Tuesday, 17 January 2017

National Company Law Tribunal holds shareholders meeting mandatory for approval of amalgamation scheme of unlisted company, under the Companies Act, 2013

National Company Law Tribunal holds shareholders meeting mandatory for approval of amalgamation scheme of unlisted company, under the Companies Act, 2013

The provisions of Corporate Restructuring i.e. section 230  except sub-section (11) and (12) of 230; 231-233 and sections 235 - 240 was notified on December 7, 2016 vide notification S.O. 3677(E) and were made effective from December 15, 2016.  However the provisions related to cross border merger involving Indian and foreign companies under section 234 are yet to be made effective under the Companies Act, 2013. 

MCA also notified the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 on December 14, 2016 vide notification no. GSR 1134(E) [F.No.2/31/CAA/2013/-CL-V] effective from 15.12.2016. 

National Company Law Tribunal has the power to entertain the compromise or arrangement petitions based on the territorial jurisdiction over the place of the registered office of the applicant/ petitioner companies to the corporate restructuring exercise. 

It is pertinent to note that the Companies Act, 2013 now facilitates compromise/ arrangement schemes between (a) small companies; or (b) holding company and its wholly owned subsidiary company, without the approval of the Hon’ble National Company Law Tribunal in a bid to save time and costs for the companies generally considered as closely held within the group or in situation where public interest is largely not affected.

In a first of its kind order pronounced by the Hon’ble National Company Law Tribunal, Principal Bench, New Delhi (“Tribunal”) under the newly notified compromise and arrangement provisions under the Companies Act, 2013 the Hon’ble Tribunal disallowed dispensation to the meetings of shareholders of the Companies basis the consents provided by them after duly considering the provisions of the Companies Act, 2013 and related rules.  

·         
  • Filing of joint application is allowed instead of filing separate multiple applications by each of the Companies to the compromise/ arrangement scheme.
  • Change in capital structure from the date of last financials till the date of filing of application to be disclosed.  
  • Share exchange ratio shall also be disclosed in the application along with rationale for merger
  • Application to be inter-alia accompanied with list of shareholders and secured and unsecured creditors of the Companies (including debenture and deposit holders) along with their MOA, AOA, audited balance sheet, latest financial position etc.

While passing an order the Hon’ble Tribunal did not allowed dispensation of the meeting of the Shareholders and Creditors of the Companies and held that although the Tribunal may dispense with calling of the meeting of creditors or class of creditors where such creditors or class of creditors, having at least 90% (ninety percent) value, agree and confirm, by way of affidavit, to the scheme of compromise and arrangement.  However the provisions of section 230(9) does not provide for the dispensation of the meetings of the members. 

The Tribunal also observed that the (Compromise, Arrangements and Amalgamations) Rules, 2016 more specifically Rule 5 which provides for directions to be issued by the Tribunal discloses:
  • ·     For determining the class or classes of creditors or of members meeting or meetings have to be held for considering the proposed compromise or arrangement; or

  • ·     For dispensing with the meeting or meetings for any class of classes of creditors in terms of sub-section (9) of section 230. 


The Tribunal held that keeping in view of the above provisions, dispensation of the meeting of members of the Company cannot be entertained.  Further the Tribunal passed order directing the separate meetings of the all the shareholders, secured creditors and the unsecured creditors of the Transferor Company and the Transferee Company.

Conclusion: 

The aforesaid order passed by the Hon’ble Tribunal, division bench, New Delhi in Re: JVA Trading Private Limited may likely be followed by other benches of the Hon’ble Tribunal and thus affect the timelines for merger involving unlisted companies which were generally allowed dispensations basis the consents from their shareholders under the erstwhile provisions of the Companies Act 1956 administered by the Hon’ble High Courts.  Companies may also appeal the order of the Tribunal before the Hon’ble National Company Law Appellate Tribunal basis the merits of the case.   

For more information contact the author Mr Pankaj Jain at pankaj.jain@vedalegal.in  

New Corporate Laws Treatise www.nclt.in . All rights reserved.

     


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