Prior RBI approval is mandatory before sanctioning amalgamation involving a company carrying on NBFC activities.

A scheme of amalgamation involving a transferee company carrying on, or prima facie required to be registered as, an NBFC could not be sanctioned without prior written approval of the Reserve Bank of India. The Tribunal noted that, although the scheme attracted no objection in principle from the statutory authorities, the Regional Director's report and the RBI's response indicated NBFC activity and the need for mandatory prior permission for any transfer of control under the applicable directions. It therefore declined to proceed in aid of an illegality and dismissed the petition for want of RBI approval.

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Issues: Whether the scheme of amalgamation could be sanctioned in the absence of prior approval from the Reserve Bank of India, in view of the Tribunal's concerns that the transferee company was carrying on or was required to be registered as a non-banking financial company.

Analysis: The petition arose from a scheme of amalgamation transferred to the Tribunal for consideration under the compromise and arrangement provisions. Although the statutory authorities raised no objection to the scheme in principle, the Regional Director reported that the transferee company's financial profile prima facie indicated NBFC characteristics, and that prior written permission of the Reserve Bank of India was required for any scheme involving transfer of control under the applicable RBI directions. The Tribunal also received a response from the Reserve Bank of India stating that the transferee company was carrying on NBFC activities without permission. In these circumstances, the Tribunal held that it could not proceed in aid of an illegality or sanction the scheme without the requisite RBI approval.

Conclusion: The scheme of amalgamation could not be sanctioned without prior RBI approval and the petition was dismissed.

Ratio Decidendi: A scheme of amalgamation involving a company carrying on or prima facie required to be registered as an NBFC cannot be sanctioned unless the mandatory prior approval of the Reserve Bank of India has been obtained.

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