COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI

Company Appeal (AT) No. 180 of 2019

[Arising out of Order dated 7th June, 2019 passed by the National Company
Law Tribunal, Chandigarh Bench, Chandigarh in CA (CAA) No.
39/Chd/Hry/2018]

IN THE MATTER OF:

1. DLF Phase – IV Commercial

Developers Limited,
Having its registered office at
2nd Floor, DLF Gateway Tower,
R-Block, DLF City, Phase – III, …Appellant No.1/
Gurugram - 122002. Haryana Transferor Company No.1

2. DLF Real Estate Builders Limited,

Having its registered office at
2nd Floor, DLF Gateway Tower,
R-Block, DLF City, Phase – III, …Appellant No.2/
Gurugram - 122002. Haryana Transferor Company No.2

3. DLF Residential Builders Limited,

Having its registered office at
2nd Floor, DLF Gateway Tower,
R-Block, DLF City, Phase – III, …Appellant No.3/
Gurugram - 122002. Haryana Transferor Company No.3

4. DLF Utilities Limited,

Having its registered office at
3rd Floor, Shopping Mall,
…Appellant No.4/
Arjun Marg, DLF City, Phase – I,
Demerged Company
Gurugram - 122002. Haryana

5. DLF Limited,
Having its registered office at
3rd Floor, Shopping Mall, …Appellant No.5/
Arjun Marg, DLF City, Phase – I, Transferee Company
Gurugram - 122002. Haryana

Present: Dr. U. K. Chaudhary, Sr. Advocate with Mr. Naveen Dahiya,

Ms. Manisha Chaudhary, Mr. Dhruv Gupta and Mr. Himanshu Handa,
Advocates.
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J U D G M E N T

BANSI LAL BHAT, J.

This appeal preferred under Section 421 of the Companies Act, 2013

(hereinafter referred to as the ‘Act’) arises out of declining of prayer seeking

dispensation of meetings of Unsecured Creditors of Appellant No. 4 and

Shareholders and Unsecured Creditors of Appellant No. 5 in terms of

impugned order dated 7th June, 2019 passed by National Company Law

Tribunal, Chandigarh Bench (hereinafter referred to as ‘Tribunal’). It is urged

that the proposed scheme of arrangement/ amalgamation is a scheme between

wholly owned subsidiaries and their holding company. According to

Appellants a first motion application was filed before the Tribunal seeking

dispensation of meetings of Shareholders and creditors in view of the settled

law on the subject followed by many benches of National Company Law

Tribunal including a judgment of full bench of NCLT, Kolkata. It is the case of

the Appellants that all these judgments filed by way of an affidavit dated 14th

February, 2019 were brought to the notice of the Tribunal but the Tribunal

ignored the same.

2. Learned counsel for Appellants submits that judicial discipline rendered

it imperative upon the Tribunal to follow the judgment pronounced by another

Bench on the same subject and not to pronounce a contrary judgment. He

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relied upon a number of judgments including a three member bench judgment

of NCLT, Kolkata rendered in T.A. No. 11/2017 praying for setting aside of the

impugned order with further direction to the Tribunal to pass an order in

accordance with law considering the judgments rendered by the Coordinate

Benches.

3. Some of the Judgments of Coordinate Benches relied upon by the

Appellants and stated to have been ignored by the Tribunal may briefly be

adverted to:-

(i). In T.A. No. 11/2017 connected with C.A. No. 896/2016, the

decision was rendered by the NCLT, Kolkata Bench in accordance with the

majority view pronounced by the Third Member to whom matter was

referred as there was difference of opinion between the two members of

the division bench on certain points. The majority view, based on the

settled case law, was that the requirement of convening the meetings of

shareholders and creditors of the Company may be dispensed with if

bench is satisfied in all respects. In that case both Applicant Companies

had few shareholders all of whom had given their written consent and the

Tribunal was of the view that there shall be positive net worth and the

creditors were not compromised. Having regard for the same meeting of

shareholders was dispensed with.

Company Appeal (AT) No. 180 of 2019

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(ii). In CA(29)(PB)2017 decided on 11th July, 2017 by NCLT Special

Bench, New Delhi meeting of Unsecured Creditors was dispensed with as

there was no Unsecured Creditor and the Transferor Company was wholly

owned subsidiary of the Transferee Company.

4. It is well settled that a Coordinate Bench is bound to follow the law

enunciated by another Coordinate Bench and if it feels that the earlier view

requires reconsideration, it may refer the matter to a larger bench for

reconsideration. In ‘Sub-Inspector Rooplal & Anr. Vs. Lt. Governor & Ors.’

reported in (2000) 1 SCC 644, the Hon’ble Apex Court, while dealing with the

issue of overruling of an earlier judgment of a Coordinate Bench by the

Tribunal, observed as under:-

“12. At the outset, we must express our serious

dissatisfaction in regard to the manner in which a Coordinate

Bench of the Tribunal has overruled, in effect, an earlier

judgment of another Coordinate Bench of the same Tribunal.

This is opposed to all principles of judicial discipline. If at all,

the subsequent Bench of the Tribunal was of the opinion that

the earlier view taken by the Coordinate Bench of the same

Tribunal was incorrect, it ought to have referred the matter to

a larger Bench so that the difference of opinion between the

two Coordinate Benches on the same point could have been

avoided. It is not as if the latter Bench was unaware of the

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judgment of the earlier Bench but knowingly it proceeded to

disagree with the said judgment against all known rules of

precedents. Precedents which enunciate rules of law form

the foundation of administration of justice under our system.

This is a fundamental principle which every presiding officer

of a judicial forum ought to know, for consistency in

interpretation of law alone can lead to public confidence in

our judicial system. This Court has laid down time and

again that precedent law must be followed by all concerned;

deviation from the same should be only on a procedure

known to law. A subordinate court is bound by the

enunciation of law made by the superior courts. A

Coordinate Bench of a Court cannot pronounce judgment

contrary to declaration of law made by another Bench. It can

only refer it to a larger Bench if it disagrees with the earlier

pronouncement. ……. ”

Hon’ble Apex Court in another case reported in (2005) 2 SCC 59, excerpts

from para 16 whereof are reproduced, observed:-

“….. These being judgments of coordinate benches were

binding on the Tribunal. Judicial discipline required that the

Tribunal follow those judgments. If the Tribunal felt that

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those judgments were not correct, it should have referred the

case to a larger bench.”

5. After hearing learned counsel for Appellants we find that the Appellants

DLF Phase IV Commercial Developers Ltd. (Transferor Company No. 1), DLF

Real Estate Builders Ltd. (Transferor Company No. 2), DLF Residential

Builders Ltd. (Transferor Company No.3) and DLF Utilities Ltd. (Demerged

Company) are wholly owned subsidiaries of the Holding Company ‘DLF Ltd.’

(Transferee Company). The Appellant Companies proposed a scheme of

arrangement interse them, under Section 230-232 of the Act and to achieve

the said object filed first motion being CA NO. 39 before the Tribunal seeking

directions for dispensation of the meetings of Shareholders, separate debenture

holders, warrant holders, compulsorily convertible debenture (CCD) holders

and Secured and Unsecured Creditors of the Appellant Companies. According

to the case setup by Appellants, the proposed scheme would not result in any

dilution in the shareholding of shareholders of Transferee Company, which has

highly positive net worth. It appears that in regard to meetings of Unsecured

Creditors of Appellant No. 4 (Demerged Company) and Shareholders, Secured

and Unsecured Creditors of the Appellant No. 5 (Transferee Company) the

Appellants submitted before the Tribunal that in view of settled legal position

and various judicial precedents such meetings were not required to be held.

The Appellants prayed for dispensation of meetings of their respective

Shareholders and Creditors of Appellants No. 1 to 5 as also in respect of

warrant holders and CCD holders of Appellant No. 5. It was the further case of

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the Appellants that Shareholders of Appellant No. 1 to 4 had given written

consent by way of affidavits. Same was the case with regard to Unsecured

Creditors of Appellants No. 1 to 3 and Secured Debenture Holders, Warrant

Holders and CCD Holders of Appellant No. 5. There were no Secured Creditors

in Appellant No. 1 to 4. The Tribunal dispensed with these meetings to the

extent of aforesaid stakeholders. However, the Tribunal, in terms of the

impugned order declined to dispense with the meetings of Shareholders,

Secured and Unsecured Creditors by holding that the consent affidavits of

Unsecured Creditors in respect of Appellant No. 4 and Equity Shareholders

and Secured and Unsecured Creditors have not been obtained. The relevant

portion of the impugned order reads as under:-

“40. In view of the above, this Bench is of the view that

such dispensation either in case of shareholders and

creditors whether secured or unsecured creditors is not

permissible under the provisions of Companies Act, 2013,

specifically if read with Section 230(9) of the Act, which

speaks only about creditors. Peculiar facts of the case are

that the consent affidavits of unsecured creditors in respect

of Applicant No. 4 and of equity shareholders, secured as

well as unsecured creditors are not obtained. Therefore, it is

hereby held that even the scheme is in respect of

subsidiaries but merely on this ground, dispensation of

meetings of shareholders, secured and unsecured creditors

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cannot be dispensed with. Also, it is stated in the prayer

clause of the application that in the alternate, the Tribunal

may issue directions to convene the meetings of unsecured

creditors of Applicant No. 4 and equity shareholders, secured

and unsecured creditors of Applicant No. 5 and issue

directions with regard to appointment of Chairperson,

Alternate Chairperson and Scrutinizer as well as issue

directions for publication.”

6. Learned counsel for the Appellants, while relying on the judgments of

larger Benches and Coordinate Benches of the Tribunal stated to have been

brought to the notice of the Tribunal vide additional affidavit dated 15th

February, 2019 vide Diary No. 787/19 as also the law propounded by various

Hon’ble High Courts, submitted that in similar circumstances meetings of

Shareholders and Creditors were dispensed with. We have referred to some of

these judgments and the legal position enunciated therein would warrant the

conclusion that the impugned order is per incuriam. It is noticed elsewhere in

this judgment that following of the judicial precedent and observing the judicial

view propounded by a Coordinate Bench in compliance is a matter of judicial

discipline and the only course open to a Coordinate Bench of equal strength

taking a different view is to refer the matter to a larger Bench. This is the law

of the land declared by the Hon’ble Apex Court and has to be observed and

adhered to strictly.

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7. Indisputably, the proposed scheme of amalgamation between the

Holding Company and its Subsidiaries is regulated by provisions of Chapter XV

of the Act, Section 230 whereof provides for passing of an order by the Tribunal

directing convening of a meeting of the creditors or class of creditors, members

or class of members, as the case may be. Sub-section 9 thereof vests

discretion in the Tribunal to dispense with calling of a meeting of such

creditors or classes thereof where such creditors or class of creditors, having

atleast 90% value, agree and confirm, by way of affidavit to the scheme of

compromise or arrangement. Admittedly, in the instant case dispensation in

regard to holding of meeting qua Shareholders of Appellant Nos. 1 to 4 was

sought on the basis of their written consent obtained by way of affidavits.

Same was the case as regards Unsecured Creditors of Appellant Nos. 1 to 3 as

also the Secured Debenture Holders, Warrant Holders and CCD Holders of

Appellant No.5. As regards these, the Tribunal exercised its discretion and

dispensed with calling of their meeting. There were no Secured Creditors of

Appellant No. 1 to 4. The Tribunal while exercising its discretion as noticed

hereinabove declined the first motion to the extent it related to directions for

convening of meetings of Unsecured Creditors of Appellant No. 4 and Equity

Shareholders and Secured and Unsecured Creditors of Appellant No. 5. This is

stated to have been done despite the settled legal position and view taken by

the Coordinate Benches which were binding on the Tribunal. The first motion

by the Appellants before the Tribunal sought dispensation in regard to calling

of meeting of Members and Creditors, etc. This being the very threshold stage

and not the Stage envisaged for consideration of the scheme for amalgamation

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by the Tribunal on merit, the Tribunal was required to exercise its discretion in

accordance with the legal precedents and views adopted by the Coordinate

Benches or Larger Benches. At least one case has been referred to and relied

upon by learned counsel for Appellants where, on account of difference of

opinion, between the Members of Division Bench of the Tribunal reference was

made to the third Member and the case was decided as per majority view

which, inter alia dispensed with the requirement of convening of meeting of

members and creditors taking into account the considerations that there shall

be positive net worth and creditors will not be compromised.

8. Keeping in view the foregoing and all relevant considerations as also the

settled law on the subject, the impugned order falling within the purview of per

incuriam cannot be supported. The Tribunal should have applied its mind in

the light of judicial precedents brought to its notice by way of an affidavit, and

in the event of the views expressed by the Coordinate or Larger Benches being

squarely applicable, followed the same. Such application of mind being

abysmally absent, the impugned order is unsustainable and has to be set aside

to the extent it relates to directions for convening of the meetings of Unsecured

Creditors of Appellant No. 4 and the meetings of the Equity Shareholders,

Secured and Unsecured Creditors of Appellant No.5.

9. The appeal is allowed and the impugned order is set aside to the extent

indicated hereinabove and directions passed thereunder. The matter is

remanded to the Tribunal for fresh consideration of the first joint motion

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application preferred by the Applicants/Appellants having regard to the settled

position of law and the views and precedents of Coordinate or Larger Benches

of the Tribunal. Any observations made in this order shall not be construed as

an expression of opinion on the merits of the case.

A copy of this order be sent to the Tribunal for information.

[Justice Bansi Lal Bhat]

Member (Judicial)

[Balvinder Singh]
Member (Technical)

NEW DELHI

19th August, 2019

AM

Company Appeal (AT) No. 180 of 2019