NCLAT: Holding Meetings Not Mandatory If Transferor Company is Wholly Owned Subsidiary of Transferee Company with No Reorganization of Share Capital

NCLAT: Holding Meetings Not Mandatory If Transferor Company is Wholly Owned Subsidiary of Transferee Company with No Reorganization of Share Capital

The National Company Law Appellate Tribunal (NCLAT) has reiterated that if the Transferor Company is wholly owned subsidiary of the Transferee Company and there is no reorganization of the share capital of Transferee Company and the creditors and shareholders of the Transferee Company are not affected by the implementation of the Scheme as the assets of the Transferee Company and the Transferor Company far exceed their liabilities, the requirement for holding meetings of the shareholders, secured and unsecured may be dispensed with.

The coram comprising of Justice Rakesh Kumar (Judicial Member) and Dr. Alok Srivastava (Technical Member) set aside the order passed by the National Company Law Tribunal (NCLT), which had directed Reliance Industries Ltd. (RIL/appellant) to get stakeholders consent for the transfer of the Digital EPC Company on a going concern basis from Reliance Projects & Property Management Services Limited (RPPMSL) into the company.

In the present case, the NCLT had directed RIL to obtain consent affidavits of at least 90 per cent of the value of total secured creditors and equity shareholders or to hold the meeting before the final hearing in view of huge credit exposure.

NCLT also directed RIL to serve notice to all their respective creditors with instructions that they may submit their representations before it within 30 days.

Aggrieved by the same, the RIL challenged before the NCLAT contending RPPMSL is a wholly-owned subsidiary of RIL and accordingly no consideration was proposed to be paid by RIL to RPPMSL upon implementation of the Scheme.

The appellant contended that the scheme does not involve the issue of shares by RIL.

The Counsel further urged that Equity Shareholders of the RIL will not be impacted as there would be no dilution of their shareholding in RIL post implementation of the Scheme.

The appellant pointed out that both RIL and RPPMSL are solvent companies and the assets of the EPC Undertaking, which is to be demerged, exceeded its liabilities. Further, the assets of RIL exceeded its liabilities by a wide margin and the net worth of RIL is more than Rs. 4,50,000 crores, argued the appellant.

The NCLAT at the outset remarked that as per Section 232(1) of the Companies Act, 2013 it is left to the discretion of the Tribunal, as the word used is ‘may’, regarding the holding of meeting of the creditors or class of creditors or members or class of members in the manner directed by the Tribunal.

Further, upon perusal of catena of judgments, the NCLAT was of the view that in the present case the transfer of EPC Undertaking from the wholly-owned subsidiary RPPMSL (of RIL) into the parent/transferee company RIL by way of demerger is akin to merger of wholly owned subsidiary with the parent company RIL.

Therefore, the NCLAT set aside the order passed by NCLT and directed that the convening and holding of meetings of Equity Shareholders, Secured and Unsecured Creditors of the Appellant Company RIL is dispensed with.

The bench clarified that consent affidavits of 90 per cent of the total value of shareholders and secured creditors and all unsecured creditors would not be necessary at this stage.