2017 (5) TMI 1517 - Tri - Insolvency and Bankruptcy

Scheme of amalgamation - Certificate from the Company s Auditor in relation to compliance of the accounting standards prescribed under Section 133 - Held that - In conclusion taking into consideration the provisions of the Companies Act, 2013 this Tribunal, in the absence of the required certificate from the Company s auditor as contemplated under proviso to sub-section (7) of Section 230 as well as proviso to sub-section (3) of Section 232 is not in a position to accord its sanction to the Scheme as proposed amongst the Petitioner Companies and the same is liable to be rejected. However keeping in mind that the Petition and Scheme was filed before the Hon ble High Court of Delhi under the erstwhile provisions of the Companies Act, 1956 and the above joint petition being a transferred matter there from, in the interest of justice, an opportunity is being provided to each of the petitioner companies to obtain the Certificate from the respective company s auditor in terms of proviso to sub-section (7) of Section 230 as well as proviso to sub-section (3) of Section 232 within a period of two weeks from the date of this order failing which the petition shall stand rejected. List the matter on 22.5.2017 if compliance is reported.

Issues Involved:
1. Approval of the Composite Scheme of Arrangement.
2. Compliance with the procedural requirements for meetings and notices.
3. Compliance with Accounting Standards as per Companies Act, 2013.
4. Observations and objections raised by the Regional Director and Official Liquidator.
5. Requirement of Auditor's Certificate under Section 230(7) and Section 232(3) of the Companies Act, 2013.

Issue-wise Detailed Analysis:

1. Approval of the Composite Scheme of Arrangement:
The joint petition filed by the companies sought approval for a Composite Scheme of Arrangement involving the demerger of the transferred undertakings of the Petitioner/Amalgamated/Transferor Company to the Transferee Company. The Scheme also proposed the merger of the transferred undertakings of the Petitioner/Amalgamating Company with the Petitioner/Amalgamated/Transferor Company, leading to the dissolution of the Amalgamating Company without winding up upon sanction of the Scheme.

2. Compliance with Procedural Requirements for Meetings and Notices:
Initially, the application for dispensation of meetings of equity shareholders, secured, and unsecured creditors was filed before the Hon'ble High Court of Delhi. The High Court dispensed with the need for convening meetings of equity shareholders due to their consent. Meetings for secured and unsecured creditors were convened as ordered, and notices were issued as required. The petitioners complied with the publication requirements in "Times of India" and "Veer Arjun" and uploaded the notice of hearing on relevant websites.

3. Compliance with Accounting Standards as per Companies Act, 2013:
The Regional Director (Northern Region) raised an observation regarding compliance with Accounting Standard 14 (AS-14) during the implementation of the Scheme. The Petitioner Company undertook to ensure compliance with AS-14, as applicable, during the Scheme's implementation. The Tribunal emphasized that the Scheme's accounting treatment must conform to the accounting standards prescribed under Section 133 of the Companies Act, 2013.

4. Observations and Objections Raised by the Regional Director and Official Liquidator:
The Official Liquidator reported no complaints against the proposed Scheme and stated that the affairs of the Petitioner Companies were not conducted prejudicially to the interest of members, creditors, or public interest. The Regional Director's affidavit noted no objection to the Scheme but highlighted a delay in repayment of dues by the Petitioner/Transferor Company during the financial year 2014-15, which was subsequently regularized. The Tribunal considered the petitioners' explanation and disposed of the observation.

5. Requirement of Auditor's Certificate under Section 230(7) and Section 232(3) of the Companies Act, 2013:
The Tribunal noted the absence of the required auditor's certificate confirming that the accounting treatment proposed in the Scheme is in conformity with the accounting standards prescribed under Section 133. The Tribunal emphasized that the certificate is mandatory for sanctioning the Scheme. In the absence of such a certificate, the Tribunal could not approve the Scheme. However, considering the petition was filed under the erstwhile provisions of the Companies Act, 1956, the Tribunal provided the petitioners an opportunity to submit the required auditor's certificate within two weeks, failing which the petition would be rejected.

Conclusion:
The Tribunal could not sanction the Scheme due to the absence of the mandatory auditor's certificate as required under the Companies Act, 2013. The petitioners were given a two-week period to obtain and submit the certificate, failing which the petition would stand rejected. The matter was listed for compliance on 22.05.2017.

← Previous Next →