NCLAT sets aside NCLT’s order regarding rejection of Ericsson’s plea to convene shareholders meeting

The National Company Law Appellate Tribunal (NCLAT) has withheld a National Company Law Tribunal (NCLT) order which rejected Ericsson India and Ericsson India Global Services’ request to convene a meeting of their shareholders and creditors to approve a scheme of amalgamation.

A two-member NCLAT bench had previously allowed the petition filed by the two firms. Thereafter, on September 23, 2021, NCLT had rejected their application seeking permission to convene a meeting after terming it as incomplete and defective.

Earlier, NCLT had observed that before filing such an application, approval of the unsecured creditors of both companies are needed. This was challenged by both transferor and transferee, Ericsson India and Ericsson India Global Services, before NCLAT.

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

Moreover, they had also satisfied that 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.

NCLAT informed that they are considering the matter. The tribunal is of the opinion that as the merger is of a wholly-owned subsidiary into its holding company, therefore no shares would be allotted as consideration pursuant to the merger. The also verdict included that the proposed scheme will not result in any dilution in the shareholding of the shareholders of the ‘transferee company’, considering that the net worth of the ‘transferee company’ is positive.

Further, 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.