NCLT-Kochi allows First Motion application in MIDAS Group merger

Brief Background

The Applicant companies are owned by Panampunna Family known as the 'Midas Group' and these companies had proposed a 'Scheme of Amalgamation' to synergize and consolidate their resources. The Board of Directors of the Applicant Companies had unanimously approved the Scheme of Amalgamation on 14.09.2021.

Under the Scheme of Amalgamation, the Transferor Companies were Sabari Rubber Pvt. Ltd., Parampuzha Treads Pvt. Ltd., Kaveri Treads Pvt. Ltd., Sona Rubber Pvt. Ltd., Peacock Rubbers Pvt. Ltd., Guardian Rubber Pvt. Ltd., Agro Trades and Services Pvt. Ltd., Ideal Rubber Pvt. Ltd., Midland Treads Limited, Midas Retreads India Pvt. Ltd., Zeus Rubber Pvt. Ltd. and Sumeru Rubber Pvt. Ltd. (hereinafter collectively "Transferor Companies") and the Transferee Company was Standard Treads Pvt. Ltd. ("Transferee Company") into which all Transferor Companies were set to amalgamate.

Application Before NCLT Kochi

In February 2022, a joint application was filed under Sections 230-232 of the Companies Act, 2013 read with Rule 15 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, by the Transferor Companies and the Transferee Company, seeking direction for dispensation of the meeting of shareholders, secured and unsecured creditors, in view of the merger of the Applicant companies.

The Applicants submitted that the Scheme of Amalgamation would result in consolidation and streamlining of the Group's businesses by ensuring a common shareholding pattern. The Scheme would end the cross holdings between the participating companies, which was a hindrance for the corporate restructuring of the Group businesses.

Decision Of The NCLT

The NCLT Bench observed that the requirements of Section 230(2)(a) of the Companies Act, 2013 such as disclosure to the Tribunal regarding financial position, auditor's report on the accounts and the pendency of any investigation or proceedings against the company were complied with by the Applicants.

It was further observed that under Rule 24(2) of the Companies (Compromise, Arrangements and Amalgamation) Rules, 2016 the Tribunal is empowered to dispense with any procedure prescribed under the said Rules. Moreover, under Section 230(9) of the Companies Act, 2013 the Tribunal can dispense with calling of a meeting of Creditors or class of Creditors where such Creditors or class of Creditors, having at least 90% value, agree and confirm by way of affidavit, to the scheme of compromise or arrangement.

Reliance was placed on the judgment of NCLT Kolkata in Jupiter Alloys & Steel (India) Limited V. Jupiter Wagons Limited (2017 SCC Online NCLT14022), wherein it was held that NCLT is empowered to dispense the meeting of shareholders by virtue of its inherent powers vested in Rule 11 of the NCLT Rules, 2016.

The Bench considered that the Applicant Companies had received consent affidavits from all the Equity shareholders and No Objection Certificates (NOC) from the Unsecured Creditors regarding their unequivocal, unconditional consent to the Scheme of Amalgamation. Further, in the respective consent affidavit, each of the Equity Shareholders had waived their right for the notice for calling a meeting of the Equity shareholders, right to attend and participate in such meeting or any other process in connection with the approval of the Scheme. Even the Unsecured Creditors in their NOC had mentioned that they do not have any objection against the Company seeking dispensation of holding of their meeting for approval of the Scheme.

Accordingly, the NCLT Bench allowed the prayers of the Applicant Companies and held:

"We are of the considered opinion that the prayers of the Applicant Companies deserve to be allowed and that the meetings of the members and publication of notice of meetings in the newspapers of the Transferor Companies and Transferee Company as envisaged under Section 230(1) of the Companies Act, 2013 is not necessary and will not serve any purpose, if called, be dispensed with subject to strict compliance of the conditions laid down herein below:"

The requirement of convening meeting of shareholders, secured and unsecured creditors was dispensed with for all the Applicant companies, except for Midas Retreads India Pvt. Ltd. and Standard Treads Pvt. Ltd., as few of their unsecured creditors had not given NOC/consent affidavits. Accordingly, a meeting was directed to be held for the unsecured creditors of these two companies on 16.06.2022.

Case Title: Sabari Rubber Private Limited and Ors., CA (CAA)/1(KOB)/2022.

The companies were represented by Advocate Nebil Nizar instructed by JKM Associates Senior Partner P.K. Krishnamurthy and Partners- Sujith K. Ravindranath, Sasikanth Bhat and Amal A. Azeez

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