GUJARAT NATIONAL LAW UNIVERSITY

CORPORATE LAW

COMPANY ANALYSIS: AIA ENGINEERING LTD.

NATURE OF COMPANY: INDUSTRIAL GRINDING AND CRUSHING OPERATIONS

Submitted by:
SHANE JOHN
18B163

Submitted to:
Prof.(Dr.) Mamata Biswal,
Dean, Academic Affairs 
Professor of  Law and ICSSR Senior Research Fellow
Gujarat National Law University
1. WHAT IS THE COMPOSITION OF THE BOARD OF DIRECTORS OF YOUR
COMPANY? MENTION THE NAME OF THE DIRECTORS IN YOUR BOD

By the virtue of being a public company AIA Engineering Ltd. has more than three directors
[S. 149 (1) (a) of the Companies Act, 2013] (with a total of 9 directors)]

BOARD OF DIRECTORS & THEIR RESPECTIVE CAPACITIES

S. No. Name Capacity

1 Mr. Rajendra S. Shah Chairman Independent–Non-

Executive
2 Mr. Bhadresh K. Shah Managing Director Executive - Promoter
3 Mr. Sanjay S. Majmudar Independent

4 Mr. Yashwant M. Patel Whole-time Director

5 Mr. Dileep C. Choksi Independent Director

6 Mrs. Khushali Samip Non-Executive – Non-
Solanki Independent Director
7 Mrs. Bhumika S. Shodhan Non-Executive – Non-
Independent Director
8 Mr. Rajan Harivallabhdas Independent Director

9 Mrs. Janaki Udayan Shah Additional Director –

Independent
2. WHETHER YOUR COMPANY HAS COMPLIED WITH THE REQUIRED CORPORATE
GOVERNANCE NORMS (E.G. PROVISIONS OF THE COMPANIES ACT/RELEVANT RULES AND
REGULATIONS INCLUDING SEBI LODR) FOR THE COMPOSITION OF THE BOD?
No, AIA Engineering Ltd. has not been able to comply with all the provisions of the Compa-
nies Act, 2013 and the SEBI LODR regulations with respect to the composition of Board of
Directors. The relevant rules and provisions are as follows:

· The AIA Engineering Ltd. has specifically failed to comply with Rule 3.1.2 of the
Guidelines for Corporate Governance for Central Public Sector Enterprises, 2010 and
clause (b) of Rule 17 of the SEBI LODR, which state that in case of Central Public
Sector Enterprise or a listed company headed by an executive member the number of
Independent Directors shall be at least 50% of board members.
· AIA Engineering Ltd. has failed to comply with rule 17 (1) (a) of the SEBI LODR,
which states that a listed entity shall have no less than 50% non executive directors.
Whereas AIA Engineering Ltd. has only 3 non-executive government nominee direc-
tors.
· Since, AIA Engineering Ltd. is among the top 500 listed entities it has complied with
provisio to Rule 17 (1) (a) of the SEBI LODR which states that top 500 listed entities
shall have at least 1 woman independent director.
· AIA Engineering Ltd. has complied with S. 149 (1) (a) which states that every public
company shall have at least 3 directors.

3. DO YOU HAVE A WOMAN DIRECTOR IN YOUR BOD? IF SO, MENTION THE NAME.

Mrs. Khushali Samip Solanki Non-Executive – Non-Independent

Mrs. Bhumika S. Shodhan Non-Executive – Non-Independent
Mrs. Janaki Udayan Shah Additional Director – Independent

Yes, AIA Engineering Ltd. has three woman directors and their details are as follows:
4. WHEN THE LAST AGM WAS CONVENED BY YOUR COMPANY? WHERE ?

In pursuance of S. 96 of the Companies Act, 2013 the last Annual General Meeting which
was the 30th Annual General Meeting was convened on the 21 st of September, 2020. through
Video Conferencing (VC)/Other Audio Video Means (OAVM) (As per (As per BSE An-
nouncement Dated on 21/8/2020) Pursuant to Regulation 30 & 47 of the SEBI (Listing Obli-
gations and Disclosure Requirements) Regulations, 2015.

5. WHO ARE THE RELATED PARTIES OF YOUR COMPANY?

THE COMPANY HAS 11 SUBSIDIARY COMPANIES (INCLUDING STEP-DOWN SUBSIDIARIES) AS

ON 31 MARCH 2020.

1. WELCAST STEELS LIMITED.

2. VEGA INDUSTRIES (MIDDLE EAST) FZC., UAE
3. VEGA INDUSTRIES LIMITED, UK
4. VEGA STEEL INDUSTRIES (RSA) PTY LIMITED
5. WUXI VEGA TRADE CO. LIMITED, CHINA
6. PT VEGA INDUSTRIES INDONESIA, INDONESIA
7. VEGA INDUSTRIES LIMITED, USA
8. AIA CSR FOUNDATION
9. VEGA INDUSTRIES CHILE, SPA
10. AIA
GHANA LIMITED, GHANA
11. VEG
A INDUSTRIES AUSTRALIA PTY LTD, AUSTRALIA
 DETAILS OF RELATED PARTY TRANSACTIONS

As per Regulation 23 (9) of the SEBI LODR regulation the related party transactions of AIA
Engineering Ltd. for half year ended 30.09.2020 are as follows: (In Lakhs)

Nature of Transaction Key Man- Independant Enter- Rela- Post Em-

agerial Pos. Directors (6 prise tives ploy-
(6 months months over of key ment
ended 31st ended 31st which Man- Benefit
March March, key age- of the (“)
2020) 2020) (“) rial
(“)
Purchase of Goods - - 1,195. - -
(Incl. Tax) 41
Commission Expense - - 33.87 - -
on Purchase
Legal and Professional 1.20 22.50 6.82 - -
Fees
SAP ERP Functional - - 48.80 - -
and technical support
Salary, Bonus and 102.52 - - (0.20) -
Perquisites
Contribution to Gratu- - - - - 7.22
ity Fund
Rent, rates and taxes - - - 3.66 -
Travelling expenses - 0.58 77.36 - -
Directors remuneration 321.95 - - - -
Sitting fees paid - 5.05 - 1.05 -
Total 425.67 28.13 1,362. 4.51 7.22
26
Outstanding balance re- - - 2.97 - -
ceivable at Half Year
end
Outstanding balance 20.90 20.41 (3.68) 0.44 478.92
payable at Half Year
end
Q6. Is there any case of oppression and mismanagement in your company/against your
company in the past? If so, please mention the name of the case with a case brief cover -
ing the brief fact, issues and decision

No, there has been no case of oppression or mismanagement against AIA Engineering Ltd.
till date.

 Q. 7 How many committees are created by the BOD of your company? Mention all. (if
any)

12. Au-
dit Committee:

Mr. Sanjay S. Majmudar - Chairman

Mr. Rajendra S. Shah – Member
Mr. Bhadresh K. Shah – Member
Mr. Rajan Harivallabhdas - Member

13. Nom
ination & Remuneration Committee:

Mr. Sanjay S. Majmudar - Chairman

Mr. Rajendra S. Shah - Member
Mrs. Khushali S. Solanki - Member

14. Stak
eholders’ Relationship Committee:
Mr. Rajendra S. Shah - Chairman
Mr. Bhadresh K. Shah – Member
Mr. Yashwant M. Patel - Member

15. Cor-
porate Social Responsibility Committee:
Mr. Bhadresh K. Shah - Chairman
Mr. Sanjay S. Majmudar - Member
Mr. Yashwant M. Patel - Member

16. Risk
Management Committee:
Mr. Bhadresh K. Shah - Chairman
Mr. Yashwant M. Patel - Member
Dr. Ajit Nath Jha - Member
Q.8 Legal Requirements if AIA Engineering Ltd. were a Resolution Applicant in CIRP
of OZXC Ltd.

In pursuance of Section 25(2)(h) of IBC, 2016 it is the duty of the Resolution Professional
(RP) to invite prospective Resolution Applicants (PRA) fulfilling the eligibility criteria as
laid down by the RP with approval of the committee of creditors (CoC).

In light of the Hon’ble Supreme Court’s direction in Swiss Ribbons v. U.O.I the PRA must
bear in mind that the resolution plan shall be devised, in line with the objectives of the IBC
i.e. reorganization and insolvency resolution of the concerned Corporate Debtor in a timely
manner. Liquidation shall always be the last resort, even during liquidation the business can
be sold as a going concern.

As per 36A of the CIRP regulations, the RP is bound to float an Expression of Interest invit-
ing PRA within 75 days of the insolvency commencement date. The RP shall publish particu-
lars for invitation of EOIs in Form G – which shall be published in English and one regional
newspaper, which has wide circulation at the location of the registered and principal office of
the CD. From G shall contain basic information such as:

· Basic information about the CD.

· The requisite timelines for submitting the EOI.
· The eligibility criteria as approved by the CoC and other relevant information such as
submission of EOI, details of the RP itself.

The PRA shall submit the EOI unconditionally and as per Regulation 36A (6) EOI received
after deadline as given in the invitation shall be rejected. (Submission of EOI does not entail
any payment of fees). Post the receipt of EOIs is complete the RP as per Regulation 36B shall
request Resolution Plans from the PRAs. As per Regulation 36B(1) every PRA on the provi-
sional list must ensure that it has received the Information Memorandum (IM), evaluation
matrix and the RPRF within 5 days of the provisional list being issued to the PRA’s.

Further, the PRA should along with the EOI provide the following documents:

· An undertaking to the effect that it meets the eligibility criteria approved by the CoC
and evidence to prove its claim.
· An undertaking to the effect that the PRA is disqualified under Section 29A of the
IBC and provide necessary documents which allow such an assessment.
 · Undertakes to intimate the RP if it becomes ineligible to act as an RA any time during
the CIRP and that all the information provided in the EOI is correct and discovery of
any false information or record at any time shall render the RA ineligible.
· An undertaking that it shall maintain confidentiality.

If the resolution plan is approved by the adjudicating authority, u/s 30(4) IBC, the RA shall
be required to render a performance security within the time specified, which shall be for-
feited, in case the RA fails to implement the resolution plan as per its terms and the imple-
mentation schedule.

DISQUALIFICATION U/S 29A IBC:

The RA must ensure that it does not fall under the following so as to be disqualified from the
CIRP:

· Is an undischarged insolvent.
· A wilful defaulter as per the guidelines of the RBI, issued under the B.R. Act, 1949.
· During submission of the Resolution Plan has an account or an account of the CD un-
der its control or is a promoter that is categorised as a Non performing asset as per the
guidelines issued by the RBI or any regulator of the financial sector, and one year has
lapsed from date of such classification till date of commencement of CIRP of the CD.
However, a person shall be eligible to submit a resolution plan if they pay all overdue
amounts with interest thereon and charges relating to NPA accounts before submitting
a resolution plan.
· Been convicted of any offence punishable with imprisonment of 2 years or more un-
der any Act specified under the 12th schedule of the IBC or for 7 years or more under
any law in force. This shall not apply post 2 years from the date of release of impris-
onment.
· Is disqualified to act as a director under the C.A. 2013. It has been clarified that this
clause shall not apply to a connected person,
· Is prohibited by the SEBI from trading in securities or accessing the securities mar-
kets.
· Has been a promoter or in the management or control of a CD in which a preferential
transaction, undervalued transaction, extortionate transaction or fraudulent transaction
 has taken place. However, this shall not apply if any of these transactions have taken
place prior to the acquisition of the CD by the PRA, in pursuance of the resolution
plan approved by the AA.
· Has executed a guarantee in favour of a creditor in respect of a CD against which an
insolvency application is admitted under the IBC and such guarantee has been in-
voked by the creditor and remains unpaid in full or part.
· A “connected person” who is ineligible as per the above provisions.

In tandem with the above provisions the decision of the Hon’ble Supreme Court in Arcelor-
mittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1, must be borne in mind,
wherein the Hon’ble SC delved into Sec. 29A extensively and inter alia held as follows:

➢ It is a ‘typical see through provision’ so that one can see persons who are actually in
‘control’, either in collaboration or with other persons. Hence, a purposeful and con-
textual interpretation of S. 29A shall be taken.
➢ The term “management’ would refer to de jure management which rests with the
board of directors and would include mangers and MD.

While working out the resolution plan, the RA must do so within the confines of the eval-
uation matrix, which is defined in Regulation 2(1)(ha) of the CIRP regulations. The ma-
trix lays down the criteria on which the resolution plans will be evaluated by the COC.
The matrix lays down the criteria on which the resolution plans will be evaluated by the
COC. The matrix helps the COC to compare one resolution plan with another.

As per Regulation 39 (1) and Section 30 (1) IBC, a PRA in the final list may submit reso-
lution plans prepared in accordance with the IBC, along with an affidavit that he is eligi-
ble as per Section 29A as per the Information Memorandum. It must be borne in mind
that only those Resolutions plans that are in compliance with Section 30(2) will be con-
sidered by the COC. Section 30 (2) within its sub-clauses state the following:

· Plan should provide for payment of the CIRP in the manner specified by the IBBI
in priority to all other debts.
· The plan provides for the payment to Operational Creditors as specified by the
IBBI, which shall not be less than, what would have been paid to them if the CD
was liquidated.
 · Amount would have been paid to the OCs, if the amount to be distributed under
the RP had been distributed in accordance with the order of priority in Section 53
(1) of the IBC, whichever being the higher.
· Further, the plan should also provide for the payment of those FCs who do not
vote in favour of the resolution plan, in the manner as specified by the IBBI.
· The plan should also provide for the management of the affairs of the CD after ap-
proval of the resolution plan.
· Additionally, it should also provide for the implementation and supervision of the
resolution plan.
· Should not breach any provision of any law in force, and should confirm to the
other requirements of the IBBI.

Further, the Resolution Applicant should bear in mind the mandatory contents of the
Resolution Plan as per Regulations 38 & 39 of the CIRP Regulations, which are
as follows:

· The dues of OCs shall be cleared in preference to the dues of FCs, further within the
category of FCs, the dues of those FCs who did not vote in favour of the RP should be
cleared in precedence of those who voted in favour of RP.
· The RP should also contain a statement describing how it dealt with the interest of all
stakeholders.
· It should also contain a statement, laying out details if the PRA or any of its related
entities have been unsuccessful to implement or have contributed to the failure of im-
plementation of the Resolution Plan.
· It should also provide – the timespan of the plan & schedule of its implementation, the
management and control of the CD during the term of the RP, the mechanism and su-
pervision for ensuring its successful implementation,
· Should put forth a description of – it addresses the cause of default, Is feasible, Provi-
sions for approvals required and timeline for them, It possesses the requisite capabil-
ity to implement the plan.

In Arcelormittal India Pvt. Ltd. v. Satish Kumar Gupta and Ors., the Supreme Court cat-
egorically held that the role of the Resolution Professional is only limited to conducting due
diligence with respect to the Resolution Plan in light of Section 30 (2) before presenting it to
CoC u/s 25(2)(i). The Resolution Professional is not expected to delve into the merits of the
Resolution Plan.

As per Regulation 37 the following measures may be provided for successful insolvency res-
olution of the Corporate Debtor:

· Transferring of debts to one or more persons, sale of all or part of the assets of
the CD, despite they being subject to security interest or not.
· Restructuring via Merger, amalgamation or demerger.
· Acquisition of substantial shares of the CD or consolidation.
· Reducing the amount due.
· Cancelling or delisting any of the shares of the CD.

Lastly, Section 32A provides that the CD shall not be liable of for any offence
committed prior to the commencement of the Resolution Plan, provided that the
Resolution Plan results in changing the control and management of the CD to a
person who is not a promoter or in management of any related party of the CD.
Q.9 Case Analysis, wherein constitutional validity of certain IBC provisions was chal-
lenged.

Manish Kumar v. Union of India.

Brief Facts:

The appeal rose as an aftermath of Section 3 of the IBC (Amendment) 2020, that prescribed
conditions in addition for homebuyers to initiate insolvency proceedings against builders in
default. Sec. 3 added provisio to Sec. 7, stating that at least one hundred real estate allottees
or 10% of the total number of allottees should jointly file a petition for insolvency. The peti-
tioners (homebuyers) challenged these conditions on grounds of being violative of Art. 14 as
being ‘arbitrary’ ‘discriminatory’ amounting to ‘illegal classification’.

Summary of Observation by the Hon’ble Supreme Court:

On this challenge the court clarified that the intent of inserting the provisio was to prevent the
explosion of litigation against the builder, often motivated by differing interests. Further, the
provisio does not completely impair the right of the homebuyers to apply under S.7. The un-
derlying policy is to prevent the already distressed home buyer from frivolous and avoidable
applications.

Analysis:

It is an uncontested fact the one of the major reasons for introduction of the IBC, was effec-
tive and speedy resolution of insolvent business entities, while striving as far as possible to
keep the Corporate Debtor as a going concern. The primary goal was to improve the India’s
Ease of Doing Business ranking. However, prolonged and frivolous litigation is the biggest
impediment to these objectives. Thus, this decision by the Hon’ble Supreme Court is in con-
sonance with state policy and objective sought to be achieved by the act.

Further, it is well settled that Article 14 permits intelligible differentia and reasonable classi-
fication and this exactly what the legislature has done with respect to the home buyers and
was rightly pointed by the Hon’ble Supreme Court that ‘avoidable applications’ includes
those which would not have been placed by ‘similarly situated creditors’ bearing in mind the
ramifications of not only creditors similarly situated, but for all stakeholders in general.
Thus, a real estate developers might have allottees of varying nature, which shall all not be on
the same footing and resolution application by each one of them in their individual capacity
would surely be counter productive to the scheme of the act, hence in order to move such an
application a consensus on the general objectives by a sufficient number of class of creditors
(i.e. allottees) is required before preferring an insolvency application.

Swiss Ribbons Pvt. Ltd. v. U.O.I

Background:

In this petition the entire constitutionality of the IBC was challenged on various grounds. One
of the most interesting grounds inter alia was that the distinction between the Financial Cred-
itors and Operational Creditors is violative of Article 14 of the Constitution. The petition con-
tended that the exemption of financial creditors from the mandate of establishing non-dis-
puted nature of claims is unfair vis a vis Operational Creditors u/s 7 of the code, since there is
no intelligible differentia between the two types of creditors. Further, the petition contended
that the exclusion of operational creditors from the Committee of Creditors is extremely hos-
tile and discriminatory.

Summary of Observations by the Court:

At the outset the Court remarked that the code being a beneficial legislation and in matters of
social and economic policies the court must always pave way for the legislative judgement.
The Court examined the issue by testing it under Article 14. The court firstly distinguished
the nature of credit extended by the financial creditors and Operational creditors. The former
being with respect to ‘time value for money’ the latter with respect to claims of money for
providing goods and services.

The Court relied upon the report of the Bankruptcy Law Reforms Committee and identified
that Financial Creditors are generally secured and consist mainly of banks and financial insti-
tutions and Operational Creditors consists of those entities which usually supply goods and
services. The court then proceeded to reject the contention that requirement on Operation
Creditors to establish the undisputed nature of the claim is unfair. It held that the Financial
Creditors are required to establish default, and these creditors maintain the electronic records
of the liabilities, thus a true assessment of the occurrence of the default can be made from ac-
cessing these electronic systems, whereas Operational Creditors maintain the records in either
electronic or physical form, the veracity of which must be determined first.
On the contention of exclusion of Operational Creditors from the Committee of Creditors the
court having already acknowledged that financial creditors often include banks and big finan-
cial institutions, ruled that the Committee of Creditors has great powers once the resolution
petition is admitted and its decisions are most impactful, hence representatives of banks and
financial institutions being seasoned in finance, economics and other allied activities should
form part of the committee of creditors rather than operational creditors which may include
all sorts of traders and merchants no matter how big, but not necessarily having an expertise
in finance.

Analysis:

The court yet again came to the rescue of the IBC against misconceived petitions challenging
its constitutionality. As has been mentioned several times, that the IBC aims for rehabilitation
of a financially distressed corporate debtor, and in order to do so it considers interest of all
stakeholders in a manner best suited to them, however, this differential treatment might seem
prima facie discriminatory, however a through analysis of there provisions along with the ra-
tionale behind these provisions would reveal that these provisions are in furtherance of the
scheme of the act i.e. being saved by the virtue of doctrine of intelligible differentia.

The distinction between treatment of financial creditors and operational creditors is largely
due to their different nature. Presence of financial creditors in important decision making
would speed up the process of insolvency, and hence greater powers are vested in them.

Pioneer Urban Land and Infrastructure Limited v. Union of India

Background:

In this case the constitutionality of the IBC (2018) Amendment was challenged on the ground
that the categorisation of real estate allottees as financial creditors therein is violative of the
constitution.

Summary of Observations by the Court:

The Court firstly reiterated its stand, that a lager free play must be accorded to the legislature
in matters pertaining to economic legislation. In addition to the presumption in favour of con-
stitutionality of these provisions, the legislative wisdom must be accorded a certain deference
by the courts.
Subsequently, by placing its reliance on the report by the insolvency law committee the court
found as a matter of fact, that delay in completion of construction of flats and apartments has
become a routine affair and the amounts raised from home buyers forms a significant portion
of the financing for the construction of these flats and apartments and hence money raised
from the allottee is carries a time value. On the basis of this home buyers are treated as finan-
cial creditors and thus, they can file an application for insolvency under section 7 of the code
and be a part of the committee of creditors. They then can make important decisions with the
respect to the future of the construction company in which they may be ultimately housed.
Section 5 (8) (f) is a deemed fiction that confers the status of financial creditors upon the al-
lottees.

Analysis:

It would be incorrect to say that classification of homebuyers from operational creditors is not
based on intelligible differentia and is arbitrary and irrelevant to the purposes of the code.
The legislature has taken a very correct cognizance of the issues arising in the real estate mar-
ket (i.e. inordinate delay in completion of flats, despite money received from home buyers
being used to finance the projects.) and hence there was an imperative need to treat home
buyers separately as a class and as financiers and this demonstrates the presumption of con-
stitutionality.
Q.10 Pre-packaged insolvency resolution process for MSME as per provisions of the
IBC (Ordinance), 2021.

In order to mitigate the adversities (due to the pandemic) faced by the Micro, Medium and
Small Enterprises – which contribute significantly to the GDP and employ a considerable
portion of the population, the government introduced a pre-packaged insolvency resolution
process. The legal requisites of the package are as follows:

· Firstly, Section 54A lays down the CDs eligible for this process i.e. those who have
committed a default in accordance with S.4, is not already going under a corporate in-
solvency process, no order for its liquidation has been passed U/S 33, eligible to sub-
mit a resolution plan under section 29A., the FCs not being related parties specify the
name of the RP.
· If all the FC of the CD happen to be its related parties than as per the provisio of S.
54A e lays down that the majority of the directors of the CD give an undertaking that
the insolvency process is not initiated to defraud anyone etc.
· Section 54B lays down the duties of the Resolution Professional, which largely in-
clude due diligence such as ensuring that provisions of Section 54A have been com-
plied with, requisite documents have been filed. His duties may cease if the insol-
vency petition is dismissed by the AA or the CD fails to file an application for initiat-
ing pre packaged insolvency resolution process within the time period as stated.
· S. 54 C lays down that where a CD fulfils S. 54A a corporate applicant shall file an
application with the AA for initiating the insolvency process.
· As per S. 54 (C) (3) the applicant shall furnish – the declaration and approval by FC
for initiating the insolvency process, the name and consent of the Insolvency profes-
sional proposed, a declaration regarding the existence of any transactions of the CD
that may fall under Chapter III (avoidance of transactions) or fraudulent or wrongful
trading under Chapter VI, in such form as may be prescribed.
· As per sub section 4 the AA shall within 14 days of receipt of an application will ei-
ther admit the application or reject the application. However, the AA should give no-
tice to the applicant to rectify the defects before rejecting the application.
· As per S. 54 (D) (1) the pre packaged insolvency resolution process shall be com-
pleted within a period of 120 days from the commencement date.
· As per cl. 2 the Resolution Professional shall submit the resolution plan as approved
by the COC within 90 days from commencement.
· Cl. 3 dictates that if no plan is approved within the time frame, the Resolution Profes-
sional shall file an application with the AA for termination of the insolvency process.
· S. 54 (E) holds that on commencement of insolvency along with the order of admis-
sion the AA shall declare a moratorium in accordance with Section 14 of IBC.
· It shall appoint a Resolution Professional as named in the application, cause a public
announcement of the initiation of the pre-packaged insolvency resolution process to
be made by a resolution professional in such form as may be prescribed.
· Section 54 (F) (2) lays down the duties of the Insolvency Resolution Professional,
which mainly include due – diligence such as informing creditor of their claims, pre-
pare a list of claims as submitted by the corporate debtor under section 54G, in such a
manner as may be specified, monitor management of the affairs of the corporate
debtor, constitute the COC and convene and attend all its meetings etc.
· Clause 3 lays down the powers exercised by the resolution professional which include
access to all books of accounts of the CD, access to electronic records of the corporate
debtor from an information utility etc.
· S. 54 (G) lays down the information that the CD shall within 2 days of the pre-pack-
aged insolvency commencement date submit to the Resolution Professional, which in-
cludes a list of claims accompanied with the security interest and guarantees if any, a
preliminary information memorandum for formulating resolution plan.
· As per Clause 2 if due to any defect in the information memorandum a person sustain
any loss then the promoter or director or partner of the CD shall make the loss good.
· Section 54 H states that even during the insolvency resolution process period the man-
agement of the affairs of the CD shall vest with the Directors, subject to specified
conditions. The BOD must strive to preserve the assets and value of CD.
· Section 54 I mandates the Resolution Professional to constitute a COC within 7 days.
Provisions of Sec. 21 with respect to Committee of Creditors shall apply in totality to
the COC under this chapter.
· Section 54 J (1) prescribes that at any time during the insolvency resolution process
period, by a vote not less than 60% the COC decides to vest the management of the
CD with the resolution professional, the resolution professional shall make an applica-
tion before the AA.
· On application under sub section 1 if the AA is of the opinion that during the pre-
packaged insolvency resolution process – the affairs of the CD have been conducted
in a fraudulent manner or there has been mismanagement of affairs of the CD, it shall
pass an order vesting the management of the CD with the resolution professional.
· Section 54 K lays down the procedure for consideration and approval of resolution
plan. The CD might first submit the base resolution plan, referred to in clause (c) of
sub-section (4) of section 54A, within two days of insolvency commencement. Ac-
cording to sub section 2 the CD may be granted an opportunity to revise the base reso-
lution plan prior to it’s approval under sub section (4) or invitation of prospective res-
olution applicants under sub-section 5.
· As per sub-section (3) the resolution plan and the base resolution plan submitted un-
der this section shall confirm to the requirements of S. 30 (1) and (2). As per sub sec-
tion 5 if the base resolution plan does not confirm to the requirements prospective res-
olution applicants may be invited. The resolution professional shall provide to the res-
olution applicants – the basis for evaluation of resolution plans, as approved by the
committee of creditors, it must confirm to sub-section (2) of S. 30. As per sub-section
(10) if the resolution plan is better than the base resolution plan, it shall be adopted as
per sub-section 12.
· A resolution plan approved under sub-section 12 shall be approved by COC vote not
less than 60% after considering its feasibility and viability, taking into account the or-
der of priority amongst creditors as laid down in sub-section (1) of Section 53. As per
Section 54 L if the AA is satisfied that the plan is in compliance with S. 54K and sub-
section (2) of Section 30 by order approve the resolution plan.
· However, as per Sub-section 4 if the AA passes an order under sub-section (2) of Sec-
tion 54J and the resolution plan approved by the COC under sub-section (4) of Sec-
tion 54K does not lead to change in management or control of the corporate debtor to
a person who was nota promoter in the management or control of the CD the AA may
pass an order rejecting the plan or terminate the insolvency process
· As per Section 54 O if the COC by 60% majority vote before the approval of the plan
that the CD is not eligible for insolvency under this Chapter but under Chapter III, the
AA on intimation of the RP within thirty days pass an order to terminate the pre-pack-
aged insolvency resolution process, this order shall have effect of an order under sec-
 tion 7. The resolution professional shall continue as resolution professional on written
consent from the AA.

Q. 11 Scheme of arrangement of Mergers and Amalgamation u/s 230 and 232 of the
Companies Act, 2013

Sadbhav Engineering Ltd. is proposed to be merged with the company allocated i.e. AIA
Engineering Ltd. Since, both the companies have their registered office in Ahmedabad.
NCLT Ahmedabad shall have jurisdiction.

An application/Petition to NCLT (Ahmedabad Bench) under Sections 230-232 of the

Companies Act, 2013 praying for the following:

❖ The scheme of amalgamation in Annexure A be sanctioned by the tribunal with effect

from 1 April, 2022, be binding on AIA Engineering Ltd. and Sadbhav Engineering
Ltd. and their shareholders and all concerned.
❖ All properties and rights and interest of Sadbhav Engineering Ltd. be transferred to
and vested in without further act or deed in AIA Engineering Ltd. and accordingly
the same shall pursuant to Section 232 of the Companies Act, 2013.
❖ All the liabilities and duties of Sadbhav Engineering Ltd. be transferred without fur-
ther act or deed to AIA Engineering Ltd. and accordingly the same shall pursuant to
Section 232 read with Companies (Compromises, Arrangements and Amalgamation)
Rules, 2016 be transferred to and become liabilities of AIA Engineering Ltd.
❖ That all the proceedings and/or suit appeals now pending by or against Sadbhav En-
gineering Ltd. be continued by or against AIA Engineering Ltd.

Legal procedure under Section 230 for arrangement with creditors and other stakehold-
ers:

As per sub-section 2 the company which files an application for arrangement under sub-sec-
tion 1, shall disclose to tribunal by affidavit

(a) all material facts relating to the company, such as latest financial position of the company,
the latest auditor’s report, any pending investigation or proceeding against the company.

(b) reduction of share capital of the company if any

(c) any scheme of corporate debt restructuring consented to by not less than seventy five per-
cent of the secured creditors in value.

(3) Where a meeting is proposed to be called in pursuance of an order of the Tribunal under
sub-section (1), a notice of such meeting shall be sent to all the creditors, class of creditors
and to all the members and debenture holders of the company individually at their registered
address with the company, accompanying a detailed disclosure of arrangement scheme., ex-
plain their effect on members, debenture holders, promoters etc. along with a valuation re-
port.

Provided that such notice and other documents shall also be placed on website of company
and if a listed company, these documents shall be sent to the SEBI and stock exchange where
such securities of the companies are listed.

Sub-section 4 provides that upon whom notice is served under sub-section 3, may vote in
meeting either through themselves or through proxies.

(5) A notice under (3) shall also be sent to the Central Govt., the Income Tax Authorities, the
RBI and the SEBI, the CCI and such other sectoral regulators that are likely to be affected.

(6) In a meeting held under sub-section (1) majority of persons representing three fourths in
value of the creditors or members approve the arrangement and the tribunal sanctions the ar-
rangement the same shall be binding on the company.

(7) This sub-section lists out the directions which the tribunal can grant in an order made un-
der sub-section 6 – which includes protection of any class of creditors, if the arrangement re-
sults in variation of shareholders rights it shall be given effect to under provisions of Section
48 etc.

Provided that no compromise or arrangement shall be sanctioned by the tribunal unless a cer-
tificate of the company’s auditor has been filed with the tribunal to the effect that the ac-
counting treatment, if any proposed in the scheme of compromise or arrangement is in con-
formity with the accounting standards prescribed under Section 133.

(8) The order of the tribunal shall be filed with the Registrar by the company within a period
of 30 days of the receipt of the order.

Now in the case at hand an application has been preferred before the NCLT Ahmedabad for
merger of Sadbhav Engineering Ltd. with AIA Engineering Ltd., hence Section 232 will
be applicable.
Section 232 Merger and amalgamation of companies

(1) When application under 230 is made for sanctioning of compromise or an arrangement
proposed between a company and any such entity, and it is shown

(a) that the arrangement has been proposed for purposes of a scheme of amalgamation of two
companies (b) and under the scheme the assets and liabilities of one company is transferred to
another company. The tribunal on receipt of such application will order a meeting of creditors
and members, which shall be held as per sub-sections (3) – (6) of S. 230.

(2) Post tribunal passing an order under sub-section (1), merging companies shall circulate
the following:

▪ Draft of proposed terms of scheme drawn up and adopted by directors of merging

company.
▪ Confirmation that a copy of the draft scheme has been filed with the registrar
▪ A report by directors of the merging companies explaining the effect of compromise
on each class of shareholders, key managerial personnel and all other important stake-
holders.
▪ Expert report with regard to valuation.

(3) If the tribunal is satisfied that sub-sections (1) and (2) are duly complied with it
shall sanction the scheme or make a provision for:

▪ Transfer to the transferee company of the whole or any part of assets or liabilities,
from a date to be determined by the parties.
▪ Allotment or appropriation of securities, provided transferee company shall not, as a
result of the compromise hold any share in its own name or on its behalf.
▪ The continuation of any legal proceeding by the transferor company which shall be
against the transferee company.
▪ Transfer of employees of the transferor company to the transferee company.
▪ As per clause (h) sub clause (A) of subsection (3) if the shareholders of AIA Engi-
neering Ltd. decide to opt out of Sadbhav Engineering Ltd., provision shall be
made for payment of the value of shares held by them and other benefits.

(5) AIA Engineering Ltd. and Sadbhav Engineering Ltd. shall submit a certified copy of the
order to Registrar for registration within thirty days of the receipt of certified copy.
(7) AIA Engineering Ltd. and Sadbhav Engineering Ltd., until the completion of the scheme,
file a statement with the Registrar every year duly certified by a chartered accountant to indi-
cate that the scheme is being complied with.

(8) If AIA Engineering Ltd. or Sadbhav Engineering Ltd. contravene Section 232, they shall
be punishable with a fine not less than one lakh, extending to twenty five lakh.

Q.12 Applicability of the Stamp Act in the above question?

Since Sadbhav Engineering Ltd. is headquartered in Ahmedabad, and the office of the
merged entity shall be in Ahmedabad, the Gujarat Stamp Amendment Act shall be applicable.

According to 20(d) of the Gujarat Stamp Amendment Act duty to be paid will be higher of
the two: -
a.1% of the market value of shares which have been issued/allotted for exchange of or other-
wise, or the face value of those shares whichever is higher and amount of consideration if
any, paid for such amalgamation

b.1% of true market value of immovable property located in the Gujarat belonging to the
transferor company.

So in the case of merger, the valuation for determining the stamp duty shall be done on the
basis of the shareholders of the transferor company and that valuation would be on the basis
of exchange ratio of shares and not by valuing the assets and liabilities separately. The basis
and principle of determination of stamp duty is the valuation of share allotted and issued by
the transferee company.

Q. 13 Due Diligence for merger with TATA Motors

The due diligence report shall be prepared by giving a questionnaire to the target company, to
gauge the following information about the target company:

▪ The general well being of the target organization i.e. Tata Motors in this case.
▪ Financial health of the organization
▪ Potential Risks involved.

During the entire process the expertise of a valuation adviser, a qualified CA and a team
of technical consultants shall also be sought.

Post reviewing the questionnaire a preliminary investigation shall be undertaken, to iden-

tify the following:
 ▪ Concealment of facts and figures
▪ Insufficient internal control
▪ Any case of non-compliance or novel interpretation of a legal provision, account-
ing standard, policies etc.
▪ Examination of contingent liabilities, current or pending legal suits or proceed-
ings.

Lastly, a due diligence report will be prepared which shall contain the following:

▪ The basic information about Tata Motors

▪ The corporate capacity of Tata Motors
▪ Information of directors of Tata Motors to reveal their interests or conflicts if
present.
▪ Financial accounts details, total share capital, shareholder information, issues
pertaining to taxation.
▪ Material contracts of Tata Motors with its suppliers, customers, lenders, or in
relation to real property.
▪ Details of IPR, immovable property, insurance policy held by Tata Motors
▪ Review of all statutory compliances including the Industrial Disputes Act
1947, the payment of Bonus Act 1965, the payment of Wages Act, 1936, The
Payment of Gratuity Act, 1972, the Employees Provident Funds and Miscella-
neous Provisions Act 1952.

The following legal compliances are required for merger

A. To ensure that the memorandum/articles of association permits merger or not, if not,

then the object clause need to be amended.
B. Post drafting the scheme the approval of Board of Directors of both the companies
must be obtained as per S. 173 (3) of the Act., by a sending a notice of not less than 7
days. A resolution to the effect of such amalgamation and merger must be passed,
wherein the draft merger scheme may be considered.
C. Then an application to the NCLT Ahmedabad (since AIA Engineering Ltd. headquar-
ters are situated in Ahmedabad) may be preferred in Form No NCLT-1. Form No.
NCLT 2 and an affidavit in Form No. NCLT-6 may also be attached.
D. A copy of scheme of the compromise arrangement should include the disclosures as
per Section 230 (2).
E. The notice of meeting shall be sent to all the creditors or class of creditors in Form
No, CAA.2 at least one month before the date fixed for the meeting.
F. The notice of meeting shall be advertised in Form No CAA-2 at least one in English
Newspaper and one in vernacular newspaper. Having wide circulation in the State. A
copy of notice shall also be placed not less than 30 days before the date fixed for
meeting on website to the company.
G. In Form CAA-3 the notice along with a copy of the scheme of compromise arrange-
ment, the explanatory statement and the aforementioned disclosures shall be sent to
the RBI, the ROC, Official Liquidator, the Competition Commission of India.
H. The Chairperson appointed for the meeting of the company or other person directed to
issue advertisement will file an affidavit before the tribunal not less than seven days
before the date fixed for the meeting, stating that the directions regarding the issue of
notices and the advertisement have been duly complied with.
I. The chairperson of the meeting will, within the time fixed by the tribunal, or where no
time has been fixed, within three days after the conclusion of the meeting, submit a
report to the tribunal on result of the meeting in Form No CAA-4.
J. The company or through its liquidator shall, within seven days of the filing of the re-
port by the chairperson, present a petition to the Tribunal in Form No CAA-5 for
sanction of scheme of amalgamation.
K. The tribunal shall fix a date for hearing of petition, and notice of the hearing shall be
advertised in the same newspaper in which the notice of meeting was advertised, not
less than ten days before the date fixed for hearing. The NCLT may pass an order on
petition in Form No CAA-6

L. The order of NCLT Ahmedabad shall be filed before the ROC within 30 days.
Q. 14 Legal Compliances for taking over of foreign company

For the purpose of this question the AIA Engineering Ltd. shall take over ABM Industries
Inc. of the United States incorporated in New York.

Since, the AIA Engineering Ltd. is incorporated in Ahmedabad, an application shall be

made to the NCLT Ahmedabad for that effect and legal compliances under the following
laws are required and the following procedure must be adopted.

Companies Act, 2013

The first step is seeking approval from RBI and following the mandate of the Companies Act,
2013 as laid down below

Section 234 of the Companies Act, 2013

➢ The foreign company must seek prior approval of the RBI, to merge with a company
registered under this Act. Hence, AIA Engineering Ltd. and ABM Industries Inc. must
first seek approval from the RBI.
➢ The provisions of Sections 230-232 must be complied with post approval from the
RBI.

(The details and nuances of these provisions have already been explained above)

Companies (Compromises, Arrangements and Amalgamations) Rules 2016

Post approval from RBI and following the procedure in Section 230 of the Act, these
rules need to be complied with for valuation.

➢ Rule 25A provides that a company may merge with a foreign company after obtaining
prior approval from the RBI and ought to comply with Sections 230-232 of the Com-
panies Act, 2013.
➢ Clause (2) sub clause (a) provides that the transferee company shall ensure that valua-
tion is conducted by the valuers who are members of the recognised professional body
in the jurisdiction of the transferee company and that such valuation is in accordance
with internationally accepted principles of accounting and valuation.

Hence, as per this AIA Engineering Ltd. must ensure that valuation of ABM Industries Inc. is
in compliance with international accepted principles of accounting and valuation.
 Transfer of Securities

Foreign Exchange Management (Cross Border Merger) Regulations, 2018

Following approval form the RBI and valuation, The next step is transfer of securities from
ABM Industries Inc. to AIA Engineering Ltd. which shall be in accordance with the above
rules. Since it is an inbound merger i.e. an Indian company is acquiring a foreign company,
S. 4 of the above rules shall be applicable.

➢ The resultant company may issue or transfer any security and/or a foreign security, as
the case may be, to a person resident outside India in accordance with the pricing
guidelines, entry routes, sectoral caps, attendant conditions and reporting require-
ments for foreign investment as laid down in Foreign Exchange Management (Trans-
fer or Issue of Security by a Person Resident outside India) Regulations, 2017.
➢ Office outside India of the foreign company, post the sanction of the scheme shall be
deemed to be the branch office of the Indian Company.
➢ The resultant company may acquire and hold any asset outside India which an Indian
Company is permitted to acquire under the provisions FEMA Act. (Authorising provi-
sion being S. 6 (4).
➢ The guarantees or borrowings of the foreign company from overseas sources which
become the borrowing of the resultant company shall conform, within a period of two
years, to the External Commercial Borrowing norms or Trade Credit norms or other
foreign borrowing norms, as laid down under Foreign Exchange Management (Bor-
rowing or Lending in Foreign Exchange) Regulations, 2000.
➢ The resultant company may open a bank account in foreign currency in the overseas
jurisdiction for the purpose of putting through transactions incidental to the cross bor-
der merger for a maximum period of two years from the date of sanction of the
Scheme by NCLT.

It is also pertinent to mention that the approval of the Competition Commission of India is
also required as per the Competition Commission of India (Procedure in regard to the transac-
tion of business relating to combinations) Regulations 2011. These rules require mandatory
pre-notification of all acquisitions, mergers and amalgamations that cross jurisdictional
thresholds.

The jurisdictional threshold is:

As a standing as an enterprise, the parties jointly have:

➢ In India, assets valued at more than 20 billion Indian rupees or turnover of more than
60 billion Indian rupees; or

➢ in India or outside India, in aggregate, assets valued at more than US$1 billion with at
least 10 billion Indian rupees in India, or turnover of more than US$3 billion with at
least 30 billion Indian rupees in India;

Hence, post-merger if AIA Engineering Ltd. and ABM Industries Inc. have assets in excess
of this threshold than approval from RBI is necessary.