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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 ..... y 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. Since, both the Appeals fails on the account of locus itself and do not meet the minimum threshold of 10% shareholding and 5% of the total outstanding debts as per latest Auditors Financial Statement (in the relevant period at that time), it is not required to go into details of other issues. Appeal dismissed. - [ Justice Anant Bijay Singh ] Member ( Judicial ) And [ Naresh Salecha ] Member ( Technical ) For the Appellants : 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited in terms of section 53 of the Insolvency Bankruptcy Code, 2016 (in short the Code ) and therefore they are aggrieved by the Impugned Order which has approved the Scheme. 3. Heard the Counsel for Parties and perused the records made available including cited judgments. 4. Respondent No. 1 M/s Tata Steel Limited is a public company, Respondent No. 2 M/s Bamnipal Steel Ltd. is wholly own subsidiary company of Respondent No. 1. Bhushan Steel Limited was admitted through Corporate Insolvency Resolution Process (in short CIRP ) by the Adjudicating Authority on 26.07.2017 under provisions of the Code. The Respondent No. 1 submitted its Resolution Plan for Bhushan Steel Limited for synergies and value enhancement of various stakeholders. The Resolution Plan was approved by the Adjudicating Authority on 15.05.2018. The Respondent No. 2, thereafter, acquired 72.65% shares of equity share capital of Bhushan 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors on 19.02.2021 giving opportunity to make representation regarding any objection to the amalgamation scheme and accordingly unsecured creditors have filed objection affidavits. It is further the case of two unsecured creditors / Appellants that neither no objection affidavits under Section 230(9) of the Companies Act, 2013 were obtained from them nor any meeting convened with them as required under Section 230(1) and 230(6) of the Companies Act, 2013 before approval of the scheme by the Tribunal. The Appellants cited two judgements Mega Corporation Ltd. passed in Company Appeal (AT) No. 04 of 2018 and MEL Windmills Private Limited Vs. Mineral Enterprises Ltd. passed in Company Appeal (AT) No. 04 of 2019 in support of their argument. 9. It has been argued by the Appellant that meeting of unsecured creditors can be dispensed with only after the following due procedure as laid down in Section 230(9) of the Companies 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany therefore the market sentiments were in favor of the Tata Steel Ltd and 3. Whether the valuation report relied upon for the purpose of the determination of the swap ratio was principally flawed ? 4. Whether the shareholders are disentitled from their bonafide return on their investment in view of the announcement on 25.04.2019 of 15: 1 prejudicial swap ratio, as same is not based upon the earnings of the Company and future prospects of the respective companies? 5. Whether valuers was justified m not adopting the income method of valuation for determination of the swap ratio for the purpose of the amalgamation? 6. Whether filing and subsequent withdrawal of application i.e., CA 1056/2020 filed by the Respondent No. 3 for change in appointed date from 01.04.2019 to 01.04.2020 was in clear violation of the General Circular No. 09/2019 issued by the Ministry of Corporate Affairs? 7. Whether the scheme of amalgamation is in violation 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 determina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to have carried out the fresh valuation as on the said date i.e. 01.04.2020 and ought to have determined new swap ratio for the purpose of merger? 18. Whether the scheme has complied with the Circular No. F. No.7/ 12/2019/CL-I dated August 21, 2019 issued by the Ministry of Corporate Affairs? 19. Whether, Respondent Companies were justified in proceedings and seeking approval of the Scheme of merger on the basis of the valuation conducted 2 years back from the date of the filing of the Second motion? 20. Whether Hon'ble Tribunal ought to have directed for the fresh valuation for determining the swap ratio for the purpose of the Amalgamation/ merger? 21. Whether, in view of the specific objections raised by the Appellants herein in respect of the valuation for the purpose of determining the swap ratio of the respondent Companies for the purpose of the merger, it was correct for the Hon'ble Tribunal to have solely without due application of mind to have relied upon the 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the appointed date was in violation to general Circular No. 09/2019 issued by Ministry of Corporate Affairs (in short MCA ). (v) Whether the scheme of amalgamation was in violation of Section 230 of the Companies Act, 2013. 16. In order to examine above issues, we need to examine the rational and fundamentals of the composite scheme of amalgamation and salient features of the same. 17. The Composite Scheme of Amalgamation of Bamnipal Steel Limited ( Respondent Company 2 or Transferor Company 1 ) and Tata Steel BSL Limited (formerly known as Bhushan Steel Limited) ( Respondent Company 3 or Transferor Company 2 ) into and with Tata Steel Limited ( Respondent Company 1 or Transferee Company ) ( Scheme ) provides for: (i) the amalgamation of the Respondent Company 2 into and with the Respondent Company 1 and consequent dissolution of the Respondent Company 2 without winding up; (ii) the amalgamation of the Respondent Company 3 into and with the Respondent Company 1 and consequent dissolution of the Respondent Company 3 without winding up; 18. The salient features of the Scheme as noted from submissions are as follows :- 19. We note that the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of one fully paid-up Equity Share of Respondent Company I of face value Rs. 10/- each for every fifteen Equity shares of Respondent No. 3 of face value Rs. 2/- each up to 1,99,34,052 equity shares, to eligible shareholders of Respondent No. 3 as on the Record Date i.e., 16.11.2021 (as announced by Respondent No. l). Further, in terms of the Scheme of Amalgamation, the Equity shares owned by Respondent No. 2 in Respondent No. 3 and Equity shares owned by the Respondent No.1 in Respondent No. 2 shall stand cancelled. Also, the preference shares held by the Respondent No. l in Respondent No. 3 shall also stand cancelled. (f) On 11.11.2021, Respondent Companies, in terms of Clause 25. 1.6 of the Scheme of Amalgamation and directions as per Para-44 of the Order, filed the Certified Copy of the Tribunal s Order along E-Form INC 28, for sanctioning the Scheme of Amalgamation with the respective jurisdictional Registrar of Companies. With this filing, the Respondent Companies had complied with all the conditions specified in Clause 25.1 of the Scheme of Amalgamation. Accordingly, in terms of Clause 3.1 read with Clause 1.9 of para II of Part I of Scheme of Amalgamation, the captioned Sc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall disclose to the Tribunal by affidavit (a) all material facts relating to the company, such as the latest financial position of the company, the latest auditor s report on the accounts of the company and the pendency of any investigation or proceedings against the company; (b) reduction of share capital of the company, if any, included in the compromise or arrangement; (c) any scheme of corporate debt restructuring consented to by not less than seventy-five per cent. of the secured creditors in value, including (i) a creditor s responsibility statement in the prescribed form; (ii)safeguards for the protection of other secured and unsecured creditors; (iii) report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board; (iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and (v) a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Competition Commission of India established under sub-section (1)of section 7 of the Competition Act, 2002, if necessary, and such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals. (6) Where, at a meeting held in pursuance of sub-section (1), majority of persons representing three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company. (7) An order made by the Tribunal under sub-section (6) shall provide for all or any of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as may be prescribed and the Tribunal may, on application, pass such order as it may deem fit. Explanation. For the removal of doubts, it is hereby declared that the provisions of section 66 shall not apply to the reduction of share capital effected in pursuance of the order of the Tribunal under this section. 231. Power of Tribunal to enforce compromise or arrangement. (1) Where the Tribunal makes an order under section 230 sanctioning a compromise or an arrangement in respect of a company, it (a) shall have power to supervise the implementation 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 make such modifications in the compromise or arrangement as it may consider necessary for the proper implementation of the compromise or arrangement. (2) If the Tribunal is satisfied that the compromise or arrangement sanctioned under section 230 cannot be implemented satisfactorily with or without modifications, and the company is unable to pay its debts as per the scheme, it may make an order for winding up the company and such an order shall be deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g more than six months before the first meeting of the company summoned for the purposes of approving the scheme. (3) The Tribunal, after satisfying itself that the procedure specified in sub-sections (1) and (2) has been complied with, may, by order, sanction the compromise or arrangement or by a subsequent order, make provision for the following matters, namely: (a) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of the transferor company from a date to be determined by the parties unless the Tribunal, for reasons to be recorded by it in writing, decides otherwise; (b) the allotment or appropriation by the transferee company of any shares, debentures, policies or other like instruments in the company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person: Provided that a transferee company shall not, as a result of the compromise or arrangement, hold any shares in its own name or in the name of any trust whether on its behalf or on behalf of any of its subsidiary or associate companies and any such shares shall be cancelled or extinguished; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfer of any property or liabilities, then, by virtue of the order, that property shall be transferred to the transferee company and the liabilities shall be transferred to and become the liabilities of the transferee company and any property may, if the order so directs, be freed from any charge which shall by virtue of the compromise or arrangement, cease to have effect. (5) Every company in relation to which the order is made shall cause a certified copy of the order to be filed with the Registrar for registration within thirty days of the receipt of certified copy of the order. (6) The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date. (7) Every company in relation to which the order is made shall, until the completion of the scheme, file a statement in such form and within such time as may be prescribed with the Registrar every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the scheme is being complied with in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant period. ➢ In the present case, in CA (AT) No. 132 of 2021, the Appellants shareholding in Respondent No. 3 company is 7,64,791 equity shares as on 04.06.2021, which has been stated to be approximately 0.0699% of the total paid up share capital of Respondent No. 3. ➢ It has been brought out that on 26.03.2021, the shareholder s meeting took place where 523 equity shareholders representing 85,22,26,979 equity shares of the Respondent No. 3, which tantamount to 99.33% voted in favour of resolution of the scheme. We also note that 503 equity shareholders representing 57,68,106 equity share of Respondent No. 3 i.e., 0.67% voted against the resolution. Similarly, 522 public shareholders representing 5,77,97,993 equity shares voted in favour of the resolution in contrast to 503 public shareholders representing 57,68,106 equity shares i.e., 9.07% voted against the Resolution. This indicate that 99.99% of public shareholders and equity shareholders of Respondent No. 1 company voted in favour of the scheme. As a matter of record, it has been brought out that out of 17 objecting shareholders, 11 shareholders holding 3,20,871 shares as on12.02.2021 i.e., cut off date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n noted by this Appellate Tribunal in its judgment in Mohit Agro Commodities Private Limited Vs. Gujarat Ambuja Exports Ltd. Company Appeal (AT) No. 59 of 2021: 20. This Tribunal has placed reliance in DLF Phase IV, Commercial Developers Limited and Ors. in Company Appeal (AT) No. 180 of 2019 and observed that the scheme would not prejudicially affect the Creditors or Shareholders of the Appellant Company when an Application is filed by the Transferor Company or Transferee Company , a separate Application is not necessary and dispensed with the meeting of the equity Shareholders and Creditors of the Appellant Company. At the cost of repetition, keeping in view that the financial position of the Transferee Company is highly positive, the merger does not involve any compromise/arrangement with any Creditor of the Company, that there would be a positive net worth and Creditors would not be compromised, the Tribunal ought to have exercised the discretion in dispensing with the requirement of convening the meeting which would facilitate ease of doing business and save time and resources. To reiterate, we observe that the rights and liabilities of Secured and Unsecured Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal vide its order dated 20.02.2020, accepted the submission of the Respondent No. 1 that in terms of Section 230(1) (b) of the Companies Act, 2013, only a meeting of the shareholders. of the Respondent Company 1 is proposed to be held, and that the meeting of the secured and unsecured creditors of the Respondent Company 1 is not required to be convened. The Tribunal directed the Respondent No. 1 to issue individual notices to its secured and unsecured creditors. The relevant portion of the order dated 20.02.2020, is being reproduced hereinunder for ready reference: 20. The Counsel for the Applicant Companies submits that since the Scheme is an arrangement between the Applicant Companies and their respective shareholders as contemplated under Section 230(1)(b) and not in accordance with the provisions of Section 230(1)(a) of the Companies Act, 2013 as there is no compromise and/or arrangement with the creditors and the debenture holders and as no sacrifice is called for by the creditors and the debenture holders, only a meeting of the shareholders is proposed to be held with in accordance with the provisions of Section 230(1)(b) of the Companies Act, 2013. Therefore, the meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant Company 3 to issue notices to all those Unsecured Creditors having value of Rs. 10,00,000 (Rupees Ten Lakhs only) and more, as on July 31, 2019, by courier/ registered post/ speed post/ hand delivery or through e-mail (to those creditors whose e-mail addresses are duly registered with the Applicant Company 1 and the Applicant Company 3), at their last known address as per the records of the Applicant Company 1 and the Applicant Company 3 respectively, with a direction that they may submit their representations, if any, to the 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 Applicant Company 1 and the Applicant Company. (Emphasis Supplied) ➢ The Respondents also stated that this Appellate Tribunal in Housing Development Finance Corporation Ltd., In re, 2017 SCC OnLine NCLT 11108, held that when the scheme of amalgamation does not affect a particular class of stakeholders, like the creditors, the provision for holding the meeting itself is not attracted. The Hon'ble Tribunal made the following observations: 14. On giving combined reading to section 230 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ordered to be held with either members or creditors. giving a notice to them under sub-section (3) will not arise, because their rights are not affected by this demerger/merger, but when it comes to notice to various regulating authorities under sub-section 5 of section 230, a notice has to go to all those authorities along with documents as mentioned under section 232(2), - (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 expert with regard to valuation, if any; (e) a supplementary accounting statement if the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... objection affidavit dated 19.04.2021, out of which an amount of Rs. 12,71,999/- pertains to a period prior to the effective date under the Resolution Plan of Respondent No. 1, i.e. 15.05.2018, and the same stands extinguished in terms of the approved Resolution Plan of the Respondent Company 1. The remaining amount of Rs. 3,28,811/- is on hold for contractual compliances on the part of Mr. Tapas Kumar Malla and shall be dealt in due course. ➢ The Respondents also brought out that the claim raised by the Appellants pertaining to the period prior to the approval of the Resolution Plan of the Respondent No. 1 is squarely covered by the principle laid down by the Hon'ble Supreme Court of India in its judgement of Ghanshyam Mishra and Sons Private Limited through Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited Through the Director and Ors. (2021 SCC Online SC 313), wherein the Hon'ble Supreme Court has observed that the liability of the corporate debtor (like the Respondent Company 1 herein) and the resolution applicant (such as the Respondent Company 3) shall freeze upon approval of the resolution plan by the Adjudicating Authority. ➢ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Senior Counsels for the Petitioner Companies submitted that the Petitioner Company 3 has received certain representations from its shareholders and creditors pursuant to the notices issued by the Petitioner Company 3. The Petitioner Company 3 received representations from certain shareholders holding 7,64, 791 equity shares which is approximately 0.0699% vide Company Application No. 156 of 2021 and Company Application No. 261 of 2021 in respect of the share exchange ratio in relation to the Scheme which was appropriately responded to by the Petitioner Company 3 vide response dated June 15, 2021. The Petitioner Company responded that as per Proviso to Section 230(4) of the Companies Act, 2013 ( CA 2013 ) any objection to Compromise or arrangement shall be made only by person holding not less than ten percent of shareholding or having outstanding debt amounting to not less than five per cent of the total outstanding debt as per the latest audited financial statement. The Petitioner Company 3 has also received objections from creditors regarding claims pertaining to the pre-CIRP period. The Petitioner Company 3 has filed appropriate responses to the said claims of the objecting c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions including modifications. ➢ It has been argued by the Appellants that the issue regarding locus for shareholders having less than 10% shareholding has been dealt in detail by this Appellate Tribunal in the matter of Ankit Mittal Vs. Ankita Pratisthan Ltd. Ors. judgment passed on 29.11.2019 2019 SCC OnLine NCLAT 847. ➢ It has been submitted by the Appellants that in catena of judgments by Hon ble Supreme Court of India, High Court of different states have held that powers of courts and tribunals could not be curtailed from scrutinising the scheme on any account, if the same is illegal and have referred to judgments in case of :- (i) Hindustan Lever Employees Union v. Hindustan Lever Ltd 1995 Supp (1) SCC 499 (ii) Miheer H. Mafatlal v. Mafatlal Industries Ltd (1997) 1 SCC 579 (iii) Sesa Industries Ltd v. Krishna H. Bajaj and Others (2011) 3 sec 21s (iv) Ankit Mittal v. Ankita Pratisthan Ltd and Ors. 2019 SCC OnLine NCLAT 847 ➢ Per-contra, it is a case of Respondents that the cited judgements as discussed above are not applicable in the present appeal as they were on different facts. It has been stated that as regard Ankit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The minority shareholders, if holding less than 10% of equity share capital or creditors less than 5% of total outstanding debts, do not hold any veto power to stall the process of scheme which is in larger interest of all the stakeholder. ➢ Of course, the Tribunal is required to ensure that all procedures as stipulated for amalgamation under Companies Act, 2013 and the relevant rules have been duly followed and the scheme is conscionable. It also implies that the Tribunal is also required to look into, before approving the scheme, that the scheme as such is fair and reasonable from different points of view and various perspectives, taking care interests of various stakeholders and the scheme can be upheld as commercially prudent decision. ➢ In the present appeal in Company Appeal (AT) No. 132 of 2021 the Appellants have not objected to amalgamation scheme in principle as stated in oral averments as well as in the Written Submissions but have objected to swap ratio of 15:1. It implies that they also consider scheme to be generally beneficial to all stakeholders and in financial and economical interest of three concerned companies. For arguments sake, if based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. On the other hand, if the scheme is against the public interest, then the Tribunal is not to approve such scheme. In the present case, the same could not been made out to be the case, by the Appellants in both the appeals before us. Similarly, if material facts are not disclosed or adequate facts are not disclosed, the Tribunal is required to look into the legality of the scheme, which is also not the case in the present Appeals. ➢ The cited judgments by the Appellants have been perused and we do not find that the same to have been violated by the Tribunal while approving the composite scheme of amalgamation. The facts of the cited cases are not exactly in the same context as of the present appeals. Here is the case where overwhelming majority of 99.99% of the shareholders have approved the scheme and therefore minuscule minority shareholder holding 0.0699% of the total paid up share capital of Respondent No. 3, cannot be allowed to sabotage the scheme of amalgamation, which has been correctly adjudicated and allowed by the Tribunal. We have also taken into relevant paragraphs of the Impugned Order dated 29.10.2021, discussed earlier, which are quite clear and do not f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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