Heard the Learned Practising Company Secretary, CS Deepak Kumar Khaitan, representing both the Applicant Companies, assisted by the other Learned Practising Company Secretaries i.e. CS Siddhi Dhandharia, A.C.S, CS Prerna Verma, A.C.S., CS Shruti Singhania, A.C.S., representing the Applicant Company No. 2, at length.
This instant joint application made by the Applicant Companies namely Jupiter Alloys & Steel (India) Limited (Applicant No. 1/Amalgamating Company) and Jupiter Wagons Limited (Applicant No. 2/Amalgamated Company) under Sections 391-394 of the Companies Act, 1956 in relation to the Scheme of Amalgamation proposed between the said applicant companies has been received before the Tribunal on transfer from Hon'ble High Court at Calcutta (where it was initially filed being Company Application No. 896/2016) pursuant to MCA Notification no. S.O. 3676(E) dated 7 December, 2016 which provides that the pending proceedings under the Companies Act, 1956 prior to 15 December, 2016 before any High Court shall transferred to the NCLT. The matter has to be dealt in accordance with Section 434(1)(c) of the Companies Act, 2013 i.e. from the stage before their transfer.
Simaltaneously, pursuant to MCA notification no. S.O. 3677(E) dated 7 December, 2016, Section 230 [except sub-section (11) and (12)] of the Companies Act, 2013 (hereinafter referred to as ‘the Act’) and also Sections 231 - 233 of the said Act came into force w.e.f. 15 December, 2016 and also the Companies (Transfer of Pending Proceedings) Rules, 2016 came into force w.e.f. 15 December, 2016 and the erstwhile provisions of Sections 391 - 394 of the Companies Act, 1956 ceased to exist.
Subsequently, the matter was transferred to this Bench vide File No. 10/03/2017 NCLT dated 20 March, 2017 issued by NCLT, New Delhi.
1. The Ld. Practising Company Secretary has outlined the details of the proposed joint application which are as follows:—
(a) It is a joint application in accordance with Rule 3(2) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
(b) Registered office of both the applicant companies are in the State of West Bengal and hence within the jurisdiction of this Bench.
(c) The benefits of the Scheme have been submitted in paragraph numbers 15 and 16 of the application. The Scheme has been annexed as ‘Annexure - A’ to the application. The salient features of the Scheme have been elaborated in paragraph number 19 of the application.
(d) The applicant no. 1 company and the applicant no. 2 company are authorized by Clause 25 and Clause 20 of the incidental or ancillary objects, respectively to amalgamate with any other company. The Memorandum & Articles of Association of Amalgamating Company is marked as ‘Annexure B’ and that of Amalgamated Company is at ‘Annexure D’.
(e) Necessary Board Resolutions of both the applicant companies passed on 24.11.2016 have also been annexed with the petition and marked as ‘Annexure F’ and ‘Annexure G’ respectively.
(f) Auditors' report in respect of both the amalgamating and amalgamated companies for the financial year ended on 31 March, 2016 have been annexed to the application and marked as ‘Annexure C’ and ‘Annexure E’ respectively.
(g) Both the applicant companies are closely held companies and not listed on any stock exchange. Therefore provisions of stock exchange regulations are not applicable.
(h) List of equity shareholders in respect of both the amalgamating and amalgamated companies have been annexed to the application and marked as ‘Annexure H’ and ‘Annexure J’ respectively.
(i) Consent of all the 15 shareholders of the applicant no. 1 Company have been annexed as ‘Annexure I series’ at paragraph 21 of the application. Consent of all the 12 shareholders of the applicant no. 2 Company have been annexed as ‘Annexure K series’ at paragraph 22 of the application.
(j) The valuation report dated 18.11.2016 has been issued by Singhi & Co., Chartered Accountants and it annexed as ‘Annexure - L’ to the application which provides that each equity shareholder of the Amalgamating company shall be issued 661 fully paid up shares of Rs. 10/- each of the Amalgamated Company for every 100 fully paid up equity shares of Rs. 100/- each held by such equity member in the Amalgamating Company.
(k) The details relating to authorized share capital, paid up share capital, main objects, present business and latest audited annual accounts of the applicant no. 1 company and applicant no. 2 company are submitted in paragraphs no. 5 to 8 and paragraphs no. 11 to 14 of the application, respectively along with the relevant annexures. None of the applicant companies has any debentures.
(l) An affidavit in support of the joint application is sworn by Mr. Asim Ranjan Dasgupta, being the Director of both the Companies and has been filed along with the application.
(m) It has been mentioned at paragraph no. 25 of the application that no proceedings are pending under the provisions of Section 235 and 250A of the Companies Act, 1956 or applicable new provisions under the Companies Act, 2013 against both the applicant companies.
(n) Ld. PCS also submitted that certain corporate actions are under process and both the companies have filed letters dated 28 March, 2017 with this Hon'ble Bench with respect to Share Subscription and Shareholders' Agreement executed between Tatravagonka A.S. (“Tatra”), Mr. Vivek Lohia and Mr. Vikash Lohia (“Promoters”), Jupiter Metal Spring Private Limited and Karisma Goods Private Limited (“Confirming Parties”) and Jupiter Wagons Limited. Jupiter Wagons Limited is now considering to proceed with the second tranche of allotment and accordingly the following corporate actions are under process, which may be completed within April, 2017:—
(i) Alteration of the Memorandum of Association of Jupiter Wagons Limited by increasing the present authorized share capital of the Company from Rs. 2,00,00,000/- (Rupees Two Crores Only) divided into 20,00,000 (Twenty Lakhs) equity shares of Rs. 10/- (Rupees Ten Only) each to Rs. 2,30,00,000/- (Rupees Two Crores Thirty Lakhs Only) divided into 23,00,000 (Twenty Three Lakhs) equity shares of Rs. 10/- (Rupees Ten Only) each ranking pari passu in all respect with the existing equity shares of the Company.
(ii) Allotment to Tatra of 3,33,796 (Three Lakhs Thirty Three Thousand Seven Hundred Ninety Six) equity shares of the Jupiter Wagons Limited of face value of Rs. 10/- (Rupees Ten Only) each at a price of Rs. 524.27/- (Rupees Five Hundred Twenty Four and Twenty Seven Paise Only) each.
(iii) The aforesaid corporate actions shall be in accordance with Clause 3.6.1(v) of the proposed Scheme.
(iv) No Company shall change the consideration/share swap ratio as mentioned in Clause 4.3.1 and Clause 4.3.2 of the proposed Scheme.
2. Ld. PCS submitted the following grounds for dispensation of calling the meetings of the members and creditors:—
(a) The number of shareholders of both the applicant companies are very small. There are only 15 shareholders in the applicant no. 1 company and there are only 12 shareholders in the applicant no. 2 company as mentioned in paragraph nos. 21 and 22 of the petition and the details are annexed at ‘Annexure H’ and ‘Annexure J’ of the petition respectively.
(b) Each and every shareholder of both the applicant companies have given their consents for the scheme which are annexed at ‘Annexure 1-1 to 1-15’ and ‘Annexure K-1 to K-2’ of the petition respectively. The shareholders being Indians have filed their consents by way of affidavits. The only one shareholder (body corporate) being foreign resident has filed Board Resolutions & consent letters for both the companies. The affidavits are duly identified and notarized. There are 8 common shareholders in both the applicant companies.
(c) Section 230(9) of the Act itself provides the method of affidavits when it deals with creditors. Hence there may not be different footings for members and creditors and tough directions be given to ensure the authenticity of the affidavits.
(d) Since all the shareholders have already given consent in writing prior to the meeting, hence the meeting cannot serve any further purpose than completing a mere formality. Substantial compliance rather than formal compliance be considered, if it meets, the object and intent of the statute.
(e) As mentioned in paragraph 24 of the application, the financial position of applicant/amalgamated company shall have positive net worth post effectiveness of the Scheme and there has been no compromise with the creditors and that the respective creditors would, in no way, be affected by the scheme and that all the liabilities of the Amalgamating Company shall stand transferred to the Amalgamated Company and hence the creditors meeting is not relevant at all.
(f) Creditors are fluctuating body on day to day basis and their interests are not adversely affected in any manner by the proposed Scheme. Scheme does not contemplate any corporate debt restructuring exercise as contemplated under Section 230(2) of the Act.
(g) If the applicants are to comply with the proviso to sub-section (4) of Section 230 of the Act, then the data base of last audited financial statement has to be used but it is not practically possible that those who were creditors as on 31 March, 2016 may still be the creditors today i.e. March, 2017. Hence the interest of current creditors cannot be protected in any manner by giving notice to such old creditors and that may not be the intent of the law.
(h) The above process will also help resolve the practical difficulty under Section 230(6) of the Act, because the concept of present and voting as per the old Section 391(2) of Companies Act, 1956 is not carried forward in the new law.
(i) Section 230(9) of Act is prescribed for an application falling under Section 230 of the Act where such an application cannot satisfy the conditions of Section 232(1)(a) and 232(1)(b) of the Act and if both these conditions are satisfied then the application falls purely under Section 232 of the Act.
(j) Almost all the High Courts have exercised discretion under Section 391(1) of the Companies Act, 1956.
(k) Section 232 of the Act is a specific provision carved out by the legislature when both the conditions mentioned in clauses (a) and (b) of sub-section (1) of Section 232 of the Act are satisfied and in that it is a settled principle of law that specific provision will override the general provision. If entire procedure of Section 230 has to be adopted also in case of Section 232 then there will be no utility of the specially carved out provision and it will become redundant.
(l) Section 232(1) of the Act uses the word “may” in similar manner as Section 230(1) of the Act.
(m) Section 230(3) of the Act and Section 232(2) of the Act and Rule 6 of the Companies Compromises, Arrangements and Amalgamations Rules, 2016 all start with the word “Where” and this read with the word “may” gives ample opportunity to read the provisions that there are two situations, one where a meeting is held and the other where a meeting is not held, in both situations permitted by the Court.
(n) Meetings should be dispensed with in cases where the companies are closely held with small number of shareholders or creditors or when the financial position of the companies are such that they would not be able to bear the expenses in this regard in going strictly by the Act and the Rules made thereunder if the Bench is convinced that there is no malafide and if the applicants are ready to give further undertakings as the Bench may direct.
(r) The recent orders of the various Benches of NCLT have been differing from each other but the Bengaluru Bench vide Order dated 14.03.2017 in the matter of Puma India Corporate Services Private Limited has considered the issue of dispensation of meetings in the favour of the applicants. It was submitted that dispensation was allowed by the Bengaluru Bench even in the case of Coffee Day Overseas Private Limited vide order dated 02.02.2017 which was in between the Order of Principal Bench dated 13.01.2017 and the Order of Mumbai Bench dated 13.02.2017.
(s) The Hon'ble Bench is empowered to do so in the interest of justice under Rule 11 of National Company Law Tribunal Rules, 2016 read with Rule 24(2) of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
3. In my view, there is imperative need to examine Section 230 and Section 232 of the Companies Act, 2013 and Rules made thereunder including the NCLT Rules, 2016 in the context of the objectives of the new Act and the legislative history behind this subject.
Upon reading of Section 391(1) of the Companies Act, 1956 vis-a-vis Section 230(1) of the Companies Act, 2013 it manifests that the language used under the old Act and the new Act being para materia to each other and both the Acts use the words “may” before “…order meeting” Section 232(1) of the Companies Act, 2013 also uses the word “may” in similar manner as Section 230(1) of the Companies Act, 2013.
Section 230(3) of the Companies Act, 2013 and Section 232(2) of the said Act and Rule 6 of the Companies (Compromises, Arrangements and Amalgamations Rules 2016, both start with the word “Where” and this has to be read with the word “may” as mentioned hereinabove. Now a question arises, that what was the legislative intent and the ratio decidendi behind using the word “may” and it is important to understand as to why the High Courts have exercised discretion under Section 391(1) of the Companies Act, 1956. It has to be accepted that the word “may” introduces an element or an essence of discretion and whenever the question of discretion comes in, authority follows and perhaps that is the reason why the authority and the inherent powers are granted so that in the interest of justice the same can be exercised in appropriate situations. Morever, discretionary things are not fixed by rules but need application of judicial mind where the adjudicating authority has to consider each individual case based on facts and circumstances and discretion can be predictable in identical situation. If the word “may” is directory/mandatory and not “discretionary” then the meaning of such a rigid interpretation could also be that the Tribunal does not have the power to reject or dismiss the application; but that is not the case. If the Tribunal can use the word “may” to dismiss the application, it will not be fair to apply this discretion only for dismissal and not for other reliefs, where the facts & circumstances so require. However, discretion does not confer any authority to be exercised in arbitrary and wanton manner and should be exercised after considering entire facts and circumstances.
It cannot be ignored that almost all the High Courts have exercised this discretion since long and dispensed with the calling of the meetings in appropriate situations. The precedents created by the High Courts to dispense with the requirement of convening the meetings are worth and continuation of such precedents are virtue in the era of case of doing businesses as well as future course of corporate actions. A settled issue should not be unsettled without proper reasons. Thus the notion that calling of meetings is mandatory does not stand.
Regard being had to the precedents set forth by the Hon'ble High Courts, I am of the view that I have no reason to depart from the precedents created by the Hon'ble High Courts to dispense with the requirements of covening the meetings of the shareholders and creditors of the Company, if the Bench is satisfied in all respects. In the instant case both the applicant companies have few shareholders and all of them have given their written consents/affidavits and post merger there shall be positive net worth and the creditors are not compromised.
That apart, as we are in the era of case of doing business, sometimes the advantage/effectiveness of corporate actions like mergers and amalgamations will be reduced to nullity if there is delay in time and unless the discretion can be used to plug the gaps, such delays may fade away the purpose of mergers and amalgamations.
In this case, the number of shareholders of both the applicant companies are very small (including majority common shareholders) and all of them have given their consents for the scheme in writing and the financial position of applicant/amalgamated company shall have positive net worth post effectiveness of the Scheme and there has been no compromise with the creditors and that the respective creditors would, in no way, be affected by the scheme and that all the liabilities of the Amalgamating Company shall stand transferred to the Amalgamated Company. Scheme does not contemplate any corporate debt restructuring exercise.
It is also noted that it would be more meaningful to protect the interest of current creditors instead of past creditors who would no more be the creditors as on today.
Section 232 of the Companies Act, 2013 is a specific provision carved out by the legislature when both the conditions mentioned in clauses (a) and (b) of sub-section (1) of Section 232 of the said Act are satisfied.
The Tribunal is empowered to take appropriate steps in the interest of justice under Rule 11 of National Company Law Tribunal Rules, 2016 read with Rule 24(2) of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
4. In view of the aforesaid facts and circumstances, it hereby directed that:—
(i) Meeting of the members and creditors of both the applicant companies are dispensed with subject to strict compliance of the conditions laid down herein.
(ii) Both the applicant companies shall file their respective list of creditors as on the date of passing of this Order, with the Registry within a fortnight from the date of Order.
(iii) Both the Applicant Companies to serve the notice upon the Regional Director - Eastern Region (Ministry of Corporate Affairs), Registrar of Companies - West Bengal, Income Tax Authority within whose jurisdiction the assessments of the Applicant Companies are made and the Official Liquidator, pursuant to Section 230(5) of the Companies Act, 2013 read with Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 with suitable changes in the notice relating to waiver of the meetings. If no response is received by the Tribunal from the above authorities within 30 days of date of receipt of the notice it will be presumed that such authorities have no objection to the proposed Scheme as per Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
(iv) Both the Applicant Companies to serve the notices upon their current creditors i.e. creditors as on the date of passing of this Order having outstanding debt amounting to not less than five percent of total outstanding debt of the Company as per the list of creditors as on the date of passing of this Order in the same manner as the notices shall be served to various authorities as per Section 230(5) of the Companies Act, 2013 read with Rule 8 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 with suitable changes in the notice relating to waiver of the meetings and with a direction that they may submit their representations, if any, to he Tribunal and a copy of the same shall be simultaneously served on the concerned applicant company. If no response is received by from such creditors within 30 days of date of receipt of the notice it shall be presumed that such creditors have no objection to the proposed Scheme.
(v) The relevant provisions of the Scheme, including Part II, shall stand modified/adjusted to take into account the effect of proposed corporate actions of increase in the authorized share capital and paid up capital of the Applicant No. 2/Amalgamated Company, if implemented before the date of circulation of notice under Section 230(5) of the Companies Act, 2013 and hence the modified/adjusted Scheme be circulated and in case it is not implemented by that time, then also necessary disclosures shall be made by way of appropriate note in the notice to maintain complete transparency. It is directed that in any circumstances, none of the applicant companies shall be permitted to change the consideration/share swap ratio as mentioned in Clause 4.3.1 and Clause 4.3.2 of the Scheme.
(vi) The notices to be served under Section 230(5) of the Companies Act, 2013 as aforesaid shall contain all disclosures as mentioned in Rule 6(3) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 irrespective of the fact that meetings have been dispensed with.
(vii) Joint Advertisement of dispatch of notices to the creditors as above shall be published in accordance with Rule 7 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 with suitable changes as may be practicable.
(viii) Both the Applicant Companies shall furnish copy of the Scheme free of charge within 1 day of any requisition for the same made by every creditor as mentioned above or member of the concerned Applicant Company.
(ix) Both the Applicant Companies to file an affidavit in compliance of all the conditions laid down herein along with original proof of service to all the authorities and creditors.
(x) Liberty is given to file a joint application by both the applicant companies in accordance with Rule 15 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 within 15 days after the expiry of the period of 30 days as mentioned in Section 230(5) of the Companies Act, 2013 and mention the matter for further directions.
(xi) If the consent affidavits/letters of the members annexed with the application are found to be false/dubious, at any stage, then necessary action for committing fraud under Sections 447 and 448 of the Companies Act, 2013 shall be initiated against both the applicant companies and all it's directors for punishment under Section 449 of the Companies Act, 2013.