AI Drafter 
TaxTMI 
TaxTMI 
2023 (10) TMI 322
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....echnical ) For the Appellants : Mr. Gaurav Mitra, Mr. Ujjwal Jain, Mr. Shikher & Ms. Lavonya Pathak, Advocates. For the Respondents : Mr. Arun Kathpalia, Sr. Advocate along with Mr. Shashank Gautam, Mr. Arvind Thapliyal, Mr. Siddhant Grover, Ms. Saravva Vasanta, Ms. Anindita Roy Chowdhury, Ms. Trisha Ray Chawdhary, Ms. Simran Bhat, Mr. Saurabh Batra & Mr. Aditya Dhupar, Advocates JUDGMENT NARESH SALECHA , MEMBER ( TECHNICAL ) 1. The present appeal in CA (AT) No. 132 of 2021 has been filed by P. Jatinder Singh- Appellant No. 1 on behalf of 16 other Appellants herein, under Section 421 of the Companies Act, 2013 against the Impugned Order dated 29.10.2021 in CA 156 of 2021 and CA 261 of 2021 In CP (CAA) No. 70/MB/2021 Connected with CA (CAA) No. 3083/MB/2019 & CA(CAA) No 129/MB 11/2019 passed by National Company Law Tribunal, Mumbai Bench (in short, the 'Tribunal'), whereby the Tribunal rejected the application of Appellants through common Impugned Order dated 29.10.2021. The Appellants, with respective client ID's, are public shareholder of Respondent No. 3 - M/s Tata Steel BSL Limited (formerly known as Bhushan Steel Limited). The Appellants are stated to be livin....
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....uired 72.65% shares of equity share capital of Bhushan Steel Limited on 18.05.2018. The Order of the Adjudicating Authority approving the Resolution Plan was challenged and the same was dismissed by the Adjudicating Authority on 10.08.2018. The name of Bhushan Steel Limited was changed to TATA Steel BSL Ltd. (Respondent No. 3) on 27.11.2018. 5. The Appellants in CA (AT) No. 132 of 2021 have clarified that they are not opposed, in principle, to the amalgamation of the Respondents companies, however, the Appeal is to safeguard their interest as minority shareholders in Respondent No. 3 and are seeking reasonable exit route to them. The Appellants are objecting to swap ratio of 15:1 upon the composite amalgamation scheme approved vide the Impugned Order dated 29.10.2021 by the Tribunal, as the swap ratio is not based on earning of either company i.e., Respondent No. 1 or the Respondent No. 3. It has been stated that the earnings of the Tata Steel Ltd for the Ql FY 2021 was Rs. 9,000 Crore (approx.), whereas for the corresponding period Tata Steel BSL earning was Rs. 2600 Crore (approx.). Therefore, if the earnings of the two companies were compared, then the swap ratio would have b....
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.... due procedure as laid down in Section 230(9) of the Companies Act, 2013 i.e., after obtaining consent affidavits from the unsecured creditors which have not been obtained in the present case. 10. In view of this, these two Appellants have requested this Appellate Tribunal to set aside the Impugned Order dated 29.10.2021 along with other related prayers including directing the Respondent No. 1 to secure outstanding claim of the Appellants of Rs. 4,32,20,102/-. 11. Per-contra, the Respondents had denied all the averments made by the two Appellants in CA (AT) No. 150 & 151 of 2021. It is the case of the Respondents that in consonance with the orders dated 20.02.2020, 11.01. 2021, 19.01.2021 and 05.02.2021, passed by the Tribunal in the Company Scheme Applications CA (CAA) 3083/MB/2019 and CA (CAA) 129/MB II/2019, directions were issued by the Tribunal to Respondent Company 1 to send individual notices to (i) all its secured creditors and (ii) unsecured creditors having outstanding amount of Rs. 10,00,000/- or more as on 30.09.2020, with a direction that they may submit their representations in relation to the Scheme, if any, to the Tribunal. In pursuance of....
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....the General Circular No. 09/2019 issued by the Ministry of Corporate Affairs? 7. Whether the scheme of amalgamation is in violation of Section 230 of the Companies Act, 2013? 8. Whether the majority vote count claimed by the Respondent mere an eye wash? 9. Whether Respondents failure to adopt the Income approach method for valuation for determination of the swap ratio has vitiated the scheme of amalgamation? 10. Whether, the Hon'ble Tribunal has erred thereby taking the report of the Regional Director, Mumbai dated 17.06.2021 in respect of the Respondent No. 1, as gospel truth and not disclosing the contents of the said report to the Appellants herein, who have primarily objected to the prejudicial swap ratio 15: 1 proposed under the scheme of merger by the Respondent Companies? 11. Whether the Appellants in the facts of the present case were entitled to the report dated 17.06.2021 of the Regional Director, Mumbai, Affidavits/ Joint Affidavits filed on behalf of the Respondents and supplementary report dated 13.07.2021 filed by the Regional Director, Mumbai? 12. Whether determination of the swap ratio of 15: 1 based on a val....
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.... the valuation for the purpose of determining the swap ratio of the respondent Companies for the purpose of the merger, it was correct for the Hon'ble Tribunal to have solely without due application of mind to have relied upon the reports filed by the Regional Directors and Registrar of Companies? 22. Whether the Hon'ble Tribunal failed to appreciate that Appellants had approached the Hon'ble Tribunal in response to the Public announcement dated 01.06.2021 of the Respondent Company 3 in the newspaper "Times of India" wherein the Respondent Company No. 3 while notifying the date for final disposal and hearing of the petition before the Hon'ble Tribunal on 18.06.2021 has also invited the shareholders of the Respondent Company 3 to approach the Hon'ble Tribunal for the purpose of adjudication of their objections in respect of the merger scheme? 23. Whether, in view of proviso to Section 230 (4) of the Act cannot be construed to interdict the jurisdiction of the Hon'ble Tribunal during the second motion to scrutinise the scheme of merger on account of patent illegality and perversity? (Emphasis Supplied) Similarly, the Appellants in....
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....Scheme") provides for: (i) the amalgamation of the Respondent Company 2 into and with the Respondent Company 1 and consequent dissolution of the Respondent Company 2 without winding up; (ii) the amalgamation of the Respondent Company 3 into and with the Respondent Company 1 and consequent dissolution of the Respondent Company 3 without winding up; 18. The salient features of the Scheme as noted from submissions are as follows :- 19. We note that the scheme was approved by 99.33% of the equity shareholders and 90.93% of the public shareholders of Respondent Company 3 and combined 99.99% of public shareholders and equity shareholders of Respondent Company 1. After obtaining the shareholder's approval on 13.04.2021, a Joint Company Scheme Petition bearing No. C.P. (CAA)/70/2021 was filed by the Companies in CA (CAA) 129/ND/2019 and CA (CAA)/3083/2019 and the Tribunal vide order dated 29.10.2021, approved the Composite Scheme of Amalgamation. 20. It has been brought to our notice by the Respondents that after obtaining the approval of the Tribunal for amalgamation scheme, the Respondents have taken various legal, statutory and financial steps, as required, wh....
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....in terms of Clause 25. 1.6 of the Scheme of Amalgamation and directions as per Para-44 of the Order, filed the Certified Copy of the Tribunal's Order along E-Form INC 28, for sanctioning the Scheme of Amalgamation with the respective jurisdictional Registrar of Companies. With this filing, the Respondent Companies had complied with all the conditions specified in Clause 25.1 of the Scheme of Amalgamation. Accordingly, in terms of Clause 3.1 read with Clause 1.9 of para II of Part I of Scheme of Amalgamation, the captioned Scheme of Amalgamation had become operative from 11.11.2021. The INC 28 of Respondent No. 3 was approved and taken on record on 12.11.2021. The INC 28 of the Respondent No. 2 was approved and taken on record on November 15, 2021. 21. It is the case of Respondents that the Respondent No. 1 infused Rs. 36,400 Crores into Respondent No. 3 to revive it, which was much more than the liquidation value of Respondent No. 3 of Rs. 14,541 Crores. 22. After perusal of above details, we shall endeavour to examine the issues framed earlier in subsequent discussions. 23. In order to examine various issues and points raised by the Appellants, in both the Appeals before ....
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....eguards for the protection of other secured and unsecured creditors; (iii) report by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board; (iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and (v) a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer. (3) Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub-section (1), a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture-holders of the company, individually at the address registered with the company which shall be accompanied by a statement disclosing the details of the compromise or arrangement, a copy of the valuation report, if any, and explaining their effect on creditors, key managerial personnel, promoters and non-....
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....esenting three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company. (7) An order made by the Tribunal under sub-section (6) shall provide for all or any of the following matters, namely:- (a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity shares equal to the value of the dividend payable; (b) the protection of any class of creditors; (c) if the compromise or arrangement results in the variation of the shareholders' rights, it shall be given effect to under the provisions of section 48; (d) if the compromise or arrangemen....
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.... (a) shall have power to supervise the implementation of the compromise or arrangement; and (b) may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper implementation of the compromise or arrangement. (2) If the Tribunal is satisfied that the compromise or arrangement sanctioned under section 230 cannot be implemented satisfactorily with or without modifications, and the company is unable to pay its debts as per the scheme, it may make an order for winding up the company and such an order shall be deemed to be an order made under section 273. (3) The provisions of this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act sanctioning a compromise or an arrangement. 232. Merger and amalgamation of companies. (1) Where an application is made to the Tribunal under section 230 for the sanctioning of a compromise or an arrangement proposed between a company and any such persons as are mentioned in that sec....
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....ing, property or liabilities of the transferor company from a date to be determined by the parties unless the Tribunal, for reasons to be recorded by it in writing, decides otherwise; (b) the allotment or appropriation by the transferee company of any shares, debentures, policies or other like instruments in the company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person: Provided that a transferee company shall not, as a result of the compromise or arrangement, hold any shares in its own name or in the name of any trust whether on its behalf or on behalf of any of its subsidiary or associate companies and any such shares shall be cancelled or extinguished; (c) the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company on the date of transfer; (d) dissolution, without winding-up, of any transferor company; (e) the provision to be made for any persons who, within such time and in such manner as the Tribunal directs, dissent from the compromise or arrangement; (f) where share capital is held by any non-r....
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....mpany in relation to which the order is made shall cause a certified copy of the order to be filed with the Registrar for registration within thirty days of the receipt of certified copy of the order. (6) The scheme under this section shall clearly indicate an appointed date from which it shall be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the appointed date. (7) Every company in relation to which the order is made shall, until the completion of the scheme, file a statement in such form and within such time as may be prescribed with the Registrar every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating whether the scheme is being complied with in accordance with the orders of the Tribunal or not. (8) If a transferor company or a transferee company contravenes the provisions of this section, the transferor company or the transferee company, as the case may be, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of such transferor or transferee comp....
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....reholder's meeting took place where 523 equity shareholders representing 85,22,26,979 equity shares of the Respondent No. 3, which tantamount to 99.33% voted in favour of resolution of the scheme. We also note that 503 equity shareholders representing 57,68,106 equity share of Respondent No. 3 i.e., 0.67% voted against the resolution. Similarly, 522 public shareholders representing 5,77,97,993 equity shares voted in favour of the resolution in contrast to 503 public shareholders representing 57,68,106 equity shares i.e., 9.07% voted against the Resolution. This indicate that 99.99% of public shareholders and equity shareholders of Respondent No. 1 company voted in favour of the scheme. As a matter of record, it has been brought out that out of 17 objecting shareholders, 11 shareholders holding 3,20,871 shares as on12.02.2021 i.e., cut off date did not vote at all. ➢ It has been submitted that the total debt amount of the Respondent Company 1 as per its financial statement is Rs. 11,608.51 Crores, and that the total percentage of the alleged outstanding debt of the Appellants amounts to only 0.04% of the total outstanding debt of the Respondent Company l, which is we....
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....he scheme would not prejudicially affect the Creditors or Shareholders of the Appellant Company when an Application is filed by the 'Transferor Company' or 'Transferee Company', a separate Application is not necessary and dispensed with the meeting of the equity Shareholders and Creditors of the Appellant Company. At the cost of repetition, keeping in view that the financial position of the 'Transferee Company' is highly positive, the merger does not involve any compromise/arrangement with any Creditor of the Company, that there would be a positive net worth and Creditors would not be compromised, the Tribunal ought to have exercised the discretion in dispensing with the requirement of convening the meeting which would facilitate ease of doing business and save time and resources. To reiterate, we observe that the rights and liabilities of Secured and Unsecured Creditors were not getting affected in any manner by way of the proposed scheme as no new shares are being issued by the 'Transferor Company' and no compromise is offered to any Secured and Unsecured Creditors of the 'Transferee Company'. Therefore, we are of the considered view that when the 'Transferor and Transferee Compa....
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....of the Respondent Company 1 is not required to be convened. The Tribunal directed the Respondent No. 1 to issue individual notices to its secured and unsecured creditors. The relevant portion of the order dated 20.02.2020, is being reproduced hereinunder for ready reference: "20. The Counsel for the Applicant Companies submits that since the Scheme is an arrangement between the Applicant Companies and their respective shareholders as contemplated under Section 230(1)(b) and not in accordance with the provisions of Section 230(1)(a) of the Companies Act, 2013 as there is no compromise and/or arrangement with the creditors and the debenture holders and as no sacrifice is called for by the creditors and the debenture holders, only a meeting of the shareholders is proposed to be held with in accordance with the provisions of Section 230(1)(b) of the Companies Act, 2013. Therefore, the meeting of the Secured Creditors of the Applicant Company I and the Applicant Company 3, the Unsecured Creditors of the Applicant Companies 1, 2 and 3 and the Unsecured Debenture Holders of the Applicant Company 1 are not required to be convened. The Counsel for the Applicant Companies further su....
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....the Applicant Company 1 and the Applicant Company 3), at their last known address as per the records of the Applicant Company 1 and the Applicant Company 3 respectively, with a direction that they may submit their representations, if any, to the Tribunal within 30 (thirty) days from the date of receipt of the said notice and copy of such representations shall simultaneously be served upon the Applicant Company 1 and the Applicant Company." (Emphasis Supplied) ➢ The Respondents also stated that this Appellate Tribunal in Housing Development Finance Corporation Ltd., In re, 2017 SCC OnLine NCLT 11108, held that when the scheme of amalgamation does not affect a particular class of stakeholders, like the creditors, the *provision for holding the meeting itself is not attracted. The Hon'ble Tribunal made the following observations: 14. On giving combined reading to section 230(1) and section 232(2) of the Act, 2.013, it is noticeable that entire section 230 deals * with compromises and arrangements within a company, whereas section 232. though it speaks of procedure laid u/s. 230(3-6) applicable to mergers and* amalgamations. the requisites u/s. 232....
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....ers or creditors. giving a notice to them under sub-section (3) will not arise, because their rights are not affected by this demerger/merger, but when it comes to notice to various regulating authorities under sub-section 5 of section 230, a notice has to go to all those authorities along with documents as mentioned under section 232(2), - (a) the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company; (b) confirmation that a copy of the draft scheme has been filed with the Registrar; (c) a report adopted by the directors of the merging companies explaining effect of compromise on each class of shareholders key managerial personnel, promoters and non-promoter shareholders laying out in particular the share exchange ratio, specifying any special valuation difficulties; (d)the report of the expert with regard to valuation, if any; (e) a supplementary accounting statement if the last annual accounts of any of the merging company relate to a financial year ending more than six months before the first meeting of the company summoned for the purposes of approving the scheme." (Emphasis Supplied) There is no mandatory requiremen....
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....roved Resolution Plan of the Respondent Company 1. The remaining amount of Rs. 3,28,811/- is on hold for contractual compliances on the part of Mr. Tapas Kumar Malla and shall be dealt in due course. ➢ The Respondents also brought out that the claim raised by the Appellants pertaining to the period prior to the approval of the Resolution Plan of the Respondent No. 1 is squarely covered by the principle laid down by the Hon'ble Supreme Court of India in its judgement of Ghanshyam Mishra and Sons Private Limited through Authorized Signatory v. Edelweiss Asset Reconstruction Company Limited Through the Director and Ors. (2021 SCC Online SC 313), wherein the Hon'ble Supreme Court has observed that the liability of the corporate debtor (like the Respondent Company 1 herein) and the resolution applicant (such as the Respondent Company 3) shall freeze upon approval of the resolution plan by the Adjudicating Authority. ➢ It is seen that the Respondent No. 1 sent notices to 861 unsecured creditors and all its secured creditors, however, only the Appellants herein, i.e., R & S Engineering and Mr. Tapas Kumar Malla, continued to object to the Scheme. Th....
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....ner Company 3. The Petitioner Company 3 received representations from certain shareholders holding 7,64, 791 equity shares which is approximately 0.0699% vide Company Application No. 156 of 2021 and Company Application No. 261 of 2021 in respect of the share exchange ratio in relation to the Scheme which was appropriately responded to by the Petitioner Company 3 vide response dated June 15, 2021. The Petitioner Company responded that as per Proviso to Section 230(4) of the Companies Act, 2013 ("CA 2013") any objection to Compromise or arrangement shall be made only by person holding not less than ten percent of shareholding or having outstanding debt amounting to not less than five per cent of the total outstanding debt as per the latest audited financial statement. The Petitioner Company 3 has also received objections from creditors regarding claims pertaining to the pre-CIRP period. The Petitioner Company 3 has filed appropriate responses to the said claims of the objecting creditors. In response to Creditors objections, Counsel for Petitioner company submitted that clause 18( e) of the scheme provides the definition of undertaking 2 to include all undertaking and business of the....
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.... in detail by this Appellate Tribunal in the matter of Ankit Mittal Vs. Ankita Pratisthan Ltd. & Ors. judgment passed on 29.11.2019 2019 SCC OnLine NCLAT 847. ➢ It has been submitted by the Appellants that in catena of judgments by Hon'ble Supreme Court of India, High Court of different states have held that powers of courts and tribunals could not be curtailed from scrutinising the scheme on any account, if the same is illegal and have referred to judgments in case of :- (i) Hindustan Lever Employees Union v. Hindustan Lever Ltd 1995 Supp (1) SCC 499 (ii) Miheer H. Mafatlal v. Mafatlal Industries Ltd (1997) 1 SCC 579 (iii) Sesa Industries Ltd v. Krishna H. Bajaj and Others (2011) 3 sec 21s (iv) Ankit Mittal v. Ankita Pratisthan Ltd and Ors. 2019 SCC OnLine NCLAT 847 ➢ Per-contra, it is a case of Respondents that the cited judgements as discussed above are not applicable in the present appeal as they were on different facts. It has been stated that as regard Ankit Mittal (Supra), NCLAT has acknowledged that the legal position stipulates that objectors must have a 10% threshold limit, however interference in this st....
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....not hold any veto power to stall the process of scheme which is in larger interest of all the stakeholder. ➢ Of course, the Tribunal is required to ensure that all procedures as stipulated for amalgamation under Companies Act, 2013 and the relevant rules have been duly followed and the scheme is conscionable. It also implies that the Tribunal is also required to look into, before approving the scheme, that the scheme as such is fair and reasonable from different points of view and various perspectives, taking care interests of various stakeholders and the scheme can be upheld as commercially prudent decision. ➢ In the present appeal in Company Appeal (AT) No. 132 of 2021 the Appellants have not objected to amalgamation scheme in principle as stated in oral averments as well as in the Written Submissions but have objected to swap ratio of 15:1. It implies that they also consider scheme to be generally beneficial to all stakeholders and in financial and economical interest of three concerned companies. For arguments sake, if based on some analogy, the swap ratio would have been better in the eyes of in the Appellants Company Appeal (AT) No. 132 of 2021....
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....prove such scheme. In the present case, the same could not been made out to be the case, by the Appellants in both the appeals before us. Similarly, if material facts are not disclosed or adequate facts are not disclosed, the Tribunal is required to look into the legality of the scheme, which is also not the case in the present Appeals. ➢ The cited judgments by the Appellants have been perused and we do not find that the same to have been violated by the Tribunal while approving the composite scheme of amalgamation. The facts of the cited cases are not exactly in the same context as of the present appeals. Here is the case where overwhelming majority of 99.99% of the shareholders have approved the scheme and therefore minuscule minority shareholder holding 0.0699% of the total paid up share capital of Respondent No. 3, cannot be allowed to sabotage the scheme of amalgamation, which has been correctly adjudicated and allowed by the Tribunal. We have also taken into relevant paragraphs of the Impugned Order dated 29.10.2021, discussed earlier, which are quite clear and do not find any fault in the Impugned Order. ➢ By any standard, the shareholding of ....
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....pective requisite majorities in numbers and value of such class of members and creditors of the Companies as may be directed by NCLT or required under applicable law. (iii) The Scheme being approved by the public shareholders of the Transferee Company and the Transferor Company 2 through e voting Document 2 (iv) The Scheme being sanctioned by NCLT under Section 230 to 232 of the Companies Act (v) There having been no interim or final ruling, decree, or direction by any governmental authority, which has not been stayed by an appellate authority, which has the effect of prohibiting or making unlawful, the consummation of the proposed scheme by any of the companies (vi) The certified copy of the NCLT Order being filed with RoC by respective companies. Document 3 Annexure- R-7 List of parties Annexure A 6: Details of percentage of debts of the Creditors with respect to the total outstanding debts of the Company Claim as Sl No Particulars Claim as provided by Legal Dept provided by (Rs) Legal Dept % of Debt (Debt as on 31st March 21) (Rs Crs) 1 Adilakshmi Engineering 24,77,587 0.25 ....
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....proach adopted by the valuers. some of the material companies involved in the scheme. In granting the no observation letter by Stock Exchanges and SEBI, compliance to requirements in relation to the integrity of the valuation report is considered as an integral part of review by Stock Exchanges and SEBI. Audit Scheme allows the The Scheme of Respondent participant companies to Company no. 1 and 3, were first by the Audit wipe out the stake of considered public shareholders and Committees and the Board of convert the same into its Directors of these respective capital reserve. Scheme was promoter Committees and the Board of Directors of both companies have independent directors and hence the level of review and scrutiny is far higher. The The companies. hence oriented and against public policy. The Audit Committee and the Board of the respective companies were provided with valuation reports and fairness opinions prepared by independent experts. C.A. Vikrant Jain and Emst and Young Merchant Banking Services LLP for Respondent Company 1, and C.A. Sujal A. Shah an....