NCLAT sets aside NCLT order rejecting Ericsson’s pleas for shareholder meeting

The National Company Law Appellate Tribunal (NCLAT) has set aside an NCLT order rejecting pleas by Ericsson India and Ericsson India Global Services to convene a meeting of their shareholders and creditors to approve a scheme of amalgamation.

A two-member NCLAT bench comprising Anant Bijay Singh and Shreesha Merla allowed the petition filed by the two firms.

On September 23, 2021, a Delhi-based Principal bench of the National Company Law Tribunal (NCLT) had rejected their application seeking permission to convene a meeting after terming it “incomplete and defective”.

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NCLT had observed that before filing such an application, approval of the unsecured creditors of both companies are needed and it cannot be evaded.

This was challenged by both transferor and transferee - Ericsson India and Ericsson India Global Services - before the appellate tribunal, NCLAT.

The scheme of amalgamation between Ericsson India Pvt Ltd (transferor company) and Ericsson India Global Services Pvt Ltd (transferee company) was to take place from the appointed date of April 1, 2021.

Both companies contended that the scheme of amalgamation is between them and respective shareholders and creditors, though they have not made creditors parties to the scheme, as it is pursuant to Section 230(1)(b) of the Companies Act.

Moreover, they had also contended dispensation has been granted by NCLAT in several cases where the case is of a merger of a wholly-owned subsidiary and parent company as is in the present case, where the net worth of both companies was highly positive.

Agreeing to it, NCLAT observed:” We are of the considered view that as the merger is of a wholly-owned subsidiary...into its holding company, no shares would be allotted as consideration pursuant to the merger".

"The proposed scheme will not result in any dilution in the shareholding of the shareholders of the ‘transferee company’, the net worth of the ‘transferee company’ is positive, we are of the considered view that the ratio of this tribunal in the aforenoted judgements can be squarely made applicable to the facts of this case,” it observed.

Hence, this appeal is allowed and the impugned order dated September 23, 2021 is set aside, NCLAT said.

For any merger and amalgamation between two companies, the process is overseen by NCLT and its order is required for calling the meeting of stakeholders which includes shareholders and creditors for seeking their consent.

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