2021 (12) TMI 967 - AT - Law of Competition

Court Says No Need for Meetings in Parent-Subsidiary Mergers, OKs Virtual Meetings for Creditors' Consent.

The Tribunal allowed the appeal and set aside the NCLT's order concerning the dispensation of meetings for equity shareholders and creditors. It ... Sanction of Scheme of merger by absorption - dispensation of the meeting of the Equity Shareholders, Secured Creditors and Unsecured Creditors - Section 230-232 of the Act read with Companies (Compromise, Arrangement and Amalgamation) Rules, 2016 - HELD THAT:- The material on record establishes that the ‘Transferee Company’ is a Wholly Owned Subsidiary of the ‘Transferor Company’ and there is no issuance of any new shares and therefore there is no reorganization of share capital and consequently no arrangement wherein Shareholders have to compromise with Creditors of the ‘Transferor Company’. The rights and liabilities of Secured and Unsecured Creditors were not getting affected in any manner by way of the proposed scheme as no new shares are being issued by the ‘Transferor Company’ and no compromise is offered to any Secured and Unsecured Creditors of the ‘Transferee Company’ - 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. Therefore, obtaining 90% consent Affidavits from its unsecured Creditors is not required keeping in view the facts of the attendant case. Appeal allowed. Issues Involved:1. Dispensation of meetings for Equity Shareholders, Secured Creditors, and Unsecured Creditors.2. Requirement of consent affidavits from Unsecured Creditors.3. Requirement of consents from Petitioners in Insolvency Proceedings.4. Compliance with Ministry of Corporate Affairs (MCA) guidelines on conducting meetings.Issue-wise Detailed Analysis:1. Dispensation of Meetings for Equity Shareholders, Secured Creditors, and Unsecured Creditors:The Appellant Companies sought dispensation of the meeting of the Equity Shareholders, Secured Creditors, and Unsecured Creditors regarding the Scheme of merger by absorption of a Wholly Owned Subsidiary with its holding Company. The NCLT directed the Transferee Company to submit Consent Affidavits of the Equity Shareholders or hold a meeting before filing the Company Petition. The Tribunal emphasized that the rights of the Shareholders of the Transferee Company are not affected as no new shares are being issued, and the proposed Scheme does not involve any reorganization of the share capital. The Tribunal referenced cases such as 'Ambuja Cements Limited' and 'DLF Phase IV, Commercial Developers Limited and Ors.' where similar dispensations were granted.2. Requirement of Consent Affidavits from Unsecured Creditors:The NCLT directed the Transferee Company to obtain 90% consent affidavits from its Unsecured Creditors. The Appellants contended that no such provisions are stipulated under Sections 230-232 of the Companies Act, 2013, which mandates obtaining the concerned Affidavit from its Creditors. The Tribunal noted that the rights and liabilities of Secured and Unsecured Creditors were not getting affected in any manner by the proposed scheme as no new shares were being issued and no compromise was offered to any Creditors. Therefore, the Tribunal held that obtaining 90% consent affidavits from Unsecured Creditors was not required.3. Requirement of Consents from Petitioners in Insolvency Proceedings:The NCLT directed the Transferee Company to procure consents from Petitioners who have filed Insolvency Proceedings against the Applicant Companies. The Appellants argued that there is no provision in the law mandating procuring 100% consent from Creditors who have filed Insolvency Proceedings. The Tribunal observed that since the Transferee Company would continue to exist post-amalgamation, any pending Legal Proceedings by or against the Transferee Appellant Company would continue in the same manner and extent, and there would be no diminution of obligations of the Transferee Appellant Company.4. Compliance with Ministry of Corporate Affairs (MCA) Guidelines on Conducting Meetings:The Appellants contended that the direction of NCLT to hold a physical meeting for Shareholders was contrary to the MCA clarification dated 08.04.2021, which allows listed Companies to conduct Meetings through Video Conferencing (VC) or Other Audio-Visual Means (OAVM) and allows issuance of Notice to the Members for such Meetings by using only electronic means. The Tribunal found force in this contention and referenced the MCA circular which allows for such electronic means of conducting meetings.Conclusion:The Tribunal allowed the Appeal and set aside the Order of NCLT with respect to directions regarding the dispensation of meetings of Equity Shareholders and Creditors. The Tribunal emphasized 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 rights of the Equity Shareholders of the Transferee Company are not being affected.