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2021 (12) TMI 967 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI Law of Competition

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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 determined that when a merger involves a parent company and its wholly owned subsidiary, the meetings of equity shareholders, secured creditors, and unsecured creditors can be waived, as the rights of the equity shareholders of the transferee company remain unaffected. The Tribunal also concluded that obtaining 90% consent affidavits from unsecured creditors was unnecessary and acknowledged the validity of conducting meetings through electronic means as per MCA guidelines.

Dispensation of meetings under Section 230/232 - discretion of the Tribunal to call or dispense with meetings - merger of wholly owned subsidiary with holding company where no re-organisation of share capital - requirement of creditor consent affidavits (ninety per cent dispensation) - effect of pending Insolvency Proceedings on scheme approval - manner and mode of issuance of notice and conduct of meetings (MCA circular permitting VC/OAVM and electronic notices)Dispensation of meetings under Section 230/232 - merger of wholly owned subsidiary with holding company where no re-organisation of share capital - discretion of the Tribunal to call or dispense with meetings - Whether the Tribunal can dispense with convening meetings of equity shareholders and creditors where the scheme is merger of a wholly owned subsidiary into its holding company and does not alter share capital or affect stakeholders' rights. - HELD THAT: - The Tribunal has discretionary power under Section 232(1) (read with Section 230) to call or dispense with meetings. Where the transferor is a wholly owned subsidiary of the transferee, no new shares are issued, there is no re organisation of share capital and the rights of equity shareholders and creditors of the transferee are not affected, the object of convening meetings is absent. Prior decisions of this Tribunal and High Courts were held to support exercise of discretion to dispense with meetings in such factual matrix. On the material before the Tribunal, the transferee's rights and liabilities of secured and unsecured creditors would remain unaffected by the proposed amalgamation; accordingly, convening the meetings was unnecessary and the Court allowed dispensation in these circumstances. [Paras 7, 10, 11, 12]Meetings of equity shareholders and creditors could be dispensed with in the present case of amalgamation between a holding company and its wholly owned subsidiary where no reorganisation of share capital occurs and stakeholders' rights are not affected.Requirement of creditor consent affidavits (ninety per cent dispensation) - discretion of the Tribunal to call or dispense with meetings - Whether the NCLT was justified in directing the transferee company to obtain consent affidavits from unsecured creditors amounting to ninety per cent value. - HELD THAT: - Section 230(9) permits dispensation of meetings where creditors having at least ninety per cent in value agree by affidavit, but this statutory dispensation is permissive and dependent on facts. In the facts of this case - no issuance of new shares, no impact on creditors' rights and the transferee remaining liable for obligations - the Tribunal concluded that mandating procurement of 90% consent affidavits from unsecured creditors was not required. The appellate bench found the NCLT direction in this regard unsustainable given the nature of the merger and set aside that direction. [Paras 12, 13]Direction to obtain 90% consent affidavits from unsecured creditors was not required and was set aside in the present factual matrix.Effect of pending Insolvency Proceedings on scheme approval - manner and mode of issuance of notice and conduct of meetings (MCA circular permitting VC/OAVM and electronic notices) - Whether the NCLT could direct the transferee company to obtain specific consents from petitioners who have filed (but not admitted) Insolvency Proceedings against the companies and whether a physical meeting for shareholders was mandatory notwithstanding the MCA circular permitting electronic notices and virtual meetings. - HELD THAT: - The NCLT's direction to procure specific consents from petitioners who had filed insolvency petitions (not yet admitted) and to hold a physical meeting was inconsistent with the statutory scheme and applicable clarifications. There is no statutory rule mandating 100% consent from petitioners to pending insolvency proceedings at the stage of filing the company petition. Further, the bench observed applicability of the Ministry of Corporate Affairs circular of 08.04.2021 regarding issuance of notice and conduct of meetings by electronic means (VC/OAVM) where permitted; therefore, an inflexible direction to hold a physical meeting was contrary to the clarified mode of notice and meeting conduct. The appellate bench found these directions untenable and set aside the NCLT directions in respect of convening meetings and related notice procedures. [Paras 5, 7, 13]Directions to obtain consents from petitioners in pending insolvency proceedings and to mandatorily hold a physical meeting were not sustained; MCA clarification permitting electronic notices and virtual meetings is applicable and the NCLT directions in these respects were set aside.Final Conclusion: Appeal allowed; the NCLT directions requiring meetings, ninety per cent unsecured creditor affidavits and specific consents from petitioners in pending insolvency proceedings (and the requirement of a physical shareholders' meeting) were set aside insofar as they related to dispensation of meetings and associated notice/consent requirements, the Tribunal finding that in a parent-wholly owned subsidiary merger that does not reorganise share capital or affect stakeholders' rights such directions were unnecessary.

2021 (12) TMI 1405 - MADRAS HIGH COURT Law of Competition

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Issues: Whether the Competition Commission of India could entertain the complaint and issue notice alleging abuse of dominant position in the electricity market notwithstanding the Electricity Act, 2003 and the powers of the Tamil Nadu Electricity Regulatory Commission; and whether the writ petition challenging the notice was liable to be entertained.

Analysis: The complaint alleged abuse of dominant position under Section 4 of the Competition Act, 2002 by imposing discriminatory conditions in the sale of electricity. The Electricity Act, 2003 empowers the State Commission under Section 23 to regulate supply, distribution, consumption and use of electricity, but the Court found no express provision in that Act conferring any investigative power or power to impose penalty for abuse of dominant position. By contrast, the Competition Act creates a distinct mechanism for inquiry and investigation, including investigation by the Director General under Section 41(2), and also permits a reference to the statutory authority under Section 21-A if an issue falls within another authority's domain. The notice challenged was only a preliminary step based on a prima facie opinion, and the Court declined to examine the merits or the truth of the allegations at that stage.

Conclusion: The Competition Commission of India had jurisdiction to initiate proceedings on the prima facie complaint, and the writ petition challenging the notice was premature and not entertainable.

Final Conclusion: The impugned notice and initiation of investigation were upheld, leaving the petitioner to contest the proceedings before the Competition Commission of India in accordance with law.

Ratio Decidendi: Where the special statute relied upon does not provide an investigative or penal mechanism for the alleged abuse of dominant position, the Competition Commission may entertain a prima facie complaint under the Competition Act and proceed with investigation, subject to its power to make a statutory reference where necessary.

Competition jurisdiction over electricity market abuse can proceed despite sector regulation when the special statute lacks investigative powers.
The text explains that a complaint alleging abuse of dominant position in the electricity market may be entertained under the Competition Act, 2002 even where the Electricity Act, 2003 and the Tamil Nadu Electricity Regulatory Commission are also relevant. It notes that the Electricity Act empowers State regulation of supply and distribution, but does not provide an investigative or penal mechanism for abuse of dominance. By contrast, the Competition Act contains an independent inquiry framework, including investigation by the Director General, and allows statutory reference where another authority's domain is engaged. A notice issued on a prima facie view is only a preliminary step, so a writ challenge at that stage is premature.

Abuse of dominant position - prima facie opinion for Director General investigation - maintainability of writ against a notice under Article 226 - special statute prevailing over general law (Electricity Act vis-a -vis Competition Act) - absence of investigative and penal powers in sectoral regulator - power of Commission to refer issues to statutory authority (Section 21-A)Abuse of dominant position - prima facie opinion for Director General investigation - Whether the Competition Commission of India was justified in forming a prima facie opinion of abuse of dominant position and directing an investigation by the Director General. - HELD THAT: - The Commission, on the basis of the information supplied by the informant, found a prima facie case that the opposite party enjoyed a dominant position in the relevant market (generation and supply/distribution of electricity in Tamil Nadu) and that discriminatory supply and load-shedding practices could constitute imposition of unfair or discriminatory conditions in sale of services within the meaning of the Competition Act. The Court refrained from adjudicating merits and accepted that the Commission's expression of a prima facie view authorised initiation of investigation by the Director General; nothing in the Commission's order was treated as a final determination on merits. The petitioner (TANGEDCO) was obliged to furnish information and explanations and participate in the investigation pursuant to the procedures under the Competition Act. [Paras 40, 41, 50, 51, 52]The Commission was entitled to form a prima facie opinion of abuse of dominant position and to direct investigation by the Director General; the Court will not substitute itself for that investigatory exercise at this stage.Special statute prevailing over general law (Electricity Act vis-a -vis Competition Act) - absence of investigative and penal powers in sectoral regulator - power of Commission to refer issues to statutory authority (Section 21-A) - Whether the Electricity Act and the Tamil Nadu Electricity Regulatory Commission oust the jurisdiction of the Competition Commission of India to entertain and investigate the complaint. - HELD THAT: - The Court acknowledged the principle that a special enactment prevails over a general law in respect of matters it covers. Section 23 of the Electricity Act empowers the State Commission to make orders to maintain efficient supply, equitable distribution and promote competition. However, the Court found no express provision in the Electricity Act vesting the State Commission with investigatory or penal powers to probe and prosecute alleged abuse of dominant position analogous to Section 4 of the Competition Act. In the absence of an investigating and penal mechanism under the Electricity Act for abuses of dominance, the Competition Act's investigatory machinery remains applicable. The Court further observed that, if during investigation the Commission concludes that an issue falls squarely within the remit of the State Commission, Section 21-A empowers the Competition Commission to refer that issue to the statutory authority. [Paras 44, 45, 46, 54, 56]The Electricity Act does not oust the Commission's jurisdiction in the present case because the State Commission lacks comparable investigatory/penal powers for alleged abuse of dominant position; the Competition Commission may investigate and, if appropriate, refer issues to the State Commission under Section 21-A.Maintainability of writ against a notice under Article 226 - Whether the writ petition challenging the notice issued by the Competition Commission of India is maintainable and should be entertained at this stage. - HELD THAT: - The Court recognised that writ jurisdiction under Article 226 exists but emphasised that a writ challenging a notice is not to be entertained routinely; such relief is available only on limited grounds (lack of jurisdiction, direct attack on statutory provisions, mala fides). Here the challenge was to a notice issued to facilitate DG investigation and was premature as the Commission had not adjudicated merits and procedures under the Act remained available to the petitioner. The Court declined to adjudicate merits or to quash the notice at this investigatory stage, directing the petitioner to participate in the statutory process and permitting the Commission to complete investigation within judicially fixed timelines. [Paras 6, 17, 55, 57, 58]Although the writ petition was maintainable, it was not entertainable at this stage; the challenge to the investigatory notice was premature and the petition was dismissed without quashing the notice.Final Conclusion: The writ petition challenging the Commission's decision to register the complaint and issue a notice for Director General investigation is dismissed as premature. The Competition Commission was entitled to form a prima facie view of abuse of dominant position and to investigate where the sectoral regulator lacks comparable investigatory or penal powers; the petitioner must participate in the investigation and may rely on Section 21-A for any reference to the State Electricity Regulatory Commission if jurisdictional issues arise.

2021 (12) TMI 1517 - COMPETITION COMMISSION OF INDIA Law of Competition

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Sports organizations deemed enterprises under Competition Act despite non-commercial nature, WhatsApp restrictions on players violate Section 4(2)
CCI found sports organizations qualified as enterprises under Competition Act, 2002, regardless of non-commercial nature, applying functional rather than formal approach. Commission held WhatsApp message restricting players from joining non-affiliated clubs and restrictive MoA clauses prima facie violated Section 4(2) provisions regarding abuse of dominant position. CCI directed DG investigation and granted interim injunction restraining organizations from restricting players' participation in non-recognized tournaments or threatening participants in such events.

Abuse of dominant position - Denial of market access / refusal to deal - Anti-competitive agreements and restriction of provision of services - Interim restraint under Section 33 of the Competition Act, 2002 - Definition of 'enterprise' and economic activityDefinition of 'enterprise' and economic activity - OP-1, OP-2 and OP-3 were prima facie held to be 'enterprise' within the meaning of the Act. - HELD THAT: - The Commission applied a functional test focusing on the economic nature of activities rather than formal status. Activities such as organising/conducting tournaments, distribution of prize money, trophies, medals and certificates, conducting coaching camps, selection of players, receipt of sponsorships, donations, royalty, advertising revenue and collection of subscriptions were treated as economic activities captured by the wide definition of 'enterprise'. The Commission observed that the Act covers non commercial economic activities as well and therefore the nature of functions performed by the OPs brought them within Section 2(h). [Paras 19, 20, 21, 22, 23]OPs prima facie qualify as 'enterprise' for the purposes of the Act.Abuse of dominant position - Relevant market for organization of table tennis events - OPs were prima facie held to be dominant in the relevant market delineated as the market for organization of table tennis leagues/events/tournaments in India. - HELD THAT: - Relying on the organisational pyramidal structure from district to national level and the roles played by OP-1, OP-2 and OP-3 in representing, coordinating, administering, marketing and developing the sport, the Commission was of the prima facie view that the OPs collectively occupied a dominant position in the delineated relevant market. [Paras 24, 25]OPs prima facie hold a dominant position in the relevant market for organisation of table tennis events.Denial of market access / refusal to deal - Anti-competitive agreements and restriction of provision of services - Interference with provision of services - The WhatsApp communication by OP-1 and certain clauses of OP-3's Memorandum of Association were prima facie found to be restrictive and to contravene Sections 3 and 4 of the Act (including Section 4(2)(c), Section 4(2)(a)(i) and Section 4(2)(b)(i) and Section 3(1)/3(3) as noted). - HELD THAT: - The Commission observed that the WhatsApp message of 30.10.2020 purportedly restricted players/clubs/academies from joining or participating in unaffiliated organisations and threatened suspension/non acceptance of tournament entries, which prima facie constituted conduct restricting market access and fell within the prohibitions in Section 4(2)(c). Likewise, impugned clauses in OP-3's MOA prima facie appeared unfair and restrictive, limiting market access and the provision of services, engaging the prohibitions in Section 4(2)(a)(i) and 4(2)(b)(i), and were also captured by Section 3(1) read with Section 3(3). The findings were expressed as prima facie observations to justify further inquiry. [Paras 26, 27, 28]WhatsApp communication by OP-1 and specified MOA clauses of OP-3 prima facie violated the Act by restricting market access and controlling provision of services.Interim restraint under Section 33 of the Competition Act, 2002 - Interim relief was granted restraining OP-1 from communicating so as to restrict or dissuade players/parents/coaches/clubs from joining or participating in tournaments organised by associations/federations/confederations not recognised by OP-1; OP-1 was also directed not to threaten players and to ensure compliance until further orders. - HELD THAT: - The Commission applied the statutory framework of Section 33 and the Supreme Court's guidance that interim restraints must be exercised sparingly but where satisfied that an act in contravention of Section 3 or Section 4 has been committed, continues or is about to be committed. The Commission recorded a satisfaction higher than a prima facie view: (i) existence of a prima facie contravention; (ii) necessity of restraint to prevent frustration of the sport's promotion and adverse effect on competition; and (iii) likelihood of irreparable harm to players and other federations if interim measures were not issued. On this basis, and having regard to the material including a petition by players, the Commission issued a reasoned interim order restraining OP-1 and warned of consequences under Section 42 for non compliance. The order was made without prejudice to the final inquiry and directed continued investigation. [Paras 32, 33, 34, 35, 36]Interim injunction granted restraining OP-1 from restricting or threatening players regarding participation in non recognised events; order to remain till further orders or final decision.Investigation by the Director General - The matter was directed to the Director General for investigation and report, and the Commission recorded that the DG shall carry out the investigation without being swayed by the interim observations. - HELD THAT: - Pursuant to the prima facie satisfaction recorded under Section 26(1), the Commission directed the DG to investigate the allegations regarding contraventions of Sections 3 and 4 and to submit the investigation report within the prescribed period. The Commission clarified that observations in the interim order do not amount to final adjudication and the DG must conduct the investigation independently. [Paras 2, 29, 36]DG directed to investigate the matter and submit a report; interim observations not to influence the investigation.Final Conclusion: The Commission, having recorded prima facie findings that the OPs perform economic activities amounting to 'enterprise', and that the OPs are prima facie dominant and have engaged in restrictive conduct (notably OP 1's WhatsApp communication and certain OP 3 MOA clauses), directed an investigation by the DG and granted an interim injunction restraining OP 1 from communicating so as to restrict or threaten players from participating in events not recognised by OP 1; the interim order is without prejudice to the final outcome of the investigation and adjudication.

2022 (1) TMI 69 - NATIONAL COMPANY LAW TRIBUNAL , JAIPUR BENCH Law of Competition

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Merger Approved: All Assets, Liabilities, and Employees Transferred Without Issuing New Shares; Legal Compliance Ensured.
The Tribunal sanctioned the Scheme of Amalgamation, ensuring compliance with legal and procedural mandates. It ordered the transfer of all assets, liabilities, and ongoing legal proceedings from the Transferor Company to the Transferee Company. Employees of the Transferor Company will continue under the Transferee Company with unchanged terms. As the Transferor Company is wholly owned by the Transferee Company, no new shares will be issued, and existing shares will be canceled. The Transferor Company will be dissolved without winding-up, and the Transferee Company must fulfill statutory filing and payment obligations, including contributions to the Prime Minister's National Relief Fund and the Ministry of Corporate Affairs.

Scheme of Amalgamation - sanction - Vesting of assets and liabilities by operation of law - Dissolution without winding up on amalgamation - Continuity of employment on amalgamation - Cancellation of shares of wholly owned subsidiary - Treatment of taxes, refunds and claims on amalgamation - Procedural compliance for convening meetings and service of notices on statutory authorities - Compliance with FEMA and RBI requirements - Filing of certified copy of order with Registrar of Companies - Direction to deposit amounts to statutory/relief funds and registry feesScheme of Amalgamation - sanction - Vesting of assets and liabilities by operation of law - Dissolution without winding up on amalgamation - Cancellation of shares of wholly owned subsidiary - Continuity of employment on amalgamation - Treatment of taxes, refunds and claims on amalgamation - Sanction of the Scheme of Amalgamation and the legal consequences on assets, liabilities, shares, employees and tax entitlements. - HELD THAT: - Having considered the documents on record, the approvals by members and creditors, the affidavits of no objection filed by statutory authorities and the certificate placed under the proviso to sub section (7) of Section 230, the Tribunal found no impediment to sanctioning the Scheme. The Scheme is declared binding on shareholders and creditors. Pursuant to the Scheme and with effect from the Appointed Date, all assets, rights, titles and interests of the Transferor Company stand transferred and vested in the Transferee Company by operation of law; all debts, liabilities, duties and obligations stand transferred to the Transferee Company; pending proceedings shall continue in the name of the Transferee Company; employees in service on the Effective Date shall become employees of the Transferee Company on the same terms without interruption; equity shares of the Transferor Company held by the Transferee Company shall stand cancelled without further act; and taxes, cess and duties paid or payable, and refunds or claims, shall be treated as those of the Transferee Company. The Tribunal clarified that its sanction does not imply any exemption from payment of stamp duty, taxes or other charges, or from obtaining permissions required under any law. [Paras 13, 14]Scheme sanctioned; assets and liabilities vested in Transferee Company; Transferor Company to be dissolved without winding up upon filing; employees, shares and tax consequences governed as per Scheme.Procedural compliance for convening meetings and service of notices on statutory authorities - Compliance with FEMA and RBI requirements - Filing of certified copy of order with Registrar of Companies - Direction to deposit amounts to statutory/relief funds and registry fees - Satisfaction of procedural requirements and directions for post sanction compliance. - HELD THAT: - The Tribunal recorded compliance with the directions issued earlier regarding notice publication and service on statutory authorities, and took note of the Regional Director's report and the Petitioner Company's response, including its undertaking regarding FEMA/RBI compliances and the absence of objections from Income Tax and SEBI. The Petitioner Company was directed to: file the Schedule of Property in Form CAA 7 by affidavit; within 30 days of receipt of the certified copy deliver the certified copy to the Registrars of Companies of Maharashtra and Rajasthan for registration, upon which the Transferor Company shall be dissolved without winding up; and deposit the specified amounts to the Prime Minister's National Relief Fund and the Online Miscellaneous Fee account of the Ministry of Corporate Affairs within the time stipulated. The Petitioner remains bound to comply with statutory requirements noted by the Regional Director. [Paras 3, 5, 6, 11, 15]Procedural compliances accepted as satisfied; petitioner directed to file Form CAA 7 schedule of property, file certified copy of order with ROCs, make specified deposits and to comply with FEMA/RBI and other statutory requirements.Final Conclusion: The Tribunal granted sanction to the Scheme of Amalgamation between ISAGRO (Asia) Agrochemicals Private Limited and PI Industries Limited, declaring the Scheme binding and giving effect to the transfer and vesting of assets, liabilities, employees and tax entitlements in the Transferee Company, directing dissolution of the Transferor Company without winding up upon filing of the certified order with the Registrars of Companies, and imposing specified post sanction procedural steps and deposits while requiring compliance with FEMA/RBI and other statutory obligations.

2021 (11) TMI 304 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI Law of Competition

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Purely regulatory functions fall outside "enterprise" status, barring abuse of dominance scrutiny under competition law.
A statutory body performing purely regulatory functions under the Advocates Act, 1961 was treated as outside the definition of an "enterprise" under Section 2(h) of the Competition Act, 2002 because the impugned conduct was not economic or commercial in character. As that jurisdictional requirement was not satisfied, allegations of abuse of dominant position under Section 4 could not be examined on merits, and no prima facie basis for interim relief was found. The stated principle is that sovereign or purely regulatory activity by a legal regulator does not attract enterprise status for competition law purposes.

Enterprise within the meaning of Section 2(h) of the Competition Act - Abuse of dominant position under Section 4 of the Competition Act - regulatory functions not constituting economic or commercial activity - prima facie case for inquiry under Section 26(2) and interim relief under Section 33Enterprise within the meaning of Section 2(h) of the Competition Act - regulatory functions not constituting economic or commercial activity - Whether the Bar Council of India (BCI) is an 'enterprise' under Section 2(h) of the Competition Act - HELD THAT: - The Tribunal held that the definition of 'enterprise' is wide but confined to activities that are economic or commercial in character. The BCI is a statutory body constituted under the Advocates Act, 1961 entrusted with regulatory functions including promotion and laying down standards of legal education and prescribing qualifications. Those core functions are regulatory and non-economic. The Tribunal applied the statutory scheme and precedents distinguishing regulatory/sovereign functions from entrepreneurial activities and concluded that the BCI's primordial role is regulatory. Consequently the BCI does not qualify as an 'enterprise' engaged in economic or commercial activity for the purposes of Section 2(h). [Paras 20]BCI is not an 'enterprise' within the meaning of Section 2(h) of the Competition Act because it performs regulatory, non-economic functions.Abuse of dominant position under Section 4 of the Competition Act - prima facie case for inquiry under Section 26(2) and interim relief under Section 33 - Whether there was a prima facie case under Section 4 of the Competition Act against the BCI and whether the CCI's order closing the information and refusing interim relief was correct - HELD THAT: - Because the Tribunal determined that the BCI does not fall within the statutory definition of 'enterprise' as performing economic or commercial activities, the essential ingredients of 'abuse of dominant position' under Section 4 are not attracted on the material before the Commission. The Tribunal found no legal flaw in the Commission's conclusion that no prima facie case existed and that the information could be closed under the Act; accordingly the prayer for interim suspension of the impugned rule was rightly refused. [Paras 22, 23]No prima facie case under Section 4 was made out; the CCI's closure of the information and refusal to grant interim relief were correct.Final Conclusion: The appeal is dismissed; the Tribunal upholds the Commission's order closing the information for lack of a prima facie case, on the ground that the Bar Council of India performs regulatory, non-economic functions and does not qualify as an 'enterprise' under the Competition Act.

2021 (11) TMI 486 - BOMBAY HIGH COURT Law of Competition

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Issues: (i) whether the Court could examine, before an extraordinary general meeting was held, whether the proposed resolutions in a requisition notice were incapable of lawful implementation and restrain further action on that notice; (ii) whether the proposed resolutions, including the removal of the managing director and the direct nomination of independent directors, were contrary to the Companies Act, the SEBI Listing Regulations and the SEBI Takeover Regulations so as to justify injunctive relief; (iii) whether the civil court's jurisdiction was barred by Section 430 of the Companies Act, 2013.

Issue (i): whether the Court could examine, before an extraordinary general meeting was held, whether the proposed resolutions in a requisition notice were incapable of lawful implementation and restrain further action on that notice?

Analysis: Section 100 of the Companies Act, 2013 regulates the calling of an extraordinary general meeting on a valid requisition, but it does not require the Board or the Court to treat every requisitioned resolution as immune from scrutiny. The Court distinguished between resolutions that are merely undesirable or irregular and those that are plainly illegal or incapable of being given effect to in law. It relied on the principle that a meeting need not be compelled where the only purpose of the requisition is to move resolutions that cannot lawfully be effectuated, and held that judicial intervention is available where shareholder action would force the company into statutory non-compliance.

Conclusion: The Court held that it could examine the legality and legal effectiveness of the proposed resolutions in advance and grant injunctive relief where the resolutions were incapable of lawful implementation.

Issue (ii): whether the proposed resolutions, including the removal of the managing director and the direct nomination of independent directors, were contrary to the Companies Act, the SEBI Listing Regulations and the SEBI Takeover Regulations so as to justify injunctive relief?

Analysis: The Court found that the requisitioned resolutions would create immediate non-compliance with the statutory framework governing listed public companies. It held that the removal of the managing director without replacement would place the company in breach of Section 203, that the direct naming of independent directors bypassed the statutory scheme under Sections 149, 150 and 178, and that the proposed board restructuring was inconsistent with the regulatory regime applicable to listed entities. The Court also noted the potential conflict with the SEBI Takeover Regulations where control and board composition may trigger open-offer implications. On this basis, the proposed resolutions were treated as more than merely irregular; they were held to be unlawful in substance and form.

Conclusion: The Court held that the requisitioned resolutions were contrary to the controlling corporate and securities law framework and were liable to be restrained.

Issue (iii): whether the civil court's jurisdiction was barred by Section 430 of the Companies Act, 2013?

Analysis: The Court held that the bar under Section 430 did not apply because the relief sought was not against the tribunal itself but against the party proceeding on the requisition notice. It further held that the statutory scheme did not oust the Court's power to determine whether the proposed resolutions were capable of lawful effect and to prevent an unlawful corporate process from proceeding.

Conclusion: The Court held that its jurisdiction was not barred.

Final Conclusion: The requisition notice was restrained from being acted upon, and the company was protected from being compelled to convene an extraordinary general meeting for resolutions that would have produced unlawful and non-compliant consequences.

Ratio Decidendi: A requisitioned general meeting need not be compelled where the only resolutions proposed are incapable of lawful implementation, and a civil court may intervene to restrain corporate action that would necessarily result in statutory or regulatory illegality.

Corporate law restraint on requisitioned resolutions where proposed board changes would trigger statutory and regulatory non-compliance.
A requisitioned extraordinary general meeting need not be compelled where the proposed resolutions are incapable of lawful implementation. The Court held that it could examine, in advance, whether shareholder resolutions would necessarily cause statutory non-compliance and could restrain further action on the requisition notice. It found that removing the managing director without replacement would breach the Companies Act, that directly nominating independent directors bypassed the statutory appointment framework, and that the proposed board changes could conflict with SEBI regulatory requirements, including takeover implications. The civil court's jurisdiction was not barred by Section 430 because the relief was directed against the party proceeding on the requisition notice, not against the tribunal.

Validity of requisitioned EGM resolutions - Doctrine permitting court intervention where proposed resolutions are illegal or incapable of being effectuated ('still born' resolutions) - Interpretation of 'valid requisition' under Section 100 of the Companies Act - Jurisdictional ouster under Section 430 of the Companies Act - Requirement of prior regulatory approvals for changes in board/CEO (MIB/SEBI regulatory constraints) - Statutory regime for appointment and removal of directors and independent directors (NRC, databank, Board satisfaction) - Limits of shareholder requisition rights where exercise would cause statutory non complianceInterpretation of 'valid requisition' under Section 100 of the Companies Act - Validity of requisitioned EGM resolutions - Whether the Court is precluded from examining the legality or effectiveness of resolutions proposed in a requisitioned EGM and whether 'valid requisition' in Section 100 precludes such examination. - HELD THAT: - The Court held that Section 100's procedural requirements for a requisition (numerical threshold, signature, delivery and setting out matters) do not immunise the substance of proposed resolutions from judicial scrutiny. The word 'valid' in the context of Section 100 cannot be read to mean that any requisition satisfying the procedural criteria is beyond review where the proposed resolutions are plainly illegal or incapable of being lawfully effectuated. Drawing on authorities (including Isle of Wight, Centron, Queensland Press, Rose v McGivern and subsequent English decisions), the Court accepted the distinction between resolutions that are merely irregular or undesirable and those that are illegal or 'still born'. Where the object of a requisition is one that cannot lawfully be implemented, directors and courts are entitled to refuse to give effect to the requisition; the Court is not foreclosed from considering legality prior to the EGM being called or held. The interpretative focus is therefore on whether the matters proposed are legally implementable, not solely on procedural compliance under Section 100. [Paras 43, 45, 46, 53, 70]Section 100's procedural validity requirement does not bar the Court from examining whether proposed resolutions are illegal or incapable of being effectuated; the Court may intervene where the proposed objects are plainly unlawful or ineffective.Doctrine permitting court intervention where proposed resolutions are illegal or incapable of being effectuated ('still born' resolutions) - Limits of shareholder requisition rights where exercise would cause statutory non compliance - Whether the Court should exercise its jurisdiction to restrain a requisitioned EGM where the proposed resolutions, if implemented, would cause the company to be in clear statutory or regulatory non compliance. - HELD THAT: - The Court accepted Zee's submission that where proposed resolutions, if passed, would result in breach of statutory or regulatory mandates (for example resulting in the absence of a required Managing Director under Section 203, or contravention of SEBI Listing or Takeover provisions, or MIB prior approval requirements), intervention is appropriate. Indian company law should not be read to compel a company to hold a meeting whose sole or principal objects would produce unlawful outcomes and thereby expose the company to mandatory sanctions. The Court emphasised that shareholder rights to requisition meetings are not unlimited and cannot be used to force unlawful changes; compliance with other statutory and regulatory regimes (Companies Act, SEBI norms, MIB guidelines, NRC processes) is decisive. The Court observed that allowing such a meeting would be to invite the company to run aground on statutory non compliance and that judicial intervention to prevent that is consistent with established common law principles. [Paras 53, 56, 70, 71, 72]The Court will restrain a requisitioned EGM where the proposed resolutions are shown to be unlawful or incapable of implementation and would cause statutory/regulatory non compliance.Statutory regime for appointment and removal of directors and independent directors (NRC, databank, Board satisfaction) - Requirement of prior regulatory approvals for changes in board/CEO (MIB/SEBI regulatory constraints) - Whether the Requisition Notice's proposals (notably removal of the Managing Director without lawful replacement and direct appointment of six named independent directors) complied with the statutory and regulatory framework for appointment/removal of directors and prior regulatory approvals. - HELD THAT: - Applying the Companies Act provisions on independent directors, the NRC process, Section 203 (requirement of MD/CEO/manager), and SEBI Listing and Takeover norms together with MIB guidelines, the Court found that the Requisition Notice's structure was inconsistent with the statutory scheme. Shareholders cannot directly nominate and impose named persons as independent directors in a manner that bypasses the NRC, databank/selection process and Board satisfaction requirement. Removal of the Managing Director without a lawful and compliant mechanism for replacement would create a statutory void contrary to Section 203. Further, changes to Board/CEO where prior MIB approval is mandated cannot be treated as merely 'subject to' ex post facto approval; prior regulatory permission is required. On the facts of the present Requisition Notice, these infirmities rendered the proposed resolutions legally vulnerable. [Paras 25, 26, 31, 33, 36]The Requisition Notice's proposals were inconsistent with the statutory/regulatory regime for directors and with MIB/SEBI requirements and thus were legally vulnerable.Jurisdictional ouster under Section 430 of the Companies Act - Whether this Court's jurisdiction to entertain Zee's suit and grant injunctive relief was ousted by Section 430 because the NCLT/NCLAT was seized of overlapping petitions. - HELD THAT: - The Court held that Section 430 does not bar civil courts from entertaining matters which the NCLT/NCLAT are empowered to determine only insofar as the subject matter falls within the NCLT's statutory remit. The present suit challenged the legality/effectiveness of the Requisition Notice and sought an injunction against the requisitioning shareholders; the Court was not being asked to injunct the NCLT or interfere with the tribunal itself. The NCLT's rules do not list Sections 100, 149, 150 or 168 as exclusively within its domain in a manner that would oust jurisdiction here. Consequently, Section 430 did not preclude this Court from exercising jurisdiction to determine whether the requisition could be restrained on grounds of illegality. [Paras 8, 12, 75, 76]Section 430 does not oust this Court's jurisdiction to entertain and decide Zee's challenge to the Requisition Notice; the Court may grant injunctive relief against the requisitionists.Validity of requisitioned EGM resolutions - Doctrine permitting court intervention where proposed resolutions are illegal or incapable of being effectuated ('still born' resolutions) - Whether, on the facts of this case, an injunction should be granted restraining Invesco from taking steps in furtherance of the Requisition Notice dated 11 September 2021. - HELD THAT: - Having applied the legal principles above to the facts (the Requisition Notice was procedurally valid but proposed removal of the MD without lawful replacement, proposed direct appointment of six named independent directors bypassing NRC/selection and raised MIB/SEBI/Takeover concerns), the Court concluded that the requisitioned resolutions, if put into effect, would produce statutory and regulatory non compliance and be incapable of lawful implementation. Given that conclusion, and because the relief sought was against the requisitionists (not the NCLT), the Court exercised its equitable jurisdiction and granted the injunction sought, restraining Defendants Nos. 1 and 2 (and those acting through them) from taking any step in furtherance of the Requisition Notice including calling or holding an EGM under Section 100(4). [Paras 36, 71, 77]Injunction granted restraining the requisitionists from implementing or taking steps in furtherance of the Requisition Notice dated 11 September 2021; no costs ordered.Final Conclusion: The High Court held that it is not precluded from examining the legality or effectiveness of resolutions requisitioned under Section 100 and may intervene to restrain a requisitioned EGM where the proposed resolutions are plainly illegal or incapable of lawful implementation; applying these principles to the present facts, the Court found the Requisition Notice legally vulnerable (including for circumventing NRC/SEBI/MIB/Section 203 requirements) and granted an injunction restraining the requisitionists from taking steps in furtherance of the Requisition Notice dated 11 September 2021.

2021 (9) TMI 1569 - DELHI HIGH COURT Law of Competition

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Issues: (i) whether the Competition Commission could recall or review its earlier direction in the absence of a surviving statutory review power; (ii) whether the directions concerning inclusion or exclusion of a third party in the white labelling process were sustainable when passed without notice and hearing; and (iii) what relief should follow in light of the advanced stage of implementation and the petitioner's earlier non-compliance.

Issue (i): whether the Competition Commission could recall or review its earlier direction in the absence of a surviving statutory review power

Analysis: The statutory review provision had been repealed, and the remaining rectification power was confined to correcting a mistake apparent from the record. A substantive recall of an earlier order affecting the rights of parties could not be justified as mere rectification. The Commission therefore lacked authority to re-open the earlier direction in the manner adopted.

Conclusion: The recall or review order was without jurisdiction.

Issue (ii): whether the directions concerning inclusion or exclusion of a third party in the white labelling process were sustainable when passed without notice and hearing

Analysis: The order permitting inclusion was made on a representation affecting the interests of both sides and the ongoing implementation of combination remedies. In such a matter, fairness required notice and an opportunity to make submissions before a decision with quasi-judicial consequences was taken. The earlier and later directions were both procedurally vulnerable for want of a proper hearing process.

Conclusion: The directions on inclusion and exclusion were not sustainable in law.

Issue (iii): what relief should follow in light of the advanced stage of implementation and the petitioner's earlier non-compliance

Analysis: Although the impugned order could not stand, the matter had progressed substantially, and the petitioner had initially failed to submit the required documents within time. The Court balanced the public-interest purpose of the remedial framework, the stage of negotiations, and the need to avoid unnecessary disruption, while still preserving an opportunity for future participation.

Conclusion: The petition was disposed of with tailored directions preserving the ongoing process and allowing the petitioner a later opportunity in the remedy framework.

Final Conclusion: The impugned recall could not be sustained, but the remedial process under the combination approval was allowed to proceed under strict timelines and with a limited future opportunity for the petitioner to participate in the white labelling mechanism.

Ratio Decidendi: A competition regulator cannot substantively review or recall its own order after the statutory review power has been repealed, and where a decision affects the rights of parties in the implementation of combination remedies, it must ordinarily be preceded by notice and a fair opportunity of hearing.

Competition regulator review power and hearing safeguards limit recall orders in combination remedy implementation.
A competition regulator cannot substantively recall or review an earlier direction once the statutory review power has been repealed; rectification is limited to mistakes apparent from the record, so a broader recall is without jurisdiction. Directions affecting inclusion or exclusion of a third party in a white-labelling or combination-remedy process require notice and a fair opportunity of hearing before quasi-judicial consequences are imposed, and orders made without that process are procedurally unsustainable. Where implementation is already advanced, relief may be calibrated to preserve the ongoing remedial process while allowing a limited future opportunity for participation.

Acquisition of the electrical and automation business - implementation of two of the modifications or remedies that were proposed by the CCI in its Approval Order, being the remedy of `White Labelling’, and the consequential `Non-exclusive technology transfer’ licences which were to be given - primary contention raised on behalf of the Petitioner- Eaton is that CCI does not have the statutory power of Review and hence the impugned order, which seeks to Review the earlier order dated 7th January, 2020, is bad in law. HELD THAT:- The question as to whether the CCI has the power of Review or not, is no longer res integra and the same has been considered in various decisions of this Court. It is important to note that Section 37 of the Act of 2002, was, however, repealed by Competition (Amendment) Act of 2007, and the said provision no longer exists on the statute book. It is under the now repealed Section 37 that any aggrieved person, who did not avail of the remedy of an appeal, could have sought a Review of the CCI’s order before the CCI. The CCI had to, then, compulsorily provide a hearing and make such order as it makes fit. However, the said provision has been expressly repealed now and has no application to this case - Insofar as Section 38 of the Act of 2002 is considered, the same provides for rectification of a mistake apparent from the record, in respect of which the CCI could pass an order rectifying the said mistake. Such a mistake can be rectified either suo moto, or upon an application of the party. There need not even be a written application as the words used are “mistake…brought to its notice”. The explanation to Section 38 makes it further abundantly clear that while rectifying a mistake, the substantive part of the order cannot be amended. In Google [2015 (4) TMI 1234 - DELHI HIGH COURT], the Division Bench, framed a question as to whether at the stage of Section 26(1) of the Act of 2002, the CCI has the power to Recall/Review an order directing/causing investigation. The Division Bench, after considering in detail the submissions made on behalf of the parties, held that even though while making an order under Section 26(1), as held in Competition Commission of India v. Steel Authority of India Ltd. [2010 (9) TMI 215 - SUPREME COURT], the CCI is not required to hear the person, there can be no inference that even if a party approaches the CCI for Recall or Review, such party is not to be heard. In Cadila Healthcare Ltd. v. Competition Commission of India [2018 (9) TMI 844 - DELHI HIGH COURT], a ld. Division Bench of this court again considered the power of Review/Recall of the CCI of an order passed under Section 26(1) of the Act of 2002. The conclusion of the Division Bench in Cadila was that in proceedings under Section 26 of the Act of 2002, which was held to be administrative in nature, i.e., during the course of investigation, Review/Recall application can be filed, however, only if an egregious fraud or a mistake which is covered by Section 38 exists. Apart from these circumstances power to Review/Recall does not exist with the CCI. From the facts stated in the affidavit, it is clear that the negotiations are at an advanced stage with some parties. The exchange of correspondence, mentioned in the Affidavit dated 26th July 2021, shows that there are continuous talks going on between Schneider, MA and the four parties, however the White Labelling Agreements have not yet been finalized yet. Schneider claims that the applicants in the said Arrangements have repeatedly requested rescheduling and extensions. To the extent that it is relevant to the present writ petition, it is important to note is that while CCI sought to exclude Eaton vide the impugned order, on the ground of the delay in the conclusion of White Labelling Arrangements as in August, 2020, till date, i.e., after more than a year having passed since the date of closing, the said arrangements have not been concluded. Further, considering the fact that Eaton was itself responsible for having not submitted the documents in terms of the advertisement, and its offer to the EOI being non-responsive, as also the direction clearly provided in the portal, it ought not to be allowed to completely upset the negotiations which are currently underway and are at an advanced stage - There is, in effect, no clarity as to why Eaton failed to submit the documents in time, when the EOI, as also the instructions on the portal were categorical and brooked no ambiguity. However, Eaton cannot also be indefinitely excluded as the intention of the Approval order is to expand and enlarge the number of players in the market, so as to increase competition. Conclusion - The CCI does not have the power to review its orders post the repeal of Section 37. Orders affecting substantive rights must adhere to principles of natural justice. Since CCI does not enjoy the power of Review, the impugned order is not sustainable in law - petition disposed off.

2021 (8) TMI 1059 - NATIONAL COMPANY LAW TRIBUNAL , BENGALURU BENCH Law of Competition

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Tribunal Approves Company Merger Scheme, Effective April 2020, with Conditions for Compliance and Fairness.
The Tribunal provisionally sanctioned the Scheme of Amalgamation between the Transferor Company and the Transferee Company, effective April 1, 2020, contingent upon compliance with all stipulated conditions, undertakings, and statutory requirements. The Scheme was deemed comprehensive, fair, and not detrimental to members, creditors, or public policy. The Transferee Company will assume all liabilities and responsibilities of the Transferor Company. The companies must deliver a certified copy of the order and Scheme to the Registrar of Companies within thirty days, and any aggrieved party may seek directions from the Tribunal.

Scheme of Amalgamation - sanction under Sections 230 to 232 of the Companies Act, 2013 - power of Tribunal to sanction scheme subject to conditions - auditor's certificate confirming compliance with applicable accounting standards - transfer of assets and liabilities on amalgamation - no waiver of statutory liabilities or bar on initiation of proceedings - compliance with observations of Registrar of Companies and Regional Director - registration of Tribunal order with Registrar of Companies - dispensation of convening meetings of shareholders and creditorsScheme of Amalgamation - sanction under Sections 230 to 232 of the Companies Act, 2013 - power of Tribunal to sanction scheme subject to conditions - Sanction of the Scheme of Amalgamation between Edreams Edusoft Private Limited (Transferor) and Indiavidual Learning Limited (Transferee). - HELD THAT: - The Tribunal examined the petition filed under Sections 230-232 and the accompanying material including the auditor's certificate, reports of ROC and RD, the Official Liquidator's scrutiny report and statutory authorities' communications. Finding that the Scheme is comprehensive, prima facie fair and reasonable, not detrimental to members, creditors or public policy, and that requisite pre-conditions under the Companies Act and Rules have been complied with, the Tribunal was satisfied that it could grant sanction. The sanction is, however, granted subject to compliance with the various undertakings and observations recorded by statutory authorities and other conditions set out in the Order. [Paras 9, 10, 12]The Scheme is provisionally sanctioned, subject to compliance with the undertakings and statutory observations recorded by the Tribunal.Effective date of amalgamation - transfer of assets and liabilities on amalgamation - Effective date of the amalgamation and vesting of assets and liabilities in the Transferee Company. - HELD THAT: - The Tribunal accepted the date proposed in the Scheme as the effective date and ordered that upon the Scheme becoming effective the investment of the Transferee Company in the Transferor Company shall stand cancelled and that assets, liabilities and obligations of the Transferor Company shall stand transferred and vested in the Transferee Company in accordance with the Scheme. The sanction was made operative from the effective date stated in the Scheme, while preserving the Scheme's provisions regarding vesting. [Paras 7, 12, 13]The Scheme is sanctioned with the effective date as 1st April, 2020 and assets and liabilities shall vest in the Transferee Company accordingly.No waiver of statutory liabilities or bar on initiation of proceedings - power of Tribunal to sanction scheme subject to conditions - Whether sanction of the Scheme extinguishes or waives statutory liabilities or prevents initiation of enforcement or regulatory proceedings. - HELD THAT: - The Tribunal reiterated the settled legal position that sanctioning an arrangement does not operate to waive past violations or statutory liabilities and does not prevent statutory authorities from initiating proceedings for alleged contraventions. The Transferee Company will inherit liabilities of the Transferor Company, and statutory authorities remain free to take action and to approach the Tribunal for directions by filing appropriate applications. [Paras 11, 13]Sanction does not waive any pre-existing violations or liabilities; statutory authorities retain the right to initiate proceedings and seek directions.Compliance with observations of Registrar of Companies and Regional Director - auditor's certificate confirming compliance with applicable accounting standards - Obligations to comply with observations made by ROC/RD and to abide by auditor's certificate regarding accounting treatment. - HELD THAT: - The Tribunal noted the observations made by the ROC and RD concerning matters such as authorized capital clubbing, shareholding/CCPS records, related party compliances and convening of meetings (as applicable). It recorded the petitioners' explanations and documents, and directed that the Scheme is to be sanctioned subject to compliance with the undertakings and observations of statutory authorities. The Tribunal relied upon the auditors' certificate confirming that the accounting treatment in the Scheme conforms to applicable accounting standards as a material compliance requirement. [Paras 4, 5, 10, 12]Petitioners must comply with the observations of ROC/RD and adhere to the accounting treatment certified by auditors; sanction is subject to such compliance.Registration of Tribunal order with Registrar of Companies - direction to Registrar for filing/registration - Requirement to file a certified copy of the Tribunal's order and the Scheme with the Registrar of Companies. - HELD THAT: - In terms of the Companies (Compromises, Arrangements and Amalgamations) Rules, the Tribunal directed the companies to deliver a certified copy of the Order along with the Scheme to the Registrar of Companies for registration within the time prescribed by the Rules. This is a statutory compliance step consequent to sanctioning the Scheme. [Paras 13]The company must, within thirty days of receipt of this Order, deliver a certified copy of the Order and the Scheme to the Registrar of Companies for registration.Final Conclusion: C.P.(CAA) No. 48/BB/2020 disposed of by provisionally sanctioning the Scheme of Amalgamation of Edreams Edusoft Private Limited with Indiavidual Learning Limited with effect from 1 April 2020, subject to compliance with auditors' certification, observations of statutory authorities and other conditions; sanction does not extinguish any statutory liabilities and the order is to be filed with the Registrar of Companies within thirty days.

2021 (8) TMI 757 - NATIONAL COMPANY LAW TRIBUNAL , BENGALURU BENCH Law of Competition

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Tribunal Approves Company Split Scheme, Awaits Compliance with Legal Commitments by April 2021.
The Tribunal provisionally sanctioned the Scheme of Arrangement between the Demerged Company and the Resulting Company with an effective date of 1st April 2021, contingent upon compliance with all undertakings and statutory provisions. The Companies are required to deliver a certified copy of the Order and Scheme to the Registrar of Companies within thirty days. The Tribunal emphasized that the sanction does not preclude statutory authorities from initiating legal action for any prior violations of the Companies Act. Aggrieved parties retain the right to seek directions from the Tribunal.

Scheme of Arrangement - sanction under Sections 230 to 232 of the Companies Act, 2013 - compliance with Accounting Standards prescribed under Section 133 - no waiver of statutory liabilities by sanction of scheme - statutory authorities' right to initiate proceedings notwithstanding sanction - undertakings and compliance with observations of Registrar/Regional Director - shareholder and creditor approval for schemeScheme of Arrangement - sanction under Sections 230 to 232 of the Companies Act, 2013 - shareholder and creditor approval for scheme - compliance with Accounting Standards prescribed under Section 133 - Provisionally sanctioning the Scheme of Arrangement between the Demerged Company and the Resulting Company. - HELD THAT: - The Tribunal examined whether the scheme, after having been approved by the requisite meetings of shareholders and creditors and accompanied by auditors' certificates confirming conformity of the accounting treatment with the applicable Accounting Standards, satisfies the requirements of Sections 230-232 and the Rules thereunder. The Tribunal found that the scheme is comprehensive, deals with continuation of contracts and liabilities, and prima facie complies with statutory requirements. It noted there are no pending investigations under Section 210 and that requisite notices and filings were effected. Consequently the Tribunal was inclined to sanction the scheme subject to compliance with the undertakings and observations recorded by statutory authorities. [Paras 11, 13, 14]The Scheme of Arrangement is provisionally sanctioned with effect from 1st April 2021, subject to fulfillment of the specified undertakings and compliance with statutory provisions.No waiver of statutory liabilities by sanction of scheme - statutory authorities' right to initiate proceedings notwithstanding sanction - undertakings and compliance with observations of Registrar/Regional Director - Whether sanction of the scheme extinguishes liabilities or bars statutory authorities from initiating proceedings against the companies. - HELD THAT: - The Tribunal reiterated the settled principle that sanctioning a scheme of arrangement does not operate to waive or extinguish any statutory liability or prevent initiation of actions for alleged violations of law. In light of the Registrar's and Regional Director's observations, the Tribunal emphasised that statutory authorities remain free to take appropriate action in accordance with law and may approach the Tribunal by filing applications for necessary directions. The Tribunal therefore imposed conditions that the petitioners comply with the undertakings and observations made by the statutory authorities and file requisite undertakings where indicated. [Paras 12, 14]Sanction will not waive any prior violation or liability; statutory authorities retain the right to initiate proceedings and seek directions from the Tribunal.Final Conclusion: The Tribunal provisionally sanctioned the Scheme of Arrangement between the Demerged Company and the Resulting Company effective 1st April 2021, subject to compliance with auditors' certifications, statutory undertakings and the observations of Registrar/Regional Director; and clarified that sanction does not absolve either company of prior liabilities nor bar statutory authorities from initiating appropriate proceedings.

2021 (7) TMI 1398 - KARNATAKA HIGH COURT Law of Competition

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Issues: Whether an order directing investigation under Section 26(1) of the Competition Act, 2002 is an administrative, pre-enquiry direction requiring prior notice or hearing and only minimal reasons; and whether the Competition Commission had applied its mind to the material so as to form a prima facie view on alleged vertical restraints, exclusive tie-ups, preferential listing, deep discounting and appreciable adverse effect on competition.

Analysis: The statutory scheme places the Section 26(1) stage at the threshold of the inquiry. At that stage, the Commission is only required to see whether the information and material disclose a prima facie case and then direct investigation; it is not required to undertake a final adjudication. The judgment reiterates that this direction is administrative in character, does not finally determine rights, and does not attract a right of prior hearing. It also holds that only some or minimum reasons are needed at this stage, not a detailed adjudicatory order. On the merits of the impugned direction, the order of the Commission was found to contain a sufficient prima facie assessment of the material relating to exclusive launches, preferred sellers, discount funding and preferential listing, and to show application of mind to the question whether the alleged arrangements warranted investigation under Section 3(1) read with Section 3(4). The Court declined to short-circuit the statutory investigation process at the threshold.

Conclusion: No prior hearing was required before passing the Section 26(1) direction, the Commission's prima facie satisfaction was held to be adequately recorded, and the challenge to the investigation order failed.

Final Conclusion: The writ appeals were dismissed and the Commission's direction for investigation was left undisturbed.

Ratio Decidendi: A direction under Section 26(1) of the Competition Act, 2002 is an administrative, pre-enquiry measure that may be issued on a prima facie view formed on the material before the Commission, without prior notice or hearing, provided the order discloses some reasons showing application of mind to the alleged contravention.

Section 26(1) competition investigations are administrative pre-enquiry steps requiring only a prima facie view and minimal reasons.
A direction under Section 26(1) of the Competition Act, 2002 is a pre-enquiry, administrative step based on a prima facie view from the material before the Commission. At that stage, the Commission is not required to conduct a final adjudication, issue prior notice or hearing, or record detailed reasons, provided the order shows some reasons and application of mind. The text further notes that the Commission's threshold assessment was considered sufficient on allegations of exclusive tie-ups, preferential listing, discount funding and other vertical restraints warranting investigation under Sections 3(1) and 3(4).

Prima facie case - administrative direction under Section 26(1) - minimum reasons/substantiation - no requirement of prior notice or hearing at Section 26(1) - scope of judicial review/Wednesbury unreasonableness - Section 19(3) factors and AAEC at prima facie stage - proceedings in remAdministrative direction under Section 26(1) - no requirement of prior notice or hearing at Section 26(1) - Nature of an order under Section 26(1) and whether prior notice or hearing is mandatory at that stage - HELD THAT: - The Court held that an order under Section 26(1) is an administrative/departmental direction to the Director General to cause an investigation and is passed at a preliminary/pre-enquiry stage without entering into an adjudicatory process. The statute and binding Supreme Court authority require no notice or hearing as a matter of right at the formation-of-opinion stage; the Commission may, in its discretion, invite parties or call for assistance but is not obliged to issue prior notice before directing an investigation. The Court relied on the scheme of Sections 19 and 26, the Supreme Court's exposition in CCI v. SAIL and subsequent authorities, and concluded that absence of prior hearing does not vitiate a Section 26(1) direction. [Paras 36, 37, 38, 71]An order under Section 26(1) is administrative in nature and the statute does not mandate prior notice or hearing before directing an investigation.Prima facie case - minimum reasons/substantiation - scope of judicial review/Wednesbury unreasonableness - Whether the CCI's Section 26(1) order met the requisite prima facie threshold and contained sufficient reasons to sustain judicial review - HELD THAT: - Applying the low threshold applicable at the prima facie stage, the Court examined the CCI order and the material placed before it (allegations of exclusive launches, preferred sellers, deep discounting and preferential listing) and found that the Commission had applied its mind and articulated some reasoning linking the information to the opinion that an investigation was warranted. The Court emphasised that while detailed adjudicatory reasons are not required at Section 26(1), the Commission must express its view in no uncertain terms and record minimum reasons substantiating the formation of that opinion; having found such minimal reasoning present, the Court declined to substitute its view for the Commission's and noted that judicial review at this stage is limited (Wednesbury-type review). [Paras 33, 41, 42, 45, 64]The CCI order met the prima facie threshold with minimum reasons substantiating formation of opinion and did not warrant quashing on merits at this preliminary stage.Section 19(3) factors and AAEC at prima facie stage - proceedings in rem - Whether the Commission was required at the Section 26(1) stage to undertake a full prima facie analysis of the Section 19(3) factors to establish AAEC - HELD THAT: - The Court rejected the contention that a full analysis under Section 19(3) is an indispensable pre-condition to issuance of a Section 26(1) direction. It observed that Section 26(1) is directed at deciding whether there exists a prima facie case to set the investigative process in motion, and the Commission may form that view on the basis of the information and materials before it without conducting the detailed fact- and economics-driven analysis that an inquiry or adjudication would require. The Court noted the public interest, in rem nature of competition proceedings and that the statutory scheme contemplates further, fuller examination by the DG during investigation and by the Commission thereafter. [Paras 19, 28, 36, 42, 56]The Commission need not undertake a full Section 19(3) factors analysis at the Section 26(1) stage; a prima facie view to order investigation suffices, with detailed AAEC assessment to follow in the inquiry.Prima facie case - scope of judicial review/Wednesbury unreasonableness - Whether the writ petitions were maintainable to quash the CCI's Section 26(1) order at the threshold - HELD THAT: - The Court applied settled principles that a writ challenging pre-investigation administrative directions is ordinarily premature unless jurisdictional infirmity or mala fides is shown. Finding no allegation of mala fides and no jurisdictional error in the decision-making process by the Commission, and having found that the Commission recorded minimal reasons and applied its mind to the material, the Court held that the petitions were premature. The remedy for grievances lies in participation in the DG's investigation and subsequent stages including appeals provided by the Act. [Paras 30, 31, 33, 41, 42]The writ petitions were premature and not a proper basis to quash the Section 26(1) direction; the Court refused to interfere.Final Conclusion: The High Court dismissed the writ appeals and upheld the CCI's order dated 13.1.2020 directing an investigation under Section 26(1). It concluded that a Section 26(1) direction is an administrative, prima facie step not requiring prior hearing or exhaustive Section 19(3) analysis; the CCI had recorded minimum reasons to form a prima facie opinion and judicial interference at this preliminary stage was unwarranted.

2021 (7) TMI 498 - NATIONAL COMPANY LAW TRIBUNAL , CHENNAI BENCH Law of Competition

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Corporate Restructuring Approved: Demerger Moves Forward Without Shareholder Meetings, Ensuring Transparency and Compliance.
The National Company Law Tribunal, Chennai Bench, approved the Scheme of Arrangement (Demerger) between the Demerged Company and the Resulting Company, dispensing with the need for meetings of Equity Shareholders, Secured Creditors, and Unsecured Creditors based on the consent obtained. The Tribunal directed the issuance of notices to statutory authorities and required publication in newspapers and on company websites. The Tribunal disposed of the Company Application, setting a deadline for presenting the Petition(s) related to the Scheme, ensuring compliance with legal requirements and transparency in the corporate restructuring process.

Scheme of Arrangement (Demerger) - Dispensing with meetings under clause (9) of Section 230 of the Companies Act, 2013 - Notices to statutory authorities under Section 230(5) and Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - Requirement of convening meetings of equity shareholders, secured creditors and unsecured creditors - Publication and service of notices for sanction process - Affidavit of exemption under the Competition Act, 2002 and notice to CCIDispensing with meetings under clause (9) of Section 230 of the Companies Act, 2013 - Requirement of convening meetings of equity shareholders, secured creditors and unsecured creditors - Dispensing with convening, holding and conducting of meetings of equity shareholders, secured creditors and unsecured creditors in respect of the Demerged Company and the Resulting Company. - HELD THAT: - The Tribunal recorded that the Demerged Company has 13 equity shareholders whose consent affidavits are on record, one secured creditor who has given consent by affidavit, and 49 unsecured creditors of whom affidavits from consenting unsecured creditors represent 92.42% in value. The Resulting Company has two equity shareholders who have filed consent affidavits, no secured creditors and one unsecured creditor who has filed a consent affidavit. On these facts and documents placed on record, the Tribunal dispensed with convening and holding the respective meetings under clause (9) of Section 230 of the Companies Act, 2013, treating the filed consents and the absence of secured creditors (where applicable) as sufficient to obviate the need for meetings. [Paras 7]Meetings of equity shareholders, secured creditors and unsecured creditors of the Demerged Company and the Resulting Company are dispensed with under clause (9) of Section 230 on the basis of recorded consents and the stated creditor composition.Notices to statutory authorities under Section 230(5) and Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - Affidavit of exemption under the Competition Act, 2002 and notice to CCI - Requirement to serve notices on statutory authorities and the scope of such service for the Scheme of Arrangement. - HELD THAT: - The Tribunal directed that the respective companies shall send notices to the Regional Director, Ministry of Corporate Affairs, Registrar of Companies, Income Tax authorities and other sectoral regulators as necessary, in terms of Clause (5) of Section 230 and Sub section (3) of the Act, and Rule 8. It further directed that if the scheme is exempt under the Competition Act, 2002, an affidavit of exemption be filed; otherwise notice to the Competition Commission of India is to be issued. Given the Demerged Company is an unlisted public company and the Resulting Company is a private company, notices to SEBI and stock exchanges were held unnecessary. Authorities were given 30 days from receipt of notice to file objections or representations, failing which it would be deemed they have no objections. [Paras 8]Companies to serve statutory notices as directed; affidavit regarding Competition Act exemption or service to CCI to be furnished; SEBI and stock exchange notices not required in the facts of this case; authorities to respond within 30 days.Publication and service of notices for sanction process - Requirement of convening meetings of equity shareholders, secured creditors and unsecured creditors - Directions as to public and private service of notices, website/display publication, filing proof, and timeline for presentation of the petition. - HELD THAT: - The Tribunal directed the Demerged Company and the Resulting Company to publish notices in one English (Business Standard, All India) and one vernacular (Dinamani) newspaper with wide circulation in Tamil Nadu on or before the specified date, place the notice on the companies' websites and on the registered office notice boards, send private notices to authorities by speed post and file proofs by affidavit at the time of filing the petition. The Registry of the Tribunal was directed to display the notice on its notice board. The Petition(s) were ordered to be presented on or before the date fixed by the Tribunal. [Paras 9, 11]Publication, website/display and private service of notices to be carried out and proof filed by affidavit; registry to display the notice; petitions to be presented by the fixed date.Final Conclusion: The Company Application is disposed of with directions dispensing the convening of meetings for shareholders and creditors of the Demerged and Resulting Companies on the recorded consents and creditor composition; statutory and newspaper notices, including Competition Act compliance or notice to CCI, are to be issued and proof filed; and the petition(s) are to be presented by the date fixed by the Tribunal.

2021 (6) TMI 1031 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI Law of Competition

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Merger Approved: No Meetings Needed as Tribunal Confirms Strong Financial Health and Shareholder Rights Unaffected.
The Tribunal determined that the financial standing of the Transferee Company was robust and that the merger did not compromise creditor interests. Consequently, the Tribunal overturned the NCLT's directive to hold separate meetings, thereby waiving the requirement for meetings of equity shareholders, secured creditors, and unsecured creditors of the Transferee Company. This decision was grounded in the understanding that the rights of equity shareholders and creditors remained unaffected and that the amalgamation would enhance operational efficiency and reduce administrative expenses.

Dispensation of meetings of shareholders and creditors under Section 230 - exercise of discretionary power by the Tribunal under Section 232(1) - amalgamation between a holding company and its wholly owned subsidiary - requirement for meetings where rights of shareholders or creditors are affected - no issuance of new shares and no reorganisation of share capitalDispensation of meetings of shareholders and creditors under Section 230 - amalgamation between a holding company and its wholly owned subsidiary - no issuance of new shares and no reorganisation of share capital - requirement for meetings where rights of shareholders or creditors are affected - Whether the Tribunal erred in directing convening of meetings of the equity shareholders, secured creditors and unsecured creditors of the Transferee Company instead of dispensing with such meetings. - HELD THAT: - The Tribunal's discretion under Section 232(1) is wide and may be exercised to dispense with convening meetings where no prejudice is likely to be caused to members or creditors. The material on record established that the scheme concerned amalgamation between a holding company and its wholly owned subsidiary, involved no issuance of new shares, did not reorganise the share capital, and therefore did not alter the rights of the Transferee Company's shareholders. Documentary evidence also showed a positive net worth of the Transferee Company and that the Transferor had nil creditors. In those circumstances the proposed amalgamation did not affect the rights of creditors or members and convening the meetings would be a mere formality. The Tribunal therefore ought to have exercised its discretion to dispense with the requirement of convening meetings of the Transferee Company's equity shareholders, secured creditors and unsecured creditors, consistent with earlier authorities applying the same principle. [Paras 17, 18, 19, 20, 21]Direction to convene meetings of the Transferee Company set aside and meetings dispensed with.Final Conclusion: The appeal is allowed; the NCLT direction to convene meetings of the equity shareholders, secured creditors and unsecured creditors of the Transferee Company on 22.04.2021 is set aside and the meetings are dispensed with.

2021 (7) TMI 356 - NATIONAL COMPANY LAW TRIBUNAL , AHMEDABAD BENCH Law of Competition

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Issues:
Dispensation/convening of meetings for Scheme of Arrangement under Companies Act, 2013.

Analysis:
The application was filed by two companies seeking dispensation/convening of meetings for the Scheme of Arrangement involving amalgamation. The companies are empowered by their Memorandum of Association to enter into such arrangements. The advantages of amalgamation were outlined, including streamlining organization structure, achieving operational efficiency, and enhancing net worth. Both companies' Boards of Directors approved the proposed Scheme, and necessary financial documents were submitted. No investigations or proceedings were pending against the companies under relevant sections of the Companies Act, 2013. The Competition Act, 2002 was deemed inapplicable to the case.

The details of shareholders and creditors were provided, with all equity shareholders and secured creditors consenting to the proposed scheme. Meetings of Equity Shareholders and Secured Creditors were dispensed with due to unanimous consent. However, due to several unsecured creditors, meetings were ordered to be convened for both companies. The meetings were to be conducted physically and through video conferencing or other permitted means. Advertisements and notices were required to be published and sent to creditors as per legal provisions.

Independent Practicing Chartered Accountants were appointed as Chairman and Scrutinizer for the meetings. The Chairman was granted powers under the respective Articles of Association for conducting the meetings. Voting through Proxy was not permitted in case of video conference meetings, but through Authorized Representative. The quorum and procedures for the meetings were specified, and compliance with rules and regulations was emphasized.

The Chairman was directed to report to the Tribunal on the meeting results and file necessary affidavits. Notices were to be sent to relevant authorities, and representations were to be made within the specified period. The companies were instructed to file an affidavit confirming compliance with notice issuance directions. The Tribunal disposed of the Company Application with the provided directions.

Tribunal Waives Meetings for Equity Holders, Mandates Hybrid Meetings for Unsecured Creditors in Merger Plan.
The Tribunal approved the dispensation of meetings for equity shareholders and secured creditors due to unanimous consent regarding the Scheme of Arrangement for amalgamation under the Companies Act, 2013. However, meetings for unsecured creditors were mandated, to be held both physically and via video conferencing. An Independent Practicing Chartered Accountant was appointed as Chairman and Scrutinizer for these meetings, with specific powers and procedures outlined. The Tribunal required compliance with notice and advertisement provisions, and the Chairman was tasked with reporting the meeting outcomes to the Tribunal. The application was disposed of with these directives, ensuring adherence to legal requirements.

Dispensation of meetings of equity shareholders and secured creditors - Convening meetings of unsecured creditors - Compliance with Sections 230-232 of the Companies Act, 2013 and Companies (CAA) Rules, 2016 - Conduct of meetings through video conferencing and other audiovisual means in accordance with MCA circulars - Notice to statutory authorities under subsection (5) of Section 230 and Rule 8 - Voting by ballot/polling paper and prohibition of proxy voting in virtual meetings - Appointment of Chairman and Scrutinizer for creditor meetingsDispensation of meetings of equity shareholders and secured creditors - Compliance with Sections 230-232 of the Companies Act, 2013 and Companies (CAA) Rules, 2016 - Whether meetings of equity shareholders and secured creditors of the applicant companies could be dispensed with - HELD THAT: - The Tribunal found that all equity shareholders and all secured creditors of the respective applicant companies had filed consent affidavits in support of the proposed scheme of amalgamation. The application was considered to have complied with the requirements of Sections 230-232 of the Companies Act, 2013 and the Companies (CAA) Rules, 2016. In view of unanimous consent recorded by shareholders and secured creditors and compliance with statutory filing and certification requirements, the Tribunal exercised its power to dispense with convening meetings of equity shareholders and secured creditors.Meetings of the equity shareholders and secured creditors of both applicant companies are dispensed with.Convening meetings of unsecured creditors - Conduct of meetings through video conferencing and other audiovisual means in accordance with MCA circulars - Voting by ballot/polling paper and prohibition of proxy voting in virtual meetings - Appointment of Chairman and Scrutinizer for creditor meetings - Whether and on what terms meetings of unsecured creditors of the applicant companies should be convened - HELD THAT: - The Tribunal recorded that both applicant companies have several unsecured creditors and therefore it is expedient to convene meetings of unsecured creditors. The Tribunal directed that separate meetings of unsecured creditors for the Transferor and Transferee companies be convened on the specified dates and times, to be conducted physically and also through video conferencing or other audiovisual means as permitted by recent Ministry of Corporate Affairs circulars. Voting at the meetings shall be by ballot/polling paper at the venue; proxy voting is not permitted for virtual meetings in terms of the cited MCA circulars, though Authorized Representatives are permitted. The Tribunal appointed named independent professionals as Chairman (with an alternate) and as Scrutinizer (with an alternate), conferred on the Chairman powers to decide procedural questions and determine disputed entries in company records for valuation purposes, fixed quorum rules, and required the Chairman to publish advertisements and issue notices and to file an affidavit and the meeting result in FORM No. CAA-4 within the time prescribed by the Companies (CAA) Rules, 2016.Meetings of unsecured creditors of each applicant company shall be convened on the directed dates and conducted in accordance with the Tribunal's directions, including use of VC/AV means, voting by ballot/polling paper, appointment of Chairman and Scrutinizer, publication and service of notices, quorum and reporting requirements.Notice to statutory authorities under subsection (5) of Section 230 and Rule 8 - Compliance with Sections 230-232 of the Companies Act, 2013 and Companies (CAA) Rules, 2016 - What statutory communications and filings are required prior to and after the creditor meetings - HELD THAT: - The Tribunal directed that, in compliance with subsection (5) of Section 230 and Rule 8 of the Companies (CAA) Rules, 2016, the applicant companies must forthwith send notices in Form No. CAA.3 (with the required disclosures) to the Central Government through the Regional Director, the Registrar of Companies, Gujarat, the concerned Income Tax authorities and the Official Liquidator, informing them that representations, if any, must be made within 30 days of receipt of such notice. The Tribunal required the applicants to file an affidavit confirming compliance with issuance of notices under subsection (5) of Section 230 and further required the Chairman to file an affidavit before the meeting and to report results in FORM No. CAA-4 within the time prescribed by Rule 14.Applicants must serve statutory notices to the prescribed authorities and file affidavits reporting compliance and the results of the meetings in the specified forms and timeframes.Final Conclusion: The Company Application is allowed to the extent indicated: meetings of equity shareholders and secured creditors are dispensed with on account of consent affidavits; meetings of unsecured creditors of each applicant company are ordered to be convened and conducted in accordance with the Tribunal's directions (including use of VC/AV means, voting method, appointment of Chairman and Scrutinizer, publication and personal service of notices, quorum and valuation rules); statutory notices to authorities and filing of affidavits and FORM No. CAA-4 are mandated. The application is disposed of subject to these directions.

2021 (7) TMI 267 - NATIONAL COMPANY LAW TRIBUNAL , KOLKATA BENCH Law of Competition

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Approval for Company Split: Tribunal Greenlights Demerger Plan, Enhances Efficiency & Investment Appeal.
The Tribunal approved the Scheme of Arrangement between the Demerged Company and the Resulting Company, facilitating the demerger effective from April 1, 2021. It dispensed with the need for meetings of the Resulting Company's shareholders and creditors due to unanimous consent and absence of creditors, respectively. The Scheme aimed to enhance operational efficiency and attract investors by separating business undertakings. The Tribunal mandated virtual meetings for the Demerged Company's shareholders and creditors, ensuring compliance with statutory requirements, and allowed subsequent procedural steps for formalizing the arrangement.

Scheme of Arrangement - Demerger - Dispensation of meeting - Shareholders' and creditors' meetings - Virtual meeting under MCA Circulars - Service of notice and advertisement under Section 230(5) of the Companies Act, 2013 - Voting threshold of three-fourths in value - Cut-off date for determining voting rights - Appointment of Chairperson and Scrutiniser - Filing of report in Form CAA-4Dispensation of meeting - Shareholders' and creditors' meetings - Dispensation of the convening of meetings of the Resulting Company. - HELD THAT: - The Tribunal accepted the applicants' evidence that the shareholders of the Resulting Company had given consent to the proposed Scheme by affidavit and that the Resulting Company had no creditors, secured or unsecured. On that basis, the Tribunal dispensed with (a) the meeting of the shareholders of the Resulting Company and (b) any meeting of creditors of the Resulting Company, since there were no creditors to be convened. The order records reliance on the consent affidavits and the certified list of creditors as the factual foundation for dispensation. [Paras 17]Meeting of shareholders of the Resulting Company dispensed with on the basis of shareholders' consent affidavits; meeting of creditors dispensed with as there are no creditors.Virtual meeting under MCA Circulars - Service of notice and advertisement under Section 230(5) of the Companies Act, 2013 - Cut-off date for determining voting rights - Voting threshold of three-fourths in value - Appointment of Chairperson and Scrutiniser - Filing of report in Form CAA-4 - Directions for convening and conduct of meetings of equity shareholders, secured creditors and unsecured creditors of the Demerged Company by virtual mode and related procedural requirements. - HELD THAT: - The Tribunal directed that separate virtual meetings of the equity shareholders, secured creditors and unsecured creditors of the Demerged Company be convened on the specified date and times and held in accordance with the MCA General Circulars permitting virtual meetings. It mandated publication of an advertisement and service of notice with copies of the Scheme and the statement required under Section 230 within prescribed timeframes, and required notices to be sent to specified authorities (Regional Director, Registrar of Companies, Competition Commission of India, Income Tax Authorities and stock exchanges) with opportunity for representations within 30 days. The Tribunal specified the cut-off date for voting eligibility, adoption of e-voting (including remote e-voting for shareholders), procedure for quorum to be determined under the Companies Act with virtual attendance counted, and that the resolution shall be deemed passed if approved by a majority in number representing three-fourths in value of votes cast. It appointed a named Chairperson and Scrutiniser for the meetings, directed consolidation and scrutiny of votes and filing of the Chairperson's report in Form CAA-4 verified by affidavit within four weeks of the meetings, and required an affidavit proving service and publication to be filed at least a week before the meetings. The order further permitted filing of the second motion petition within two weeks of filing the Chairperson's report. [Paras 17]Meetings of the Demerged Company shall be convened and conducted virtually in accordance with the MCA Circulars with specified notice, voting, quorum, appointment of Chairperson and Scrutiniser, cut-off date, scrutiny and filing of report in Form CAA-4; applicants to file affidavit proving compliance and may file second motion thereafter.Final Conclusion: The Tribunal allowed the application: meetings of the Resulting Company were dispensed with for want of need (shareholders' consent and no creditors), and detailed directions were issued for virtual convening, notice, voting, quorum, scrutiny, reporting and compliance in respect of the meetings of the Demerged Company; applicants to prove compliance and may proceed to second motion after filing the Chairperson's report.

2021 (6) TMI 1141 - KARNATAKA HIGH COURT Law of Competition

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Issues: (i) Whether an order directing investigation under Section 26(1) of the Competition Act, 2002 is an administrative direction passed on formation of a prima facie view. (ii) Whether prior notice and hearing are mandatory before issuing a direction under Section 26(1) of the Competition Act, 2002. (iii) Whether the impugned order directing investigation called for interference in writ jurisdiction.

Issue (i): Whether an order directing investigation under Section 26(1) of the Competition Act, 2002 is an administrative direction passed on formation of a prima facie view.

Analysis: The legal framework under the Competition Act, 2002 contemplates an inquiry commencing from information under Section 19(1)(a), followed at the initial stage by the Commission forming only a prima facie opinion under Section 26(1). The order at that stage does not finally adjudicate rights or liabilities, but merely triggers investigation by the Director General. The decision relied on the settled distinction between an administrative direction at the threshold stage and a final adjudicatory determination after investigation.

Conclusion: The order under Section 26(1) is an administrative direction based on a prima facie view and not a final adjudication.

Issue (ii): Whether prior notice and hearing are mandatory before issuing a direction under Section 26(1) of the Competition Act, 2002.

Analysis: The statutory scheme does not prescribe notice or hearing before formation of a prima facie view under Section 26(1). The Court held that where the legislature intended notice, it provided for it expressly at later stages of the inquiry. At the pre-investigation stage, the requirement is only to record minimum reasons showing application of mind to the information placed before the Commission.

Conclusion: Prior notice and hearing are not mandatory before issuing a direction under Section 26(1).

Issue (iii): Whether the impugned order directing investigation called for interference in writ jurisdiction.

Analysis: In judicial review under Article 226 of the Constitution of India, the Court examines the decision-making process and not the merits of the competing allegations. The impugned order showed consideration of the material concerning exclusive tie-ups, preferred sellers, deep discounting and preferential listing, and therefore disclosed application of mind and sufficient prima facie reasoning. The Court held that it was not appropriate to short-circuit the investigation at that stage, and no ground of illegality, arbitrariness, or jurisdictional error warranted interference.

Conclusion: The impugned order did not call for interference in writ jurisdiction.

Final Conclusion: The writ petitions failed, and the direction for investigation was left undisturbed.

Ratio Decidendi: A direction under Section 26(1) of the Competition Act, 2002 is only a prima facie administrative step that requires limited reasons and no prior notice or hearing, and it can be interfered with in writ jurisdiction only on recognised grounds of jurisdictional error, illegality, or patent unreasonableness.

Prima facie competition investigation orders need no prior hearing and merit limited writ interference only for jurisdictional error.
A direction for investigation under Section 26(1) of the Competition Act, 2002 is an administrative, prima facie step that does not finally determine rights or liabilities. The Commission need only record minimum reasons showing application of mind; prior notice and hearing are not mandatory at that stage. On writ review, the court examines only illegality, arbitrariness, jurisdictional error, or patent unreasonableness, and will not short-circuit an investigation where the order discloses prima facie reasoning on alleged exclusive tie-ups, preferred sellers, deep discounting, and preferential listing. The writ petitions failed and the investigation direction was sustained.

Administrative order under Section 26(1) - prima facie opinion - no notice required at the prima facie stage - investigation by the Director General - Appreciable Adverse Effect on Competition (AAEC) - Wednesbury unreasonableness - confidentiality under Section 57 - Competition Act operates in remAdministrative order under Section 26(1) - investigation by the Director General - Nature of the impugned order passed under Section 26(1) of the Competition Act - HELD THAT: - The Court held that an order under Section 26(1) is an administrative direction to one of the Commission's wings to cause an investigation and does not enter upon an adjudicatory process or finally determine rights or obligations. The judgment relies on the principle that Section 26(1) requires formation of a prima facie opinion and issuance of a direction simpliciter to the Director General to investigate; such direction is departmental in character and investigative rather than determinative. The Court noted authorities which recognise that while later orders or final decisions must be reasoned, the Section 26(1) direction is administrative and its object is to set in motion the investigation mechanism under the Act. [Paras 36]An order under Section 26(1) is an administrative direction to cause investigation and not a quasi judicial/adjudicatory determination.Prima facie opinion - no notice required at the prima facie stage - Appreciable Adverse Effect on Competition (AAEC) - Whether prior notice and opportunity of hearing are mandatory before issuing direction under Section 26(1) - HELD THAT: - The Court applied settled precedent to conclude that Section 26(1) does not prescribe issuance of notice to parties before formation of the prima facie opinion. The legislature has specified procedural protections at later stages (copying DG report, issuing notices, inviting objections and hearings under subsequent sub sections), and there is no textual basis to read into Section 26(1) a requirement of prior notice. The Court observed that the Commission must express in clear terms that a prima facie case exists and record minimal reasons referenced to the information; however, formal notice or hearing at the prima facie stage is not mandated. [Paras 36]No prior notice or hearing is mandatory at the stage of issuing a direction under Section 26(1); the Commission must form and record a prima facie opinion but need not issue notice before doing so.Wednesbury unreasonableness - confidentiality under Section 57 - Competition Act operates in rem - Whether the impugned order merits judicial interference - HELD THAT: - Applying the Wednesbury standard of judicial review and authorities concerning the limited scope of Article 226 review of administrative decisions, the Court examined whether the Commission acted without application of mind, in bad faith, or in such an unreasonable manner as to warrant quashing. The Court found that the Commission analysed the information under relevant heads (exclusive launches, preferred sellers, deep discounting, preferential listing), recorded prima facie inferences and relied upon material in the information and public domain. The Commission also invited evidentiary safeguards (Section 65B certificate) and its power to investigate is compatible with parallel probes by other authorities. Concerns about confidentiality and publication were addressed by reference to statutory confidentiality provisions. Given that the Section 26(1) direction is investigative and supported by 'some reasoning', the Court held it was not amenable to interference at the writ stage. [Paras 64]The impugned order does not call for interference; the Commission applied its mind and recorded sufficient reasons to initiate an investigation.Final Conclusion: The writ petitions are dismissed: the order under Section 26(1) is administrative in nature, no prior notice is required at the prima facie stage, and the impugned direction to the Director General to investigate does not warrant judicial interference.

2021 (6) TMI 728 - NATIONAL COMPANY LAW TRIBUNAL , CHENNAI BENCH Law of Competition

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Tribunal Approves Shareholder and Creditor Meeting Waivers with Unanimous Consents for Company Transfer.
The Tribunal approved the applications CA/807/CAA/2020 and CA/858/CAA/2020, allowing the dispensation of meetings for the Transferor Company's Equity Shareholders and Unsecured Creditors due to unanimous consent affidavits. Meetings for the Transferee Company's Equity Shareholders and Unsecured Creditors were scheduled with specified quorum requirements. The necessity for meetings of the Transferee Company's Secured Creditors was waived based on consent affidavits. The Tribunal mandated specific procedures for notices and advertisements, compliance with statutory requirements, and appointed officials to oversee the process, ensuring adherence to legal protocols.

Scheme of Amalgamation - Dispensing with convening, holding and conducting meetings of shareholders and creditors - Reduction of share capital consequent to amalgamation - Appointment of Chairperson and conduct of meetings under the Scheme - Notice and publication requirements under Section 230(5) for approval of scheme - Objections/representations by statutory authorities and Official Liquidator reportDispensing with convening, holding and conducting meetings of shareholders and creditors - Whether meetings of the equity shareholders and creditors of the Transferor Company and certain creditors of the Transferee Company could be dispensed with. - HELD THAT: - The Tribunal accepted the applicants' evidence that the Transferor Company had five equity shareholders who had given affidavits consenting to dispense with the meeting, that there were no secured creditors and that the sole unsecured creditor had filed consent. On that foundation the Tribunal dispensed with convening meetings of the Transferor Company's equity shareholders, secured creditors and unsecured creditors. For the Transferee Company the Tribunal recorded that the two secured creditors had furnished their affidavits of consent and accordingly dispensed with convening a meeting of secured creditors of the Transferee Company, while directing that meetings be convened for the Transferee Company's equity shareholders and its unsecured creditors. [Paras 3, 8]Meetings dispensed with for the Transferor Company's equity shareholders, secured creditors and unsecured creditor; meetings of Transferee Company's secured creditors dispensed with, but meetings of Transferee Company's equity shareholders and unsecured creditors ordered to be convened.Appointment of Chairperson and conduct of meetings under the Scheme - The procedure for conduct of the meetings to consider the Scheme and appointment of Chairperson(s). - HELD THAT: - The Tribunal fixed the date, time and venue for the Transferee Company's meetings (equity shareholders and unsecured creditors) and prescribed quorum rules. It appointed a named director as Chairperson (with an alternate) to preside over the meetings, directed the Chairperson to file reports of the meetings within specified time, empowered the Chairperson to issue notices, decide procedural questions and report results of voting, and provided for adjournment rules and treatment of valid proxies consistent with the Companies Act and the Rules. [Paras 9, 10, 11, 12, 15]Meetings to be held as directed; Chairperson appointed with specified powers and obligations; quorum, adjournment and proxy rules prescribed; report and voting requirements fixed.Notice and publication requirements under Section 230(5) - The form and timing of notices, service, and publication to be issued in relation to the meetings and the Scheme. - HELD THAT: - The Tribunal directed that individual notices be sent to entitled members and unsecured creditors at least 30 days in advance together with specified documents including the Scheme and explanatory statement, and that advertisement be published in specified newspapers at least 30 clear days before the meetings. The authorised representatives were directed to file affidavits of service and compliance at least one week before the meetings, and the Registry was directed to display the notice on the NCLT Chennai notice board. [Paras 13, 14, 19, 20]Notices and publications to be issued in the manner and within the timeframes directed; affidavits of compliance to be filed prior to the meetings.Objections/representations by statutory authorities and Official Liquidator report - Whether statutory authorities should be served and afforded an opportunity to object and whether the Official Liquidator should report in respect of the Transferor Company. - HELD THAT: - In terms of the statutory scheme the Tribunal directed notices to the Regional Director, Ministry of Corporate Affairs, ROC, Official Liquidator, Income Tax Authorities and other sectoral regulators as necessary, with a 30 day period for objections or representations. The Tribunal observed that if the scheme is not exempt under the Competition Act an affidavit to that effect should be filed or notice to the Competition Commission issued. The Registry was directed to issue notice to the Official Liquidator in relation to the Transferor Company and the Official Liquidator was asked to appoint chartered accountants and submit a report within four weeks. [Paras 16, 17]Statutory authorities to be served and given 30 days to object; Official Liquidator to submit report on the Transferor Company within four weeks.Compliance with Companies Act and Rules and subsequent presentation of petition - The conditions for compliance with statutory forms, filing of meeting reports and presentation of the petition for sanction. - HELD THAT: - The Tribunal required strict compliance with the Companies Act, 2013 and the Companies (Compromises, Arrangements, Amalgamations) Rules, 2016 including applicable forms and formats. It directed that the Chairperson(s) file report(s) of the meetings within specified periods and permitted presentation of the petition(s) after two weeks from the date of filing those reports. [Paras 6, 15, 20, 21]Applicants must comply with statutory requirements; petition(s) may be presented after the Chairperson(s) file meeting reports and after the lapse of the stipulated two week period.Final Conclusion: The Company Applications CA/807/CAA/2020 and CA/858/CAA/2020 were allowed on the terms directed: meetings of certain classes were dispensed with where consent was on record, meetings of the Transferee Company's equity shareholders and unsecured creditors were ordered to be convened with prescribed procedures, notices and publications were directed to be issued, statutory authorities and the Official Liquidator were to be served and permitted time to respond, and compliance with the Companies Act and Rules was mandated before presentation of the petitions.

2021 (6) TMI 603 - NATIONAL COMPANY LAW TRIBUNAL , CHENNAI BENCH Law of Competition

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Tribunal Approves Company Merger, Waives Shareholder Meetings, Sets Deadline for Final Steps in Amalgamation Process.
The Tribunal approved the Scheme of Amalgamation under Sections 230-232 of the Companies Act, 2013, between the Transferor and Transferee Companies. It dispensed with the requirement to hold meetings of Equity Shareholders and Unsecured Creditors, as unanimously approved by the Boards of both companies. The Tribunal directed the issuance of notices to relevant authorities, including the Regional Director and Income Tax Authorities, and required compliance with statutory timelines for objections. The Official Liquidator was notified to report on the Transferor Company. The Tribunal's directions facilitated the procedural steps necessary for the amalgamation, with a deadline set for presenting the final Petitions.

Scheme of Amalgamation - Dispensing with convening, holding and conducting of meetings of equity shareholders and unsecured creditors - Dispensing of meetings under clause (9) of Section 230 of the Companies Act, 2013 - Issuance of statutory notices to regulators and authorities under Clause (5) of Section 230 and sub section (3) of the Companies Act, 2013 - Requirement of affidavit regarding Competition Act exemption or notice to Competition Commission - Appointment of Official Liquidator to report on the Transferor Company - Publication, website posting and service of statutory notices prior to presentation of petitionDispensing with convening, holding and conducting of meetings of equity shareholders and unsecured creditors - Dispensing of meetings under clause (9) of Section 230 of the Companies Act, 2013 - Whether the convening and holding of meetings of equity shareholders and unsecured creditors of the Transferor and Transferee companies should be dispensed with. - HELD THAT: - The Tribunal accepted the companies' representation and documentary proof that each company has only two equity shareholders and that their consents by affidavit have been placed on record, and further that there are no secured creditors in either company. For unsecured creditors, the Transferor Company produced affidavits from consenting creditors whose consent by value amounted to 97.21% of the total unsecured claims, and the Transferee Company produced affidavits from consenting unsecured creditors whose consent by value amounted to 93.91% of the total unsecured claims. On that basis the Tribunal dispensed with convening meetings of equity shareholders and unsecured creditors and allowed dispensation under clause (9) of Section 230, recording that the necessity of convening such meetings does not arise in the facts of the present case. [Paras 7]Meetings of equity shareholders and unsecured creditors of both Transferor and Transferee companies are dispensed with; convening of secured creditor meetings was unnecessary as there are no secured creditors.Issuance of statutory notices to regulators and authorities - Requirement of affidavit regarding Competition Act exemption or notice to Competition Commission - Whether notices should be issued to statutory authorities and sectoral regulators and whether an affidavit regarding Competition Act exemption is required. - HELD THAT: - In exercise of powers under Clause (5) of Section 230 and sub section (3) of the Companies Act, 2013 the Tribunal directed issuance of notices to the Regional Director, Ministry of Corporate Affairs, Registrar of Companies, Income Tax Authorities, The Rubber Board of India and such other sectoral regulators or authorities as may be necessary. The Tribunal observed that if the scheme is exempted under the Competition Act, 2002 an affidavit to that effect should be filed; otherwise notice to the Competition Commission of India should be issued. As the applicants are private limited companies, notice to SEBI and stock exchanges was not required. Authorities were directed to file objections within 30 days of receipt of notice, failing which it would be deemed there were no objections. [Paras 8]Notices are to be issued to the specified statutory and sectoral authorities; affidavit regarding Competition Act exemption must be filed or notice to CCI issued; SEBI and stock exchange notices not required for private companies.Appointment of Official Liquidator report - Whether a report from the Official Liquidator in respect of the Transferor Company should be obtained. - HELD THAT: - The Tribunal directed the Registry to issue notice to the Official Liquidator in respect of the Transferor Company and permitted the Official Liquidator to appoint chartered accountants to assist, directing the Official Liquidator to submit a report regarding the Transferor Company within four weeks from receipt of the order. [Paras 9]Registry to issue notice to the Official Liquidator; Official Liquidator to file a report within four weeks and may appoint chartered accountants for assistance.Publication, website posting and service of statutory notices prior to presentation of petition - What are the requirements for publication, website posting and service of notices and the timeline for presentation of the petition. - HELD THAT: - The Tribunal directed the Transferor and Transferee Companies to publish separate notices in one English (The Indian Express) and one vernacular (Dina Mani) newspaper having wide circulation in Tamil Nadu not less than 30 days before the next hearing; to place the notice on their website and on the registered office notice board; and to send private notices to the authorities by speed post and file proofs by affidavit at the time of filing the petitions. The Registry was directed to display the notice on the NCLT Chennai notice board. The Tribunal disposed of the company applications subject to compliance and fixed the last date for presentation of the petition(s). [Paras 10, 11, 12]Companies to effect and file proof of newspaper publication, website posting and service of notices as directed; petitions to be presented on or before the date fixed by the Tribunal.Final Conclusion: The Tribunal dispensed with convening meetings of equity shareholders and unsecured creditors of both applicant companies on the basis of recorded consents and absence of secured creditors; directed issuance of statutory notices (including to specified authorities and, if applicable, to the Competition Commission), required an Official Liquidator's report on the Transferor Company, ordered publication, website posting and service of notices with proof, disposed of the company applications and fixed the last date for presentation of the petition(s).

2021 (6) TMI 319 - NATIONAL COMPANY LAW TRIBUNAL , CHENNAI BENCH Law of Competition

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ISSUES PRESENTED AND CONSIDERED

1. Whether the Composite Scheme of Arrangement and Amalgamation (comprising capital reduction, amalgamation and demerger) complies with Sections 230-232 and other applicable provisions of the Companies Act, 2013 and may be sanctioned.

2. Whether the proposed reduction of paid-up share capital of the transferor (Transferor-2) and its adjustment against accumulated losses may be sanctioned under the "Explanation" to Section 230 of the Act without separate application under Section 66.

3. Legitimacy of ante-dated appointed dates (1 April 2017 for reduction and amalgamation; 23 May 2019 for demerger) and need for specific disclosures arising therefrom.

4. Appropriate accounting treatment and applicable accounting standards for (a) amalgamation of entities under common control and (b) demerger - whether Ind AS 103 (Appendix C) is to be applied and whether the scheme's accounting treatment is acceptable.

5. Whether part-merging/combining of authorized capital in relation to a demerged undertaking with the resulting company is permissible under the statutory scheme (i.e., compatibility with Sections 61 and 232).

6. Effect of statutory authorities' reports (Regional Director, Official Liquidator, Income-Tax Department, RBI and others) on sanction - sufficiency of statutory responses and remedial undertakings.

7. Transfer of assets, liabilities, employees and ongoing proceedings consequent to amalgamation/demerger and the extent of continuity of rights and obligations.

8. Ancillary matters: conformity with valuation, auditors' certifications and compliance with stamp duty/tax liabilities; remuneration of auditor engaged by the Official Liquidator.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sanctionability of the Composite Scheme under Sections 230-232

Legal framework: Sections 230-232 and Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 govern court sanction of schemes involving compromise, amalgamation, demerger and capital reduction.

Precedent treatment: The Court applied established principles that sanction will not be withheld where statutory compliances are satisfied and no substantive objections are raised by stakeholders or statutory authorities.

Interpretation and reasoning: Tribunal examined Scheme parts (reduction, amalgamation, demerger), statutory filings, statutory authority reports and auditors' certificates. No pending prosecution/inspection/investigation was found; statutory notices produced either positive responses or no objections. The Tribunal found prima facie compliance with the Act and Rules and no material prejudice to shareholders/creditors.

Ratio vs. Obiter: Ratio - A composite scheme that satisfies statutory requirements, is supported by auditors' certification and unopposed by statutory authorities, is fit for sanction under Sections 230-232. Obiter - Expressions that sanction does not exempt parties from future enforcement of other laws (tax, stamp duty, etc.).

Conclusions: Scheme sanctioned subject to the conditions and directions set out in the order.

Issue 2: Reduction of capital under the "Explanation" to Section 230 and its effect

Legal framework: Reduction of capital contemplated under Section 66 (and Explanation to Section 230 permitting reduction as part of arrangement) and Sections 230-232 procedures for court-sanctioned arrangements.

Precedent treatment: Tribunal relied on statutory provision permitting reduction within arranged scheme; must ensure adjustment against accumulated losses and appropriate disclosures.

Interpretation and reasoning: Transferor-2's paid-up capital reduction (specified quantum) is to be adjusted fully against accumulated losses. The Tribunal directed the reduction to operate in accordance with Section 230 without any separate application, and treated its sanction as sufficient for the reduction to have effect.

Ratio vs. Obiter: Ratio - Capital reduction effected pursuant to a court-sanctioned scheme under Section 230 (Explanation) is effective without separate Section 66 proceedings, provided statutory formalities and disclosures are observed. Obiter - The Tribunal's clarification that the sanction shall not exempt liability under other enactments.

Conclusions: Reduction sanctioned as part of the Scheme; the order deemed to satisfy Section 66(3) requirements for confirming reduction insofar as adjustment against accumulated losses is concerned.

Issue 3: Ante-dated appointed dates and required disclosures

Legal framework: Companies Act and MCA guidance (General Circulars) require justification when appointed dates are significantly ante-dated; full disclosure in financial statements is necessary to avoid misleading comparatives.

Precedent treatment: Tribunal required undertaking and disclosure where appointed date pre-dates proposal by more than a year.

Interpretation and reasoning: Regional Director observed appointed dates were ante-dated. Petitioners furnished affidavit of undertaking explaining commercial rationale (warranty continuity, global support, uniform financial presentation) and undertook to make necessary disclosures in first financial statements after scheme effect. Tribunal accepted the justification and the undertaking.

Ratio vs. Obiter: Ratio - Ante-dated appointed dates are permissible if justified and accompanied by specific disclosures in financial statements, and if not against public interest. Obiter - Commercial reasons (warranty continuity, pricing, dealer assurance) can constitute valid justification but must be clearly disclosed.

Conclusions: Ante-dating accepted on record subject to the specified disclosure obligation in post-scheme financial statements.

Issue 4: Accounting treatment - adoption of Ind AS 103 (Appendix C) for common-control combinations and demerger

Legal framework: Section 133 requires accounting in accordance with notified Indian Accounting Standards; Ind AS 103 (and Appendix C concerning common-control business combinations) governs treatment for combinations under common control.

Precedent treatment: Tribunal required explicit statement of which accounting standard will be followed; RD sought clarification whether AS or Ind AS 103 would apply.

Interpretation and reasoning: Petitioners expressly undertook to apply Appendix C to Ind AS 103 for both amalgamation (common control business combination) and demerger, with specified entries (carrying amounts, adjustments to capital reserve, equity adjustments) and flexibility for Board to make suitable adjustments to comply with applicable standards. Statutory auditors certified compliance. RD's concerns on accounting treatment were thereby addressed.

Ratio vs. Obiter: Ratio - Where Ind AS applies, Appendix C to Ind AS 103 is an acceptable basis for accounting for common-control amalgamations and demergers; explicit undertaking and auditors' certification satisfy Tribunal's requirements. Obiter - Tribunal noted companies may alter accounting treatment if necessary to ensure uniform policies or compliance, subject to Board determination.

Conclusions: Accounting treatment accepted as part of scheme; declarations incorporated into order.

Issue 5: Merging part of authorized capital in a demerger - statutory permissibility

Legal framework: Section 232(3)(i) permits merging of authorized capital of transferor with authorized capital of transferee in merger/amalgamation; Section 61 and other provisions regulate alteration of share capital.

Precedent treatment: RD observed that statute does not expressly provide for division/merging of authorized capital under demerger; petitioners argued by analogy that portion representing demerged undertaking may merge with resulting company's authorized capital, with subsequent filings and payment of differential fees.

Interpretation and reasoning: Tribunal recorded RD's observation and petitioners' undertaking to file amended MOA/AOA and comply with fee payments and Section 232(3)(i) formalities. Tribunal accepted the undertaking and directed requisite filings and fee adjustments, while noting the legal point for consideration in order text.

Ratio vs. Obiter: Obiter - The Tribunal did not conclusively resolve the legal question whether Section 232(3)(i) applies to demergers; instead accepted practical compliance by parties (MOA/AOA filings and fee payments) and incorporated directions. The restraint reflects administrative remedy orientation rather than a binding precedent on statutory interpretation.

Conclusions: Practical compliance ordered (filings, fee payment) and parties directed to take steps; RD's statutory concern noted but not treated as bar to sanction once undertakings were given.

Issue 6: Effect of statutory authorities' reports (RD, Official Liquidator, Income-Tax, RBI) and remedial undertakings

Legal framework: Notices to and reports from statutory/regulatory authorities are material; Tribunal must consider RD and OL reports and any objections/observations; absence of response from departments is treated as no objection unless record shows otherwise.

Precedent treatment: Tribunal considered RD's observations in detail and allowed petitioners' affidavit of undertaking to address them; OL's independent audit report was taken on record and remedial directions issued; absence of response from Income-Tax/RBI treated as no objection.

Interpretation and reasoning: RD raised specific accounting, disclosure and procedural concerns; petitioners' undertakings and accounting clarifications satisfied RD. OL's investigative report led to a direction that transferor companies jointly pay auditor's fees to OL. No response from tax and RBI led Tribunal to presume no objection, subject to the right of revenue to pursue statutory remedies.

Ratio vs. Obiter: Ratio - Tribunal may sanction scheme where statutory authorities either raise only clarificatory observations that are duly addressed or do not object; OL's recommendations may attract cost directions. Obiter - Non-appearance of a statutory authority is presumed to amount to no objection but does not preclude future action by that authority.

Conclusions: RD's observations addressed by undertakings; OL's report accepted and parties directed to pay auditor's fee; absence of Income-Tax/RBI response treated as no objection but revenue's statutory rights preserved.

Issue 7: Transfer/vesting of assets, liabilities, employees and pending proceedings

Legal framework: Section 232(3) provides for transfer and vesting of assets, liabilities and proceedings in amalgamation; employment continuity principles apply on demerger/amalgamation.

Precedent treatment: Tribunal applied statutory vesting provisions to effect automatic transfer without further act or deed, and safeguarded employee continuity.

Interpretation and reasoning: Tribunal directed that all properties, liabilities, obligations and proceedings of transferor companies vest in transferee; employees in service immediately before effective date become employees of transferee without break; similar directions for demerged undertaking to resulting company. The order specified continuation of pending proceedings by/against successor entities.

Ratio vs. Obiter: Ratio - Court sanction under Section 232(3) effects automatic transfer/vesting of assets, liabilities, employees' services and pending proceedings to the successor company; continuity of employment is to be ensured. Obiter - None beyond statutory application.

Conclusions: Vesting and continuity directions issued and embodied in sanction order.

Issue 8: Ancillary matters - valuation, auditors' certificates, tax/stamp liability and OL remuneration

Legal framework: Valuation and auditors' certification support fairness and compliance; sanction does not absolve parties from external tax, stamp or statutory dues; Tribunal may direct payment of fees for statutory investigations.

Precedent treatment: Tribunal examined valuation reports and auditors' certifications and accepted them; reiterated that sanction is without prejudice to actions under other enactments.

Interpretation and reasoning: Valuation yielded exchange ratios for amalgamation and demerger; statutory auditors certified compliance with accounting requirements. Tribunal accepted certifications and valuation, sanctioned allotments accordingly. Tribunal clarified order is not exemption from stamp duty/taxes and directed Transferor Companies to jointly pay Rs. 60,000 to Official Liquidator for auditor remuneration.

Ratio vs. Obiter: Ratio - Valid valuation and auditors' certification are material for sanction; sanction does not preclude subsequent recovery or proceedings for statutory dues. Obiter - The quantum of costs/remuneration is a fact-specific direction.

Conclusions: Valuation and auditor certifications accepted; allotment directions issued per ratios; parties admonished that sanction does not exempt tax/stamp liabilities; payment to OL directed.

Business Merger and Real Estate Demerger Approved; Capital Reduction Ordered, Employees Protected, Shares Allotted.
The Tribunal sanctioned the Composite Scheme of Arrangement and Amalgamation, which involved the capital reduction of Transferor Company-2, the amalgamation of Transferor Companies 1, 2, and 3 into the Transferee Company, and the demerger of the Real Estate Business into the Resulting Company. The scheme was deemed compliant with the Companies Act, 2013, with no objections from shareholders or statutory authorities. The Tribunal ordered the reduction of share capital, transfer of properties and liabilities, continuation of pending proceedings, and transfer of employees without interruption. Appointed dates were set for April 1, 2017, and May 23, 2019, for the respective processes. The Transferee and Resulting Companies were directed to allot shares accordingly, and the Transferor Companies were to be dissolved. The Company Petitions were allowed on these terms.

Sanction of composite scheme of arrangement and amalgamation - reduction of share capital and adjustment against accumulated losses - vesting of assets and liabilities on amalgamation/demerger - transfer of employees on amalgamation/demerger - appointed date for scheme and disclosure of ante-dated appointed date - accounting treatment under Appendix C to Ind AS 103 for common-control combinations - filing of sanctioned order with Registrar of Companies and consequential dissolution - direction for payment of fees to Official Liquidator for auditors' inquirySanction of composite scheme of arrangement and amalgamation - Sanction of the Composite Scheme of Arrangement and Amalgamation as between the petitioner companies. - HELD THAT: - After examining the Scheme, statutory compliance, reports and undertakings filed by the petitioner companies and the responses of statutory authorities, the Tribunal found the Scheme prima facie to be in compliance with the Companies Act, 2013 and that there were no objections indicating the Scheme would be detrimental to shareholders. The Tribunal therefore sanctioned the Composite Scheme appended as Annexure "A4" to the petitions and made the sanctioning order subject to the observations recorded in the order (including that sanction does not operate as exemption from payment of stamp duty/taxes and does not preclude action in law for any statutory violations). [Paras 10, 12]The Composite Scheme of Arrangement and Amalgamation is sanctioned.Reduction of share capital and adjustment against accumulated losses - Reduction of the paid up share capital of Transferor Company 2 and adjustment of the reduced amount against its accumulated losses. - HELD THAT: - The Tribunal authorised the capital reduction of Transferor Company 2 as set out in the Scheme, and directed that the reduced share capital shall be adjusted against the accumulated losses of the company. The Tribunal recorded that such reduction is brought under arrangement under Section 230 of the Act and shall operate without further application, act or deed by the company or its shareholders. [Paras 7, 11]The reduction of the paid up equity share capital of Transferor Company 2 is sanctioned and the reduced amount shall be adjusted against its accumulated losses.Vesting of assets and liabilities on amalgamation/demerger - transfer of employees on amalgamation/demerger - Vesting of properties, rights, liabilities and continuation of proceedings; and transfer of employees consequent to amalgamation and demerger. - HELD THAT: - Pursuant to the sanction, all properties, rights and interests of Transferor Companies 1, 2 and 3 stand transferred and vested in the Transferee Company without further act or deed, and all their liabilities, obligations and pending proceedings shall continue by or against the Transferee Company. Similarly, the Demerged undertaking's properties, rights and liabilities shall transfer to the Resulting Company. All employees in service in the Transferor Companies and in the Demerged undertaking immediately prior to the effective date shall become employees of the Transferee Company or Resulting Company respectively on the same terms, without interruption. [Paras 11]Assets, liabilities, proceedings and employees of the Transferor Companies and the Demerged undertaking are transferred to and shall be continued by the Transferee Company and Resulting Company as specified in the Scheme.Appointed date for scheme and disclosure of ante-dated appointed date - Fixing of the appointed dates for parts of the Scheme and requirement of disclosure in respect of ante dated appointed date. - HELD THAT: - The Tribunal fixed the appointed dates as specified in the Scheme: 1 April 2017 for Part B (capital reduction) and Part C (amalgamation), and 23 May 2019 for Part D (demerger). The Regional Director's observation regarding the ante dating of the appointed date was addressed by the petitioners' affidavit of undertaking explaining the commercial reasons and by the Transferee Company's undertaking to disclose in the first financial statements after giving effect to the Scheme that prior year figures for 2017 18 and 2018 19 are not comparable due to the Scheme being given effect from 1 April 2017. [Paras 7, 11]Appointed dates are fixed as 1 April 2017 (for Part B and C) and 23 May 2019 (for Part D); petitioners to make the disclosures as undertaken concerning the ante dated appointed date.Accounting treatment under Appendix C to Ind AS 103 for common-control combinations - Adoption of the accounting treatment for the amalgamation and demerger in accordance with Appendix C to Ind AS 103 and related undertakings. - HELD THAT: - The Tribunal recorded the petitioners' undertaking that the accounting treatment for the amalgamation of Transferor Companies into the Transferee Company and for the demerger into the Resulting Company shall follow Appendix C on 'Business Combination of entities under common control' to Ind AS 103 as prescribed under Section 133 of the Companies Act, 2013, with specified adjustments to capital reserve and book values. The Regional Director's query regarding whether AS or Ind AS would be followed was satisfied by the affidavit of undertaking, and the Tribunal treated the stated accounting treatment as forming part of the Scheme. [Paras 7, 9]The accounting treatment set out by the petitioners, premised on Appendix C to Ind AS 103 for common control combinations, is accepted and forms part of the Scheme.Direction for payment of fees to Official Liquidator for auditors' inquiry - Direction to Transferor Companies to pay the Official Liquidator for fees of the auditor who investigated the affairs of the Transferor Companies. - HELD THAT: - Having taken on record the report obtained by the Official Liquidator via a panel Chartered Accountant and the observations therein, the Tribunal directed Transferor Companies 1, 2 and 3 to jointly pay the sum specified to the Official Liquidator toward the remuneration of the auditor who investigated their affairs. [Paras 7]Transferor Companies 1, 2 and 3 are directed to jointly pay the fees to the Official Liquidator for the auditor's investigation.Filing of sanctioned order with Registrar of Companies and consequential dissolution - Requirement to file certified copy of the sanction order with the Registrar of Companies and effect of such filing on dissolution and consolidation of records. - HELD THAT: - The Tribunal ordered that within thirty days of receipt of the order, certified copies shall be delivered to the Registrar of Companies for registration; upon such filing, the Transferor Companies shall be dissolved and the RoC shall consolidate files and documents as directed. The order also required the Transferee and Resulting Companies to file revised Memorandum and Articles and make requisite payments for enhanced authorised capital after setting off fees paid by transferor entities. [Paras 11]Petitioners to file certified copy of the order with the RoC, effect necessary filings for MOA/AOA and fee payments; on filing, Transferor Companies shall be dissolved and RoC records consolidated.Final Conclusion: The National Company Law Tribunal, Chennai bench, after considering the Scheme, statutory reports and petitioners' undertakings, sanctioned the Composite Scheme of Arrangement and Amalgamation subject to stated undertakings and observations; authorised the specified reduction of capital of Transferor Company 2 and its adjustment against accumulated losses; directed vesting of assets, liabilities and employees as per the Scheme; fixed the appointed dates; accepted the accounting treatment under Appendix C to Ind AS 103 as part of the Scheme; directed payment to the Official Liquidator for the auditors' fees; and ordered filing of certified copy of the order with the Registrar of Companies with consequential dissolution of the Transferor Companies.

2021 (6) TMI 599 - NATIONAL COMPANY LAW TRIBUNAL , PRINCIPAL BENCH, NEW DELHI Law of Competition

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Shareholders' Meetings Mandatory Under Companies Act: NCLT Cannot Exceed Two-Member Bench Limit.
The bench determined that shareholders' meetings cannot be dispensed with under Section 230(1) of the Companies Act, 2013, emphasizing the statutory requirement for such meetings to ensure shareholder participation and transparency. The tribunal highlighted that it must adhere strictly to the legislative intent and statutory provisions, rejecting the judicial member's reliance on precedents that allowed dispensation based on shareholder consent. Additionally, the bench clarified that the NCLT cannot constitute benches with more than two members, as this exceeds its statutory authority. The decision mandates the applicant company to seek directions for holding shareholders' meetings, reaffirming the tribunal's limited jurisdiction and the necessity of consistency with statutory mandates.

Dispensation of shareholders' meetings under Section 230(1) - distinct power to dispense creditors' meetings under Section 230(9) - interpretation of 'may' as discretion limited to ordering meetings - mandatory notice, disclosure and voting procedure under Section 230 - limits on NCLT constituting larger benches and binding effect of coordinate/larger Bench decisionsDispensation of shareholders' meetings under Section 230(1) - distinct power to dispense creditors' meetings under Section 230(9) - interpretation of 'may' as discretion limited to ordering meetings - mandatory notice, disclosure and voting procedure under Section 230 - Shareholders' meetings under Section 230 must not be dispensed with at the first motion; the statutory power to dispense with meetings is confined to creditors under Section 230(9) and does not extend to shareholders under Section 230(1). - HELD THAT: - The Tribunal examined the language and scheme of Section 230 and held that sub section (1) empowers the Tribunal to order that meetings of members or creditors be called, held and conducted, and that the auxiliary verb 'may' confers discretion only to order or not to order meetings, not to dispense with calling members' meetings. Sub section (9) specifically provides for dispensation of creditors' meetings upon 90% affidavit consent and is a standalone carve out; that provision cannot be read down to include shareholders. Allowing dispensation of shareholders' meetings would render mandatory notice, disclosure and related subsections (including requirements for sending statements, valuation reports and notices to regulators) redundant and would frustrate the statute's purpose of transparency and stakeholder participation. The Tribunal emphasised that the first motion is intended to secure procedural safeguards-individual notices, disclosures, opportunity to object and informed voting-so the applicant cannot seek, nor can the Tribunal grant, dispensation of shareholders' meetings at the first motion. [Paras 16, 20, 23, 24, 30]The request to dispense with shareholders' meetings under Section 230(1) is impermissible; meetings of shareholders must be convened in accordance with Section 230.Limits on NCLT constituting larger benches and binding effect of coordinate/larger Bench decisions - application of ratio decidendi doctrine where statutory mandate is clear - NCLT is not to constitute benches beyond the statutory two member composition or treat coordinate Bench orders as binding where the statute provides clear mandatory procedure; ratio decidendi of other benches has persuasive effect only and cannot be used to contravene clear statutory mandate. - HELD THAT: - The Tribunal observed that NCLT is a fact finding statutory body constituted with one judicial and one technical member and lacks power to expand bench composition arbitrarily into three member benches. Where the statutory text is plain and prescriptive (as in Section 230), the common law doctrine of ratio decidendi is of limited application; one Bench of NCLT need not follow another bench's order where doing so would contradict the statute's clear mandate. Coordinate Bench decisions may have persuasive value but cannot be invoked to read into Section 230 a power to dispense with shareholders' meetings which the statute does not confer. [Paras 26, 27, 28, 29, 30]NCLT cannot rely on or create a binding three member bench precedent to override the clear statutory procedure; coordinate or larger Bench rulings are not binding where they conflict with the statute's mandate.Final Conclusion: The Tribunal concurs with the Technical Member: dispensation of shareholders' meetings at the first motion is not permissible under Section 230(1), the power to dispense extends only to creditors under Section 230(9), and NCLT benches may not expand or treat coordinate/larger bench rulings as overriding an explicit statutory procedure; liberty was granted to the applicant to seek directions for convening meetings in accordance with the Act.

2021 (5) TMI 580 - NATIONAL COMPANY LAW TRIBUNAL , BENGALURU BENCH Law of Competition

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Merger Approved with Conditions: Companies to Comply with Laws and File Required Documents for Amalgamation.
The Tribunal sanctioned the Scheme of Amalgamation with an appointed date of 01st April 2020, subject to compliance with statutory provisions and the filing of necessary documents with the Registrar of Companies. The companies must file all due statutory returns and submit compliance reports. The order does not prevent any authority from taking action for violations committed before or during the scheme's approval. The petition and all pending applications were disposed of.

Scheme of Amalgamation - sanction under Sections 230 to 232 of the Companies Act, 2013 - Appointed Date - vesting of undertakings by operation of law - transfer of liabilities including taxes and pending proceedings - no immunity from stamp duty, taxes or other statutory charges - compliance with FEMA/RBI and Foreign Direct Investment requirements - compounding application under Section 441 for default in appointment of Company Secretary - statutory returns, filings and post-sanction compliance reportsScheme of Amalgamation - sanction under Sections 230 to 232 of the Companies Act, 2013 - Sanction of the Scheme of Amalgamation between the transferor companies and the transferee company. - HELD THAT: - The Tribunal examined the petition, the reports of the Regional Director and ROC, objections/inputs from statutory authorities including Income Tax and CCI, the Official Liquidator's report and the material filed by the petitioners. Noting that schemes proposed for commercial expediency are ordinarily not interfered with, the Tribunal found the Scheme to be fair and reasonable and not detrimental to members, creditors or public policy. The Tribunal was satisfied that the procedural requirements under sub sections (1) and (2) of section 232 have been complied with and, accordingly, sanctioned the Scheme as prayed. [Paras 12, 13]The Scheme of Amalgamation is sanctioned.Appointed Date - Fixation of the Appointed Date for the Scheme of Amalgamation. - HELD THAT: - Although the petition and certain filings referred to other dates, the Tribunal expressly fixed the Appointed Date for the Scheme when sanctioning it. The appointed date as declared in the order governs the operative effect of the Scheme. [Paras 13]The Appointed Date for the Scheme shall be 01st April, 2020.Vesting of undertakings by operation of law - transfer of liabilities including taxes and pending proceedings - Effect of sanction on transfer and vesting of assets, liabilities and pending proceedings. - HELD THAT: - Pursuant to section 232, the Tribunal ordered that the undertakings, assets and liabilities of the transferor companies shall, without further act or deed, vest in the transferee company and that all liabilities including taxes, levies, duties and any pending proceedings by or against the transferor companies shall continue by or against the transferee company. The order emphasises that such vesting is subject to existing charges and does not preclude enforcement of liabilities by competent authorities. [Paras 13]All assets, liabilities and pending proceedings of the transferor companies shall stand transferred to and vest in the transferee company.No immunity from stamp duty, taxes or other statutory charges - Whether the sanction operates as exemption from payment of stamp duty, taxes or other statutory charges. - HELD THAT: - The Tribunal clarified that sanction of the Scheme is not an order granting exemption from payment of stamp duty, taxes or other charges and that such matters shall be dealt with by the respective authorities under the applicable laws and rules. This preserves the power of statutory authorities to claim dues notwithstanding the sanction. [Paras 13]Sanctioning the Scheme does not exempt the companies from payment of stamp duty, taxes or other statutory charges.Compliance with FEMA/RBI and Foreign Direct Investment requirements - Obligations regarding foreign investment and foreign exchange regulatory compliance arising from the issue of CCDs pursuant to the Scheme. - HELD THAT: - Given that substantial Compulsorily Convertible Debentures are to be issued and that foreign entities are involved, the Tribunal directed strict compliance with FEMA and RBI regulations and required the transferee/transferor companies to make all relevant filings under Foreign Direct Investment policy and other regulations upon completion of the merger. The Tribunal recorded the undertaking of the transferee company to comply with applicable provisions. [Paras 13]The companies shall comply with FEMA/RBI and file all requisite FDI/foreign exchange filings as applicable.Compounding application under Section 441 for default in appointment of Company Secretary - Remedial direction for defaults in statutory compliance relating to appointment of Company Secretary. - HELD THAT: - The ROC/RD had observed defaults in appointment of company secretaries by certain parties. The Tribunal directed Transferor Company No. 2 and the Transferee Company to file compounding applications under Section 441 of the Companies Act, 2013 to compound the offence in relation to the default in appointment of Company Secretary within thirty days of receipt of the order. [Paras 13]Transferor Company No. 2 and the Transferee Company to file compounding applications under Section 441 within 30 days.Statutory returns, filings and post-sanction compliance reports - Post sanction compliance obligations including filings and periodic compliance reports. - HELD THAT: - The Tribunal required the petitioner companies to lodge a certified copy of the order and Scheme with the Registrar of Companies for registration within thirty days, to file all due statutory returns immediately if any are outstanding, and to submit quarterly/annual status affidavits by the Managing Director/Director with CA/ICWA/CS certificates until compliance is ensured. The Court also directed handing over books and records of transferor companies to the transferee company after amalgamation. [Paras 13]Petitioner companies to register the order with ROC, file outstanding statutory returns and submit periodic compliance affidavits until compliance is achieved; books to be handed over to transferee.Preservation of action by statutory authorities - Whether sanction bars initiation or continuation of action by statutory authorities for prior violations. - HELD THAT: - The Tribunal explicitly recorded that sanction of the Scheme does not preclude the Registrar of Companies or any other authority from taking appropriate action in accordance with law for violations or offences committed prior to or during the approval process. It reiterated that sanction does not imply waiver of liabilities or bar statutory action. [Paras 12, 13]Sanction does not prevent statutory authorities from initiating or continuing proceedings for past or ongoing violations.Final Conclusion: The Tribunal sanctioned the Scheme of Amalgamation as fair and in compliance with the procedural requirements, fixed the Appointed Date as 01.04.2020, ordered vesting of assets and transfer of liabilities to the transferee company, preserved the rights of statutory authorities to claim taxes or take action for violations, directed compliance with FEMA/RBI and FDI filings, mandated filing of compounding applications for defaults in appointment of company secretary, and required registration, statutory filings and ongoing compliance reporting by the petitioner companies.

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