NCLT Sanctions Capiot Software Merger with Persistent Systems, Clarifies Regulatory Actions Undeterred - 2025-03-12

Laws, Courts & Judgments.

NCLT Approves Capiot Software- Persistent Systems Merger, Upholds Regulatory Oversight

Mumbai: The National Company Law Tribunal (NCLT), Mumbai Bench, comprising Hon'ble Members Shri Sushil Mahadeorao Kochey (Judicial) and Shri Charanjeet Singh Gulati (Technical), has sanctioned the Scheme of Merger by Absorption of Capiot Software Private Limited (Transferor Company) with Persistent Systems Limited (Transferee Company). The order, dated April 9, 2025, paves the way for the integration of the wholly-owned subsidiary into its parent company, aiming for a simplified corporate structure and operational synergies.

The Scheme was filed under Sections 230 to 232 of the Companies Act, 2013, seeking the Tribunal's approval for the merger. Both companies are registered in Pune, falling under the jurisdiction of the NCLT Mumbai Bench. The Appointed Date for the merger is set as April 1, 2024.

Rationale and Process

Persistent Systems , engaged in software design, development, and related services, sought to merge Capiot Software, which operates in similar domains, to streamline operations, reduce duplicate procedures, and achieve economies of scale. The boards of both companies unanimously approved the scheme on January 20, 2024.

Given that Capiot is a wholly-owned subsidiary of Persistent Systems , the NCLT had previously dispensed with the requirements for convening meetings of equity shareholders and creditors based on obtained consents and the nature of the arrangement not compromising creditors' rights under Section 230(1)(a).

Regulatory Observations and Undertakings

The Regional Director (Western Region) and the Official Liquidator filed their respective reports, raising several observations. The Petitioner Companies addressed these through affidavits and undertakings.

Key observations from the Regional Director included compliance with accounting standards (AS-14/IND AS-103, AS-5/IND AS-8), validity of the Appointed Date as per Section 232(6), set-off of stamp duty and fees, compliance with Income Tax provisions (Section 2(1B)), confirmation of scheme consistency, service of notices to relevant authorities under Section 230(5), and compliance with SEBI LODR regulations regarding stock exchange intimation. The Petitioner Companies provided satisfactory undertakings or confirmations on these points, including clarifying that there were no applicable sectoral regulators or outstanding loan facilities despite charges being created.

The Official Liquidator's report noted that Capiot had no revenue from operations in the financial year ending March 31, 2023, but was considered a Going Concern based on management evaluation of business opportunities. An observation was also made regarding significant bad debts/advances written off by Capiot in FY 2020-21 and FY 2021-22, exceeding 1% of turnover, and the lack of legal steps taken for recovery. Capiot clarified that these amounts were receivable from Cox & Kings Limited, against which it had initiated recovery attempts and submitted a claim under IBC proceedings, but had to write off the dues following Cox & Kings' liquidation order. These clarifications and undertakings were accepted by the Tribunal.

Focus on Regulatory Compliance Post-Merger

A significant point of discussion arose regarding a four-day delay in the Transferor Company's AGM for FY 2023-24, which the Regional Director's representative argued was a criminal proceeding that should be handled against the Transferor Company. The Petitioners submitted that the delay was inadvertent and the Transferee Company would file a compounding application.

The Tribunal addressed this by clarifying that the sanctioning of the scheme does not dilute or prevent regulatory authorities, including the Regional Director and Registrar of Companies (ROC), from taking action, proceedings, prosecution, investigation, or any regulatory action against the Petitioner Companies or their directors for past violations or offences committed by the Transferor Company. The Transferee Company has undertaken that all such proceedings will continue in its name. The NCLT referenced a Bombay High Court judgment (Company Petition No. 351 of 2008) which similarly held that sanctioning a scheme does not dilute proposed penal actions.

The Final Decision

The NCLT found the Scheme to be fair, reasonable, not violative of any law, and not contrary to public policy. It noted that there were no inquiries, investigations, proceedings, or winding-up/IBC petitions pending against the companies.

The Scheme was sanctioned with specific directions, including:

* Dissolution of Capiot Software Private Limited without winding up.

* Transfer and vesting of all assets, properties, rights, liabilities, duties, and powers of Capiot to Persistent Systems as a going concern.

* Transfer of all employees of Capiot to Persistent Systems on terms no less favourable.

* Continuation of any pending proceedings by or against Capiot by or against Persistent Systems .

* The Petitioner Companies are bound by the undertakings given to the Regional Director and Official Liquidator.

* Sanction does not grant exemption from payment of stamp duty, taxes, or other charges, or compliance with other laws.

* The Income Tax Department and other regulatory authorities are at liberty to examine any issues arising from the scheme and take necessary action, which shall be binding on the Transferee Company.

* The ROC and Regional Director are entitled to proceed against the Transferee Company and concerned persons for violations/offences committed by the Transferor Company.

The Petitioner Companies were directed to file certified copies of the order and scheme with the concerned ROC and Superintendent of Stamps within the stipulated timelines.

The Company Petition C.P. (CAA) / 239 (MB) / 2024 was accordingly allowed and disposed of.