2014 (10) TMI 950 - HC - Companies Law

Scheme of Amalgamation - Held that - All the observations and comments by the Regional Director made in respect of the Scheme in question have been explained and/or met with and/or do not sustain. The necessary report is produced by the official liquidator. Furthermore, from the material on record and perusal of the Scheme, the Scheme appears to be fair and reasonable and is not in violation of any provisions of law and is not contrary to public policy. None of the parties concerned have come forward to oppose the Scheme except as mentioned above. All requisite statutory compliances are fulfilled. This court is accordingly satisfied that the Scheme of Arrangement in the nature of Amalgamation amongst the petitioner companies deserve to be granted. Accordingly, prayer in paragraph-21(A) both in Company Petition Nos. 152 of 2014 and 153 of 2014, as well as prayer in paragraph-17(a) in Company Petition No. 154 of 2014 are hereby granted. It is further ordered that as required under Section 396-A of the Companies Act, 1956, the transferor companies shall not dispose of or destroy its books of accounts and other connected papers without the prior consent of the Central Government and shall preserve the same. All the three petitions are allowed and disposed of accordingly.

Summary

Issues Involved:
1. Absence of enabling clause for amalgamation in the Memorandum of Association.
2. Determination and adequacy of share exchange ratio.
3. Compliance with Accounting Standard-14.
4. Increase in authorized capital of the transferee company.
5. Non-response of the Income Tax Department.
6. Preservation of books and records post-amalgamation.

Issue-wise Detailed Analysis:

1. Absence of enabling clause for amalgamation in the Memorandum of Association:
The Regional Director observed that the Memorandum of Association of the petitioner-transferee company lacked an enabling clause for amalgamation. The petitioner companies argued that there is no legal requirement for such a clause, as the right to amalgamate is conferred by the Companies Act, 1956. The court accepted this argument, referencing several judgments, including those from the Calcutta High Court, which established that the absence of an express power to amalgamate in the Memorandum does not impede the statutory power to sanction a Scheme of Amalgamation under Section 391. The court negated the contention of the Regional Director, affirming that the statutory right to amalgamate is sufficient.

2. Determination and adequacy of share exchange ratio:
The Regional Director questioned the absence of working notes for the share exchange ratio, which was based on a valuation report by Deloitte Touche Tohmatsu India Private Limited. The petitioner companies clarified that all involved entities are private limited companies belonging to the same management group, with no public interest involved. The share exchange ratio was deemed fair and reasonable by a Chartered Accountant and unanimously approved by the shareholders. The court referenced previous judgments, including those from the Supreme Court, affirming that unless the exchange ratio is evidently fraudulent or detrimental, it should not impede the sanction of the Scheme. The court concluded that no further information was required.

3. Compliance with Accounting Standard-14:
The Regional Director raised concerns about Clause 13.3 of the Scheme not aligning with Accounting Standard-14. The petitioners countered that Clause 13.1 of the Scheme confirmed compliance with the Standard, specifically the Pooling of Interest method. They argued that the Scheme could prescribe specific treatments for reserves, as allowed by the Standard and Section 211(3B) of the Companies Act, 1956. The court accepted this explanation, noting that the petitioners had undertaken to disclose any deviations in the first financial statements post-amalgamation, thus addressing the Regional Director's concerns.

4. Increase in authorized capital of the transferee company:
The Regional Director's observation about the increase in authorized capital was addressed by the petitioners, who argued that the transfer of undertaking includes all entitlements, including authorized capital. Clause 15.1(c) of the Scheme provided for necessary procedural compliance if further increases were required. The court found no need for additional directions, as the proposed increase was consistent with legal provisions.

5. Non-response of the Income Tax Department:
The Regional Director noted the lack of response from the Income Tax Department. The court interpreted this as an indication that the Department found no objections to the Scheme. The petitioner companies agreed to comply with all applicable tax provisions, satisfying the court's requirements.

6. Preservation of books and records post-amalgamation:
The official liquidator raised an issue similar to the Regional Director's regarding the absence of an enabling clause for amalgamation in the Memorandum of Association. The court reiterated that the statutory right to amalgamate was sufficient. The official liquidator also confirmed that the affairs of the transferor companies were not conducted prejudicially. The court directed the transferor companies to preserve their books and records for eight years and not to dispose of them without Central Government consent.

Conclusion:
The court found the Scheme of Amalgamation to be fair, reasonable, and compliant with legal provisions. All statutory requirements were fulfilled, and no objections were raised post-publication. The court granted the prayers in the petitions, allowing the amalgamation and directing the petitioner companies to comply with procedural requirements, including filing the order with the Registrar of Companies and preserving records. The petitions were allowed and the Scheme sanctioned.