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Case Analysis: Matter of Amalgamation Of Prashant Commercial Holdings Limited With Threads (INDIA) Limited

Facts
Transferor Company is Prashant Commercial Holdings Ltd. and Transferee company name is Threads India Ltd. Former is the holding company of latter. Latter is the wholly owned subsidiary of former company.

Board of Directors of both held their respective meetings and have reached to an agreement pertaining to the Scheme of Amalgamation.

Transferor Company has 7 equity shareholders and no preference shareholders. Transferee being wholly owner subsidiary company of transferor has 7 equity shareholders, 4 secured creditors and 493 unsecured creditors.

Approval of same scheme is required by various stakeholders for which meetings need to be convened as per provisions of Companies Act read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016(hereinafter referred as 'Rules of 2016'). For this purpose of completion of procedural formalities and certain other prayers, interference of tribunal was required like for convening meetings of creditors etc. and for seeking other directions etc.. That's why these companies being applicants approached the tribunal having jurisdiction in such regards.

Citation: Company Application No. CA (CAA)No. 04/ALD of 2021
Coram: Hon'ble Justice (Retd.) Rajesh Dayal Khare, Member (Judicial)

Procedural History
The case relates to amalgamation of two companies and also with dispensing with conducting meeting of shareholders on account of them having consented to scheme of amalgamation by way of an affidavit. Earlier in a case1, Tribunal's New Delhi bench ruled out that NCLT's power to grant dispensation of meeting is limited to creditors only and cannot be extended to shareholders even when the consent for same has been obtained by the company. But different position has been taken in the present case by NCLT.

Rules
Companies Act
  • S. 103(a)(i): It provides that in regards of a public company, quorum for meetings is five members personally present in case of overall members on fixed date of meeting when are not more than 1000.
     
  • S. 105: It provides that any person entitled to attend and vote at a meeting may appoint some other person as a proxy to attend and vote on his behalf but the same shall not be entitled to speak at that meeting and also not entitled to vote except on a poll.
     
  • S. 230(3): When a meeting has been proposed via an order passed by Tribunal, notice of same has to be sent to creditors along with an accompanying statement which discloses details as to the compromise or arrangement in addition to copy of valuation report plus explaining other things such as ill effects of same on creditors etc. This has to be done amongst other things prescribed in this provision.
     
  • S. 230(4): When the above mentioned notice is served to the respective persons, they must also be made aware as to the voting right they can exercise by different modes like ballot paper, proxy etc.
     
  • S. 230(5): Such notice shall also be sent to Central Govt., Income Tax Authorities, RBI amongst other such agencies along with those which are likely to be affected by such compromise or arrangement in order for them to make representations.
     
  • S. 230(6): When meeting on direction of tribunal is held and voting exercise by valid ways when reach to consensus as to compromise or arrangement and the same gets sanctioned by tribunal subsequently, it becomes binding on company, its creditors etc.
     
  • S. 232: Where application u/S 230 is made to Tribunal for sanctioning of compromise that two companies have arrived at or an arrangement that has been proposed with connection to scheme of amalgamation of those companies and whereby the same scheme lays down aspects such as transfer of liabilities etc. from one company to other, then Tribunal enjoys power to order meeting of creditors or their class and as per the manner directed by it. Provisions of S. 230 Subsection 3 to 6 will apply in those scenarios.

Companies (Compromises, Arrangements and Amalgamations) Rules, 2016
  • Rule 7: The notice of meeting to be held as per S. 230(3) of Companies Act has to be advertised in one English and one Vernacular Language newspaper post directions in relation to same are issued by tribunal and must also be placed on company website if any atleast 30 days prior in a form prescribed in Form No. CAA.2.
     
  • Rule 8: The notice sent as per above mentioned S. 230(5) of Companies Act shall be in form CAA.3 and it should also accompany a copy of scheme of compromise or arrangement while being sent to IT Authorities, RBI, Securities and Exchange Boards etc. This notice has to be sent post notice to members and creditors has been sent already and one month time from date of receiving of such notice, authorities can make representations before the tribunal regarding same.
     
  • Rule 9: This concerns voting by shareholder or creditor who has received notice to that effect and mentions that it can be done via ballot paper, proxy or electronic form in a prescribed form pertaining to adoption of some compromise or arrangement and with rules applicable as regards to proxy of companies act.
     
  • Rule 10: It lays down rules pertaining to proxy as to how the form should be and that it should be duly signed etc. and the time span before which it shall be sent to concerned authorities etc.
     
  • Rule 11: Talks about copy of compromise or arrangement to be sent to each member or creditor on their requisition within 1 day of same and that too free of charge. This has to be read in conjunction with S. 230 of Act.
     
  • Rule 12: It provides for an affidavit to be annexed by Chairperson and further sent to tribunal reporting that directions regarding issuance of notice and other formalities like advertisement has been complied with and has to be filed before not less than 7 days of meeting.
     
  • Rule 13: This talks about recording of votes and concerned meta info of same and that result of meeting has to be decided by voting only and report has to be generated for same.
     
  • Rule 14: Once decision is arrived upon, it has to sanctioned by tribunal within 7 days once chairperson files report before it by way of petition.

Issues
  • Whether the need of convening of meeting amongst shareholders of both transferor and transferee company respectively can be dispensed with?
     
  • Whether the formalities of convening meeting amongst secured and unsecured creditors of transferee company like issuing of notice to unsecured creditors constituting less than 1 percent of debt owed to them by transferee company can be dispensed with?
     
  • What are other procedural formalities to be followed and taken into consideration while convening the above mentioned or similar like meetings and what will be other formalities post these meetings as per applicable rules and provisions?

Analysis
It was contended by applicant companies that since all equity shareholders of transfer company have consented to the scheme of amalgamation by way of affidavit, need of convening of meeting shall be done away with. The same reasoning was accepted by the Tribunal.

From the perspective of need of holding meeting of creditors both secured as well as unsecured is concerned of the transferor company, in absence of both kinds of creditors, the need did not arise.

As far as holding meeting of shareholders of transferee company is concerned, owing to the fact that they are wholly owned subsidiary company of transferor company and the latter having 7 equity shareholders, their consent along with the consent of the nominees by way of affidavit in favor of the proposed scheme of amalgamation was considered to be enough for not needing to convene meeting and tribunal accordingly dispensed with it.

There were 4 secured creditors of Transferee company having debt value of around 39 crores and the transferee company had sought as a prayer to convene meeting of those creditors from the tribunal. This prayer was accepted by tribunal and a date was fixed for holding the same with objective of considering the proposed scheme of amalgamation of both companies and accordingly approve it with or without modifications if thought fit.

Similar was the scenario pertaining to the unsecured creditors of transferee company. Date was set for meeting in order to consider the said scheme and approve either with or without modifications if thought fit. It was contended by the applicants that since there form many unsecured creditors having minimal amount of debt of total value of debt owed to creditors, on account of their interest being very unlikely to be affected by the said scheme, permission was sought to dispense away with issuing notice to them for simplification of process and avoid overcrowding in pandemic. The same reasoning was accepted by tribunal and need of issuing notice to them was dispensed with from regards of those unsecured creditors having value of debt upto Rs. 20,000/-.

Quorum for secured creditors meeting was prescribed as 2 persons and it was said that for unsecured creditors, it shall be as per S. 103 of Companies Act as stipulated in Rules Section. In case of absence of quorum for both kinds of creditors, it was held that meeting shall stand adjourned for half hour in such case. And in order to compute quorum, proxies were also said to be considered. Valid proxy is the one where a person authorised to attend and vote at meeting duly signs the form in prescribed form and files it before transferee company before 48 hrs. of commencement of meeting. It was asked of Chairperson to ensure that such registers of proxy are maintained properly.

All the creditors both secured as well as unsecured listed in application of applicants were held entitled to cast their vote by way of postal ballot at the meeting venue at that time or by way of same postal ballot before meeting. Vote casted by any means was asked to be subject to scrutinizing for each meeting.

Tribunal asked for notices to be furnished to all creditors by authorised representatives of transferee company comprising of date, time, venue, voting mode etc. by way of either speed post, registered post or email whereby its available and must be sent atleast 30 days prior to fixed meeting date. A copy of scheme was also asked to be sent alongside such notices as per the 2016 Rules.

Notices were asked to be published in two newspaper whereby 1 is in English mode and other is Hindi medium in a prescribed form and other things to adhere to as envisaged under Rule 7 above.

In other words, Tribunal delved into other things to be kept in mind and rules to be followed laid down in Rules of 2016 and the Act while conducting those meetings.

Conclusion
Convening of meetings for transferor and transferee company's shareholders was dispensed with by Tribunal as they consented in support of scheme of amalgamation by way of affidavit.

Date of meeting of secured as well as unsecured creditors of transferee company was fixed by the tribunal in order for them to delve into the scheme of amalgamation and then approve the scheme with or without modification if they thought fit. Other directions were issued to be followed for conducting those meetings which are mostly based on Rules of 2016 in addition to some others mentioned underneath.

2 advocates were made chairperson and alternate chairperson for these meetings and practicing company secretary as scrutinizer. A particular amount was asked to be paid to each as honorarium in addition to arrangement of travel, stay and other such expenses.

The above mentioned chairperson was assigned task of sending the notices pertaining to meeting and was conferred powers related to conduct of meeting, determination of procedural questions which may arise or pertaining to any adjournment that may be there or related to amendment prescribed to scheme or resolution by any member of meeting.

The designated chairperson was also asked to file affidavit before tribunal atleast 7 days prior to meeting date thereby reporting tribunal that rules such as notice issuing and those pertaining to advertisement etc. have been complied with.

The results of the held meetings were also asked by tribunal to be sent to them by chairperson within 30 days as per Rule 13 and 14.

End-Notes:
  1. JVA Trading Pvt. Ltd. and C&S Electric Limited in Company Application No.A.1/PB/2017 dated 13.01.2017.

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