2024 (10) TMI 906 - AT - Companies Law

NCLAT allows amendments to amalgamation scheme after reversing rejection for minor swap ratio changes

One World Center Private Ltd Versus FIM Holdco Ltd, Ariston Investments Sub A Limited

NCLAT set aside NCLT's rejection of application to amend amalgamation scheme involving miniscule swap ratio changes. Tribunal held amendments can be made ... Amendment of amalgamation scheme - Rejection of application for amendment of the Scheme of Amalgamation - miniscule change in the swap ratio of the Transferor Companies - HELD THAT:- In Maccaferri Environmental Solutions Private Limited [2008 (7) TMI 1126 - PUNJAB AND HARYANA HIGH COURT], sanction was sought to amend the scheme by changing the appointed date which also necessitated a change in the swap ratio. Sanction was accorded to the same by the Ld NCLT Mumbai bench and the proposed amendments were allowed. In IN THE MATTER OF SCHEME OF AMALGAMATION OF OBEROI CONSTRUCTIONS LIMITED AND ORS. [2024 (2) TMI 1444 - NATIONAL COMPANY LAW TRIBUNAL MUMBAI], amendments were sought to the original Scheme to the effect that amongst the five petitioner companies, the fourth and the fifth petitioner companies sought exclusion from the merger as they did not intend to merge due to commercial and regulatory reasons. The modified scheme thereafter was only for the merger of the remaining three petitioner companies. In said case, the equity shares of the Transferee Company No. 5 were listed on stock exchange. Sanction was granted to the modified scheme by the Ld. NCLT Mumbai Bench. The amendment can therefore be done at any stage. Admittedly the present modification to scheme will not require any further / revised adherence in so far as the regulations for inbound merger are concerned. Further, as per FEMA Notification No. FEMA.389/2018-RB dated March 20, 2018 ‘Foreign Exchange Management (Cross Border Merger) Regulations, 2018’, point 9(1) states any transaction on account of a cross- border merger undertaken in accordance with these Regulations shall be deemed to have prior approval of the Reserve Bank of India as required under Rule 25A of the Companies (Compromises, Arrangement and Amalgamations) Rules, 2016. Hence, the proposed modification would also need no additional approval from Reserve Bank of India. If the impugned order is allowed to sustain then the scheme will have to be remodified to reflect such justification which will result into another round of lengthy compliances all of which would have to be undertaken for the third time. The Impugned Order is liable to be set aside - Appeal allowed. Issues Involved:1. Whether the National Company Law Tribunal (NCLT) erred in rejecting the application for amendment of the Scheme of Amalgamation.2. Whether the proposed modifications to the Scheme were substantial enough to require a fresh first motion application.3. Whether the NCLT had the jurisdiction to approve the modifications under the Companies Act, 2013.4. Whether the creditors' consent was necessary for the proposed modifications.5. Whether the delay in proceedings and the requirement for fresh compliances were justified.Issue-wise Detailed Analysis:1. Rejection of the Application for Amendment:The Appellant Company challenged the NCLT's order dated 22.04.2024, which rejected the application for amendment of the Scheme of Amalgamation. The appellant argued that the NCLT misconstrued the provisions of the Companies Act, particularly concerning the amendment of the Scheme under Sections 230-232. The NCLT's decision was seen as contrary to the interests of the involved companies and their shareholders, potentially leading to unnecessary judicial delays and increased legal costs.2. Substantiality of Proposed Modifications:The NCLT held that the 'Share exchange ratio is substantially altered,' necessitating a fresh first motion application. The appellant contended that the change in the share exchange ratio was minuscule, from 2.0242 to 2.0225 for Transferor Company No. 1 and 2.7998 to 2.7915 for Transferor Company No. 2. This minor change was approved by the shareholders and had no significant effect on the Scheme's parameters. The judgment noted that no major amendment was proposed, only a minor change in the swap ratio, which was reasonable and fair to all stakeholders.3. NCLT's Jurisdiction to Approve Modifications:The appellant argued that the NCLT had the power under Section 231 of the Act and Rule 17(1) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, to sanction modifications to the Scheme. The judgment referenced several precedents where the NCLT had sanctioned amendments of greater significance, indicating that the tribunal possessed the jurisdiction to approve the proposed modifications.4. Necessity of Creditors' Consent:The appellant asserted that the proposed amendment did not impact the creditors, as the modification only involved a minor change in the swap ratio with shareholders. The judgment cited precedents establishing that if a scheme does not involve arrangements with creditors, their consent can be dispensed with. The judgment concluded that the creditors' approval was not required, as they had already approved the Scheme.5. Delay in Proceedings and Fresh Compliances:The judgment criticized the NCLT for the delay in proceedings, noting that the impugned order was passed almost six months after the application was filed. The NCLT's direction to file a fresh first motion application was seen as excessive and contrary to the MCA Circular guidelines, which discourage significant delays in appointed dates. The judgment emphasized that the deemed approval of shareholders should have been considered, and fresh consent affidavits could have been solicited instead of dismissing the application.Conclusion:The judgment concluded that the impugned order should be set aside, allowing the appeal and the requested modifications to the Scheme. The pending applications were disposed of, and the tribunal's decision was deemed to have unnecessarily prolonged the process, contrary to the principles of justice and efficiency.