2022 (2) TMI 69 - Tri - Companies Law

NCLT approves merger of Givetake Trade & Credit Pvt. Ltd. with Indian Compressors Limited

Givetake Trade & Credit Private Limited Versus Indian Compressors Limited

The NCLT, Kolkata sanctioned the amalgamation scheme between Givetake Trade & Credit Pvt. Ltd. and Indian Compressors Limited, transferring all ... Sanction of scheme of Amalgamation - Sections 230-232 of the Companies Act, the Companies (Compromises Arrangements and Amalgamations) Rules, 2016 - HELD THAT:- Various directions with regard to holding, convening and dispensing with various meetings issued - direction with regard to issuance of various notices also issued. Application allowed - the scheme is approved. ISSUES PRESENTED AND CONSIDERED 1. Whether the proposed scheme of amalgamation complies with the requirements of Sections 230-232 of the Companies Act, 2013 and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, so as to be sanctioned by the Tribunal. 2. Whether meetings of creditors convened and conducted under the Tribunal's directions (including treatment of quorum and voting) were valid for the purpose of obtaining creditor approvals required under the statute. 3. Whether the scheme adequately protects the rights and interests of stakeholders including shareholders, secured and unsecured creditors, employees, tax authorities and other statutory authorities (including RBI in respect of an NBFC transferor). 4. Whether the share exchange ratio and valuation underpinning the swap (including methodology used) are acceptable for the purposes of sanctioning the scheme. 5. Whether the scheme's operative provisions effect transfer of assets, liabilities, employees, pending proceedings and related consequences (appointed date, issuance/allotment of shares, alteration of authorised capital) in conformity with statutory objectives and safeguards. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Compliance with Sections 230-232 and sanctionability of the scheme Legal framework: Sections 230-232 empower the Tribunal to sanction schemes of compromise/arrangement/amalgamation where statutory procedural and substantive safeguards are met; the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 prescribe procedural steps including motions, notices, convening meetings, filing of statutory reports and notices to regulators. Precedent treatment: No prior judicial precedent was relied upon in the judgment to alter or distinguish established principles; the Tribunal applied statutory tests and administrative reports. Interpretation and reasoning: The Tribunal examined (a) board approvals, (b) convening and outcome of creditor meetings under its supervision, (c) filing/publication and service on statutory authorities, (d) reports from Regional Director, Registrar of Companies, Official Liquidator and Income Tax Authorities, and (e) compliance with accounting treatment and auditor certificate. On that composite record the Tribunal found no contravention of Sections 230-232 and the Rules. Ratio vs. Obiter: Ratio - The Tribunal's finding that, where statutory procedures (motions, notices, meetings, statutory reports) are satisfied and statutory authorities' reports do not disclose non-compliance, the Tribunal may sanction the scheme. Obiter - ancillary observations about commercial benefits and economies of scale cited as justifications. Conclusion: The scheme satisfies statutory requirements and is sanctionable; the Tribunal approved the scheme effective from the appointed date. Issue 2 - Validity of creditor meetings, quorum and voting Legal framework: The Rules and the Tribunal's direction govern convening of creditor meetings, quorum requirements and treatment of reconvened meetings; approval by prescribed majority in number/value is necessary for validity. Precedent treatment: The Tribunal applied its prior order directing convening and supervision of meetings and treated reconvened meeting attendance as proper quorum as authorized by its order; no case law was cited to depart from established practice. Interpretation and reasoning: Secured creditors' meeting had requisite value participation (95.46% of secured debt) and unanimous approval. Unsecured creditors' meeting initially lacked numerical quorum but was adjourned and reconvened in compliance with the Tribunal's earlier direction which deemed the reconvened meeting a proper quorum; the reconvened meeting passed the resolution unanimously. The Tribunal accepted the chairpersons' reports and the procedures followed (notice, explanatory statement, proxy form, placement on company website and service to statutory authorities). Ratio vs. Obiter: Ratio - Where a tribunal-authorised procedure for reconvening a meeting is followed and the chairperson's report shows compliance, the reconvened meeting may be treated as a valid meeting for quorum and voting purposes. Obiter - none beyond procedural acceptance. Conclusion: The creditor meetings, including adjournment and reconvening, were validly conducted and produced requisite approvals for sanctioning the scheme. Issue 3 - Protection of stakeholder interests (shareholders, creditors, employees, tax and other regulators) Legal framework: Tribunals must ensure schemes do not prejudice interests of shareholders, creditors, employees or public interest; statutory authorities (RD, RoC, OL, Income Tax, RBI) have roles to report relevant concerns. Precedent treatment: The Tribunal relied on statutory reports rather than precedent; no precedent was overruled or distinguished. Interpretation and reasoning: The Tribunal considered: (a) RD's report noting employee protection clause and swap ratio, (b) RoC's absence of complaints, (c) Official Liquidator's report confirming transfer of undertakings and no complaints and opining no evidence of prejudice to members or public interest, (d) Income Tax Department's conditional position seeking preservation of rights to initiate/continue proceedings and to determine tax implications and safeguard revenue, and (e) RBI's NOC for the NBFC subject to conditions (intimation of sanction and surrender of certificate). The scheme expressly provided for transfer of employees on not-less-favourable terms, transfer of liabilities (including tax liabilities) and continuation of pending proceedings by the transferee; these provisions were accepted as protective of stakeholder interests, subject to statutory authorities' rights (e.g., Income Tax) being preserved. Ratio vs. Obiter: Ratio - A scheme that expressly transfers liabilities, preserves employee terms and provides for continuation of pending proceedings, combined with statutory authorities' reports not disclosing prejudice, satisfies the protective requirement; where tax/regulatory rights exist, the Tribunal may sanction subject to preservation of those rights and compliance with conditions. Obiter - commentary on commercial benefits. Conclusion: The scheme adequately protects stakeholder interests; sanction was granted while noting Income Tax and RBI conditions to be addressed as necessary. Issue 4 - Acceptability of valuation and share exchange ratio Legal framework: The Tribunal must be satisfied that the share exchange ratio is supported by a valuation report using sound methodology; Boards' acceptance of valuation and auditor certification of accounting treatment are relevant considerations. Precedent treatment: No precedential adjustment was made; the Tribunal accepted the independent valuation report and board approvals. Interpretation and reasoning: The valuation report employed two methods (Asset Method and Income Approach) based on audited balance sheets as on the relevant date; the report was unanimously accepted by both boards; Registrar of Companies reported no complaints regarding swap ratio. The Tribunal treated these factors as satisfactory evidence of fair valuation for sanction purposes. Ratio vs. Obiter: Ratio - Where a valuation report using recognized methods is filed, boards accept it unanimously and no stakeholder objection is received, the Tribunal may accept the swap ratio for sanctioning the scheme. Obiter - no further re-evaluation of commercial adequacy was undertaken. Conclusion: The share exchange ratio and underlying valuation were acceptable for sanctioning the scheme. Issue 5 - Operative effects: appointed date, transfer of assets/liabilities, employee continuity, pending proceedings, issuance of shares and authorised capital Legal framework: Sanction orders effect statutory transfers as of the appointed date; transferee succeeds to assets, liabilities and ongoing litigation; employees are to be absorbed on terms not less favourable; the transferee may alter authorised capital to effect share allotment. Precedent treatment: The Tribunal applied statutory scheme objectives and standard operative consequences of sanctioned amalgamations; no conflicting precedent was engaged. Interpretation and reasoning: The scheme fixed an appointed date and provided for vesting of all assets, rights, liabilities (including tax/statutory liabilities), continuation of pending suits/appeals by/against the transferor in the transferee, and issuance/allotment of shares as per swap ratio with power to increase authorised capital if necessary. The Tribunal ordered annexation of the schedule of properties and directed compliance steps including filing the certified order with the Registrar of Companies within 30 days. Employee protection clause was specifically recorded and accepted. Ratio vs. Obiter: Ratio - Where statutory requirements are met, the Tribunal may order vesting as per the scheme from the appointed date and direct ancillary compliance (filing with RoC, transfer of assets/liabilities, employee absorption, continuation of proceedings); these operative directions are binding. Obiter - procedural directions to address regulator-specific conditions (e.g., RBI) may be required post-sanction. Conclusion: The Tribunal sanctioned the scheme with operative consequences set out (vesting from the appointed date, transfer of liabilities and employees, continuation of proceedings, allotment of shares and required filings) and liberty to interested persons to seek further directions.