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WHETHER SEEKING DISPENSATION OF SHAREHOLDER’S/CREDITOR’S MEETING IN A MERGER MATTER IS OUR RIGHT OR NOT?

It has been an ordinary practice in law, to seek dispensation with the meeting of class/classes of creditors or members, especially in a scenario where the ‘majority’ of the aforementioned stakeholders have given their written consent to such dispensation.

The article aims to deal with the provisions of section 230-240 of Companies Act, 2013 while endeavouring to throw light exclusively on sub section (9) of section 230. The article is an attempt to analyse the statutory as well as other material aspects dealing with the application of section 230(9) in practical sense.

Let’s have a look at the particular provision to begin with:

Section 230(9): The Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per cent. value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.

Most recent case laws as decided by the Bench of National Company Law Tribunal have also been incorporated for reference and in- depth understanding of 230(9).

CASE STUDY-1: JVA Trading Pvt Ltd and C & S Electric Ltd.

FACTS INVOLVED: In JVA Trading Pvt Ltd and C & S Electric Ltd., JVA Trading Private Limited, the transferor company and C&S Electric Limited, the transferee company, filed an application before the NCLT Principal Bench (New Delhi) under sections 230 and 232 of the Act read with the Companies (Compromise, Arrangements and Amalgamation) Rules, 2016 (“CAA Rules”) wherein it prayed to allow dispensation of meeting with regards to its scheme of amalgamation.

HELD: The Bench held that its power under section 230(9) for granting dispensation of the meeting is limited only to the creditors meeting and therefore it could not, in any way, dispense the meeting of shareholders even in this scenario where the consent of all the shareholders had been obtained by the company.

OBSERVATION: In the particular case, the bench stated that since no provision is mentioned for dispensation for meeting of shareholders, it held the view that no dispensation could be allowed for shareholders meeting.

CASE STUDY 2: Coffee Day Overseas Pvt Ltd. with Coffee Day Enterprises Ltd.

BRIEF FACTS OF THE CASE:

1. The transferor Company made an application before NCLT Bengaluru Bench for dispensing with shareholder and creditor meetings for the reason that it had only two shareholders and two unsecured creditors.

2. All the consent letters of Secured and unsecured creditors were disclosed by the applicant company.

3. The secured as well as unsecured creditors have given their consent for the scheme of amalgamation.

4. In any eventuality where the Applicant Company approaches this Tribunal for seeking the approval of the scheme, it would be open for secured creditors and unsecured creditors who are interested/dis-interested in the scheme of amalgamation to put forth their contention before the Tribunal.

5. In that case, there is no impediment for the applicant company to dispense the meetings of the creditors.

HELD: When all the consent letters have been provided by the creditors for scheme of amalgamation, the meetings of the creditors can be dispensed by the tribunal.

CASE STUDY- 3: Jupiter Alloys & Steel (India) Ltd. with Jupiter Wagons Ltd

FACTS OF THE CASE: In Jupiter Alloys & Steel (India) Ltd. with Jupiter Wagons Ltd the applicant companies had a few shareholders all of whom had submitted written consents in support of the dispensation of the shareholder meeting.

HELD: The court stated that the number of shareholders of both the company are very small 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 such creditors would not be affected by the scheme. Moreover, the Bench was convinced that the amalgamation would lead to a positive net worth and the creditors would not be affected in any manner. Accordingly, the shareholder meeting was dispensed.

CONCLUSION: Where the bench is satisfied that there would be no negative effect on creditors and the consent of shareholders and creditors has been obtained for dispensation of meeting, the bench may pass order for such dispensation.

CASE STUDY 4:

DLF Phase – IV Commercial Developers (Transferor 1), DLF Real Estate (Transferor 2), DLF Residential Builders Ltd (Transferor 3), DLF Utilities Ltd. (Demerged Company) with DLF Limited (Transferee Company)

FACTS OF THE CASE:

1. The transferor company filed an application before the NCLT Chandigarh Bench praying for the dispensation of the meetings of unsecured creditors of the demerging company and shareholders and unsecured creditors of the transferee company.

2. The transferor company argued that its scheme of amalgamation is between wholly owned subsidiaries and their holding company. Therefore, going by the established precedent in NCLT Kolkata’s decision discussed earlier, such a dispensation could be allowed.

HELD: The NCLAT took note of the fact that the proposed amalgamation scheme under sections 230 to 232 of the Act would not result in any dilution in the shareholding of shareholders of Transferee Company, which had a high positive net worth. The NCLAT strongly criticized the Chandigarh Bench for not following established precedents and therefore, not adhering to the judicial discipline of maintaining consistency in legal reasoning. Accordingly, the appeal was allowed, and the matter was sent back to the Chandigarh Bench for fresh consideration based on established legal precedents as set by co-ordinate and larger benches.

CONCLUSION:

Through above all briefings, one can opine that, in case, we submit consent from all the Creditors, then, as a matter of right, we can seek dispensation of Creditor’s Meeting. However, as far as Shareholder’s Meeting is concerned, dispensation right is at the sole discretion of the Bench.

For any clarifications/suggestions or any queries please write drop a comment or write to us at info@sigmalegal.in

TEAM SIGMA LEGAL

(SECRETARIAL DEPARTMENT)

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