 'Appellants', had not 'adhered to', the utmost provisions of the Companies Act, 2013, which creates an 'unfavourable circumstance', to and in favour of the 'Appellants'. Also that, the 'Regional Director' of the 'Respondent', had raised 'objections', against the 'Sanction of the Scheme'. 63. Besides the above, the '1st Appellant' and the '2nd Appellant Companies', and its 'Officers' (is in 'Default'), though they had acknowledged the 'Show Cause Notices', issued by the 'Registrar of Companies', Ernakulam, Kerala, no 'replies', were furnished by them. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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