NCLAT Dispenses Shareholders and Creditors Meeting in a Scheme of Amalgamation
 

In the scheme of amalgamation by Reliance Industries Limited¹ (RIL or Appellant), the Hon’ble National Company Law Appellate Tribunal, New Delhi (NCLAT) set aside the order passed by the National Company Law Tribunal, Mumbai Bench (NCLT) that directed the Appellant to hold the meetings of shareholders and creditors under Section 230(1) of the Companies Act, 2013 (the Act).

This alert summarizes the key aspects of the aforesaid judgment in the below paragraphs.
 

Brief Facts of the Case

• RIL had made an application with NCLT seeking its directions on the application for a scheme of arrangement (scheme) under Section 230-232 of the Act. The scheme envisaged demerger/transfer and vesting of the Digital EPC and Infrastructure Business from its wholly-owned subsidiary into the Appellant on a going concern basis.
• The provisions of Section 230(1) of the Act cast the discretion of the NCLT as regards calling the meeting of the shareholders and creditors to ascertain their sense of the scheme.
• Accordingly, the NCLT directed the Appellant to hold the meeting of shareholders and creditors unless their consent affidavits are procured in the gravity of the matter.
• Being aggrieved by the directions of the NCLT, the Appellant preferred an appeal before the NCLAT, requesting the setting aside of the NCLT order and dispensation of the meetings of shareholders and creditors.

 

NCLAT Judgment

 
After hearing the submissions made by the Appellant and the Registrar of Companies (ROC), the Hon’ble NCLAT allowed the appeal, the gist of the judgment is as follows:

• The Hon’ble NCLAT took note of the various pronouncements of the Hon’ble High Court wherein it is held that if the scheme does not involve the issue of the new shares by the Transferee Company and that the Demerged Company and the Transferee Company are solvent companies with assets far exceeding their liabilities, the holding of meetings of equity shareholders and secured and unsecured creditors, including obtaining their consent affidavits, have been dispensed with.
• The Hon’ble NCLAT noted that the discretion given to the NCLT in Section 232(1) of the Act had been interpreted by the Hon’ble Bombay High Court in various matters to clarify that if the Transferor Company is wholly-owned subsidiary of the Transferee Company and there is no reorganization of the share capital of the Transferee Company, and the creditors and shareholders of the Transferee Company are not affected by the implementation of the scheme as the assets of the Transferee Company and the Transferor Company far exceed their liabilities, the requirement for holding meetings of the shareholders, secured and unsecured may be dispensed with.
• In the light of the detailed aforenoted discussion, the Hon’ble NCLAT noted that the transfer of Digital EPC undertaking from its wholly-owned subsidiary into the parent/transferee company RIL by way of the demerger is akin to the merger of the wholly-owned subsidiary with the parent company RIL, accordingly, the equity shareholders of the RIL will not be impacted as there will be no dilution of their shareholding in RIL post-implementation of the scheme.
• Furthermore, both RIL and its wholly-owned subsidiary are solvent companies, and the assets of the EPC Undertaking, which is to be demerged, exceed its liabilities. Moreover, the rights of the secured and unsecured creditors of RIL would not be affected after the implementation of the scheme, and hence, there was no valid ground on which the NCLT passed such direction.
• Hence, based on the facts of this case, the Hon’ble NCLAT set aside the impugned order passed by the NCLT and dispensed the requirement of convening and holding of meetings or taking consent affidavits of 90% of the total value of equity shareholders, secured and unsecured creditors of the Appellant Company RIL.

1. Company Appeal (AT) No. 109 of 2023
2. T.A.No. 11 of 2017 connected with C.A. No. 896 of 2016