TaxTMI 
TaxTMI 
2026 (3) TMI 1649
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....llant No. 1, 2 & 3 had conducted their respective Board Meetings and approved the Composite Scheme of Arrangement between the Appellant Companies, their Shareholders and the Creditors. 3. Upon entering into a Composite Scheme of Arrangement, the Appellant Companies filed a Company Application being CA (CAA) / 8 / 230 / HDB / 2024 (First Motion Petition), before the Ld. NCLT, Hyderabad Bench - II, on 09.02.2024, under Section 230-232 of the Companies Act, read with the Companies (Compromises, Arrangements And Amalgamations) Rules, 2016, seeking directions to convene meetings of Equity Shareholders, Preferential Shareholders, Secured & Unsecured Shareholders of the Appellants Companies and to dispense with certain meetings. 4. In the proceedings of the CA (CAA) / 8 / 230 / HDB / 2024 (First Motion Petition), the Ld. Tribunal considered the contents of the Scheme of Arrangement as it stood approved by the Board on 18.01.2024, and proceeded to pass an order on 06.05.2024 allowing the same. However, certain errors had crept in the said order passed by the Ld. Adjudicating Authority which was brought to its knowledge by the Appellant Companies, by way of filing a Memorandum. The Ld....
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....he said Statutory Authorities and also filed clarification by way of affidavits and henceforth. The Appellant Companies were heard on the aspect of implementation of the Composite Scheme of Arrangement and ultimately, the final order was rendered by the Ld. Tribunal on 28.04.2025. 9. Parts of this order, which has been rendered by the Ld. Adjudicating Authority in CP (CAA) No. 30 / 230 / HDB / 2024, has been challenged in the instant Company Appeal, by the Appellant Companies. The reliefs sought for in the instant Appeal are extracted below: "78. In view of the facts mentioned in Paragraph No. VII above, points in dispute and questions of law set out in Paragraph No. VIII and grounds set out in Paragraph No. IX, the Appellant prays for the following relief(s): a) The Hon'ble Appellate Tribunal be pleased to set aside Paragraph 4 of the Impugned Order dated April 28, 2025 (produced as Annexure B) as passed by the National Company Law Tribunal, Hyderabad Bench - II in CP(CAA) No.30/230/HDB/2024, in so far as it relates to issuance of directions to file a separate application for the Demerger as set forth in the Composite Scheme in CP(CAA) No.30/230/HDB/2024. ....
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....ny) to result in Petitioner Company-3 (the Resulting Company) is completed, the same must be submitted as a separate application, so that the requisite statutory compliances pertaining to the demerged businesses may be independently examined and scrutinized." 11. It is the case of the Appellants that, while considering the Scheme, the Ld. Tribunal did initiate the process of sanctioning the Composite Scheme of Arrangement as approved by the Shareholders of the Appellant Companies by allowing the First Motion Petition, that the Composite Scheme had two limbs - Amalgamation between Appellant No.1 and Appellant No. 2 and simultaneous demerger of certain businesses from Appellant No. 1 to be merged with Appellant No. 3 and that, by the impugned order, Ld. NCLT denying sanction of demerger part of the Scheme, on the ground that the demerger must be submitted as a separate application, runs counter to the Composite Scheme of Arrangement as it was approved by the Shareholders of the respective Appellants. 12. If we look into the Impugned Order, in a nutshell, while considering the Scheme, the Ld. Tribunal did proceed to sanction the Composite Scheme of Arrangement based upon the dec....
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.... structure of the Composite Scheme of Arrangement that was approved as a whole by the Shareholders and the Creditors of the Appellants, and that it is a manifest error that had crept into the orders passed by the Ld. Adjudicating Authority. 17. The case of the Appellant is that, since they had approached the Ld. Adjudicating Authority seeking sanction of the Composite Scheme of Arrangement between the Appellants and their Shareholders and Creditors, the Scheme sanctioned should have included the aspect of demerger, because the amalgamation and demerger together constituted parts of the Composite Scheme itself, as particularly contained in the preamble of the Scheme under Clause 1.1 & 1.2. Clause 1.1 states that the Composite Scheme of Arrangement is being presented under Section 230-232 of the Companies Act, 2013, read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, and further read with Section 2(1)(B), 2(19)(AA), 2(19)(AAA) & 2 (41A) of the Income Tax Act, 1961, Clause 1.2 outlines how the amalgamation and the demerger are to be carried out. The case of the Appellant is that since the approved Composite Scheme of Arrangement had, as its basic o....
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....ht under Clause 1.2(b) of the Scheme. Hence, it ought to be deemed to have been approved, more particularly when the entire process of amalgamation and the consequential demerger had been brought into the public domain by inviting objections through publication and issuance of notices to the Statutory Authorities, and none of them raised any objection to the Scheme as a whole and its two self-contained limbs of amalgamation and demerger. 21. In that eventuality, it is argued by the Ld. Counsel for the Appellant that there was no occasion for the Ld. Tribunal to have carved out an exception on its own, requiring that for the purposes of demerger, a separate recourse be followed. 22. It is apparent from the records that after the First Motion Petition had already been allowed, a meeting was convened on 04.07.2024 in compliance with the orders dated 06.05.2024 and 09.05.2024. Further, even at the stage when the second motion was carried before the Ld. Adjudicating Authority, on 16.07.2024, the Scheme continued to proceed in terms of the order of the First Motion Petition, which was later affirmed in the second motion Petition without any demur. Since there was no vital or circum....
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....icularly as contained in Paragraph 1.1, clearly refers to the Demerged Company as the entity created upon amalgamation, namely, the Amalgamated Company of Appellant No. 1, and that, the "Demerged Business" and the "Demerged Undertaking" have been specifically defined in Paragraph 5.1(l) & 5.1(p) of the Composite Scheme of Arrangement. Hence, based on the aforesaid premise, and that in light of the stipulations contained under Paragraph 5.1(p), the demerged company, having been specified therein, cannot be treated as an unspecified Company, and therefore, the demerger could not have been denied. We see no reason to differ from the said arguments. The definition of the demerged undertaking itself, as contained under Clause 5.1(p) of the Scheme, reads as under: (p) "Demerged Undertaking" means the Demerged Businesses as a going concern comprising all its employees and the following rights, obligations, Assets, and Liabilities, in each case to the extent pertaining to the Demerged Business(es) as on the Appointed Date (including but not limited to units of the Demerged Company engaged in the Demerged Business in Shimoga, Belgaum and Delhi Jal Board): (i) all of the De....
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....rued thereon, reserves, provisions, funds, benefits of all agreements, bonds or pass through certificates, the benefits of any insurances, bank guarantees, performance guarantees and letters of credit; (iii) all permits, licenses, grants (including government grants rights to receive subsidies), Permissions, approvals, authorisations, clearances, consents (including environment consents and permits), registrations, entitlements, credits, certificates, awards, sanctions, privileges, memberships, allotments, quotas, no objection certificates, exemptions; (iv) all concession agreements, bids, contracts, agreements, purchase orders/service orders, operation and maintenance contracts, memoranda of understanding / undertakings / agreements, tenders, tariff policies, expressions of interest, letters of intent, lease / license agreements, agreement with customers, service providers, other arrangements, undertakings, deeds, bonds, schemes, trade union agreements, collective bargaining schemes, and other instruments of whatsoever nature and description, whether vested or potential and written, oral or otherwise and all rights, title, interests, assurances, claims and benefi....
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....abad, Maharashtra arising out of concession agreement dated October 8, 2008 where claims have been made by Demerged Company and proceedings were concluded and arbitral award dated July 05, 2018 was pronounced; (c) Arbitration proceeding between Demerged Company and Jammu & Kashmir Economic Reconstruction Agency (J&K ERA) in relation to the disputes arising from and out of the agreement dated November 26, 2008 and initiated vide arbitration notice dated August 31, 2017 issued by Demerged Company, (d) Arbitration proceeding between Demerged Company and Market Management Committee, Koyambedu in relation to the disputes arising from and out of the agreement dated November 4, 2009 and initiated vide arbitration notice dated August 14, 2018 issued by Demerged Company), and (xii) All permanent and temporary employees engaged by Demerged Company at various locations ("Demerged Undertaking Employees"). It is hereby clarified that where any question arises as to whether any specific asset whether tangible or intangible, or liability or contract or employee or item or matter or thing pertains to or does not pertain in the Demerged Undertaking, the same shall be decided mutua....
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....mpletion of amalgamation. In fact, this finding recorded in the impugned order happens to be contrary to the records, for the reason that the Scheme was a Composite Scheme and not a step by step process. Clause 1.1 and 1.2 of the Scheme are extracted hereunder: "1.1) This composite scheme of arrangement ("Scheme", more particularly defined hereinafter) is presented pursuant to the provisions of Sections 230 to 232 and other applicable provisions of the Act (as defined hereinafter) read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, Section 2(1B), 2(19AA), 2(19AAA), 2(41A), conditions, if any, notified under sub-section (5) of Section 72A of the IT Act and other relevant provisions of the IT Act amongst Re Sustainability Limited ("Amalgamated Company" or, upon Amalgamation, the "Demerged Company"), Mumbai Waste Management Limited ("Amalgamating Company"), Ramky Sustainability Solutions Private Limited ("Resulting Company") and their respective shareholders and creditors. 1.2) The Scheme, inter alia, provides for: (a) As a first step, the amalgamation of the Amalgamating Company into and with the Amalgamated Company, pursuant ....
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....t of demerger, as it was sought under the Scheme itself, which was to consequentially come into existence after the Amalgamation, no independent process is required to be resorted to by the Appellants for seeking a demerger as proposed in the Scheme of Arrangement as contained under Clause 1.1 read with Clause 1.2. 34. Further, it is seen that, the Ld. NCLT has, by only sanctioning the Amalgamation and directing a separate application to be filed for the Demerger has considerably altered the terms of the Composite Scheme, which ought not to have been done since the Composite Scheme was approved by the board of directors, shareholders and creditors in their commercial wisdom. This settled position has been laid down by the Hon'ble Supreme Court in Miheer H. Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579 at Paragraph 29 which is extracted hereunder: "29... It is the commercial wisdom of the parties to the scheme who have taken an informed decision about the usefulness and propriety of the scheme by supporting it by the requisite majority vote that has to be kept in view by the Court. The Court certainly would not act as a court of appeal and sit in judgment over th....