2022 (9) TMI 1650 - SC - Indian Laws

Supreme Court Upholds NCLT's Approval of Amalgamation, Overturns NCLAT; Respondent Lacked Standing Under Companies Act Section 230(4.

Rama Investment Company Pvt. Ltd. Versus Ankit Mittal & Ors.

The Supreme Court set aside the NCLAT's decision and upheld the NCLT's approval of the scheme of amalgamation for the private limited companies. The court ... Approval of scheme of amalgamation of six companies - it is alleged that valuer has made valuation disregarding the methodology, methods or share entitlement ratio and has proceeded on guess work to arrive at a share exchange ratio - HELD THAT:- It is considered appropriate to dispose of these appeals with a direction that the order of the NCLAT dated 29.11.2019 is set aside and the scheme of amalgamation as approved by the NCLT in respect to four private limited companies(respondent nos.4 to 7) with the appellant under order impugned dated 12.04.2018 confirmed. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether a person not meeting the statutory threshold of shareholding required to be a 'person aggrieved' under Section 230(4) is entitled to have the Tribunal/ Appellate Tribunal suo motu examine and set aside an order approving a scheme of amalgamation on merits. 2. Whether the Appellate Tribunal was justified in setting aside a scheme of amalgamation on the basis that the valuer allegedly disregarded valuation methodology and proceeded on guesswork, where the objector lacked statutory locus to challenge under Section 230(4). 3. Whether the Tribunal/Appellate Tribunal can grant partial relief - i.e., confirm/approve the scheme only insofar as it concerns transfers involving private companies - where affected parties to that part of the scheme have approved it and the objector has no shareholding or interest in those private companies. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Locus to Challenge under Section 230(4) and Judicial Review of Merits Legal framework: Section 230(4) prescribes who may be a 'person aggrieved' for the purpose of challenging orders under the scheme approval provisions; a statutory threshold of shareholding is a precondition for entitlement to be heard as an aggrieved person. Precedent Treatment: The judgment records the Tribunal below (Appellate Tribunal) itself finding that the objector did not satisfy the 10% shareholding prerequisite but nevertheless proceeded to examine the scheme. The Court treated that finding of lack of statutory locus as material. Interpretation and reasoning: Where the statutory threshold for 'person aggrieved' is not met, the competence of the objector to invoke the corrective jurisdiction under Section 230(4) is materially impaired; the Appellate Tribunal erred in proceeding to examine and set aside the scheme on its merits despite recording that the objector lacked the required shareholding. The absence of locus disentitles the objector from maintaining the challenge under the statutory scheme, and the Appellate Tribunal should have refrained from substantive re-appraisal unless other grounds conferring standing were shown. Ratio vs. Obiter: The Court's conclusion that the Appellate Tribunal erred in entertaining a merits challenge by a person not meeting Section 230(4) is applied as a ratio in disposing of the appeals to the extent the challenge was maintained by such an objector. It is not treated as an open-ended pronouncement on all forms of standing beyond the facts. Conclusions: The Appellate Tribunal should not have re-opened the merits of the scheme when the record demonstrated that the objector lacked the statutory threshold of shareholding necessary to be a 'person aggrieved' under Section 230(4). Issue 2 - Evaluation of Valuation Methodology and Competence to Set Aside Scheme Legal framework: Approval of a scheme of amalgamation involves consideration of fairness to stakeholders, including appropriateness of valuation and share exchange ratios; Tribunal review must respect the statutory scheme and the scope of appellate interference. Precedent Treatment: The Appellate Tribunal undertook an independent examination of valuation methodology and found that the valuer disregarded prescribed methodology and proceeded by guesswork, concluding the amalgamation was not fair. The Court did not accept that the Appellate Tribunal could properly substitute its evaluation where the objector lacked locus and where there was no established jurisdictional defect or demonstrable illegality in the valuation process on the record. Interpretation and reasoning: The Court treated the Appellate Tribunal's factual and expert-evaluation conclusions as inappropriate in the circumstances because (a) the objector lacked statutory standing to trigger such an appraisal, and (b) there was no compelling record-material showing a manifest or jurisdictional error in the valuation process that would justify setting aside the Tribunal's approval. The Court emphasised that appellate review should not lightly supplant fact-sensitive valuation conclusions reached by the Tribunal/NCLT in the absence of proper aggrievement or demonstrable procedural or jurisdictional infirmity. Ratio vs. Obiter: The reversal of the Appellate Tribunal's setting aside of the scheme on valuation grounds is applied as ratio in this context. Observations about the limits of appellate re-evaluation of expert valuation absent standing or clear illegality are instructive but confined to the facts. Conclusions: The Appellate Tribunal erred in setting aside the scheme on the valuation critique where the challenge was advanced by a party lacking statutory locus and where no cogent record-based infirmity was shown to justify overturning the Tribunal's approval. Issue 3 - Partial Confirmation of Scheme in Respect of Private Companies Legal framework: Schemes of amalgamation may be approved in whole or, where appropriate and without prejudice to stakeholders, insofar as particular components affect consenting parties; Tribunal powers include making orders tailored to the actual interests and rights affected, subject to statutory requirements and protection of creditors and members. Precedent Treatment: The Appellate Tribunal declined the applicant's interlocutory request to clarify/modify its order to permit the limited portion of the scheme (involving four private companies) to be effected despite its broader order rejecting the scheme. The Court considered the subsidiary factual matrix: the private companies and the transferee had board resolutions approving the scheme for those companies, and the objector had no shareholding in them. Interpretation and reasoning: Where components of a scheme concern private companies whose boards have validly approved the arrangement and where no prejudice to any stakeholder is shown, it is permissible to confirm and give effect to that limited portion of the scheme. The competence to do so is reinforced by the absence of any interest or shareholding by the objector in those private companies. The Court found it appropriate to set aside the Appellate Tribunal's order and confirm the NCLT's approval insofar as it related to the four private companies, as such confirmation did not infringe statutory protections or cause prejudice. Ratio vs. Obiter: The decision to confirm the scheme limited to the private companies constitutes a ratio applied to the appeals; observations about the permissibility of partial confirmations in appropriate circumstances are binding on the present outcome but are limited to the factual setting where affected parties consent and no aggrieved statutory party is prejudiced. Conclusions: The scheme of amalgamation is confirmed insofar as it relates to the four private companies because their boards had approved the scheme, the objector had no shareholding or interest in them, and no prejudice to stakeholders from partial confirmation was demonstrated. The Appellate Tribunal's refusal to allow such limited efficacy was set aside. Interrelationship and Final Disposition The Court reconciled the issues by concluding that (a) lack of statutory locus under Section 230(4) precluded the objector from maintaining the broad challenge that led the Appellate Tribunal to set aside the scheme on valuation grounds, and (b) in respect of the private companies - where there was board approval and no interest of the objector - the NCLT's approval should be confirmed. Accordingly, the Appellate Tribunal's order setting aside the NCLT order was set aside to the limited extent of confirming the scheme for the private companies; pending applications were disposed of.