WHETHER NCLT CAN WAIVE THE REQUIREMENT OF CREDITOR’S / SHAREHOLDER’S MEETING IN CASE OF MERGER /DEMERGER/AMALGAMATION

WHETHER NCLT CAN WAIVE THE REQUIREMENT OF CREDITOR’S / SHAREHOLDER’S MEETING IN CASE OF MERGER /DEMERGER/AMALGAMATION

In JVA Trading Pvt. Ltd. and C&S Electric Limited.

This case involved a scheme of amalgamation of JVA Trading with C&S Electric. JVA Trading had only four shareholders, all of who had granted their consent to the amalgamation. Hence, the question was whether the shareholders’ meeting of JVA Trading could be dispensed with. Here, after analysing the provisions of the Companies Act, 2013, the NCLT held:

 Section 230(9) of the Companies Act, 2013

In relation to the dispensation of the meeting of the equity shareholders of the Transferor Company is concerned we are not inclined to grant dispensation taking into consideration the provisions of the Companies Act, 2013 and the rules framed there under both of which expressly do not clothe this Tribunal with the power of dispensation in relation to the meeting of shareholders/members. On the other hand reference to Section 230(9) of the Companies Act, 2013 … discloses that 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 and does not provide for the dispensation of the meeting of members.

Companies (Compromises, Arrangements and 

Amalgamations) Rules, 2016)

Further, the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 more specifically Rule 5 which provides for directions to be issued by this Tribunal discloses that determining the class or classes of creditors or of members meeting or meetings have to be held for considering the proposed compromise or arrangement; or dispensing with the meeting or meetings for any class or classes of creditors in terms of sub-section (9) of section 230.

Keeping in view the above provisions, dispensation of the meetings of members of the company cannot be entertained by NCLT.

This effectively means that the NCLT can never dispense with the holding of a meeting of a class of shareholders or creditors (except under section 230(9)) even if such a meeting turns out to be an empty formality. This will certainly add to the costs and inefficiencies in effecting a scheme of arrangement. Under the Companies Act, 1956, courts did regularly grant dispensation despite the absence of any express provision in that legislation or the accompanying rules. It is not as if the affected minority shareholders are without any recourse. It is always possible for them to raise their objections when the scheme is taken up for consideration by the NCLT after the requisite classes of shareholders and creditors have approved it.

Whether NCLT has General Powers to dispense 

the creditor's Meeting ?

From a legal perspective, the NCLT does have general powers that it is at liberty to exercise in order to give effect to a scheme, for example in rule 24(2) of the rules pertaining to compromises and arrangements. However, the NCLT seems to be constrained by the existence of sub-section (9) of section 230, which expressly provides for dispensation of creditors’ meetings so long as they have been consented to by 90% of the creditors in value. The NCLT’s position is that this is only dispensation possible, and no other.

Section 230(9) of the Companies Act, 2013 … discloses that 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 and does not provide for the dispensation of the meeting of members.

Thus , we can come to a conclusion that NCLT will not have any 
authority to dispense with the requirement of creditors meeting except under Section 230(9) of the Companies Act, 2013.