In a relatively recent order, the Chandigarh Bench of National Company Law Tribunal, has occasion to consider sub-section (9) of Section 230 of the Companies Act, which allows the tribunal to dispense with calling of a meeting of creditors subject to creditors having 90% (ninety percent) of value agreeing to such scheme.

Relevant Facts:

The case pertained to a scheme of amalgamation involving nine transferor companies, including one Paarth Infratech Private Limited (“Paarth Infratech”) with Aakarshan Estates Private Limited.  

In the instant application, Paarth Infrastructure had prayed for dispensation with calling the meeting of unsecured creditors under Section 230(9) of the Act, on the basis of the fact that whilst the affidavits were obtained from certain unsecured creditors, who constituted less than 90% of the value of the outstanding loan as certified by the auditor of Paarth Infrastructure, the threshold was subsequently met by paying off one of the unsecured creditors.

Query:

The question before the bench was, whether the threshold of 90% (ninety percent) of the value of outstanding loan, certified by the auditor as on a specific date, could be considered to have been met if the company subsequently pays off one of the outstanding creditors and obtain affidavit from rest of the others.  

Findings of the Tribunal:

The Hon’ble Tribunal held that such a recourse is not available, especially where the applicant failed to establish that on the date of subsequent pay-out, the consent affidavits already filed would have met the criteria of 90% of the total value of the unsecured creditors. The relevant observation of the Bench was as follows: 

“75…the consent affidavits of at least 90% value have to be filed in respect of the total value of the creditors as on a particular date. In the present case, admittedly, the criterion is not satisfied in respect of the total value of creditors as on May 21, 2019. Receipt of fresh credits and payments to creditors is an ongoing process and thereby, the total value of outstanding creditors changes with every day. As discussed above, Section 230(9) of the Act has reference to the total value of the creditors on a particular date and the satisfaction of the criteria of 90% value has to be with reference to the total value of the creditors on that date (ninety per cent). The total value of the unsecured creditors as on September 4, 2019 was not available to show whether the consent affidavits already filed would meet the criteria of 90% of the total value of the unsecured creditors as on September 4, 2019. Therefore, the subsequent payment to one of the creditors is not relevant for the purpose of determining the fulfilment of the criteria of 90% of the total value of the unsecured creditors as on 21.05.2019.”                                                                          (emphasis in original)

Observations: 

The case is also a helpful reminder that subsequent increase or decrease in the outstanding would have no bearing on determination of 90% of the value of outstanding, which is based on a particular date.

However, at the time of filing of consent affidavit, the companies should be mindful to procure consent from such creditors who constitute 90% of the value certified by the auditor as on a specific date. In the event, the company proposes to rely on subsequent pay-off, a fresh certificate should be obtained from the auditor to certify that, existing consent affidavits would be sufficient to meet the threshold of 90% of value of outstanding as on the date specified in the certificate.

Contributed by Arka Majumdar (Partner) and Juhi Wadhwani (Associate).