2014 (5) TMI 1153 - HC - Companies Law

Scheme of Amalgamation - Held that - In view of the approval accorded by the Shareholders and Creditors of the petitioner Company, representations/ reports filed by the Regional Director, Northern Region and the official liquidator, attached with this court to the proposed scheme of Amalgamation, there appears to be no impediment to the grant of sanction to the Scheme of Amalgamation. Consequently sanction is hereby granted to the Scheme of Arrangement under Section 391 and 394 of the Companies Act, 1956. The petitioner companies shall comply with the statutory requirements in accordance with law. Certified copy of the order be filed with the Registrar of Companies within 30 days from receipt of the same.

Issues Involved:
1. Jurisdiction and Compliance with Statutory Requirements
2. Sanction of the Scheme of Amalgamation
3. Objections Raised by the Regional Director
4. Compliance with Section 209 of the Companies Act, 1956
5. Tax Liabilities and Communication with Income Tax Department
6. Interest-Free Loans and Financial Transactions
7. Maintenance of Inventory Records
8. Filing of Petition by Transferee Company

Detailed Analysis:

1. Jurisdiction and Compliance with Statutory Requirements:
The Registered Offices of both Petitioner Companies are situated in New Delhi, within the jurisdiction of this Court. The Petition includes details of respective dates of incorporation, authorized, issued, subscribed, and paid-up capital, and copies of Memorandum and Articles of Association. Resolutions passed by the Board of Directors approving the scheme were also filed. No proceedings under sections 235 to 251 of the Companies Act, 1956, are pending against the Petitioner Companies.

2. Sanction of the Scheme of Amalgamation:
This second motion Petition was filed under Sections 391-394 of the Companies Act, 1956, seeking sanction of the Scheme of Amalgamation. The Transferor Company is a wholly-owned subsidiary of the Transferee Company. The Court had previously dispensed with the requirement of convening meetings of Equity Shareholders, Secured, and Unsecured Creditors. Notices were issued to the Regional Director, Northern Region, the Official Liquidator, and the Secured Creditor, and citations were published in designated newspapers.

3. Objections Raised by the Regional Director:
The Regional Director raised several objections in his affidavit:
- Dissolution Clause: The objection regarding the absence of a dissolution clause was addressed by stating that the High Court can order the dissolution of the Transferor Company without winding up.
- Compliance with Section 2(43) of Companies Act, 2013: The Petitioner Company undertook to comply with the provisions post-amalgamation.
- Maintenance of Inventory Records: The Transferor Company had started maintaining proper inventory records, and a new ERP system was implemented.
- Advance Tax: The Transferor Company clarified that due to exemptions under Section 80IC of the Income Tax Act, 1961, no advance tax was deposited initially. However, MAT was deposited later.
- Interest-Free Loans: The Transferee Company provided interest-free loans to its subsidiaries, which were not prejudicial to the company's interest.

4. Compliance with Section 209 of the Companies Act, 1956:
The Transferor Company had started maintaining proper inventory records, and a certificate from a Chartered Accountant confirmed compliance. The Petitioner Company undertook to seek compounding of any violation of Section 209.

5. Tax Liabilities and Communication with Income Tax Department:
The Transferor Company explained the tax situation and confirmed that the tax due on Book Profits was deposited. The Regional Director confirmed that no comments were received from the Income Tax Department after a letter was sent to the Chief Income Tax Commissioner.

6. Interest-Free Loans and Financial Transactions:
The Transferee Company justified the interest-free loans to its subsidiaries as beneficial for protecting shareholder investments. The loans were not considered prejudicial, and the provisions of Section 372A of the Companies Act, 1956, were deemed inapplicable.

7. Maintenance of Inventory Records:
The Transferee Company had implemented a new ERP system and started maintaining proper inventory records, certified by a Chartered Accountant.

8. Filing of Petition by Transferee Company:
The Transferee Company did not file a separate petition as the Transferor Company is a wholly-owned subsidiary. This practice was supported by precedents from various High Courts.

Conclusion:
In view of the approval by Shareholders and Creditors, and the reports from the Regional Director and Official Liquidator, there appeared to be no impediment to sanctioning the Scheme of Amalgamation. The Court granted the sanction under Sections 391 and 394 of the Companies Act, 1956, transferring all undertakings, properties, rights, and liabilities of the Transferor Company to the Transferee Company without further acts or deeds. The Transferor Company shall stand dissolved without winding up. The order does not exempt payment of stamp duty or taxes and compliance with other legal requirements. The petitioners voluntarily agreed to deposit Rs. 50,000 in the Common Pool Fund of the Official Liquidator. The petition was allowed in these terms.

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