2013 (4) TMI 1017 - HC - Companies Law

First-motion company application allowed under Sections 391 and 394 for amalgamation; meetings dispensed, creditor notices required.

HC allowed the first-motion company application under Sections 391 and 394 of the Companies Act for a scheme of amalgamation between the transferor ... - ISSUES PRESENTED AND CONSIDERED 1. Whether the requirement to convene meetings of equity shareholders under Sections 391 and 394 of the Companies Act, 1956 may be dispensed with where written consents/NOCs of all equity shareholders have been obtained. 2. Whether the requirement to convene meetings of secured creditors and unsecured creditors under Sections 391 and 394 may be dispensed with where (a) the proposed Scheme does not contemplate any variation of creditors' rights, (b) the transferee company undertakes to assume and discharge all liabilities, and (c) notices to creditors will be issued on the second motion. 3. Whether the Court's jurisdiction to entertain the first motion lies where the registered offices of the applicant companies fall within the territorial jurisdiction of the Court. 4. Whether any proceedings under Sections 235-251 of the Companies Act affect the grant of first motion relief in the absence of such proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Dispensation of meetings of equity shareholders Legal framework: Sections 391 and 394 of the Companies Act, 1956 permit the Court to order convening of meetings of members and creditors for consideration of a scheme of amalgamation and also permit the Court to dispense with such meetings where appropriate. Precedent Treatment: The Court relied on its own earlier order and an earlier judgment of this Court to support dispensing with meetings where all shareholders have given written consent. Interpretation and reasoning: The Court noted that all equity shareholders of both transferring and transferee companies had given written consents/NOCs. Where unanimous written consent exists, convening a formal meeting is unnecessary because the statutory purpose of ascertaining shareholder approval is fulfilled. The provision allowing dispensation is engaged by complete written consent, subject to Court satisfaction as to authenticity and completeness of documentation. Ratio vs. Obiter: Ratio - Unanimous written consents of equity shareholders justify dispensing with statutory meetings under Sections 391 and 394. Obiter - administrative convenience and the Court's power to require further safeguards in particular cases. Conclusions: The Court dispensed with convening meetings of equity shareholders of the applicant companies in view of the written consents/NOCs from all equity shareholders. Issue 2 - Dispensation of meetings of secured and unsecured creditors Legal framework: Sections 391 and 394 require meetings of creditors for a scheme of amalgamation, but the Court may dispense with such meetings where it is satisfied that the purpose of a meeting is otherwise met or where creditor rights are not adversely affected. Precedent Treatment: The Court applied its earlier order and an earlier decision of this Court as supporting authority for dispensing with creditors' meetings when creditor rights are unchanged and appropriate notices/undertakings are furnished. Interpretation and reasoning: The Court examined (a) whether the Scheme contemplates any variation of secured creditors' rights, (b) whether unsecured creditors' rights or amounts due are varied, and (c) the undertakings by the transferee company to assume and discharge liabilities. The Scheme did not propose any variation of secured creditors' rights and did not alter amounts owed to unsecured trade/sundry creditors; liabilities of the transferor would be assumed by the transferee per the Scheme clause cited (Clause 3.2.2(iii)). The applicants proposed to issue individual notices to secured and unsecured creditors upon issuance of the second motion notice by the Court and sought dispensation of preliminary meetings on that basis. For unsecured creditors, the Court noted the cyclical nature of trade obligations and that obligations are being met in the ordinary course. These factors satisfy the statutory purpose of protecting creditors' interests without requiring meetings at the first motion stage, provided the Court's supervisory notices and undertakings are given. Ratio vs. Obiter: Ratio - Meetings of secured and unsecured creditors may be dispensed with at the first motion where (i) the Scheme does not vary creditor rights, (ii) the transferee undertakes to assume and discharge liabilities, and (iii) the applicants undertake to issue individual notices to creditors and provide opportunity to object at the second motion. Obiter - factual matters (e.g., the cyclical nature of trade creditors) may be relevant in assessing whether dispensation is appropriate in particular cases. Conclusions: The Court dispensed with convening meetings of secured and unsecured creditors subject to the condition that the applicant companies issue individual notices to their respective secured and unsecured creditors (as per annexed lists) upon issuance of the second motion petition notice, thereby preserving creditors' opportunity to object. Issue 3 - Territorial jurisdiction Legal framework: The Court must be satisfied that it has territorial jurisdiction to entert ain the company application under the Act, which turns on the location of registered offices. Interpretation and reasoning: The registered offices of the applicant companies were stated to be within the National Capital Territory, falling within the Court's jurisdiction. The Court accepted the representation and entertained the first motion. Ratio vs. Obiter: Ratio - The Court will assume jurisdiction where registered offices of applicant companies fall within its territorial jurisdiction; factual verification is required. Obiter - a single transferor company having registered office outside the territorial jurisdiction does not automatically oust jurisdiction over applicants whose registered offices are within the territory. Conclusions: The Court proceeded with the application, being satisfied of territorial jurisdiction over the applicant companies. Issue 4 - Impact of Sections 235-251 proceedings Legal framework: Sections 235-251 relate to investigations and proceedings which might affect the Court's discretion in sanctioning schemes of amalgamation. Interpretation and reasoning: The applicants represented that no proceedings under Sections 235-251 were pending against any of the applicant companies at the date of the application. On that representation, the Court had no bar arising from such proceedings to grant first motion relief. Ratio vs. Obiter: Ratio - Absence of pending proceedings under Sections 235-251 permits the Court to consider first motion relief without additional restrictions arising from such investigations or proceedings. Obiter - if such proceedings existed, the Court's approach might differ. Conclusions: No proceedings under Sections 235-251 impeded the grant of the first motion order in the present application. Ancillary and procedural conclusions The Court, satisfied with the filing of memorandum and articles, audited accounts, board resolutions approving the Scheme, and consents, allowed the first motion application on the terms recorded: (a) dispensation of meetings of equity shareholders; (b) dispensation of meetings of secured and unsecured creditors subject to issuance of individual notices on the second motion as per annexed creditor lists; and (c) undertaking by the transferee to assume and discharge liabilities as per Clause 3.2.2(iii) of the Scheme. The order requires issuance of notices to creditors and preserves their right to object at the second motion.