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TMI Blog2023 (10) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Gaurav Mitra, Mr. Ujjwal Jain, Mr. Shikher & Ms. Lavonya Pathak, Advocates. For the Respondents : Mr. Arun Kathpalia, Sr. Advocate along with Mr. Shashank Gautam, Mr. Arvind Thapliyal, Mr. Siddhant Grover, Ms. Saravva Vasanta, Ms. Anindita Roy Chowdhury, Ms. Trisha Ray Chawdhary, Ms. Simran Bhat, Mr. Saurabh Batra & Mr. Aditya Dhupar, Advocates JUDGMENT NARESH SALECHA , MEMBER ( TECHNICAL ) 1. The present appeal in CA (AT) No. 132 of 2021 has been filed by P. Jatinder Singh- Appellant No. 1 on behalf of 16 other Appellants herein, under Section 421 of the Companies Act, 2013 against the Impugned Order dated 29.10.2021 in CA 156 of 2021 and CA 261 of 2021 In CP (CAA) No. 70/MB/2021 Connected with CA (CAA) No. 3083/MB/2019 & CA(CAA) No 129/MB 11/2019 passed by National Company Law Tribunal, Mumbai Bench (in short, the 'Tribunal'), whereby the Tribunal rejected the application of Appellants through common Impugned Order dated 29.10.2021. The Appellants, with respective client ID's, are public shareholder of Respondent No. 3 - M/s Tata Steel BSL Limited (formerly known as Bhushan Steel Limited). The Appellants are stated to be living in different part of India and have invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an Steel Limited on 18.05.2018. The Order of the Adjudicating Authority approving the Resolution Plan was challenged and the same was dismissed by the Adjudicating Authority on 10.08.2018. The name of Bhushan Steel Limited was changed to TATA Steel BSL Ltd. (Respondent No. 3) on 27.11.2018. 5. The Appellants in CA (AT) No. 132 of 2021 have clarified that they are not opposed, in principle, to the amalgamation of the Respondents companies, however, the Appeal is to safeguard their interest as minority shareholders in Respondent No. 3 and are seeking reasonable exit route to them. The Appellants are objecting to swap ratio of 15:1 upon the composite amalgamation scheme approved vide the Impugned Order dated 29.10.2021 by the Tribunal, as the swap ratio is not based on earning of either company i.e., Respondent No. 1 or the Respondent No. 3. It has been stated that the earnings of the Tata Steel Ltd for the Ql FY 2021 was Rs. 9,000 Crore (approx.), whereas for the corresponding period Tata Steel BSL earning was Rs. 2600 Crore (approx.). Therefore, if the earnings of the two companies were compared, then the swap ratio would have been 3.5: 1 instead of 15: 1. 6. It has been brought o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 2013 i.e., after obtaining consent affidavits from the unsecured creditors which have not been obtained in the present case. 10. In view of this, these two Appellants have requested this Appellate Tribunal to set aside the Impugned Order dated 29.10.2021 along with other related prayers including directing the Respondent No. 1 to secure outstanding claim of the Appellants of Rs. 4,32,20,102/-. 11. Per-contra, the Respondents had denied all the averments made by the two Appellants in CA (AT) No. 150 & 151 of 2021. It is the case of the Respondents that in consonance with the orders dated 20.02.2020, 11.01. 2021, 19.01.2021 and 05.02.2021, passed by the Tribunal in the Company Scheme Applications CA (CAA) 3083/MB/2019 and CA (CAA) 129/MB II/2019, directions were issued by the Tribunal to Respondent Company 1 to send individual notices to (i) all its secured creditors and (ii) unsecured creditors having outstanding amount of Rs. 10,00,000/- or more as on 30.09.2020, with a direction that they may submit their representations in relation to the Scheme, if any, to the Tribunal. In pursuance of the above, the Appellants had filed their individual objections to the Scheme vid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of Section 230 of the Companies Act, 2013? 8. Whether the majority vote count claimed by the Respondent mere an eye wash? 9. Whether Respondents failure to adopt the Income approach method for valuation for determination of the swap ratio has vitiated the scheme of amalgamation? 10. Whether, the Hon'ble Tribunal has erred thereby taking the report of the Regional Director, Mumbai dated 17.06.2021 in respect of the Respondent No. 1, as gospel truth and not disclosing the contents of the said report to the Appellants herein, who have primarily objected to the prejudicial swap ratio 15: 1 proposed under the scheme of merger by the Respondent Companies? 11. Whether the Appellants in the facts of the present case were entitled to the report dated 17.06.2021 of the Regional Director, Mumbai, Affidavits/ Joint Affidavits filed on behalf of the Respondents and supplementary report dated 13.07.2021 filed by the Regional Director, Mumbai? 12. Whether determination of the swap ratio of 15: 1 based on a valuation report which is more than 2 years old, was correct? 13. Whether, in the peculiar facts of the present case wherein Respondent No. 1 while taking over the Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reports filed by the Regional Directors and Registrar of Companies? 22. Whether the Hon'ble Tribunal failed to appreciate that Appellants had approached the Hon'ble Tribunal in response to the Public announcement dated 01.06.2021 of the Respondent Company 3 in the newspaper "Times of India" wherein the Respondent Company No. 3 while notifying the date for final disposal and hearing of the petition before the Hon'ble Tribunal on 18.06.2021 has also invited the shareholders of the Respondent Company 3 to approach the Hon'ble Tribunal for the purpose of adjudication of their objections in respect of the merger scheme? 23. Whether, in view of proviso to Section 230 (4) of the Act cannot be construed to interdict the jurisdiction of the Hon'ble Tribunal during the second motion to scrutinise the scheme of merger on account of patent illegality and perversity? (Emphasis Supplied) Similarly, the Appellants in CA (AT ) No. 150 & 151 of 2021, the 2 Appellants have raised three questions of law, which reads as under :- (1) Whether the impugned order would not have approved the scheme of amalgamation of the Respondent Companies given that the statutory provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany 3 without winding up; 18. The salient features of the Scheme as noted from submissions are as follows :- 19. We note that the scheme was approved by 99.33% of the equity shareholders and 90.93% of the public shareholders of Respondent Company 3 and combined 99.99% of public shareholders and equity shareholders of Respondent Company 1. After obtaining the shareholder's approval on 13.04.2021, a Joint Company Scheme Petition bearing No. C.P. (CAA)/70/2021 was filed by the Companies in CA (CAA) 129/ND/2019 and CA (CAA)/3083/2019 and the Tribunal vide order dated 29.10.2021, approved the Composite Scheme of Amalgamation. 20. It has been brought to our notice by the Respondents that after obtaining the approval of the Tribunal for amalgamation scheme, the Respondents have taken various legal, statutory and financial steps, as required, which inter-alia includes :- (a) On 29.10.2021, the Respondent Company 1 and 3, intimated the stock exchanges, regarding the approval of the Scheme, in terms of Regulation 30 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR Regulations"). (b) On 02.11.2021, the Board of Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. Accordingly, in terms of Clause 3.1 read with Clause 1.9 of para II of Part I of Scheme of Amalgamation, the captioned Scheme of Amalgamation had become operative from 11.11.2021. The INC 28 of Respondent No. 3 was approved and taken on record on 12.11.2021. The INC 28 of the Respondent No. 2 was approved and taken on record on November 15, 2021. 21. It is the case of Respondents that the Respondent No. 1 infused Rs. 36,400 Crores into Respondent No. 3 to revive it, which was much more than the liquidation value of Respondent No. 3 of Rs. 14,541 Crores. 22. After perusal of above details, we shall endeavour to examine the issues framed earlier in subsequent discussions. 23. In order to examine various issues and points raised by the Appellants, in both the Appeals before us, we will take into account various relevant provisions of Companies Act, 2013, pertinent to compromise, arrangement and amalgamation, which are primarily covered in Section 230, 231 & 232 of the Companies Act, 2013 to examine the various issues of the Appellants to challenge the composite scheme of amalgamation. Chapter- XV of Companies Act, 2013 deals with "Compromises, Arrangements & Amalgamations". S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an order made under section 273. (3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act sanctioning a compromise or an arrangement. 232. Merger and amalgamation of companies. (1) Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Tribunal- (a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme for the reconstruction of the company or companies involving merger or the amalgamation of any two or more companies; and (b) that under the scheme, the whole or any part of the undertaking, property or liabilities of any company (hereinafter referred to as the transferor company) is required to be transferred to another company (hereinafter referred 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree company of any legal proceedings pending by or against any transferor company on the date of transfer; (d) dissolution, without winding-up, of any transferor company; (e) the provision to be made for any persons who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement; (f) where share capital is held by any non-resident shareholder under the foreign direct investment norms or guidelines specified by the Central Government or in accordance with any law for the time being in force, the allotment of shares of the transferee company to such shareholder shall be in the manner specified in the order; (g) the transfer of the employees of the transferor company to the transferee company; (h) where the transferor company is a listed company and the transferee company is an unlisted company,- (A) the transferee company shall remain an unlisted company until it becomes a listed company; (B) if shareholders of the transferor 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enes the provisions of this section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of such transferor or transferee company who is in default, shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both. Explanation.-For the purposes of this section,- (i) in a scheme involving a merger, where under the scheme the undertaking, property and liabilities of one or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be transferred to another existing company, it is a merger by absorption, or where the undertaking, property and liabilities of two or more companies, including the company in respect of which the compromise or arrangement is proposed, are to be 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 abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial statement is Rs. 11,608.51 Crores, and that the total percentage of the alleged outstanding debt of the Appellants amounts to only 0.04% of the total outstanding debt of the Respondent Company l, which is well below the prescribed threshold of 5% under Section 230(4) of the Companies Act ("Debt Percentage Requirement"), to file an objection to the Scheme. The details of the percentage of debts of each of the Appellants with respect to the total outstanding debt amount of Respondent Company 1, reads as under :- ➢ The Respondents have brought out that amalgamation proceedings cannot be used as Recovery Proceedings. It is submitted that the Appellants have filed this appeal to agitate their alleged claims against the Respondent Company 1 and are hence trying to. use *the amalgamation proceedings before the Tribunal and this Appellate Tribunal as recovery proceedings and it is a settled position of law that amalgamation proceedings cannot be treated or used for recovery proceedings. ➢ It has been submitted that the Appellants in CA (AT) No. 150 & 151 of 2021 herein have repeatedly alleged in the Appeal under reply herein that that there is a non-compliance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no compromise is offered to any Secured and Unsecured Creditors of the 'Transferee Company'. Therefore, we are of the considered view that when the 'Transferor and Transferee Company' involve a parent Company and a Wholly Owned Subsidiary the meeting of Equity Shareholders, Secured Creditors and Unsecured Creditors can be dispensed with as the facts of this case substantiate that the rights of the Equity Shareholders of the 'Transferee Company' are not being affected." (Emphasis Supplied) ➢ It is important to note that Section 230(1) of the Companies Act, 2013 *provides for the discretion to the Court with respect to dispensing with the requirement of calling of meeting of the Creditors. This Appellate Tribunal in its judgement in Mohit Agro (Supra) also made the following observations reiterating the same: "17. It is seen that Section 232(1) of the Companies Act, 2013 uses the word 'may' which introduces an element of discretion to the Tribunal * to be exercised 'in the interest of justice in appropriate situations. It is evident from the aforesaid citations that the High Courts have exercised this discretion dispensing with the requirement of conveni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Unsecured Debenture Holders of the Applicant Company 1 are not required to be convened. The Counsel for the Applicant Companies further submits that the Applicant Companies may be allowed to issue individual notices to their creditors (as applicable) as on July 31, 2019 and debenture holders (as applicable) as on August 2, 2019, stating therein that they may submit their representations in relation to the Scheme, if any, to the Hon'ble Tribunal within 30 (thirty) days from the date of receipt of the said notice and copy of such representations shall simultaneously be served upon the respective Applicant Companies. Further, the Applicant Company 1 do not have any Secured Debenture Holders, the Applicant Company 2 do not have any Secured Creditors, Secured Debenture Holders and Unsecured Debenture Holders and the Applicant Company 3 do not have any Secured Debenture Holders and Unsecured Debenture Holders. Accordingly, the question of convening a meeting of the Secured Debenture Holders of the Applicant Company 1, the Secured Creditors, the Secured Debenture Holders and the * Unsecured Debenture Holders of the Applicant Company 2 and the Secured Debenture ' Holders and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 232. though it speaks of procedure laid u/s. 230(3-6) applicable to mergers and* amalgamations. the requisites u/s. 232 (1) is beyond the scope of section 230(1). ... 26. The moot point for 'consideration is when 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? 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 internal/y on creditors/members. of the respective company. we with all humility believe, such company need not propose a meeting with* its creditors or members ....... 29. In this case situation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of approving the scheme." (Emphasis Supplied) There is no mandatory requirement under the Companies Act, 2013 to conduct a meeting of secured and unsecured creditors if an arrangement or compromise is not envisaged with them. Hence, as per the provisions of the Companies Act, 2013, there was no necessity of either conducting a meeting of the unsecured creditors of Respondents, or of obtaining consent affidavits from the unsecured creditors of the Respondents before dispensing with the meeting of unsecured creditors. ➢ The Respondents submitted that nothing remains due and payable by the Respondents towards the alleged dues of the Appellants. It is submitted that R&S Engineering in its objection affidavit dated 27.04.202l had claimed Rs. 4,16,19,292/-. Whereas, R&S Engineering has falsely stated in the present appeal that the said amount pertains to the period past the CIRP of the Respondent No. 1, whereas all invoices filed by the Appellant before this Appellate Tribunal pertain to the period prior to the effective date under the Resolution Plan of the Respondent No. 1, i.e. 15.05.2018, i.e., entire claim and all invoices arose from a period prior to the CIRP of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tapas Kumar Malla, continued to object to the Scheme. The Scheme of Amalgamation of the Respondent Companies is not prejudicial to or compromising the rights of the unsecured creditors in any matter whatsoever, as the remaining creditors of Respondent No. 1 have not raised any doubts with respect to the security of their debts with the amalgamated entity or the ability of Respondent No. 3 to service their respective debts. ➢ The Scheme of Amalgamation does not extinguish any pending Claims of the Appellants that remain to be settled between the unsecured creditors of the Respondent No. 1. Clause 1.30 of the Scheme categorically provides the definition of Undertaking 2 to include all undertaking and business of the Company as a going concern including the assets, properties, investments, rights, approvals, licenses and powers, leasehold rights and all its debts outstanding liabilities, duties, obligations and employees. The Scheme provides that upon the Scheme coming into effect, the Undertaking. 2 shall without any further act, instrument or deed be and stand transferred to and vested in and/or be deemed to have been and stand transferred to and vested in the Transferee C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng and business of the Company as a going concern including the assets, properties, investments, rights, approvals, licenses and powers, leasehold rights and all its debts, outstanding liabilities, duties, obligations and employees. Clause 18(i) of the Scheme provides that upon the Scheme coming into effect, the Undertaking 2 shall without any further act, instrument or deed be and stand transferred to and vested in and/ or be deemed to have been and stand transferred to and stand vested in the Transferee company, as a going concern, so as to become the undertaking of the Transferee Company, with effect from the Appointed Date. 41. Therefore, as per above submissions and clear position of law the grievances of the objector is addressed accordingly and nothing survives in CA 156 of 2021 and CA 261 of 2021, Accordingly both CA 156 of 2021 and CA 261 of 2021 disposed of as dismissed." 42. From the material on record and after perusing the clarifications and submissions of the Petitioner Companies to the Reports filed by the Regional Directors, the Scheme appears to be fair and reasonable and is not violative of any provisions of law and is not contrary to public policy. 43. Sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riented and due procedures had not been followed. The Respondents have brought out the distinguishing factors noted in the judgement of Ankit Mittal (Supra) vis-à-vis in the present appeals as per tabulated comparison, submitted by the Respondents :- ➢ It is empathetic argument of the Respondents that where the language of the Section including proviso is clear, it must be followed in the same spirit. In this connection, they relied on the ratio of Gurudev Dutta Vs. State of Maharashtra [(2001) SCC Online 573]. "26. Further we wish to clarify that it is à cardinal principle of interpretation of statute that the words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. It is yet another rule of construction that when the words of the statute are clear, plain and unambiguous, then the Courts are bound to give effect to that meaning, irrespective of the consequences. It is said that the words themselves best declare the intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and public shareholders. Thus, we observe that the only point of contention of the Appellant is regarding valuation and prima-facie do not raise the issue regarding fair or unreasonable scheme. We also note that although the Appellants have treated the scheme as unconscionable, however, the same has not been substantiated. ➢ The term "conscionable" can also appear in legal contexts, including judgments, to refer to principles of fairness, equity, and conscience. When used in legal opinions, it generally carries the same meaning as in contract law, emphasizing fairness, reasonableness, and morality. For example, Court judgment might use the term "conscionable" to discuss whether a particular action, law, or decision aligns with principles of justice and fairness, might analyse whether a law or action is conscionable by evaluating its impact on individual rights, societal norms, and ethical considerations. It's important to note that the specific context in which the term "conscionable" is used in a Court judgment will determine its precise interpretation and implications within that case. Legal language can be complex and its interpretation many times relies on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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