The Kolkata Bench of the National Company Law Tribunal (NCLT) has held that a fast-track merger under Section 233 of the Companies Act, 2013 cannot be approved unless shareholders holding at least 90% of the company’s total share capital approve the scheme. 

The bench of Labh Singh (Judicial Member) and Rekha Kantilal Shah (Technical Member) rejected the argument that approval by 90% of the shareholders present and voting at the meeting is sufficient, thereby clarifying the interpretation of the statutory voting threshold for fast-track amalgamations. 

The matter arose from an application filed by the Regional Director, Eastern Region, Ministry of Corporate Affairs, seeking directions under Section 233(5) of the Companies Act, 2013 in relation to the proposed amalgamation of Mallcom VSFT Gloves Private Limited, a wholly owned subsidiary, with its holding company Mallcom (India) Limited. The Regional Director requested the Tribunal to consider whether the scheme should instead be examined under the regular merger provisions contained in Section 232 of the Companies Act. 

Buy Now: JurisHour Ultimate Legal Research Combo – 4 Premium E-Magazines at an Unbeatable Price

The proposed amalgamation was intended to proceed through the fast-track merger mechanism available to mergers between a holding company and its wholly owned subsidiary under Section 233 of the Companies Act. The scheme had been submitted before the Regional Director after following the prescribed statutory process, including service of notices upon the Registrar of Companies and the Official Liquidator. 

During the processing of the scheme, the Registrar of Companies, West Bengal, informed that no complaints or objections had been received against the proposed amalgamation and confirmed that both companies had filed their statutory financial statements and annual returns. Likewise, the Official Liquidator, High Court at Calcutta, reported that the scheme was neither unfair nor prejudicial to the interests of members or the public and expressed no objection to its approval. 

The controversy centred on the approval obtained from the shareholders of the transferee company.

At the shareholders’ meeting, 99.98% of the votes cast supported the scheme, with only a negligible number of votes against it. However, the votes cast in favour represented only 82.19% of the company’s total issued share capital, since not all shareholders participated in the meeting. 

The Regional Director maintained that Section 233(1)(b) expressly requires approval by members holding at least 90% of the total number of shares, and not merely 90% of the votes cast by shareholders present and voting. Consequently, the Regional Director concluded that the scheme did not qualify for approval under the fast-track merger route. 

The transferee company argued that the merger constituted an internal restructuring exercise involving a wholly owned subsidiary and therefore caused no prejudice to shareholders, creditors or the public.

It further contended that Section 233 should be interpreted consistently with the voting principles applicable under Section 230 of the Companies Act. According to the company, the expression “total number of shares” should refer to the shares represented by members present and voting at the meeting, especially in the case of listed companies where securing participation from shareholders holding 90% of the entire share capital is practically difficult. 

The Tribunal rejected this interpretation and held that the statutory language is clear and unambiguous.

It observed that Section 233(1)(b) specifically requires approval by members holding at least ninety per cent of the total number of shares. According to the Bench, had Parliament intended the requirement to relate only to shareholders present and voting, it would have expressly used those words in the provision. Instead, the legislature deliberately adopted a higher threshold linked to the company’s total issued share capital. 

The Tribunal held that the phrase “total number of shares” unequivocally refers to the entire issued shareholding of the company, and not merely the shares represented by shareholders attending and voting at the meeting. 

The Bench also referred to the March 2022 Report of the Company Law Committee, which acknowledged that the 90% threshold under Section 233 is onerous, particularly for listed companies.

However, the Committee itself recognised that the existing provision requires approval by shareholders holding 90% of the company’s total share capital, not merely 90% of those present and voting. The Tribunal noted that although the Committee suggested reconsideration of the threshold, no legislative amendment had yet been enacted. Therefore, the existing statutory requirement remained binding. 

Having concluded that only 82.19% of the total shareholding had approved the scheme, the Tribunal held that the proposed amalgamation was not duly approved in accordance with Section 233(1)(b).

The Bench further ruled that Sections 233(5) and 233(6), which permit the Central Government to request consideration of a fast-track merger under Section 232, apply only where the underlying scheme has first been validly approved under Section 233(1). Since that foundational requirement was absent, the Tribunal held that the question of directing consideration under Section 232 did not arise. 

The NCLT disposed of the proceedings and quashed all proceedings relating to the proposed scheme pending before the Regional Director, effectively bringing the fast-track merger process to an end. 

Membership Required to Access Case Details & Order Copy

To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.

Read More: IBC Moratorium Can’t Stall Cheque Bounce Prosecution Under NI Act: Delhi High Court