Case Note & Summary
The petitioners, five companies with common directors and shareholders, sought to amalgamate petitioner nos. 2 to 5 (wholly-owned subsidiaries) with petitioner no. 1 (the holding company) under the fast-track merger provisions of Section 233 of the Companies Act, 2013. They complied with all pre-conditions under Section 233(1), including issuing notices, obtaining shareholder approval (90% of shares), filing declarations of solvency, and obtaining creditor approval (90% in value). The transferee company filed the scheme with the Central Government, Registrar, and Official Liquidator under Section 233(2). The Registrar and Official Liquidator raised no objections. However, the Regional Director (respondent no. 2) rejected the application by order dated 12th November 2018 on the sole ground that petitioner nos. 2 to 5 were not solvent as per their balance sheets as on 31st March 2017. The petitioners challenged this order. The court held that under Section 233, the Regional Director has no power to reject a scheme. If he has objections or is of the opinion that the scheme is not in public interest or in the interest of creditors, he must file an application before the NCLT within sixty days under Section 233(5) requesting the Tribunal to consider the scheme under Section 232. Since the Regional Director did not file any such application and instead passed a rejection order, the order was without jurisdiction and bad in law. The court quashed the impugned order and directed the Regional Director to register the scheme and issue a confirmation within two weeks, as all conditions under Section 233 were satisfied.
Headnote
A) Company Law - Fast-track Merger - Section 233 Companies Act, 2013 - Power of Regional Director - The Regional Director has no power to reject a scheme of amalgamation under Section 233; if he is of the opinion that the scheme is not in public interest or in the interest of creditors, he must file an application before the NCLT within sixty days under Section 233(5) requesting the Tribunal to consider the scheme under Section 232. The impugned order of rejection was without jurisdiction and quashed. (Paras 12-15) B) Company Law - Fast-track Merger - Section 233(1)(c) Companies Act, 2013 - Declaration of Solvency - The requirement under Section 233(1)(c) is to file a declaration of solvency with the Registrar; the Regional Director cannot reject the scheme on the ground that the transferor companies are not solvent as per their balance sheets, as the solvency condition is a pre-condition to be complied with by the companies, not a ground for rejection by the Regional Director. (Paras 12-13) C) Company Law - Fast-track Merger - Section 233(5) Companies Act, 2013 - Procedure for Objections - If the Central Government (Regional Director) receives objections or for any reason opines that the scheme is not in public interest or creditors' interest, it must file an application before the NCLT within sixty days; it cannot pass a rejection order on its own. The Regional Director's order dated 12th November 2018 was passed before the expiry of the sixty-day period and without filing any application, hence illegal. (Paras 13-15)
Issue of Consideration
Whether the Regional Director under Section 233 of the Companies Act, 2013 has the power to reject a scheme of amalgamation or is required to file an application before the National Company Law Tribunal (NCLT) if he is of the opinion that the scheme is not in public interest or in the interest of creditors.
Final Decision
The court quashed and set aside the impugned order dated 12th November 2018 passed by respondent no. 2. The court directed respondent no. 2 to register the scheme of amalgamation and issue a confirmation thereof to the petitioners within two weeks from the date of receipt of the order.
Law Points
- Section 233 Companies Act
- 2013
- Scheme of amalgamation
- Regional Director's power
- Fast-track merger
- Wholly-owned subsidiary
- Solvency condition
- Public interest
- Creditors' interest
- NCLT jurisdiction
