2022 (6) TMI 1532 - Tri - Companies Law

Sanction of proposed Composite Scheme of Demerger - Section 230-232 r.w. Section 66 and other applicable provisions of the Companies Act 2013 read with Rule 3 and 18 of the Companies (Compromise Arrangement and Amalgamations) Rules 2016 - territorial jusrisdiction - registered office of both the applicant companies are situated within the territorial jurisdiction of Registrar of Companies Ahmedabad Gujarat which is falling under the jurisdiction of this Tribunal or not - HELD THAT - The directions are issued with respect to holding and convening or dispensing the meeting of the Equity Shareholder Secured/Unsecured Creditors as well as issue of notices including by way of paper publication - The Application is allowed and disposed of.

Summary

The core legal questions considered by the Tribunal in this matter pertain to the approval and procedural compliance of a Composite Scheme of Demerger under Sections 230 to 232 read with Section 66 and other applicable provisions of the Companies Act, 2013. Specifically, the issues include: (i) whether the proposed demerger scheme between the Demerging Company and the Resulting Company complies with statutory requirements under the Companies Act, 2013 and the Companies (Compromise, Arrangement, and Amalgamations) Rules, 2016; (ii) the jurisdictional competence of the Tribunal to entertain the application; (iii) the adequacy of approvals from the Board of Directors, shareholders, and creditors, including dispensation of meetings where consent is unanimous; (iv) the compliance with procedural requirements such as notice, voting, and meetings including use of video conferencing and e-voting; (v) the conformity of the scheme with applicable accounting standards and valuation fairness; (vi) the absence of any pending proceedings or investigations that would impede the scheme; and (vii) the sufficiency of disclosures and approvals from regulatory authorities including stock exchanges, Competition Commission of India, and SEBI.

Regarding the jurisdictional competence, the Tribunal noted that both applicant companies have their registered offices within the territorial jurisdiction of the Registrar of Companies, Ahmedabad, Gujarat, thereby vesting jurisdiction with this Tribunal to adjudicate on the scheme.

In relation to the statutory compliance of the scheme, the Tribunal examined the provisions of Sections 230 to 232 of the Companies Act, 2013, which govern compromise, arrangement, and amalgamation, along with Rule 3 and Rule 18 of the Companies (Compromise, Arrangement, and Amalgamations) Rules, 2016. The scheme proposed a demerger of the Spinning Division of the Demerging Company into the Resulting Company, a wholly owned subsidiary, on a going concern basis with mirror image shareholding. The Tribunal verified that both companies were empowered by their Memoranda and Articles of Association to enter into such a scheme, and that the Board of Directors of both companies had approved the scheme at duly convened meetings. The scheme was submitted to and approved by the stock exchanges and the Competition Commission of India, with observation letters and orders placed on record.

The Tribunal also scrutinized the financial and valuation aspects. Certified reports from a Registered Valuer and a SEBI-registered Category-I Merchant Banker confirmed the entitlement ratio of equity shares and fairness of the valuation. Statutory auditors certified that the accounting treatment proposed in the scheme conformed to applicable Accounting Standards under Section 133 of the Companies Act, 2013. These certifications supported the scheme's financial and accounting propriety.

On the issue of meetings and approvals, the Tribunal considered the lists of shareholders, secured creditors, and unsecured creditors of both companies. It was noted that the Demerging Company had a large number of equity shareholders and creditors, while the Resulting Company had few shareholders and no creditors. The Tribunal granted dispensation from convening meetings of secured creditors of the Demerging Company and all classes of creditors and shareholders of the Resulting Company, based on 100% consent affidavits filed. However, meetings were directed to be convened for the equity shareholders and unsecured creditors of the Demerging Company, with the mode of meeting permitted through video conferencing or other audio-visual means, reflecting compliance with contemporary procedural norms including those mandated by the Ministry of Corporate Affairs circulars. The Tribunal mandated that voting be conducted via remote e-voting and e-voting at the meeting, ensuring compliance with SEBI circulars and listing regulations applicable to the Demerging Company as a listed entity.

Regarding notice and publication requirements, the Tribunal directed that notices in Form No. CAA 2, along with the scheme and explanatory statements, be sent to all equity shareholders and unsecured creditors of the Demerging Company at least one month prior to the meetings. Additionally, publication of the meeting notice in English and Gujarati newspapers was ordered, with a provision for free supply of the scheme documents. The Tribunal also granted exemption from sending individual notices to small unsecured creditors with debts below Rs. 50,000, while ensuring their voting rights were preserved through public notice and e-voting.

The Tribunal further appointed independent advocates as Chairperson for the meetings and a practicing company secretary as scrutinizer to oversee the voting process, ensuring procedural fairness and transparency. It clarified the quorum requirements under Section 103 of the Companies Act, 2013, including attendance through video conferencing, and specified that proxy voting would not be permitted in such virtual meetings, consistent with MCA circulars, although voting through authorized representatives was allowed.

On the issue of regulatory compliance and disclosures, the Tribunal required that notices in Form No. CAA 3, along with the scheme and explanatory statements, be sent to the Central Government through the Regional Director, Registrar of Companies, Income Tax Department, Reserve Bank of India, stock exchanges, SEBI, and Competition Commission of India. These authorities were afforded a 30-day window to raise any objections or representations, failing which their silence would be deemed no objection. The Tribunal emphasized that any representations made by these authorities must be filed with the Tribunal and supplied to the applicant companies, ensuring due process and opportunity for regulatory scrutiny.

The Tribunal found no pending investigations, winding-up petitions, or insolvency proceedings against either company under the Companies Act, 2013, Companies Act, 1956, or Insolvency and Bankruptcy Code, 2016, which could impede the scheme. This absence of adverse proceedings supported the scheme's viability and compliance with statutory prerequisites.

In conclusion, the Tribunal allowed the application and issued detailed directions for convening and conducting meetings, issuance of notices, voting procedures, and regulatory compliances. The directions ensured adherence to the Companies Act, 2013, the Companies (Compromise, Arrangement, and Amalgamations) Rules, 2016, SEBI regulations, and relevant circulars, thereby safeguarding the interests of shareholders, creditors, and other stakeholders.

Significant holdings include the Tribunal's clear articulation that 100% consent affidavits from a class of creditors or shareholders justify dispensation from convening meetings of that class, thereby streamlining the approval process without compromising statutory safeguards. The Tribunal also underscored the mandatory use of remote e-voting and e-voting at meetings for listed companies, in line with SEBI circulars and the Act, reflecting the modernized framework for corporate governance and stakeholder participation.

Furthermore, the Tribunal's order preserves the principle that small unsecured creditors may be exempted from receiving individual notices if their aggregate debt is below a threshold and cumulative value is negligible, provided public notice is given and voting rights are preserved, balancing procedural efficiency with fairness.

The Tribunal's directions on quorum, voting rights determination, and prohibition of proxy voting in virtual meetings, while permitting authorized representatives, align with the MCA's circulars and ensure procedural integrity in the digital meeting environment.

Overall, the Tribunal's judgment establishes a comprehensive framework for approval and implementation of composite schemes of demerger, emphasizing statutory compliance, procedural fairness, regulatory oversight, and stakeholder protection.