NCLAT Judgement - On Obtaining Consent of Creditors in case of Scheme of Arrangement between Company and its Shareholders.

"As far as citations of various judgments are concerned, it is not appliable as the health of each company varies"

- Surendra Rahalkar

Vedanta Limited has proposed scheme of arrangement for capital reorganization of the Applicant Company, inter alia, providing for transfer of amounts standing to the credit of General Reserves to Retained Earnings of the Applicant Company and filed company scheme application with Hon'ble National Company Law Tribunal, Mumbai Bench (NCLT).

Company Scheme Application prayed for the dispensation of secured and unsecured creditors of the Company. As on 31st March 2022, the Company had 227 Secured Creditors having a value of Rs 31,053 Crore Approx. and 3,656 Unsecured Creditors having a value of Rs 10,893 Crore Approx.

Grounds on which dispensation of meeting of unsecured creditors has been sought by the Applicant Company:

i. Scheme is an arrangement between the Applicant Company and its shareholders, under the provisions of Section 230(1)(b) of the Companies Act, 2013.

ii. No consideration is proposed to be issued pursuant to the Scheme. Thus, the Secured Creditors of the Applicant Company shall, in no way, be affected by the Scheme, as there is no reduction in the amount payable to any of the creditors and no compromise or arrangement is contemplated with the creditors.

iii. There is no outflow of cash from the Applicant Company and the Scheme would not in any way adversely affect the operations of the Applicant Company or the ability of the applicant company to honor its commitments or to pay debts in the ordinary course of business.

Hon'ble NCLT dispensed the meeting and direct the company to obtain consent affidavits from both secured and unsecured creditors by stating as follows:

I. It shall be the responsibility of the Applicant Companies to ensure that every Secured Creditors is put on notice regarding the Scheme, so that they may take an informed decision thereon and file I.consent affidavit of all Secured Creditors at the time of Filing of Company Petition.