Rejection of Scheme By NCLT: Objection of Regional Director on grounds of non-compliance

Hotel City Plaza Private Ltd ( “Appellant 1” or Petitioner Company 1 or “Transferor Company”) Trivandrum Apollo Towers Private Ltd ( “Appellant 2” or Petitioner Company 2 or “Transferee Company”) have preferred appeal (Company Appeal (AT) (CH) No. 28 of 2021) before Hon’ble NCLAT Chennai Bench against order dated 05.02.2021 in TCAA/4/KOB/2019 & TCAA/5/KOB/2019 passed by Hon’ble NCLT Kochi Bench dismissing scheme of merger on basis of objection raised by Regional Director, Ministry Of Corporate Affairs.

Regional Director Objections

1. The Transferor Companies have violated Section 74(1)(b) of the or Companies Act, 2013 by retaining amounts of ₹17,50,000/- accepted from Sri Mohammed Kasim Varikkodan, a Director of the transferor company during the year 2014-15 and also ₹15,00,000/- from Sri Ibrahim Kutty, another Director of the transferor company during the year 2015-16.
2. In the Board report for 2014-15 and 2015-16 the Transferor company has not made disclosure regarding acceptance of deposits of the aforesaid two amounts from the said Directors violating the provisions of Section 73 of the Companies Act, 2013
3. They have violated the amended provisions of Sections 73 to 76A prohibiting the private limited companies from accepting or renewing any deposits from shareholders in excess of the aggregate of the paid-up capital, free reserves, and securities premium amount. However, the Transferor company have not disclosed in the Notes to the Financial Statements for the financial year coming after 1^st April 2014, the figure of such amount.
4. The said amount collected from the shareholders have been retained by the Transferor company without repaying them within a period of three years under Section 74 of the Act on the due dates as per the terms of acceptance, which is violation of Section 74(1)(b) of the Companies Act.
5. The transferor company accepted deposits from outside parties, which was not disclosed in the Balance Sheet as on 31.3.2016 but misleading facts were stated that it was received from parties stating it as Long-Term Borrowings. The amount outstanding unsecured loans/deposits is over Rs. 14 crores as compared to share capital of around Rs. 2.5 crores is in violation of Section 448 of the Companies Act which amounts to misleading disclosure;
6. Regional Director states that similar violations were committed by the Transferee Company also.

The petitioner companies filed a reply to the report of Regional Director stating these are not valid grounds for objecting proposed scheme.

Observation of Hon’ble NCLT while dismissing petition

• The decision Hon’ble NCLT Mumbai Bench in the case of UFO Moviez India Limited and another – C.P. (CAA) No./1920/MB/2018 in C.A. (CAA) No. 120 of 2018:-

“It is not that this Bench is against any business combinations, mergers or any proposition that would make the investors, promoters and shareholders more and more profitable. In fact, we welcome it. But at the same time, one must be humble and serious enough to abide by law and any proposition of business must be planned in such a manner that no law, logic and rights of any person are violated.”