90% Unsecured Creditor Consent Sufficient To Dispense with Meetings u/s 230(9): NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that if unsecured creditors with at least 90% of the value have already given their consent by affidavit, meetings of unsecured creditors may be waived under Section 230(9) of the Companies Act, 2013. The Appellate Tribunal has set aside the orders of the NCLT, Chandigarh Bench, which had ordered meetings of the remaining unsecured creditors.

The appeal was preferred against the order passed by the NCLT, Chandigarh Bench (Court-II), in a matter about a Composite Scheme of Arrangement between Archernar Brand Technologies Pvt. Ltd. and other transferor companies, and Mensa Brand Technologies Pvt. Ltd., as the transferee company. The scheme was filed under Sections 230-232 of the Companies Act, 2013.

Although the NCLT waived the requirement for meetings of shareholders and secured creditors, it was reluctant to waive the requirement for meetings of unsecured creditors of the transferor companies, ordering that meetings be held for the non-consenting unsecured creditors, despite the filing of affidavits of consent by unsecured creditors representing more than 90% of the value.

The appellant companies submitted that the NCLT was wrong to order meetings of unsecured creditors when the requirements under Section 230(9) of the Companies Act, 2013, were fully met. It was submitted that the affidavits of consent had been obtained from the unsecured creditors representing more than 90% in value, and as such, there was no discretion left with the Tribunal to order the meetings.

Further, the appellants submitted that the scheme did not contemplate any compromise or variation of the rights of the creditors and that all the unsecured creditors were either paid or would be paid in the ordinary course of business. It was also submitted that ordering meetings of the creditors holding less than 10% of the total debt would result in defeating the very purpose of Section 230(9).

The Regional Director and other objectors were in support of the directions given by the NCLT, arguing that meetings of the unsecured creditors were required to ensure that the process was transparent and fair. It was also argued that some of the unsecured creditors were related parties and, therefore, their consent should not be accorded overriding significance. The objectors argued that failure to hold meetings in such a scenario may prejudice the rights of minority unsecured creditors.

The NCLAT allowed the appeal and held that Section 230(9) of the Act does not permit artificial classification of unsecured creditors or the requirement of consents on the ground that a substantial part of the debt is represented by a related entity. The Tribunal noted that “once the statutory requirement of 90% consent by value is satisfied, the discretion to waive the meetings has to be exercised in accordance with the legislative mandate.” The NCLAT also held that the NCLT’s order to convene meetings of only the remaining unsecured creditors was in violation of Sections 230(6) and 230(9) of the Act, and that the valid consents were rendered.

The two-member bench comprising Justice Mohd. Faiz Alam Khan (Judicial member) and Mr. Indevar Pandey (Technical member) held that procedural steps under the company law should facilitate and not frustrate bona fide corporate restructuring, where the interests of the creditors are not affected.