Does Tribunal have power to dispense with the meetings of Shareholders and Creditors in a scheme of arrangement or amalgamation?

Section 230(9) provides power to the Tribunal for dispensation of such meetings and Tribunal is required to exercise its discretion in accordance with the legal precedents.

The NCLAT in the matter of DLF Phase – IV Commercial and Ors. cleared the ambiguity on NCLT’s power to dispense with the meetings of shareholders and creditors in a scheme of arrangement/amalgamation.

The Appellant, being aggrieved by the order of NCLT, as enumerated below, preferred an appeal with NCLAT.

“…this Bench is of the view that such dispensation either in case of shareholders and creditors whether secured or unsecured creditors is not permissible under the provisions of Companies Act, 2013, specifically if read with Section 230(9) of the Act, which speaks only about creditors. Peculiar facts of the case are that the consent affidavits of unsecured creditors in respect of Applicant No. 4 and of equity shareholders, secured as well as unsecured creditors are not obtained. Therefore, it is hereby held that even the scheme is in respect of subsidiaries but merely on this ground, dispensation of meetings of shareholders, secured and unsecured creditors cannot be dispensed with…”

Section 230 whereof provides for passing of an order by the Tribunal directing convening of a meeting of the creditors or class of creditors, members or class of members, as the case may be. Sub-section 9 thereof vests discretion in the Tribunal to dispense with calling of a meeting of such creditors or classes thereof where such creditors or class of creditors, having atleast 90% value, agree and confirm, by way of affidavit to the scheme of compromise or arrangement. Admittedly, in the instant case dispensation in regard to holding of meeting qua Shareholders of Appellant Nos. 1 to 4 was sought on the basis of their written consent obtained by way of affidavits. Same was the case as regards Unsecured Creditors of Appellant Nos. 1 to 3 as also the Secured Debenture Holders, Warrant Holders and CCD Holders of Appellant No.5. As regards these, the Tribunal exercised its discretion and dispensed with calling of their meeting. The first motion by the Appellants before the Tribunal sought dispensation in regard to calling of meeting of Members and Creditors, etc. This being the very threshold stage and not the Stage envisaged for consideration of the scheme for amalgamation by the Tribunal on merit, the Tribunal was required to exercise its discretion in accordance with the legal precedents and views adopted by the Coordinate Benches or Larger Benches.

The Hon’ble Bench Members referred to some of judgments and the legal position and concluded that the impugned order is per incuriam. It was also noticed this judgment that following of the judicial precedent and observing the judicial view propounded by a Coordinate Bench in compliance is a matter of judicial discipline and the only course open to a Coordinate Bench of equal strength taking a different view is to refer the matter to a larger Bench. This is the law of the land declared by the Hon’ble Apex Court and has to be observed and adhered to strictly. The Tribunal should have applied its mind in the light of judicial precedents brought to its notice by way of an affidavit, and in the event of the views expressed by the Coordinate or Larger Benches being squarely applicable, followed the same. Such application of mind being abysmally absent, the impugned order is unsustainable and has to be set aside to the extent it relates to directions for convening of the meetings of Unsecured Creditors of Appellant No. 4 and the meetings of the Equity Shareholders, Secured and Unsecured Creditors of Appellant No.5.

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