Case Analysis: Matter of Amalgamation Of Prashant Commercial Holdings Limited With Threads (INDIA) Limited
By Nemi Bhavsar
Transferor Company is Prashant Commercial Holdings Ltd. and Transferee company name is Threads India Ltd. Former is the holding company of latter. Latter is the wholly owned subsidiary of former company.
Board of Directors of both held their respective meetings and have reached to an agreement pertaining to the Scheme of Amalgamation.
Transferor Company has 7 equity shareholders and no preference shareholders. Transferee being wholly owner subsidiary company of transferor has 7 equity shareholders, 4 secured creditors and 493 unsecured creditors.
Approval of same scheme is required by various stakeholders for which meetings need to be convened as per provisions of Companies Act read with Companies (Compromises, Arrangements and Amalgamations) Rules, 2016(hereinafter referred as 'Rules of 2016'). For this purpose of completion of procedural formalities and certain other prayers, interference of tribunal was required like for convening meetings of creditors etc. and for seeking other directions etc.. That's why these companies being applicants approached the tribunal having jurisdiction in such regards.
Citation: Company Application No. CA (CAA)No. 04/ALD of 2021Coram: Hon'ble Justice (Retd.) Rajesh Dayal Khare, Member (Judicial)
S. 103(a)(i): It provides that in regards of a public company, quorum for meetings is five members personally present in case of overall members on fixed date of meeting when are not more than 1000.
S. 105: It provides that any person entitled to attend and vote at a meeting may appoint some other person as a proxy to attend and vote on his behalf but the same shall not be entitled to speak at that meeting and also not entitled to vote except on a poll.
S. 230(3): When a meeting has been proposed via an order passed by Tribunal, notice of same has to be sent to creditors along with an accompanying statement which discloses details as to the compromise or arrangement in addition to copy of valuation report plus explaining other things such as ill effects of same on creditors etc. This has to be done amongst other things prescribed in this provision.
S. 230(4): When the above mentioned notice is served to the respective persons, they must also be made aware as to the voting right they can exercise by different modes like ballot paper, proxy etc.
S. 230(5): Such notice shall also be sent to Central Govt., Income Tax Authorities, RBI amongst other such agencies along with those which are likely to be affected by such compromise or arrangement in order for them to make representations.
S. 230(6): When meeting on direction of tribunal is held and voting exercise by valid ways when reach to consensus as to compromise or arrangement and the same gets sanctioned by tribunal subsequently, it becomes binding on company, its creditors etc.
S. 232: Where application u/S 230 is made to Tribunal for sanctioning of compromise that two companies have arrived at or an arrangement that has been proposed with connection to scheme of amalgamation of those companies and whereby the same scheme lays down aspects such as transfer of liabilities etc. from one company to other, then Tribunal enjoys power to order meeting of creditors or their class and as per the manner directed by it. Provisions of S. 230 Subsection 3 to 6 will apply in those scenarios
Whether the need of convening of meeting amongst shareholders of both transferor and transferee company respectively can be dispensed with?
Whether the formalities of convening meeting amongst secured and unsecured creditors of transferee company like issuing of notice to unsecured creditors constituting less than 1 percent of debt owed to them by transferee company can be dispensed with?
What are other procedural formalities to be followed and taken into consideration while convening the above mentioned or similar like meetings and what will be other formalities post these meetings as per applicable rules and provisions?
It was contended by applicant companies that since all equity shareholders of transfer company have consented to the scheme of amalgamation by way of affidavit, need of convening of meeting shall be done away with. The same reasoning was accepted by the Tribunal.
From the perspective of need of holding meeting of creditors both secured as well as unsecured is concerned of the transferor company, in absence of both kinds of creditors, the need did not arise.
As far as holding meeting of shareholders of transferee company is concerned, owing to the fact that they are wholly owned subsidiary company of transferor company and the latter having 7 equity shareholders, their consent along with the consent of the nominees by way of affidavit in favor of the proposed scheme of amalgamation was considered to be enough for not needing to convene meeting and tribunal accordingly dispensed with it.
There were 4 secured creditors of Transferee company having debt value of around 39 crores and the transferee company had sought as a prayer to convene meeting of those creditors from the tribunal. This prayer was accepted by tribunal and a date was fixed for holding the same with objective of considering the proposed scheme of amalgamation of both companies and accordingly approve it with or without modifications if thought fit.
Convening of meetings for transferor and transferee company's shareholders was dispensed with by Tribunal as they consented in support of scheme of amalgamation by way of affidavit.Date of meeting of secured as well as unsecured creditors of transferee company was fixed by the tribunal in order for them to delve into the scheme of amalgamation and then approve the scheme with or without modification if they thought fit. Other directions were issued to be followed for conducting those meetings which are mostly based on Rules of 2016 in addition to some others mentioned underneath.2 advocates were made chairperson and alternate chairperson for these meetings and practicing company secretary as scrutinizer. A particular amount was asked to be paid to each as honorarium in addition to arrangement of travel, stay and other such expenses.The above mentioned chairperson was assigned task of sending the notices pertaining to meeting and was conferred powers related to conduct of meeting, determination of procedural questions which may arise or pertaining to any adjournment that may be there or related to amendment prescribed to scheme or resolution by any member of meeting.